71. In the reorganization of the Cramp shipyards, Ripley was not subjected to any domination or control by W. Averell Harriman or E. Roland Harriman, but acted in accordance with his honest judgment in good faith, for the purpose of achieving a prompt, efficient, and fair rehabilitation of the Cramp shipyards.

CONCLUSIONS OF LAW

I. None of the defendants was guilty of any fraud, breach of duty, conspiracy, overreaching, or concealment with respect to the reorganization of the Cramp yards, the exchange of General Mortgage 6% Gold Bonds of Wm. Cramp and Sons' Ship and Engine Building Company for stock of Cramp Shipbuilding Company, nor the foreclosures had pursuant to the said plan, nor the issuance of stock of Cramp Shipbuilding Company to Orama Securities Corporation, nor the underwriting of stock of Cramp Shipbuilding Company by Harriman, Ripley & Co., Inc.

II. None of the defendants was guilty of any fraud, breach of duty, conspiracy, overreaching, or concealment with respect to the issuance of the $600.000 mortgage made by Wm. Cramp and Sons' Ship and Engine Building Company to Fidelity and Deposit Company of Maryland in 1927, or with respect to the assignment of said mortgage to Orama Securities Corporation, or with respect to the issuance and acquisition of General Mortgage 6% Gold Bonds of Wm. Cramp and Sons' Ship and Engine Building Company by American Ship and Commerce Corporation.

III. Orama Securities Corporation holds its stock in Cramp Shipbuilding Company free and clear of any and all claims, rights, or liens, legal or equitable, on the part of American Ship and Commerce Corporation or any of its stockholders.

IV. Merchant-Sterling Corporation has in its possession valid and enforceable notes of American Ship and Commerce Corporation in the aggregate face amount of $5,200,279 on which there is now due and unpaid the sum of $5,406,810.85 for which said Merchant-Sterling Corporation holds as security, among other things, 35,200 shares of stock of Cramp Shipbuilding Company, and 93,845 shares of stock of Wm. Cramp and Sons' Ship and Engine Building Company.

V. The stockholders of American Ship and Commerce Corporation have no basis for attacking the reorganization of Cramp Shipbuilding Company and the issuance of stock to Orama Securities Corporation and Harriman, Ripley & Co., Incorporated, or the underwriting by said company, and none of the defendants is accountable as a fiduciary, conspirator, or otherwise, to American Ship and Commerce Corporation, to its stockholders or to the plaintiff, with respect to any of the matters embraced in the complaint.

VI. None of the defendants was guilty of any fraud, breach of duty, conspiracy, overreaching, or concealment with respect to notes issued and the debt owed by American Ship and Commerce Corporation to Merchant-Sterling Corporation, or with respect to the pledge of security for such notes; none of said notes, and no part of said debt is barred by the Statute of Limitations, and Merchant-Sterling Corporation is entitled to payment of the said notes and to realization of the collateral as against American Ship and Commerce Corporation and its stockholders.

VII. Defendants are entitled to judgment dismissing the complaint upon the merits, with a separate bill of costs as against the plaintiff in favor of each group of defendants which appear by separate counsel.

VIII. Defendant Orama Securities Corporation is entitled to judgment upon its counterclaim and cross-claim declaring that it holds its 69,177 shares of stock of Cramp Shipbuilding Company free of any right, claim, title, interest, or lien whatever, legal or equitable, on the part of American Ship and Commerce Corporation or its stockholders, or the plaintiff herein, and judgment is hereby directed to be entered accordingly.

IX. Defendant Merchant-Sterling Corporation is entitled to judgment upon its counterclaim and cross-claim that American Ship and Commerce Corporation pay it the sum of $5,406,810.85.

X. Defendant Merchant-Sterling Corporation is entitled to judgment upon its counterclaim and cross-claim that it holds 35,200 shares of the capital stock of Cramp Shipbuilding Company, and 93,845 shares of the capital stock of Wm. Cramp and Sons' Ship and Engine Building Company and the other

securities mentioned in the notes subject to a valid pledge to secure the indebtedness of $5,406,810.85 owed to it by American Ship and Commerce Corporation, and judgment is hereby directed to be entered accordingly.

XI. Defendant Merchant-Sterling Corporation is entitled to judgment upon its counterclaim and cross claim containing suitable provision for the foreclosure and sale of all right, claim, title, or interest of American Ship and Commerce Corporation, or its stockholders, in the said 35,200 shares of the capital stock of Cramp Shipbuilding Company, and 93,845 shares of the capital stock of Wm. Cramp and Sons' Ship and Engine Building Company, in satisfaction of the lien of Merchant-Sterling Corporation in the sum of $5,406,810.85, and directing that the said securities or so much thereof as may be sufficient to discharge the lien debt the expenses of the sale, and which may be sold separately without material injury to the parties interested, be sold by or under the direction of a referee, and that Merchant-Sterling Corporation, or any other party, may become a purchaser on such sale; that the referee execute a certificate of sale, transfer, and assignment to the purchaser; that out of the proceeds of the sale the referee pay the expenses of the sale and that he pay to Merchant-Sterling Corporation or its attorneys the amount of the lien debt and interest, or so much as the purchase money will pay of the same, and that he take the receipt of Merchant-Sterling Corporation or its attorneys for the amount so paid and file the same with his report of sale, and that the purchaser at such sale be given possession of said securities on production of the certificate of sale; that in case Merchant-Sterling Corporation be a purchaser, or assignee of a purchaser, at said sale, the refereee shall permit Merchant-Sterling Corporation to a credit on the amount bid at said sale to the extent of its lien debt, and that in the event the proceeds of said sale be insufficient to pay the amount herein found to be due to defendant Merchant-Sterling Corporation, the referee specify the amount of such deficiency in his report of sale, and that defendant Merchant-Sterling Corporation have execution therefor against defendant American Ship and Commerce Corporation.

