Mr. BLILEY. I want to clear up one point. You said, Mr. Hurwitz, you talked with Boyd Jefferies in early August, and you told him you were interested in acquiring Pacific Lumber and that if he could put together 500,000 shares roughly that you would buy them, and I specifically asked you if you had any explicit or implicit agreement with Boyd Jefferies to acquire or hold Pacific Lumber stock for you, and you said no. Now I am a little confused, but I am not as familiar with finance as you are. Perhaps you can explain that to me. You talked to him on August 8, you said, ³Boyd, I am interested in Pacific Lumber, if you can acquire 500,000 shares for me, I will buy them.² And then you tell me that you didn't have any explicit or implicit agreement with them to buy those shares and suddenly you buy 400 some odd thousand from him on the 27th at $29.10, which is approximately $4 less than the market at the time, Mr. HURWITZ. What was said, Congressman, is that I told him that if he did have a block of stock like that and if the price was right, that I would be interested in entering into a put-call arrangement. That is not purchasing the shares. And under those arrangements, we only purchased them once Hart-Scott-Rodino‹ Mr. BLILEY. He had to have the shares in order to execute a put-call arrangement with you, didn't he? Mr. HURWITZ. He is a dealer in securities, and he deals in blocks all the time, and whether he had all those shares or knew where some were from some institutions, I am not sure that I know. Mr. DINGELL. Would the gentleman yield? Mr. BLILEY. But you had already told me that you knew, in answer to a previous question, that Jefferies was buying the stock, Mr. HURWITZ. Yes, sir. He told me that. Mr. BLILEY. So how can you say that Boyd Jefferies didn't have an agreement with you to acquire or hold the stock when you told him that if he did, you would buy it, and he bought it. Mr. HURWITZ. I told him that I would be interested in entering into one of these agreements subject to price, number of shares and other terms in the agreement. Mr. BLILEY. But you never told him from the time you first talked to him in August until you talked to him in September to stop buying, I am no longer interested, did you? Mr. HURWITZ. That is his business. He talked to me from time to time. Mr. BLILEY. I know that is his business, but you didn't tell him that you weren't interested any more and to stop buying for you, that you were not going to be interested in any option arrangement or any sale. Mr. HURWITZ. I told him that I was interested in an options arrangement. Mr. BLILEY. You told him you were interested, right? Mr. HURWITZ. Yes, sir. Mr. BLILEY. And, therefore, I find it troubling how you can say that you didn't have any explicit or implicit agreement with Boyd Jefferies to acquire or hold shares in Pacific Lumber for you. Mr. HURWITZ. Well, sir, he was buying them for its own risk, we had money. Money wasn't a problem. We could have bought them in MCO holdings, just outright, as we did. We could have entered into this option agreement at any time if we had wanted to, which our lawyers informed us was perfectly fine, and what we wanted, we wanted an agreement if in fact, subject to price and the number of shares, he could‹ Mr. BLILEY. Isn't it a fact the reason you didn't do anything in this beforehand is that you would trigger the Hart-Scott-Rodino requirements? Mr. HURWITZ. No, sir. We could have entered into an agreement with Jefferies on the first of August under this agreement, and it wouldn't have triggered Hart-Scott-Rodino. Mr. BLILEY. Why didn't you do it? Mr. HURWITZ. We didn¹t know if we wanted to buy any shares until we knew if he could get enough shares at the right price. Mr. BLILEY. Thank you, Mr. Chairman. Mr. DINGELL. It indicates the 6th-it indicates the 8th. I detect it was as early as the 6th. Is that right? Mr. HURWITZ. I am sorry, sir, I don't know. It was certainly the first part of August. Mr. DINGELL. I gather then Jefferies started buying stock? Mr. HURWITZ. That I don't know. I don't know when he purchased stock. Mr. DINGELL. In any event, you purchased stock from Mr. Jefferies later in September, I believe the 27th. Mr. HURWITZ. Yes, sir. Mr. DINGELL. Attempting to get some 494,000 