Mr. PECORA. Well, the purpose of the issue, according to the statement in the application, was to purchase certain assets.

Mr. BROWN. Yes, sir.

Mr. PECORA. That is, to enable your corporation, the American Commercial Alcohol Corporation, to purchase assets?

Mr. BROWN. That is correct.

Mr. PECORA. I notice that the assets are not in any way designated or referred to except in the manner in which I have read it in this application. Now, Mr. Brown, what were the assets to be purchased through the medium of this proposed additional issue of 25,000 shares?

Mr. BROWN. We had two transactions in mind at that time.

One

of them was the acquisition of a distillery at Louisville, Ky.; and the other one was the Spirits Corporation, which was organized and acquired, or was organized to acquire and did acquire the Sid Klein Corporation.

Mr. PECORA. Did you say the Sid Klein Corporation?

Mr. BROWN. Yes, sir.

Mr. PECORA. Now, was there a Sid Klein Corporation in existence on the date of this application, namely, July 19, 1933?

Mr. BROWN. I haven't the date here of the organization of the Sid Klein Corporation.

Mr. PECORA. I did not hear you.

Mr. BROWN. I say, I haven't here with my data the date of the organization of the Sid Klein Corporation.

Mr. PECORA. Well, was the Spirits Corporation that you have mentioned in existence on the 19th of July 1933?

Mr. BROWN. NO. That was organized on July 29, 1933, and by charter amendment the name was changed to the American Distilling Co. on August 11, 1933.

Mr. PECORA. Who caused the Spirits Corporation to be organized? Mr. BROWN. We did.

Mr. PECORA. That is, you mean the American Commercial Alcohol Corporation?

Mr. BROWN. Yes, sir.

Mr. PECORA. And was the Sid Klein Corporation eventually organized, either prior to or subsequent to July 19, 1953?

Mr. BROWN. Yes, sir.

Mr. PECORA. And who caused that corporation to be organized? Mr. BROWN. Mr. Sid Klein.

Mr. PECORA. Was Mr. Sid Klein in any way connected at the time with the American Commercial Alcohol Corporation?

Mr. BROWN. No, sir.

Mr. PECORA. I want to read to you the following extracts from the minute book of the board of directors of the American Commercial Alcohol Corporation, which minute book has been marked for identification as "Committee Exhibit No. 14 on February 13, 1934." I will read from the minutes of the board of directors of a meeting held on July 27, 1933.

There were present at the meetings: Messrs. Atkins, Atwood, Chadbourne, Colby, Foster, Grimm, Kessler, Kies, Page, Paine, Publicker, and Runk, being a majority and a quorum of the board.

The chairman, Mr. Brown, presided, and Mr. Page acted as secretary of the meeting.

Now I quote from the minutes:

The chairman explained in brief to the Board the negotiations pending in connection with which the Executive Committee had tentatively authorized the issuance of up to 25,000 shares of the Corporation's common stock, as stated in the mintues of the committee, and as to which a listing application had been made to the New York Stock Exchange, and approved it.

On motion duly made, seconded, and unanimously passed, it was resolved: That the action of the Executive Committee, as stated in the minutes of its meeting held July 19, 1933, authorizing the issuance of 25,000 shares of the Corporation's common stock, of the par value of $20 per share, and the application for listing thereof on the New York Stock Exchange, be and the same hereby is ratified and approved.

Resolved that application for registering the proposed issue of 25,000 shares of the Corporation's common stock, of the par value of $20 per share, under the Securities Act, be made; and that the proper officers of the Corporation be and they hereby are authorized to do whatever may be necessary or proper, under the advice of counsel, to obtain such registration and authority for the issuance of said stock.

Now, that portion of the minutes which I have just read to you, Mr. Brown, relates to the listing applications which has been marked in evidence here this morning as Committee Exhibit No. 62, does it not?

Mr. BROWN. Yes, sir.

Mr. PECORA. So that at the meeting of the board of directors of your corporation held on July 27 last, apparently you reported to the board that arrangements had been completed for the issuance of this block of additional shares, and that application for the listing of such additional shares had been already made to the New York Stock Exchange, isn't that so?

Mr. BROWN. Well, that is the way that reads, but I do not quite understand it, Mr. Pecora.

Mr. PECORA. What was that answer? I could not hear you.

Mr. BROWN. I do not quite follow that which you have read. If you will hand me the minute book for a minute I will see.

Mr. PECORA. All right. Here it is.

Mr. BROWN (after looking at the minute book). What is the question now?

Mr. PECORA. The committee reporter will read it to you.

(Thereupon the committee reporter read the following question :) Mr. PECORA. So at the meeting of the board of directors of your corporation held on July 27, last, apparently you reported to the board that arrangements had been completed for the issuance of this block of additional shares, and that application for the listing of such additional shares had been already made to the New York Stock Exchange, isn't that so?

