In January, 1939, Hall conferred with Russell Maguire, of Maguire & Co., an underwriter and dealer in securities. Repeated conferences were held which resulted in an understanding between Thompson, representing the minority stockholders, and Maguire, to form a new corporation to manufacture and sell the "Tommy Gun". The new corporation was to acquire all the outstanding stock of Auto. including the complainant’s stock and the 18,505 shares of Auto together with the promissory notes and the chattel mortgage securing the same, held by Guaranty.

As to the compensation that Maguire & Co. was to receive, it was suggested that it take an option from Guaranty and sell the same to a new corporation at a stepped up price. The understanding further provided that Maguire would enter into an agreement for the purchase of 300,000 shares of the new corporation’s stock at $2.00 per share and receive an option for an additional 80,000 shares.

Maguire called to see Mr. Van Vleck, a vice president of Guaranty in charge of the Ryan estate. Their negotiations lasted for a considerable time. Finally, Van Vleck agreed to sell the Ryan Holdings for $529,000, but insisted the transaction be with the new corporation. Thompson Automatic Arms Corporation was incorporated on the 3rd day of March, 1939. On March 13th the complainant delivered her 1325 shares to Powers, counsel for Maguire and she received in exchange 19,110 shares of TAAC stock.

E.D. POWERS NOTE: Based on this calculation, Col. Thompson received 72,113 shares of TAAC stock in exchange for his 5,000 shares of AOC stock.

Guaranty’s insistence that it sell the Ryan estate holdings to TAAC rather than to Maguire nullified that portion of the agreement between Maguire and Thompson, as their profit was to be derived from the sale of the Ryan holdings by Maguire to TAAC at a stepped up price. Maguire, therefore, insisted that he be paid a reasonable amount to compensate him for his services to TAAC in obtaining the Guaranty contract, and on March 14, 1939 the directors of TAAC found Maguire’s services in this respect to be worth $3500 and authorized the issuance of 3500 shares of TAAC stock in payment thereof.

On March 29, 1939, TAAC entered into an underwriting agreement with Maguire & Co. Under this agreement Maguire & Co. agreed that it would purchase or find purchasers for 300,000 shares of TAAC stock at $2.00 per share net to TAAC after registration of the shares with the Federal Securities and Exchange Commission. The offering price was $3.00 per share, leaving a gross spread of $1 .00 per share or $300,000 for Maguire & Co. Maguire & Co. was given an option to purchase 64,000 additional shares.

Certain expenses incidental to the organization of TAAC and the registration of it’s shares had to be met. Maguire then agreed to purchase 20,000 shares of the new corporate stock at $1 .00 per share.

Upon the signing of the underwriting agreement TAAC retained Eugene D. Powers, Maguire’s counsel, and Mortimer S. Gordon, to assist Thomas A. Kane, TAAC’s general counsel, in preparing the registration statement.   The SEC issued a deficiency letter on June 14th, requiring many amendments. The letter reflected that TAAC had no more chance of success than it’s predecessor, Auto, and would in all probably remain a liquidating enterprise.

Thompson, Kane, Gordon, Hall and Powers, subsequent to July 5th, conferred with officials of the SEC. It was during this conference that it became apparent to all that registration could not he reasonably contemplated in time for the financing of the Guaranty contract through the public sale of TAAC stock. Maguire and Thompson conferred with Van Vleck of Guaranty with the hope of having extended the time for payment under the Guaranty contract. Their requests in this respect were refused.

TAAC officers, after the receipt of the deficiency letter of June 14th, and without making their intentions known to Maguire & Co., conferred with others in an effort to obtain an alternative method of financing.