Motion Picture Daily (Jul-Sep 1935)

Friday, July 12, 1935 MOTION PICTURE DAILY 3 Cook Will Await Court's Orders Upon Para. Fees DeniesLehman Seeks Merger Of Para.-RKO {Continued from page 1) group, which has three directors on the new Paramount board in addition to Hertz. Denial also was made by Hertz, former chairman of the Paramount finance committee, that the Lehman firm is RKO's banker, or even considered such, or that Lehmans, together with the Atlas Corp. and Hallgarten & Co., which own 75 per cent of the new $6,400,000 issue of Paramount second preferred stock, can be regarded as "Paramount's new bankers." Mazur and Lehman, Hertz said, are inactive as members of the RKO board, "because the company is in the hands of receivers, has been for several years, and is likely to be for several more years." In reply to a question put to him by Samuel C. Clark, Jr., special attorney for SEC, Hertz said that he regarded RKO as "only a smaller competitor of Paramount's at the most." Procedure in Offering Issue Testimony given at the hearing by Hertz and Edwin L. Weisl, of counsel for the Fortington group, disclosed that a definite program was followed in offering Paramount's new $6,400,000 issue of second preferred in order to prevent the issue from being offered publicly. The issue was underwritten by the Atlas Corp. and offered by the underwriter to members of the Fortington group with "a gentleman's agreement" among the subscribers that it would not be re-offered to the public. This was done, according to Weisl, because Atlas did not want to be identified with a public stock offering. The agreement implied, he said, that those to whom the stock was offered would retain it as a perment investment and, while no specific period of retention was designated in the agreement, he said he felt that any sale of the stock for immediate profit would constitute a breach of the agreement. Holders, however, would not be restrained from selling in a drastically declining market. The agreement in connection with the offering of the stock appears to have some significance in that a car Objections to any of the applications for fees for services in the Paramount bankruptcy and reorganization will be made by Alfred Cook, of counsel for Paramount, only in the event he is directed to do so by the company, Cook told the resumed hearings of the Securities and Exchange Commission here. The applications aggregate $3,222,000 and will be heard by Federal Judge Alfred C. Coxe on July 18. Cook asked to be excused from venturing an opinion as to whether any of the fees sought were "excessive," declaring that it was a matter which had not been passed upon by the court. He said, however, that he "would have an answer" if his opinion was sought by the court on July 18. Cook's firm has an application in for $250,000, which he called a "very modest and reasonable sum." His firm was employed both as counsel for Paramount and for the stockholders' protective committee. dinal point in the platform of the Fortington group, reiterated by its representatives inside and outside of court, has been that the owners of the company should control its management. The agreement, if maintained by the holders of the stock, would appear to continue members of the Fortington group as "owners" of Paramount and permanent factors in its management. Atlas retained 25 per cent of the offering and made 25 per cent available to Hallgarten & Co. and another 25 per cent to Lehman Bros, and its affiliate, Lehman Corp. GoldmanSachs was offered five per cent ; Frederick H. Cassatt & Co., of Philadelphia, five per cent; White, Weldon & Co., two and one-half per cent, and the balance in smaller amounts to other firms. Atlas received a commission of one per cent, or approximately $64,000, for its underwriting, the costs of which would approximate $10,000, Weisl said. Asked by SEC counsel whether he did not regard it as "unusual" for an underwriting firm to retain such a large amount of the issue it had undertaken to market, Weisl replied in the negative. "No New Bankers," Says Hertz "But the usual practice for an underwriter is to dispose of the entire issue, isn't it?" counsel commented. Hertz was asked who Paramount's new bankers were, and replied that the company "has no new bankers." In reply to another question, he stated that he did not believe that the 75 per cent ownership of the new second preferred made Lehmans, Atlas and Hallgarten the "new Paramount bankers." "Speaking for Lehmans," he said, "I know that firm has no thought of it." It was also disclosed that on about May 10 Atlas had purchased 5,000 shares of new Paramount first preferred, of $60 par, on a when, as and if issued basis, at prices ranging between $50 and $60 per share. This stock is now quoted as $79 per share. Hertz testified that he was asked by Weisl if he, Hertz, cared to participate in this issue and had replied Questioned by SEC counsel as to whether or not he owned or dealt in Paramount securities during the reorganization, Cook replied that he did not and as senior partner of the firm of Cook, Nathan & Lehman "would discharge any partner of his who had." Louis M. Loeb, partner in Cook's firm, was interrogated on the formation and activities of the committee. He admitted that the de-listing of stock of bankrupt corporations resulted in increased deposits by stockholders with protective committees, due to the fact that the certificates of deposit may be traded when the stock cannot. Retention of protective committees under 77-B was urged upon the SEC examiner by Cook, who said that