shares. Mr. HURWITZ. I think it was a little more than that. Mr. DINGELL. How much more? Mr. HURWITZ. It was a little over 500,000. Mr. DINGELL. A little over 500,000. Was that pursuant to a written agreement? Mr. HURWITZ. No, sir. Mr. DINGELL. It was not? Mr. HURWITZ. No, sir. Mr. DINGELL. I gather from your testimony to Mr. Bliley that you had a written agreement offered by Mr. Jefferies earlier which you had refused to sign, is that correct? Mr. HURWITZ. No, sir, that is not correct. Mr. DINGELL. You had not signed it? Mr. HURWITZ. No, sir. We didn't have a copy of the written agreement. My lawyers and his lawyers talked around the 5th or 6th of August. My lawyers told me that they talked to their lawyers and the proposed put-and-call arrangement sounded OK to them. They were familiar with them, and it was something that was legal. Mr. DINGELL. What was the purpose of this written agreement drafted up by Mr. Jefferies? Mr. HURWITZ. Well, sir, that didn't come until late September. Mr. DINGELL. That came and it was a put-and-call arrangement? Mr. HURWITZ. We never had a put-and-call arrangement. We didn't enter it. Mr. DINGELL. How did you buy the stock? I was given to understand you bought it on a put-and-call arrangement. Mr. HURWITZ. No, sir, we had not. We intended to purchase it under a put-and-call arrangement. We told‹ Mr. DINGELL. You didn't purchase it under a put-and-call arrangement. Mr. HURWITZ. Yes, sir. Mr. DINGELL. That is very curious. How does one do that? Mr. HURWITZ. When we got the papers in, they said they wouldn't do it if we contemplated a tender offer-- Mr. DINGELL. You are saying Jefferies then said they wouldn't do it because it violated the law with regard to tender offers? Mr. HURWITZ. I don't know it violated any law, but it was in the agreement we got, if in fact someone‹or it was contemplated a tender offer, that they wouldn't do it. Mr. DINGELL. Would it be illegal for someone who contemplated a tender offer to do it? Is that what you are telling me? Mr. HURWITZ. I don't know. Mr. DINGELL. For some reason you didn't buy under the written agreement, you bought under some kind of theory. I am trying to figure out what is the theory under which you purchased. You bought this stock at $29 a share. At the time of the purchase‹it was actually going-you bought it at $29.10. When you actually bought it, the going price at that time, I am told, was somewhere around $33 to $34. Mr. HURWITZ. Several things, sir, one‹ Mr. DINGELL. Why was Mr. Jefferies so foolish as to sell a $33 or $34 stock at $29.10? Mr. HURWITZ. I talked with Mr. Jefferies earlier when the stock was trading around 29, told him that we were going to finalize an agreement, and he told me his price was $29.10 a share. We agreed upon that price. I asked him to send the documents in to have them finalized and then we found out about this clause in there our lawyers said we couldn't use. Mr. DINGELL. But you never signed that agreement? Mr. HURWITZ. No, sir, we did not sign it. Mr. DINGELL. How did you then finalize the agreement if you didn't sign the contract? Mr. HURWITZ. I called him back, told him we had a problem with the agreement, and we were just going to purchase them outright. Mr. DINGELL. You were just going to purchase them outright? Mr. HURWITZ. Yes, sir. Mr. DINGELL. But you would not then purchase it under the earlier agreement of paying $29.10 then, you would have paid $34, $33, whatever the market price was on the particular date. Is that not so? Mr. HURWITZ. We never had an earlier agreement, number one. Mr. DINGELL. If you didn't have an agreement with him, how did you buy it at $29.10 instead of the market price on the stock on the particular day? I am trying to understand. You had an agreement, you tell me the agreement is no good. The price for the agreement was $29.10. 