Mr. MAAS. How is it the officers of your corporation couldn't figure out the unit cost in order to really negotiate a Navy contract, but could figure out what was available for bonuses?

Mr. LAKE. Because we don't know what our final cost is going to be on these contracts.

Mr. MAAS. You don't know how much bonus you are going to give?
Mr. LAKE. That could be one reason.

The CHAIRMAN. Any further question?

Mr. JACOBSEN. Mr. Lake, are you a stockholder in the corporation? Mr. LAKE. No, sir.

Mr. JACOBSEN. Who owns the stock, most of it?

Mr. LAKE. Mr. Jack and Mr. Heintz, Russ Jack.
Mr. JACOBSEN. $100,000 worth of stock?

Mr. LAKE. That is right.

Mr. JACOBSEN. They own most of it?

Mr. LAKE. That is right.

Mr. JACOBSEN. They have a salary with the company?

Mr. LAKE. That is right.

Mr. JACOBSEN. What salary?

Mr. LAKE. $100,000 a year.

Mr. JACOBSEN. Each one of them?

Mr. LAKE. That is right.

Mr. JACOBSEN. Did the corporation pay any dividends?
Mr. LAKE. No, sir.

Mr. JACOBSEN. All paid out in salaries and bonuses?

Mr. LAKE. That is right.

The CHAIRMAN. Who did the experimental work to develop this

article?

Mr. LAKE. Who did the what?

The CHAIRMAN. Who did the experimental work? Was it done by Jack & Heintz, Inc.?

Mr. LAKE. Yes.

The CHAIRMAN. They are the ones who developed the article?

Mr. LAKE. That is right.

The CHAIRMAN. And after they developed the article did they organize the corporation to put it on the market and sell it to the Navy? Mr. LAKE. Well, Ralph Heintz was the originator of it.

The CHAIRMAN. 'When did you get your patent?
Mr. LAKE. That I couldn't answer; I don't know.

The CHAIRMAN. Thank you very much, Mr. Lake. Call your next witness, Mr. Toland.

Mr. TOLAND. Mr. Jack.

TESTIMONY OF WILLIAM S. JACK, PRESIDENT, JACK & HEINTZ,

INC., CLEVELAND, OHIO

Mr. TOLAND. Will you tell the reporter your full name, please?
Mr. JACK. William Saunders Jack.

The CHAIRMAN. You have been sworn, haven't you?

Mr. JACK. Yes, sir.

Mr. TOLAND. Where do you reside?

Mr. JACK. 3157 Falmouth Road, Cleveland, Ohio.

Mr. TOLAND. What is your present business or occupation?

Mr. JACK. Manufacturer.

Mr. TOLAND. With what company are you connected?

Mr. JACK. Jack & Heintz, Inc.

Mr. TOLAND. What position do you hold with that company?
Mr. JACK. President.

Mr. TOLAND. How many stockholders are there in that company?
Mr. JACK. Three.

Mr. TOLAND. Tell the committee the names of all the stockholders. Mr. JACK. Ralph M. Heintz, vice president, chief engineer; William R. Jack, vice president and treasurer; William S. Jack, president, general manager.

Mr. TOLAND. How many shares do those three men hold, respectively?

Mr. JACK. They hold 25 shares apiece and I hold 50 shares.

Mr. TOLAND. Isn't it a fact you hold all the shares and that all the shares of stock of this company were endorsed over by these individuals and held by you in a safety deposit box or in a vault?

Mr. JACK. Yes, sir.

Mr. TOLAND. Now, Mr. Jack, will you be good enough to tell the committee when it was and under what circumstances you organized Jack & Heintz, Ltd.?

The CHAIRMAN. What was your question?

Mr. TOLAND. I said when and under what circumstances did he organize the Jack & Heintz, Ltd., company.

The CHAIRMAN. Go ahead.

Mr. JACK. I was president of the Pump Engineering Service Corporation, Cleveland, Ohio. That was sold to the Borg-Warner Corporation.

The CHAIRMAN. What corporation?

Mr. JACK. Borg-Warner.

Mr. TOLAND. Do you remember the date of that sale?

Mr. JACK. I think it was some time along in April or May of 1939. Mr. TOLAND. When did you first start to form the Jack & Heintz, Ltd.?

Mr. JACK. You will have to let me go along and explain the organization.

Mr. TOLAND. Go ahead.

