United agrees to lend to National the entire cost of purchase by National of each of the three tankers, estimated to be approximately $2,000,000 per tanker. The cost of purchase is understood to include all expenses which necessarily will be incurred in the acquisition of each tanker and also in the conditioning, outfitting, and furnishing of each tanker, but shall not include any commissions or attorneys' fees payable by National or any expenses of any kind incurred by National prior to the date hereof. Of the amount to be advanced to National by United, $202,650 will be advanced with respect to each tanker simultaneously with the execution of the contract of sale of such tanker and the remainder of the cost of purchase of each tanker will be advanced as required by the Maritime Commission.. 3. All advances made by United to National shall be evidenced by notes or bonds of National payable to United or its assigns and to be secured by a preferred ship mortgage or mortgages on the tanker with respect to which the advance or advances are made. * ** * 4. National agrees to charter each tanker for a term of 10 years under a bareboat charter to United in usual form at the rate of $1.20 per deadweight ton per month. * * * * National agrees that, without the written consent of United, it will not during the period from the date of this agreement until the expiration of the period of the bare-boat charter or charters and until all moneys due United under this agreement have been paid. (a) Engage in any business whatsoever other than that of chartering the tankers to United. * * (b) Voluntarily create, incur, assume, or suffer to exist any mortgage, pledge, or other encumbrances upon any of its properties or assets. other than its indebtedness to United. (c) Voluntarily create, incur, or assume any liability for borrowed money except to United. * * Issue or sell additional shares of stock, declare any dividends, or make any payments of any kind. Or use any of the funds of National for the purpose of paying compensation, or enter into contracts of any kind. This is all "without the approval of United." Sixth: National agrees that, during the period from the date of this agreement until the expiration of the period of the bareboat charter or charters the assistant treasurer of National shall be a person satisfactory to United and all checks drawn by National shall bear the countersignature of such assistant treasurer * * United represents that it is a corporation duly organized under the laws of the State of Delaware, that its president and directors are United States citizens, that the holders of the majority of its stock are United States citizens, and that this representation will continue to be true and correct during the life of this contract. Finally, on the same date, Mr. Klein and Mr. Casey Mr. FLANAGAN. What date would that be? Mr. LEECE. On January 24, 1948. Mr. Klein and Mr. Casey, acting for National Tanker Corp. and Mr. Lenfest, acting as president of United, entered into the following agreement: In consideration of your execution of the attached agreementwhich is the agreement to which I have just referred— simultaneously with the execution of this agreement, the undersignedthat is, Klein and Casey on the one hand and Lenfest on the otherhereby grant to United an irrevocable option to purchase all of the stock of National at any time after September 15, 1948, but not later than October 15, 1948, for a price equal to $150,000 multiplied by the number of tankers acquired by National pursuant to the provisions of the attached agreement. So that I think you could say that the essence of this agreement is this: That United Tanker Corp. agreed to finance the three tankers. In return, they got from National a 10-year charter on the three vessels, plus an agreement to pay them $150,000 for their stock, multiplied by the number of tankers acquired, which aggregates that original $450,000 figure I spoke of. Senator MCCLELLAN. Just one other thing in that connection. United took over absolute control under that agreement, complete management, direction, together with an option to buy its stock? Mr. LEECE. That is correct. Senator MCCLELLAN. I mean of National. United took over complete control of National's management, its operation, and also an option to buy the stock at that price? Mr. LEECE. It would appear so. Senator MCCLELLAN. Well, that is the substance of the agreement? Mr. LEECE. Yes. Mr. FLANAGAN. We ought to place that agreement in the record. Senator HOEY. We will mark that exhibit 12. (The agreement referred to was marked "Exhibit 12," and will be found in the appendix on p. 672.) Mr. FLANAGAN. And also the option agreement should be placed in the record. Or is it all in one? Mr. LEECE. That is attached. Senator HOEY. We will combine them as exhibit 11. Mr. LEECE. Now, in view of this agreement of January 24, 1948, it might be well to say something about the United Tanker Corp. Senator NIXON. About