1 assume that if you didn't have an agreement for $29.10 that Mr. Jefferies was not bound by the $29.10 price. You didn't buy it at $33, $34, which was market price on the day of the purchase. Now, why is it that Mr. Jefferies is not bound, you are not bound, but you still buy it at $29.10 instead of the market price on the particular day in question? I am having great difficulty understanding that. There either was a contract to buy it at $29.10 or there was not. If there was no contract to buy it at $29.10, then Mr. Jefferies sold it to you at a great bargain. I am trying to figure out why it was Mr. Jefferies was behaving in such a good-hearted fashion. As a matter of fact, it is interesting to me to note that if he was operating on behalf of a publicly held corporation or if he was operating on behalf of his partners, he was probably subject to a lawsuit on their part or on the part of the shareholders for having sold these assets at far less than their real value. Now, you don't have a contract, you said you had an agreement, you sell it at $29.10, you tell me the agreement was not binding on you. If it was not binding on you, it wasn't binding on him. So you sell it at $29.10 instead of the market price on the day of the sale. Why? Mr. HURWITZ. Several reasons, sir. One is it is worthwhile noting the stock had run up $3 or $4 in the last maybe 1 hour or 45 minutes of trading. Mr. DINGELL. The record indicates that. But why did then this great-hearted Mr. Jefferies sell this to you at such a generous price when the market price was $33 or $34? Mr. HURWITZ. Right. As I mentioned‹ Mr. DINGELL. He is not simple-minded or anything, is he? He has no contract with you? You have told us he didn't have a contract with you. He is selling you this at well below market. You told me it was not a put and call, that it was a regular contract. It was not reduced to writing. The price was up, there were certain things in the early agreement which your lawyers would not permit you to accept, but he sells it to you at $29.10. What was the agreement that compelled him to sell it to you at $29.10 instead of the market price? Mr. HURWITZ. Several days before, as I stated, Mr. Chairman, I talked to Mr. Jefferies, and the agreement was that we were going to try to go through, subject to price, number of shares and terms, that we were going to consummate the put-and-call agreement. Now we did agree on the price, the price was $29.10 a share. I asked him at that point to please send in the documentation to the lawyers, which were received I think on September 26 by my lawyers, and they then found out that they had a problem with the terms. Mr. DINGELL. OK. So that agreement was never signed. Mr. HURWITZ. Yes, sir. Mr. DINGELL. And it never went into effect. Couldn't go into effect because it wasn't signed. You rejected it because you found a problem with regard to the disclosure provisions. Then under what kind of agreement did you buy this stock at $29.10 instead of $33 or $34, which was the market price on the day in which the sale was conducted? Had you ever talked to Mr. Jefferies again, did your lawyers talk to Mr. Jefferies, did one of the officials of your corporation who could bind your corporation talk to Mr. Jefferies so that the stock could be bound or so the stock could be purchased and you would have essentially a binding contract? You have told me nothing that indicates you had any contract. You said you decided you were going to go ahead and buy it on that basis. I am trying to figure out why it was Mr. Jefferies felt compelled to deliver that stock at $29.10 instead of $33 or $34, which was the market price on the day in question? Mr. HURWITZ. Mr. Jefferies agreed to me to sell the stock at $29.10 a share under this option agreement, subject to the lawyers and everyone finding it OK. There was a problem. Mr. DINGELL. When did he do that? Mr. HURWITZ . Earlier that week. Mr. DINGELL. Earlier that week? Mr. HURWITZ. It was earlier in the week of September 25. Mr. DINGELL. There was never a contract signed on that? Mr. HURWITZ. No, sir. But there needed to be terms and conditions, and he agreed on the price. Mr. DINGELL. Well, why did‹now wait. Your lawyers and you had rejected that contract because of the disclosure provisions. It was not signed. Mr. Jefferies wanted to have the disclosure provisions in this. The disclosure provisions were not in this. Now I am trying to figure out how did you get a contract, how could you assert your rights under that contract when you had rejected it? Mr. HURWITZ. I called Mr. Jefferies and told him we couldn't do a put-and-call arrangement, we just wanted to buy the stock outright at the same price, and