Mr. JACK. During the term of negotiations with the Borg-Warner Corporation there was a man known as Ralph M. Heintz, whom I had known for several years while associated with Pump Engineering Service Corporation, and the Marquette Metal Products Co. Ralph M. Heintz was working in the east. He formerly had several little companies in California and had never made a success in any one of those companies. He had taken a job with an organization down east for around $5,000 or $7,000 a year. During the negotiations with Borg & Warner it was distinctly understood that when the deal was consummated that we would organize an experimental research department at Palo Alto, Calif., and that we would put in a fund of $100,000 for the development of the electric starter, as there was only one starter in the United States of America manufactured at that time. There had been all kinds of pumps and other products, where there were several manufacturers. The Government had no competition. from the source of manufacture.

That was the Eclipse organization, part of the Bendix and part of the General Motors organization. After the sale and consummation of the Pump Engineering to the Borg-Warner Corporation, machinery was bought and forwarded to California to our research division. Mr. TOLAND. How much did that cost?

Mr. JACK. Oh, we at that time had invested possibly over five or six thousand dollars in the neighborhood of that time, because we were just getting our throes, ready to get equipment in motion.

Mr. TOLAND. Do you remember when this was? Give us the dates and time.

Mr. JACK. Along about July and August of 1939.

Mr. TOLAND. Go ahead.

Mr. JACK. Mr. Heintz had severed his connections with the organization and was associated with Pesco, Palo Alto, Calif. I, in the meantime, had advised Mr. Heintz to go ahead and had issued several purchase orders while president of Pesco, Pump Engineering Corporation-let me term "Pump Engineering" in the future for clarification as Pesco, known as that throughout the United States and throughout the world.

Borg-Warner were familiar with the deal, terms of that contract we were entering into: That we were to establish a fund of $100,000. In the sale of the Pesco to Borg-Warner certain statements were made as to profits, certain statements were made as to the amount of business that could be had. I assumed that I had a 5-year contract to manage Pump Engineering Service Corporation under the jurisdiction of Borg-Warner Corporation, and the sale of my stock to the BorgWarner Corporation was mutually agreed at that time, or no deal would have been made to sell it; that there be no interference with the management of the company so long as we showed the profit as represented. I had proceeded in the meantime to have Ralph in Palo Alto go out and negotiate for the purchase of a building. He found a little building out there he could buy for $5,000. He made the commitments for the purchase of that building.

I, in the meantime, in order to expand Pump Engineering Service Corporation, had gone to the west coast and found a company out there known as the Aircraft Precision Corporation. We at Pesco wanted to establish a west coast branch for manufacturing our products out there, an assembly branch. Our company had gone to work and committed ourselves for the purchase of a lot of equipment, in order to expand the business that we saw coming in the pump industry for the Army and the Navy, who were two of our customers, as well as all the aircraft companies of the United States. Borg-Warner found I had gone out and taken options on all the stock of the company to be purchased on the west coast known as the Aircraft Precision Co. The stock had cost the owners of that stock $10 a share. I had offered $12 a share for every share of stock that I could secure.

One of the conditions of that sale was I would have to secure 100 percent of the stock; there would be no purchase of the Aircraft Precision. When that deal was consummated I wired Mr. Borg of the Borg-Warner Corporation, Chicago, to come out to California and look the plant over. I had had a lot of work to do with the Consolidated, Douglas, Vultee, and other aircraft companies out there on other installation programs. Mr. Borg came out, looked over the plant and said, "Well, it is too bad we have all we want to do in the

managing and the running of Pesco; we have a good company, that is all we want; we don't want anything more in the aircraft line."

The only object I sold the Pump Engineering Service Corporation to the Borg-Warner Corporation was to branch out and build up the Pump Engineering Service Corporation to a leading aircraft accessory manufacturer in the United States. To show that I was right the Aircraft Precision Co. at that time had very little business on the books. We were not making any money, but I knew that the company could be turned into a profitable institution if the proper management was established.

They turned the proposition down; wouldn't go ahead with it. Today the Aircraft Precision Co. I guess has between 130 and 150 million dollars worth of business on the books. I got a little peeved at Mr. Borg because he wouldn't consider establishing a west coast branch and turned him over to the local representatives on the west coast and went on down to Consolidated and carried on some business I had down there, with the Consolidated Aircraft.