DEAR JOE: Replying to your letter of October 2, I certainly agree with you that you are making real progress on the borrowing arrangements if you succeed in securing the facilities loan and the working capital loan on the basis mentioned in your letter. I have heard of so many loans negotiated by Mr. Jesse Jones at 4% and even 4%, that I have no hesitancy in passing to you my full approval on any arrangement that may be worked out on the basis you have indicated; namely, 2% less 12% for the facilities loan and 3% for the working capital loan.

I am sending you herewith my check for $348.69, together with bill enclosed in your letter of the 30th and a copy of my letter to Birchard Taylor. Sincerely yours,

JR: men

encls.

10/9/40, Sent to Mr. Effel.

[Stamp:] Received by Statistical Files, Oct. 16, 1940.

JIM.

EXHIBIT NO. 321

Mr. JAMES REED,

HARRIMAN RIPLEY & CO., INC.,

New York, September 28, 1940.

333 Pine Street, San Francisco, Calif. DEAR JIM: I just want to bring you up to date. I am sending a copy to R. H. M. R. and E. R. H., for the same purpose.

FACILITIES LOAN

Without trying to tell you the entire story, we are working now along the following lines. The National Defense Advisory Commission has constructed a more or less standard type of facilities loan agreement. It is not entirely complete yet, but very far along. I am sending a mimeographed copy of the latest draft to you herewith. The idea originated with W. C. Potter a month or so ago, and Brownell, of Davis Polk, has had a lot to do with designing the contract. Its essential features, in brief language, are as follows:

(1) Cramp borrows the money from the banks to rehabilitate the property and buy the real estate, the maximum being about $9,500,000.

(2) Cramp has title to the whole shooting match from the beginning.

(3) When the construction is completed (estimated at eighteen months from now), the Navy owes Cramp one-fifth of the total actual cost, and the Navy then is obliged to pay an additional one-fifth each year thereafter over a total of five years.

(4) Cramp assigns these payments to the lending banks so that they have virtually a Government obligation.

(5) The Government has certain rights in the property which I would refer to as priority of use.

(6) If at any time ninety days pass by without the Government using the facilities for Government work, then Cramp has an option to buy out the Government rights, whatever they are, at the original cost less a certain agreed rate of depreciation per annum.

Mr. Knudsen has had a lot to do with this contract, and many other also.

The Philadelphia banks, under the leadership of the Federal Reserve (which cannot itself participate in this loan because of the rules of the Federal Reserve), and under the leadership of the Pennsylvania Company for Insurances on Lives, etc., are actively working on the matter, and there seems to be every reason to believe that they will make the facilities loan. Mr. Sinclair, President of the Federal Reserve of Philadelphia, has gone to Washintgon and discussed the whole matter with the Navy and the National Defense Advisory Commission.

In order to press the Philadelphia banks to action, I went to Mr. W. C. Potter, Chairman of the Guaranty Trust, yesterday, and he expressed a distinct interest in having the Guaranty participate, but he said he did not want to do it unless the Philadelphia banks would welcome his being in the group. I put it up to the Philadelphia banks, and the answer just came back that they do not want the Guaranty Trust in at this stage, although they might welcome them later.

WORKING-CAPITAL LOAN

In addition, we need a working-capital loan of about $2,000,000. Mr. Sinclair says that without committing himself the Federal Reserve itself will favorably consider participating in this loan and taking the leadership and inviting other banks to come along with them.

OTHER THINGS

I really have not time to write about other things, which are moving very fast. Weyerbacher is moving into the plant and employing four or five people to start specifying in detail the rehabilitation program, which has to go as an exhibit to the facilities contract. The Old Company is asking the tenants to get out. Lehigh is approaching me wanting to trade. Lear is acting badly, apparently (I am advised) putting a couple more tenants on his property. It looks like possible condemnation. Reath is working actively with the Treasury Depart

ment and thinks he will get $3,100,000 as the "invested capital base" for the property Cramp now owns.

With best regards,

DEAR JOE: It is very thoughtful of you, busy as you are, to keep me so well posted. I have received this morning the draft of October 4, 1940, of the "Emergency Plant Facilities Contract," and find it particularly interesting.