he said OK. Mr. DINGELL. When did he say that? Mr. HURWITZ. That was on the 27th, the day the stock market was closed. Mr. DINGELL. Was this then a negotiated sale? Mr. HURWITZ. We had agreed on $29.10. Mr. DINGELL. So it was a negotiated sale. Was there any other yard stick for the pricing of that than your negotiations with Mr. Jefferies? Mr. HURWITZ. As I mentioned, the New York Stock Exchange was closed that day, and these shares were purchased over-the-counter. Mr. DINGELL. So you purchased over-the-counter? Mr. HURWITZ. Yes Mr. DINGELL. Was the over-the-counter market open on that particular day? Mr. HURWITZ. Jefferies and Co. was open that day. Mr. DINGELL. Jefferies and Co. was open that day. So you purchased then‹over-the-counter essentially are negotiated sales, are they not? Were there any other large blocks of stock sold on that particular day? Mr. HURWITZ. Mr. Jefferies trades, and he is not a member of the New York Stock Exchange, he trades in what is called the third market. Mr. DINGELL. So this was third market. Mr. Jefferies does not, is not a marketmaker in this particular stock, is he? Mr. HURWITZ. He could possibly be. Mr. DINGELL. But he is not, is he, he is not designated by any SD as marketmaker in this particular stock? Mr. HURWITZ. I don't think in the over-the-counter you have to be designated like the New York Stock Exchange. But I don't know if he was or not. Mr. DINGELL. My time has well expired. The gentleman from Oregon. Mr. WYDEN. Mr. Hurwitz, according to page 18 of the October 2, 1985 offering circular distributed by the MAXXAM Group, MAXXAM stopped buying Pacific Lumber stock on September 5: 1985. No additional purchases were made until a large block of 539,600 shares was bought on September 27, 1985, a full 7 weeks later. Could you tell the subcommittee why MAXXAM stopped buying Pacific Lumber stock on September 5, 1985? Mr. HURWITZ. Yes, sir. If we had purchased $15 million or more, we would have to have filed a Hart-Scott-Rodino. Mr. WYDEN. Were the 539,600 shares purchased by MAXXAM on September 27 bought from Boyd Jefferies? Mr. HURWITZ. Yes, sir. Mr. WYDEN. Would you briefly describe how the stock purchase from Jefferies was transacted? Mr. HURWITZ. Well, I am not sure I understand the question. Mr. WYDEN. Well, I guess what I am interested in is just what the arrangements were for the stock purchased from Mr. Jefferies. Mr. HURWITZ. In this document that you mentioned on page 18, it is disclosed that it was purchased in the over-the-counter market on a net basis, net prices basis. Mr. WYDEN. Well, according to your lawyers, the Jefferies purchase was a privately negotiated deal. Mr. HURWITZ. Where is that, sir? Mr. WYDEN. That is our understanding on the basis of the meeting with the subcommittee staff. Is that correct? Mr. HURWITZ. Not that I am aware of, sir. Mr. WYDEN. If it is not a privately negotiated arrangement, Mr. Hurwitz, how would you characterize it in your own terms? Mr. HURWITZ. Well, sir, it was purchased in the over-the-counter market. As I mentioned, I am not a lawyer, but it seems to me it was an open market purchase. Mr. WYDEN. How could it be an open market purchase if it is not at the open market price? Mr. HURWITZ. I think that many times large blocks of stocks trade at some variance to the last sale. Mr. WYDEN. Well, you told us earlier that you had talked to Mr. Jefferies several days in advance. How does it then become an open market kind of arrangement if you have talked to Mr. Jefferies in advance? I mean, it seems to me this was a privately negotiated deal, Mr. Hurwitz. That is what we seem to have gathered‹the subcommittee staff has gathered from your lawyers, and you have told us that you talked with Mr. Jefferies several days in advance. I am trying to figure out which one you now state it as being, a privately negotiated arrangement or an over-the-counter arrangement. Mr. HURWITZ. It was my understanding that‹but, I wasn't there, so I really don't want to say what the lawyers said‹but it was my understanding that that is different than what you stated. I don¹t know they said it was a privately negotiated transaction. But, again I wasn't there, Congressman. Mr. WYDEN. But it seems to me now, this is being characterized both ways by you