Three days later I got a wire from Chicago, approximately a week later, which was along in about September, calling me to Chicago for a special board of directors meeting. I arrived in Chicago by plane. I was met by my general manager, who wanted to know what the special meeting was all about. He didn't know. I had no more than entered the building on Michigan Avenue than Mr. Borg advised me they were going to ask for my resignation. Mr. Borg asked me that and I said, "No, I don't care to resign; I don't see any reason why I should resign as I am under the impression that I have a 5-year management contract."

The board went into session. I advised the board it was the first time in my life I had ever been fired, but I considered it an honor to be fired for making good, because we had delivered twice the amount of business we had specified and we had made more profits than we had specified, and it was distinctly understood at that time I was to go ahead with the little Palo Alto plant, and Mr. Heintz. The board, of course, being a majority, I passed out of the picture.

Mr. Heintz, who had the little research division in Palo Alto was called into Chicago. They asked him how much money was invested at that time. The money had been invested out of Ralph's own pocket for the purchase of the little piece of land that he was buying out there for development work. They advised me they bought Ralph out. I asked them if they had an agreement with him. I said a verbal understanding only, that is all I need. Asked him how much money invested of his own. He said around $3,500 or $4,000. They offered him $5,000 to discontinue any development that I had negotiated and worked out with him. He accepted the $5,000 and I in the meantime the only time ever being fired in my life for making good, especially I had been fired as a kid, got in touch with Ralph and he got in touch with me about what we were going to do.

I said, "Ralph, we are both out of a job. There is only one thing we can do; that is organize Jack and Heintz," so we sat in this little building; we arrived at terms under which we would organize the Jack & Heintz, Ltd.

Mr. TOLAND. Do you remember when that was?

Mr. JACK. Yes, sir; that was along in the latter part, I believe, of November.

Mr. TOLAND. What year?

Mr. JACK. 1939.

The CHAIRMAN. 19—when?

Mr. JACK. '39, either November or December 1939.

The CHAIRMAN. That is Jack & Heintz, Ltd.?

Mr. JACK. Jack & Heintz, Ltd.

Mr. TOLAND. Organized under the laws of the State of California? Mr. JACK. Under the State of California.

Mr. TOLAND. Now in connection with your story I wish you would then tell the chairman and the members of the committee how much money you invested, how much money each person invested in Jack & Heintz, Ltd., and when you first started to negotiate with the War and the Navy Department for experimental, and obtained experimental contracts, and money advanced to that company for that purpose.

Mr. JACK. We sat around the table and decided Jack & Heintz would be organized. That was either in October or November, or December, I am not 100 percent sure. The design of the starter that we had under consideration had been under way for maybe a period of 6 months; it was a combination of ideas. After I stayed in California for possibly 6 weeks I got the drawing of the outline of our product on paper, did all the calculation on the starter as to performance and weight characteristics, and so on. On paper it looked as though we could do a job and that job would save about 12 pounds in weight over anything that had been used in aircraft production to date, with a greater capacity in that little starter. I proceeded on into Washington, made contacts and showed our drawings as to what we proposed to do.

I was given an experimental contract to build a starter.

Mr. TOLAND. Let me interrupt you there. In connection with the experimental contract did you engage the services of anybody in the city of Washington or any place else to go with you to the War or the Navy Department to obtain the experimental contract?

Mr. JACK. I have never engaged the services of any living human being or paid one penny to any living human being in the world since the inception of Jack & Heintz, Inc., for any purpose, except labor and services rendered.

Mr. TOLAND. So that the answer to my question is "No"; is that it? Mr. JACK. "No" is correct, sir.

The CHAIRMAN. Go ahead.

Mr. JACK. Certain officials of the Navy Department thought it was a good idea; they wanted to know what it would cost to bring out the first starter. I said possibly somewhere in the neighborhood of $150,000. They wanted to know what we would charge the Navy Department for a starter. I said $10,000 for the drawings and $15,000 for the starter, a total of $25,000; we would absorb the loss and carry on and make it back in the future on contracts.

A letter of intent was given; to this date the $10,000 had been paid but the $15,000 has never been paid, even though the starter met every specification laid down by the engineering department of the Bureau of Aeronautics.

Mr. TOLAND. At that time did you have the patent on this starter? Mr. JACK. We don't have any patents and didn't have any patents; we have applications in for various patents, possibly 60 in number.