which corporation? Mr. LEECE. United Tanker Corp. As the chart indicates, this corporation was organized on the 10th of December 1947, in Delaware. The original officers were, as indicated, Lenfest, president, and Sieling, vice president. Both of those gentlemen are United States citizens. Mr. Chung-ching Wei, the secretary and treasurer, is a Chinese national. At the same time, it might be well to go into the original stockholdings in this United Tanker Corp. At the time it was organized, on the 10th of December 1947, provision was made for two classes of stock, identified as class A and class B stock. Ten shares of class A were originally issued. They were issued at a cost of $2,000 to the China Trading & Industrial Development Corp., which is a Chinese corporation. At the same time, five shares each were issued to Mr. Lenfest, Mr. Sieling, and Mr. Tode, for 20 cents a share, or a total investment of a dollar apiece. Now, under the bylaws that meant that in December of 1947, there were outstanding 15 shares of class B stock and 10 shares of class A stock. Under the bylaws of the corporation, each holder of class A and class B stock has one vote. Mr. FLANAGAN. Our chart is wrong, here, is it not, then? Mr. LEECE. That relates, Mr. Flanagan, to the period January 24, 1948, as of the time of this agreement with National. I will get to that in a minute. Mr. FLANAGAN. At the time of organization, then? Mr. LEECE. At the time of organization, there was 15 shares of B stock held by citizens, for which they had paid $3. Mr. FLANAGAN. A total of $3? Mr. LEECE. A total of $3. And 10 shares of class A stock, for which China Trading & Industrial Development Corp. paid $2,000. Mr. FLANAGAN. And that is a Chinese corporation? Mr. LEECE. That is a Chinese corporation. And each share of stock, A and B, is entitled to one vote. Senator MUNDT. Out of $2,003 invested, $2,000 was held by Chinese nationals, and $3 invested by Americans? Mr. LEECE. By Americans, who were the citizens. Now, on January 19, 5 days before this agreement with the National Tanker Corp., Mr. Lenfest, Mr. Sieling, and Mr. Tode took an additional five shares each in the B stock and contributed another dollar apiece. Mr. FLANAGAN. Which, then, came to 30 shares. Mr. LEECE. Thirty shares of the B stock, 10 shares of the A stock, and as of this time, as of the time of the agreement with National of the 24th of January, there was outstanding 40 shares of stock in the corporation, 10 being the class A stock held by the Chinese corporation, 30 shares held by the three Americans; a total investment of $2,006, $2,000 of which was contributed by the Chinese corporation. Mr. FLANAGAN. And $6 by American citizens? Mr. LEECE. That is correct. Senator NIXON. What about the voting rights in these two types of stock? Mr. LEECE. At that time, Senator, each share of stock, of whatever class, was entitled to one vote. Senator NIXON. To one vote? Mr. LEECE. Yes. Senator NIXON. So the individuals who held $6 worth of stock, in effect, controlled the corporation as far as votes were concerned? Mr. LEECE. That is correct. Senator NIXON. The individuals that contributed the $2,000 were minority stockholders as far as voting rights were concerned? Mr. LEECE. As far as voting was concerned, that is right. Senator MUNDT. What was the purpose of that rather unusual arrangement? It seems to me the Americans were not gambling very heavily, having only $6 in the corporation. Why did they control the corporation? Mr. FLANAGAN. Mr. Wasson, who will be a witness, can, I am sure, explain the purpose. Senator UNDERWOOD. Going back to the National Tanker Corp., you say that contract provided that the United Tanker Corp. would name an assistant secretary-treasurer. Was there an assistant secretary-treasurer named? Mr. LEECE. Yes, Senator; Mr. Chung-ching Wei was named sometime after this agreement of January 24. I am told that it was sometime in the spring of 1948. Senator UNDERWOOD. Well, he is the one who was named as the assistant secretary-treasurer of the other corporation. Mr. LEECE. That is correct. Mr. FLANAGAN. Then we find the situation, do we not, to clarify the information that Senator Underwood is seeking here, that Chungching Wei, the Chinese national, was the secretary-treasurer of National Tanker eventually, and they couldn't sign any checks without his countersignature, and he was also secretary-treasurer in charge of finances, as it were, in United Tanker. Senator NIXON. The keyman in both corporations was a Chinese national. Mr. LEECE. Yes. Senator NIXON. And if the Chinese national technically controlled the corporation, as distinguished from actually controlling it, under the law, they would not have been able to obtain the tankers, would they? Mr. LEECE. That is correct. Senator NIXON. But by setting up the corporations in this way they were able to obtain the tankers? Mr. LEECE. I would say so; yes. Senator NIXON. You say Mr. Wasson can explain that? Mr. LEECE. Mr. Wasson