in your testimony here, Mr. Hurwitz. You are saying that you talked to Mr. Jefferies several days ahead of time, price is below the market, and yet now you have described it as over-the-counter even though the price is not at the over-the-counter. Which one is it? Mr. DINGELL. Would the gentleman yield here? Mr. WYDEN. I would be happy to yield, Mr. Chairman. Mr. DINGELL. I am trying to pin it down here. Is this an over-the- counter sale, or is this a negotiated sale? Mr. HURWITZ. Well, sir, it was an over-the-counter sale. It was traded over-the-counter. Mr. DINGELL. Well, we have inquired here, and we have found that over-the-counter sales on the day in question, there was one small sale of $30 a share. What day was the sale consummated? Was it on the day in question, on September 27, or was the sale consummated some earlier date? Mr. HURWITZ. The actual transaction went through on September 27. Mr. DINGELL. So that is the date of the contract? Mr. HURWITZ. Well, we purchased the charges as of that date. Before that date we discussed‹and the stock, by the way, was trading at 29 for some long period of time before that except for that one day. Mr. DINGELL. Well, did you agree on the price on the 19‹or the 27, or did you agree on the price at some earlier date? Mr. HURWITZ. We agreed before that that we would purchase the shares subject to the put-and-call arrangement, and he informed‹ Mr. DINGELL. But you told me you didn't use a put-and-call arrangement. Mr. HURWITZ. We thought that we were and our attorney said we couldn't. Mr. DINGELL. You had already rejected the put-and-call arrangement. That is not an item in this contractual arrangement or whatever it is you had with Jefferies; is that right? Let's exclude that because it serves no purpose except to confuse you and to confuse me, and, I suspect, the record. So you didn't have a put-call arrangement, did you? Your lawyers refused to sign the put-call relationship because there were certain disclosure requirements in it you didn't like or they didn't like. Mr. HURWITZ. Yes, sir. Mr. DINGELL. Let's just dispose with that put-and-call nonsense because it doesn't apply here. Let's get down to the fact. The date on which the stock was purchased was the 27th; is that right? Mr. HURWITZ. Yes, sir. Mr. DINGELL. Now, you had agreed that you would purchase it when? What is the date on which your agreement was made with Mr. Jefferies for the purchase of the stock? Mr. HURWITZ. It was some several days before. But when I informed him we would agree upon a price and terms of the contract and what he told me at that time was that the price was $29.10, and that there were other terms like interest rates and the document itself, and he did send it to my lawyers which they received on the 26. Mr. WYDEN. Mr. Chairman, he has just described a privately negotiated deal. That is what we have just heard. It cannot, then, be an over-the-counter arrangement. Mr. DINGELL. Now, over-the-counter requires that you go in with your check on the day in question, you tender your check and the market maker or whoever sells, tenders you in return certain shares of stock. That is over-the-counter, is it not? Mr. HURWITZ. No, sir. Mr. DINGELL. What is an over-the-counter purchase then? Mr. HURWITZ. It is when you are not a member of the New York Stock Exchange. You can trade General Motors over-the-counter. It was a regular way delivery. The purchase was made on the 27th and it was the normal 7-day delivery. Mr. DINGELL. Was there a bid and ask here? Did you make a bid and did they ask? That is a regular constituent of over-the-counter, is it not? When I read the Wall Street Journal it says what is bid, what is asked. Isn't that right. Mr. HURWITZ. He informed me that we were in this agreement, this put-and-call agreement. It says in there‹ Mr. DINGELL. You didn't have a put-and-call agreement. You already told me you didn't have a put-and-call agreement. You decided you were going to buy over-the-counter; is that right? So you didn't have a put-and-call agreement. Now what you essentially did is you, according to your testimony, you are telling me now that you had an agreement with Jefferies that you would buy a certain number of shares. That's unclear. You would pay 29 cents for