Mr. BROWN. I do not so interpret that. As I read that, I explained to the board the progress of the negotiations in connection with the Sid Klein situation, and the distillery matter, because the deals, I believe, had not been concluded at that time.

Mr. PECORA. What do you mean by the Sid Klein situation? Mr. BROWN. The Sid Klein Corporation, which was being acquired through the Spirits Corporation.

Mr. PECORA. The Sid Klein Corporation was being acquired through the Spirits Corporation?

Mr. BROWN. Yes, sir.

Mr. PECORA. The Sid Klein Corporation had not yet been formed, as I understand.

Mr. BROWN. I have no date of organization, but it was all at about that time. Yes; I have it here. It was incorporated on August 3, 1933, as the Sid Klein Corporation.

Mr. PECORA. When was the Spirits Corporation formed?

Mr. BROWN. On July 29, 1933.

Mr. PECORA. Now, was the name of the Spirits Corporation thereafter changed to some other corporate name?

Mr. BROWN. Yes. It was changed to American Distilling Co., on August 11, 1933.

Mr. PECORA. And is it today known as the American Distilling Co.?

Mr. BROWN. Yes, sir.

Mr. PECORA. Now, Mr. Brown, at the same meeting of the board of directors of your corporation, held on July 27 last, the following action was taken or proceedings were had as appear from the minutes of that meeting, extracts of which I will read to you from your minute book:

The chairman thereupon reported to the board that tentative arrangements had been made with Mr. Sid Klein for the organization of a corporation to carry on the business of selling whisky and other spirituous liquors on a commission or brokerage basis whenever it could lawfully be done, but stated that the plan, as discussed, contemplated this company furnishing some $200,000 in capital in exchange for which it would receive preferred stock and 10 percent of the authorized common stock of the proposed corporation.

After discussion, on motion by Mr. Kies, seconded by Mr. Grimm, and unanimously passed, it was resolved: That the board approve in principle the participation of this corporation in the proposed business of Mr. Klein, and referred the matter to the executive committee to work out the details thereof and report back its recommendations with respect thereto for the approval of the board.

Do you recall that action having been taken?

Mr. BROWN. Yes, sir. That transaction was afterwards changed. I think it was changed in the executive committee, and that we now have $200,000 of the preferred stock, which is all of the preferred stock outstanding, and that we have 50 percent of the original common stock.

Mr. PECORA. That is, of the Sid Klein Corporation?

Mr. BROWN. Yes, sir. And that corporation, of course, is functioning today.

Mr. PECORA. Now, Mr. Brown, at the meeting of the board of directors of your company held on August 8, 1933, it appears from the minutes of that meeting, portions of which I will read to you from your minute book, that the following proceedings were had and action taken:

Present at the meeting: Messrs. Atkins, Chadbourne, Colby, Foster, Kessler, Grimm, Pond, Page, and Publicker, being a majority and a quorum of the board.

The chairman, Mr. Brown, presided, and Mr. Page acted as secretary of the meeting.

The chairman stated that Mr. Sid Klein had caused to be organized under the laws of the State of Maryland, the Sid Klein Corporation, with an authorized capital consisting of 5,000 shares of 7 percent noncumulative nonvoting

preferred stock of the par value of $100 per share, and 5,000 shares of common voting stock of the par value of $1 per share, and had contracted with that corporation for the issuance to him of all the common stock thereof.

That Mr. Klein had also caused to be organized the Spirits Corporation, under the laws of Maryland, with a total authorized capital issue of 10,000 shares of no par common stock; that the Spirits Corporation had made and contracted with Mr. Klein for the purchase of 2,000 shares of the preferred stock of the Sid Klein Corporation for $200,000, payable on delivery of said preferred stock, and had made an agreement with Mr. Klein whereby Mr. Klein would transfer to it 2,500 shares of the Klein Company common stock. The chairman also reported that the Spirits Corporation had issued of its authorized stock 10,000 shares to Mr. Knox B. Phagan for the consideration received by that corporation to Mr. Knox B. Phagan, being valued by the Spirits Corporation's Board of Directors at $465,000.

The chairman also stated that Mr. Klein had also agreed with the Spirits Corporation to cause the Sid Klein Corporation to pay dividends on the preferred stock, when and as earned; and furthermore when the Sid Klein Corporation had accumulated a net earned surplus of $50,000, after payment of dividends on the preferred stock, to cause the Sid Klein Corporation to retire the said preferred stock at such time or times, and in such amounts, and upon such conditions as may be determined by a majority of the committee, one member of which would be named by the Sid Klein Corporation and two members by the Spirits Corporation.

There was then presented to the meeting a proposal signed by Mr. Knox B. Phagan, dated August 8, 1933, whereby the said Knox B. Phagan offered to exchange 10,000 shares of the no par common stock of the Spirits Corporation for 10,000 shares of the $20 par value common stock of the American Commercial Alcohol Corporation. A copy of said proposal, marked Exhibit A, was ordered attached to and made a part of these minutes.