With reference to anticipating my planned arrival there on November 1st, I have discussed this further with Mrs. Reed and I now plan to leave from Los Angeles direct for New York on the Chief on October 26, reporting into your office on Tuesday morning, October 29. I am going to Philadelphia via New York because I feel it is important that we have a chat before I go to Philadelphia. As I am planning to take my vacation in Southern California starting the first of next week (we had to give up the idea of Sun Valley because of the short time available). I will now plan to leave from there and not return to San Francisco, which was the original program.

With reference to Mr. Johnny Greene, of the C. I. O. shipbuilders' gang, if he becomes too pressing Weyerbacher might advise him that I shall be very glad to meet with him upon my arrival in Philadelphia and discuss matters of mutual interest. With my thorough and intimate experience in handling these C. I. O. gentlemen, I look forward to a very interesting discussion, and without any trepidation either.

I note your slight revision of the facilities financing and want to assure you again that whatever is worked out to your satisfaction will receive my full approval.

With reference to the Cramp foremen annual dinner, I have also been considering what would be the most auspicious manner in which to publicize the reopening of the shipyard, and it would seem that this might well be the proper occasion for this momentous event. I certainly agree with you that one of the things which should be done at that time is the assumption of those pension obligations. Furthermore, I could with good effect set forth at this dinner the policy which I mentioned to you in that hand-made slogan in my letter of October 2, "Cramp's for the Philadelphians so that we may have the Philadelphians for Cramp's."

I appreciate the value of good will in an enterprise like ours, and of the tremendous importance of sound experienced advice in handling all matters bearing on public relations. I therefore think that your suggestion with reference to Arthur Kudner is a very valuable one, and shall put this down for discussion with DuBose upon my arrival.

Warm personal regards,

Sincerely,

JR: jm

Mr. JAMES REED,

CRAMP SHIPBUILDING COMPANY,
New York, October 4, 1940.

333 Pine Street, San Francisco, Calif. DEAR JIM: Just a few words to keep you up to date. In brief, the matter is moving really faster than we thought a week or two ago that it would.

Our counsel have found a way to move the "earliest closing date" backward from October 23rd to October 16th. In other words, so far as the Philadelphia picture is concerned, we can have the money move around the table on October 16th instead of the 23rd. Whether we can move this fast with the Navy in respect to the facilities contract, the cruiser contract, etc., is a question. I rather think we can.

But

The uppermost thought in my mind is this. I certainly want you to have your vacation, because you are going to need it; but I am just wondering if you could not start it sooner than you planned. This would enable you to get to Philadelphia at an earlier date and still have had your rest.

A Mr. Green of the Shipbuilders Union came to see Averell Harriman ; Averell told him that he will have nothing to do with the matter, and that was all there was to it. But I do not know how long we can hold off a decision in regard to our labor policy; and, naturally, that decision will be most important in having a bearing on our future.

We crossed some bank bridges yesterday. We are making two separate loans. One starts at about zero and builds up to a maximum of $9,500,000, the proceeds to be used for construction facilities. The interest rate will be either 24% or 3%; I told you the other day that it would be 22%, but the trouble is that that rate was given to me by one of the big banks, and some of the other smaller banks sort of began to fan out on it; so it looks like 24% or 3%. It was agreed yesterday in Washington (we had to go to the Comptroller General of the Government to get final approval) that interest at 14% will be included in the cost of the facilities, and interest at 14% will be included in the cost of the cruisers. So, in effect, Cramp is reimbursed for 14% throughout and has to pay the other 1% or so out of its own funds. The second loan is for $2,500,000 and will be in the form of an extension of credit on which we will draw as we need it; we call this the working-capital loan. This will be made by the Federal Reserve Bank of Philadelphia with such commercial banks participating therein as may wish to do so.

Interest rate is 32%. Maturities have yet to be worked out, but the principle will be the balloon variety at the end. As security for this loan we will have to assign our 6% fee payments, and we will have to enter some reasonable dividend covenant, which does not bother me at all because none of our directors are going to want to pay dividends out of this company unless it conforms with the most conservative kind of practice.

Weyerbacher is at the plant and has a half dozen assistants feverishly preparing what is called Appendix A to the facilities contract. This appendix describes the general nature of the items of facilities to be constructed and acquired and what not.

We now have a word of mouth option on the Lehigh property at $350,000. The Lehigh Executive Committee is meeting right now and we expect it to be put into writing. It was all settled in a big powwow in Admiral Robinson's office, with real estate experts and who not present.

The Lear thing is a terrible mess; but we have Seltzer, our Philadelphia real estate expert, actively working on it and think we will find a way through it. If we do not, Admiral Robinson will simply condemn the property and the Navy will own it.

In the early part of November, the old Cramp foremen are going to have their annual dinner. Perhaps you do not know that this has been happening every year since the plant closed down. I am told that something like 200 of them are coming. I have a lot of ideas about this which you and Admiral DuBose should consider. For instance, this would be the logical time for the New Company to assume the pension obligations of the Old Company. Very few people seem to know that Averell and Roland Harriman have personally been paying these pensions for the last fourteen years. To be sure, the amount is not now great, because it has tapered off as the beneficiaries have passed away, etc.