them, and he would deliver them at some future time. He didn't turn the shares over to you the date you purchased them, which was some day earlier than the 27th; is that right? Mr. HURWITZ. We bartered on the 27th. Mr. DINGELL. You bartered on the 27th, but you cut the agreement some earlier date in your discussions with Jefferies. Mr. HURWITZ. Earlier that week we told Jefferies to please send his document or we were going to subject them to all the terms and prices. Mr. DINGELL. And you at that time agreed you were going to pay $29.10 a share. Mr. HURWITZ. Yes. Mr. DINGELL. OK. So what was the date on which you agreed you were going to pay $29.10 a share? Mr. HURWITZ. It was sometime several days before the 27th. I don't know the exact date. Mr. DINGELL. Mr. Jefferies could not or did not deliver the shares to you at the time of the agreement, did he? Mr. HURWITZ. We were trying to negotiate the agreement. Mr. DINGELL. You were what? Mr. HURWITZ. We were trying to negotiate the agreement. Mr. DINGELL. What kind of agreement were you trying to negotiate? Mr. HURWITZ. The put-call agreement. Mr. DINGELL. But you told me the put-call agreement fell apart because you could not get‹agreement on certain facts in the agreement relative to disclosure. Mr. HURWITZ. We didn't get the agreement, the written agreement until the 26th. Mr. DINGELL. So you did not have a put-call agreement. Are you telling us now you had a put-call agreement? Mr. HURWITZ. No, sir, we didn't receive‹ Mr. DINGELL. You didn't have a put-call agreement because you didn't sign it. Let's get away from this put-call agreement, which you never had, and which you tell us you never had. You, at some day earlier than the 27th, came to agreement you were going to buy shares of stock at $29.10; is that right? Mr. HURWITZ. Yes, sir. Mr. DINGELL. And on the 27th, several days later, you were delivered a large number of shares of stock on the‹at $29.10, and this is on the 27, at a time when the shares in the marketplace were going for $33. You have never discussed bid or asked on the 27, did you? Mr. HURWITZ. He had already agreed to sell us the shares at $29.10 a share and we told him‹ Mr. DINGELL. How did you agree at the understanding that these shares of stock would be sold to you at $29.10? Mr. HURWITZ. I believe that under the appropriate agreement that the way they do that is they take their average cost per share and they add whatever interest and commissions that is, and that was also‹happened to be the market at the time, and we agreed upon the price. Mr. DINGELL. So that was the way you negotiated the price earlier? Mr. HURWITZ. Yes, sir. He told me it was‹ Mr. DINGELL. Thank you very much. I thank the gentleman. I apologize for intruding into his time. Mr. WYDEN. I would like to follow up on the point you made. Where was their disclosure, Mr. Hurwitz, of the prior arrangement that you had with Mr. Jefferies? Mr. HURWITZ. There was no prior arrangement. Mr. WYDEN. You just told the chairman that it was arranged several days in advance that the stock would be sold at $29. Mr. HURWITZ. The price was‹there was an agreement to agree subject to the put-and-call and everything else. The price was one part of the agreement. We agreed on the price. They sent it to our attorneys. We had a problem, which you know about, and we said that we couldn't close on that, and so we called Jefferies and said, ³We have a problem closing under the document. What we would like to do is just buy them outright. It is the same as him doing it the other way.² And he said, ³Fine.² Mr. WYDEN. Where was disclosure of that? Since it is not in the offering circular of October 2, 1985, with respect to the offering circular of October 2, 1985, I can read you here‹MPI owns 100,000 shares; MCO, 494 shares, which were purchased in the open market. And it goes on to say later the following schedule sets forth information with respect to each purchase of shares by MPI and MCO during the past 60 days. It goes on further to say it was purchased in the over-the-counter market on a net basis. I see nowhere any disclosure of this prior arrangement that you had with Mr. Jefferies which certainly seems to be material to me. Was it disclosed anywhere? Mr. HURWITZ. First of all, we didn't have