After discussion, on motion duly made, seconded, and unanimously passed by the affirmative vote of all the directors present, it was resolved: That this Corporation hereby approves and accepts the proposal of Mr. Knok B. Phagan, as set forth in his letter dated August 8, 1933, addressed to this Corporation by him and submitted to this meeting as aforesaid; and that the officers of this Corporation be and they are hereby empowered, authorized and directed to execute formal exchanges of such proposal as provided herein, in the name and on behalf of this Corporation, with the corporate seal affixed, and to deliver a duplicate original so executed to Mr. Knox B. Phagan.

On motion duly made, seconded, and unanimously passed by the affirmative vote of all of the directors present, it was resolved: That this Company acquire from Mr. Knox B. Phagan 10,000 shares of the no par common stock of the Spirits Corporation, a Maryland corporation, in consideration of the delivery by this company to Mr. Knox B. Phagan of 10,000 shares of the common stock of the par value of $20 per share of this Company.

Further resolved that upon the assignment and transfer to this company by Mr. Knox B. Phagan of said 10,000 shares of the no par stock of the Spirits Corporation, the proper officials of this Company be and they are hereby authorized, either

(a) To issue, execute and deliver to or upon the order of Mr. Phagan, a certificate or certificates representing 10,000 shares of the common stock of a par value of $20 per share, of this Company, or

(b) To borrow from such source and on such terms as said officers of this Corporation, under the advice of counsel, may deem proper, 10,000 shares of the $20 per share par value of the stock of this Company, and to assign and transfer said 10,000 shares of said common stock, when so borrowed, to or upon the order of Mr. Phagan; and thereafter at such times as said officers may be advised by counsel is advisable, to execute and deliver 10,000 shares of the common stock of the par value of $20 per share of this company, to or upon the order of the firm, person, or corporation from whom or which the said stock shall be so borrowed.

Further resolved, that in the judgment of the directors of this Company the actual value of said 10,000 shares of the common no par stock of the Spirits Corporation is not less than $465,000.

Now, Mr. Brown, there are other portions of the resolution which follow but which it is unnecessary to read at this time. However,

I want to ask you this question: Who were the officers and directors of the Sid Klein Corporation at the time this matter was presented to the board of directors of your corporation, on August 8, 1933? Mr. BROWN. Sid Klein was president; Rose C. Markey was secretary.

Mr. PECORA. What was that last?

Mr. BROWN. Rose C. Markey was secretary. The directors were: Sid Klein, William A. Bandler, Jesse E. Priest, and Strawbridge Foster.

Mr. PECORA. Who were the officers and directors of the Spirits Corporation at the same time?

Mr. BROWN. I will have to get that for you.

Mr. PECORA. According to what purports to be the minute book of the Spirits Corporation, the board of directors of that corporation on August 7, 1933, were Messrs. Capdevielle, Beebe, and Brown. Who was the latter?

Mr. BROWN. Well, that is not I. It was T. F. Brown.

Mr. PECORA. What Brown is that?

Mr. BROWN. I say, he is not a relative of mine. He was the cashier of the American Commercial Alcohol Corporation.

Mr. PECORA. Well, was he the nominee of the American Commercial Alcohol Corporation?

Mr. BROWN. No, sir.

Mr. PECORA. Who is Mr. Beebe?

Mr. BROWN. He is the auditor of the American Commercial Alcohol Corporation.

Mr. PECORA. What did you say he was?

Mr. BROWN. The auditor of the American Commercial Alcohol Corporation.

Mr. PECORA. And Capdevielle is this molasses broker who, according to your testimony given last week, was your dummy in connection with the organization of Noxon, Inc.?

Mr. BROWN. Yes, sir.

Mr. PECORA. Was he also your dummy in this transaction?

Mr. BROWN. No, sir.

Mr. PECORA. For whom did Mr. Capdevielle act?

Mr. BROWN. He acted for Phagan.

Mr. PECORA. For Knox B. Phagan?

Mr. BROWN. Yes, sir.

Mr. PECORA. Well, Phagan was your dummy according to your testimony of last week in the proceedings attendant upon the organization of Maister Laboratories, Inc.

Mr. BROWN. That is correct. And I asked him to follow this one out, too.

Mr. PECORA. Was Phagan, whose interest in this transaction appears from the extract I have read to you from the minutes of the meeting of your board of directors held on August 8, 1933, also your dummy in connection with the Spirits Corporation? Mr. BROWN. I asked him to do it.

Mr. PECORA. Now, do you know what assets the Spirits Corporation had on the 8th of August 1933, when, according to the minutes of the meeting of your board of directors held on that date, your board expressed its judgment that the actual value of the 10,000