will testify later, Senator, and he handled most of the negotiations that we have been speaking of, and I am sure that he can enlighten the committee on that phase of it. To continue a little further, some time later the China Trading & Industrial Development Corp. donated the 10 shares that I have referred to, to the China International Foundation, a charitable organization. Mr. FLANAGAN. We will get into those transactions in the next chart. Mr. LEECE. Later still this same China Trading Senator MUNDT. Who was the head of that other one? A Chinese national, too? Mr. LEECE. No; that is a Delaware corporation, Senator, organized for charitable purposes. We will get into that when we discuss chart 4. But I think for our purposes now it will be sufficient to say that during the life of the United Tanker Corp. a total of 85,000 shares of stock were subscribed to by the China Trading & Industrial Development Corp., who in turn donated this common stock to the China International Foundation, the charitable foundation that I speak of. In addition, a total of 25,000 shares of preferred stock in United was subscribed to during June and September of 1948 by China Trading for 212 million dollars. So that during the period of January to June of 1948, when United was interested in acquiring the stock of corporations who had been allocated tankers, the bulk of the capital surplus in United Tanker was supplied by a Chinese corporation, namely, the China Trading & Industrial Development Corp. Senator NIXON. In other words, the type of stock which was transferred to China International Foundation was the common stock? Mr. LEECE. That is right. Senator NIXON. Which controls the corporation for voting purposes? Mr. LEECE. Yes; and that was purchased roughly for about $20,000, I believe the 85,000 shares. Senator NIXON. Purchased for that amount, and then donated to the charitable foundation? Mr. LEECE. That is correct. Senator NIXON. But the preferred stock, the type of stock which contributed the capital in the corporation, was put up by the Nationalist-controlled corporation? Mr. LEECE. That is right. Senator MUNDT. Is this Mr. Chung Ching-wei who appears to be the top man in these corporations the same Mr. Wei who is one of the controlling factors in China Trading? Mr. LEECE. He was an officer in China Trading. Senator MUNDT. Is it this same Mr. Wei? Mr. LEECE. That is right. Senator MUNDT. He is a Chinese national, not a citizen? Now, at about this time, in the latter part of January, the United Tanker Corp. requested of the Maritime Commission that they render an opinion as to the citizenship of United, at which time they provided the Commission with certain information as taken from their bylaws, and the certificate of incorporation, concerning the voting rights going with the stock, and pointing out that the B stock could only be purchased by citizens, and that the B stock had to be the majority stock at all times. In other words, no A stock could be sold unless, after selling that, there was still a greater number of shares of B stock outstanding, which, of course, would insure a majority of the stock in United States citizen-holders. On the 3d of February 1948 Mr. Goertner, the assistant general counsel at the Commission, advised the United Tanker Corp. that on the basis of his review of that information he had concluded that United was a citizen corporation. Mr. FLANAGAN. At that time did Mr. Goertner have all of the facts concerning the sources of funds and relationship of United Tanker with the China Trading & Industrial Development Corp.? Mr. LEECE. No. There was no mention of that made in the letter from United Tanker Corp. to Mr. Goertner. Senator NIXON. Who prepared that letter? Mr. Wasson? The attorneys for United Tanker? Mr. LEECE. Mr. Wasson was the attorney for United Tanker at that time. I don't have a copy of the original letter. However, Mr. Goertner's reply was directed to Post, Morris & Lovejoy, 52 Wall Street, New York City-Mr. Goertner's answer, that is, to their inquiry. Senator NIXON. That is the firm of attorneys? Mr. LEECE. Yes. Mr. FLANAGAN. The firm of attorneys of which Mr. Wasson was a member. Senator NIXON. In any event, whoever prepared this letter did not disclose the fact that United Tanker Corp. was financed primarily by the Nationalists' interest; is that correct? Mr. LEECE. That is correct. Senator NIXON. That fact was not disclosed? Mr. LEECE. No. Senator NIXON. And therefore the opinion of the Maritime Commission was issued without knowledge of that fact. Mr. LEECE. That is correct. Senator NIXON. Due to the fact that it was not disclosed. Mr. LEECE. It wasn't disclosed directly at that time, Senator. In September 1947, when United applied for tankers at the Commission, they did indicate to the Commission at that time that they were a Delaware corporation and professed to be a citizen corporation, although admitting that the equity capital in United at that time was |