a prior arrangement. Number two, my lawyers and you had mentioned several other law firms have gone over this document. They were well aware of this and they are a competent law firm, and I certainly rely on them for proper disclosure. Mr. WYDEN. Can you state now, Mr. Hurwitz, that this document was not misleading? Mr. HURWITZ. Again, I am not a lawyer, but it doesn't look misleading to me. Mr. WYDEN. During the 7 weeks from August 6 to September 17, 1985, Boyd Jefferies purchased 539,600 shares of Pacific Lumber, which he sold to MAXXAM as a block 3 days before the tender offer was announced. The Jefferies purchases exactly coincided with the period of time when MAXXAM was not making direct stock purchases. The amount accumulated by Jefferies was also the amount needed by MAXXAM to bring its total Pacific Lumber holdings up to just below the maximum 5 percent level before a public announcement was required. Shares were purchased by MAXXAM at a $4 per share discount as we have established already, below the prevailing market price on September 27. Mr. Hurwitz, did you or anyone else associated with MAXXAM enter into an agreement with Mr. Jefferies to purchase Pacific Lumber stock? Mr. HURWITZ. On September 27, yes, we told him we did purchase the stock, 539,000 shares. Mr. Congressman, it may be worth noting that with those shares, the 539,000 shares and the other shares that MAXXAM owned, that was still well under the 5 percent level. I think it was 4.6. Mr. DINGELL. Would the gentleman yield? Mr. Hurwitz, you just testified that you negotiated with Jefferies earlier in the week of the 27th. Is that right? Mr. HURWITZ. Yes, sir. Mr. DINGELL. OK. Now, you also began your actual discussions with Jefferies in August, did you not? Mr. HURWITZ. I don't know it was a negotiation. We told him that we were real interested in this option. Mr. DINGELL. Did you tell him to go out and buy shares for you. Mr. HURWITZ. I did not tell him to go out and purchase shares. I told him if he could offer us, subject to the number of shares and price and other terms that we had an interest and in fact on August 5 his attorneys and our attorneys talked about that and my attorneys called me and said that is an arrangement that could be done. Mr. DINGELL. Now, when did Jefferies actually go out and start buying this stock? Mr. HURWITZ. I don't know, sir. Mr. DINGELL. Didn¹t he in fact begin‹didn't Jefferies in fact begin buying shares very early in August almost immediately after your discussions with them? Mr. HURWITZ. Could well have. Mr. DINGELL. Could well have. Mr. HURWITZ. Yes, sir. Mr. WYDEN. Mr. Chairman? Mr. DINGELL. The Chair apologizes. Mr. WYDEN. To follow up, again, on your point, how did Boyd Jefferies know to purchase Pacific Lumber Stock beginning on August 5,1985, 7 weeks before MAXXAM bought his Pacific Lumber holdings unless somebody associated with the MAXXAM takeover effort tipped him? Mr. HURWITZ. I told him. I told him that we in fact had an interest under a put-and-call arrangement, which his lawyers and my lawyers talked about on that date, and said that we could do it, and if he in fact could offer us approximately 500,000 shares under arrangement subject to price and conditions that we would have an interest in consummating that. It may be worth noting, Congressman, that during this whole period of time that we had ample money to purchase the shares, we could have purchased them outright during that period of time and MCO holdings, we could have entered into an agreement at that time with Jefferies with no violation. Mr. DINGELL. I guess I am a little bit puzzled because I am trying to figure out how Boyd Jefferies knew to buy all this stock 7 weeks before MAXXAM bought its Pacific holdings, unless somebody tipped them. You described how everything went forward with great secrecy, and I have just got to know a little bit more about how he would have this wisdom to go out and buy all this stock 7 weeks before. Mr. HURWITZ. I told him during that period of time that we had an interest if in fact he could deliver a large block of stock to us under this agreement, we had an interest in doing that. He knew that. I told him. Mr. WYDEN. So you told him that Pacific Lumber was the target. Mr. HURWITZ. No, he had