without them there would be 100 lawyers representing small interests and taking up endless time in court instead of one counsel representing a large consolidated interest. that he "would take all he could get." Hertz was then granted a one-third participation in the 5,000 shares held by Atlas. He said that while he thought that "a very nice favor had been conferred on him by Atlas," he felt in no way obligated as a result. "It was a friendly gesture," he said. "We had worked together for months and grown to like each other." Hertz was queried repeatedly by counsel for SEC on the ethics and propriety of his past and present position in the Paramount picture in the light of his present affiliation with the Fortington group, whose platform of corporate behavior and good manners for Paramount officialdom has been used by the group during the past six months in taking the measurement of more than one aspirant for a place in the new Paramount, and found them wanting. Holds Stock Buying Not Wrong The dalliance of former Paramount officers and directors with the company's securities has raised the collective eyebrows of the Fortington group. Asked yesterday whether he saw any impropriety in his or Lehman Bros.' buying of new Paramount securities at a time when he, Hertz, was a designated director of the new company, Hertz replied in the negative. Again, asked whether he knew if it was not an objective of the Fortington group to eliminate investment bankers from new Paramount financing, Hertz replied that he "never understood so." At another point, his attention was called to a letter introduced at the SEC-Paramount hearings in Washington recently, which was written by Fortington to Lansing P. Reed, of counsel for the Vanderlip debenture holders' committee and which cited a number of acts of mismanagement attributed to the former directors and officers of the company. One of these cited the Film Productions Corp. transaction, under which negatives were pledged as collateral to creditor banks. Hertz, as a director at the time of the transaction, voted for this proposal, it was brought out yesterday. The Fortington letter referred to the suits brought by the trustees in bankruptcy against former Paramount officers and directors to recover for amounts expended on the repurchase of the company's stock and for bonuses and salaries of alleged unreasonable amounts. Hertz is a defendant in both actions. The Fortington letter declares that if even a slight recovery could be had on these suits it would not be necessary for the new company to obtain any other new cash. Hertz said he saw nothing inconsistent in his position, which, as a defendant, inclines him to hope that the suits cannot be won and, as a director, obligates him to aid in increasing the assets of the company. The recovery of several millions of dollars for Paramount is involved in the actions. Hertz explained that the trustees, not the directors, retain the causes of action in these suits, and that, therefore, the new board will have nothing to do with them. He added that he would be willing to pay damages to the company if a fair trial proved himself to be liable. On the subject of the Fortington contention that "owners" of the company should control, Hertz, whose present holdings in Paramount securities date only from January, 1935, was asked if he understood this to apply "only to new owners or to the old ones, as well." Admitting that his holdings were of recent origin, Hertz said : "At least, I do own them. I can name several Paramount directors who probably don't own any." Believed Para. Affairs "Chaotic" Queried on his reintroduction to Paramount affairs, Hertz related that he had shied away from the situation all of last year because he believed the company's condition to be "chaotic," and referred to the Ralph Kohn and Emanuel Cohen resignations to explain his viewpoint. At the latter part of the year, he said, Frank B. Altschul, head of Lazard Freres, informed him that a reorganization was impending and asked him to join a creditor group then forming. Altschul introduced Hertz to Fortington, and he joined the latter's group on learning it was "the largest" owner of Paramount securities and that his ideas coincided with Fortington on reorganization procedure. He was also influenced, Hertz said, by his desire to "justify" his 15 months of "hard work" in Para (Continued on page 8) The Camel's Back "I had been pushing him (Zukor) around. I'd cut his son's salary from $50,000 to $25,000 and vetoed one of his (the son's) lump expense accounts. I refused for a month to okay a $1,000 phone bill of Zukor's which was for night calls to the studio, made from Zukor's home, when I learned that he was in the habit of calling up the studio manager and chatting with him for hours whenever he felt lonesome. That led to one of our most serious quarrels. I issued instructions that no more phone calls were to be made to the studio from his hotel." — John D. Hertz testifying on the Paramount reorganization before the SEC. Hertz's Way Asked by counsel for the SEC examining the reorganization of , Paramount!, how he had succeeded in reducing theatre leases, John D. Hertz, former chairman of the finance committee, had this method to narrate: "We played it catch-ascatch-can, mostly. One way that usually brought results was to threaten to close the theatre unless the rent was reduced. Most theatre buildings are occupied by stores, too, and if the theatre closed the stores would have to close, too, and it would result in a complete loss of income for the landlord."