no idea what I was doing with Pacific Lumber. I told him under one of these agreements, there are many of these agreements. Our company wasn't a hostile takeover. Mr. Jefferies is a dealer. Mr. WYDEN. So, again, he would just go out and buy $15 million worth of stock. Mr. HURWITZ. He is a block dealer. He deals in large blocks of securities. He knew for a fact from me that I was interested in entering into such an arrangement for such a large block of stock. Mr. WYDEN. Mr. Hurwitz, who was in contact with Mr. Jefferies or Jefferies and Co. besides you? Mr. HURWITZ. I don't think anyone. Mr. WYDEN. And you at no time told Mr. Jefferies that Pacific Lumber was a takeover target. Mr. HURWITZ. No, sir. Mr. WYDEN. Mr. Hurwitz, could you describe any judgments or settlements that you or your companies have entered into as a result of alleged securities law violations? Mr. HURWITZ. Could you repeat it? Mr. WYDEN. Could you describe any judgments or settlements you or your companies have entered into as a result of alleged security law violations? Mr. HURWITZ. In 19‹I don't recall the date, but it was maybe 19‹ Mr. WYDEN. The 1981. Mr. HURWITZ. Yes, 1970-71. There was an alleged violation on a company called Hair Extension, which 46 people were named. I was one of the people named in that. I signed a consent order. Most consent orders say you need to admit or deny guilt. Mine says I deny guilt and I think it was 1970 or 1971. Mr. WYDEN. Have you or your companies had any judgments or settlements as a result of charges by State or Federal regulatory agencies? Mr. HURWITZ. I think there was a settlement with the New York incident. Mr. WYDEN. Could you give us further details on that? Mr. HURWITZ. There was some allegations, and I really forgot the details of it‹I will be glad to provide it at a later date. I don't recall the details. Mr. WYDEN. Have you or any of your companies had any dealings with Ivan Boesky? If so, could you describe those dealings? Mr. HURWITZ. No. Mr. WYDEN. Did you answer that no? Mr. HURWITZ. No. Mr. WYDEN. United Savings Association of Texas, a large savings and loan association that you control, purchased $10 million in securities from Mr. Boesky, did it not? Mr. HURWITZ. No. They own some securities that he issued. They came through a broker-dealer. In fact, you are right. They did purchase some bonds and later sold them, but that was an underwritten public offering. Mr. WYDEN. Mr. Chairman, I will have additional questions a little bit later. Mr. DINGELL. The Chair thanks the gentleman. Mr. Hurwitz, your statement of October 2, 1985 says as follows: ³Contracts with the company.² That is at page 18, and it said, ³MDI owns 500,000 shares and MCOP owns 494,900 shares which were purchased on the open market. And it goes on to indicate the dates of the purchase. Now, going back to our earlier questions, how can you call those open market purchases and not call them negotiated purchases? Mr. HURWITZ. Mr. Chairman, I did rely on my attorneys. They were fully aware of this transaction. It does seem to me, again, as a known lawyer, that this is correctly stated. But they wrote the document. Mr. DINGELL. You signed it. Mr. HURWITZ. It is possible. I don't know if there was anything to sign here, but I may well have. Mr. DINGELL. The Pacific Exchange was open on the day in question, was it not? Mr. HURWITZ. I'm sorry. Mr. DINGELL. The hurricane closed the Exchange in New York, but didn't close it on the Pacific. The Pacific Exchange was open. Mr. HURWITZ. I thought it closed on the Pacific as well. Mr. DINGELL. No, it was open for 2 hours that day. Was Mr. Jefferies selling on the Pacific Exchange? Mr. HURWITZ. I don't know in the case of Pacific Lumber. It was an over-the-counter transaction. Mr. DINGELL. But Jefferies sold on the Pacific Exchange as well as the New York Exchange, did he not? Mr. HURWITZ. Sold Pacific Lumber shares. Mr. DINGELL. No, no, he just sold on that particular Exchange. Mr. HURWITZ. I don't know. Mr. DINGELL. Do you now maintain an account with Jefferies? Mr. HURWITZ. Do I? Mr. DINGELL. Yes. Mr. HURWITZ. Personally or corporately? Mr. DINGELL. Personally or corporately, either one. Mr. HURWITZ. I don't have a personal one, and there is a corporate account, yes. Mr. DINGELL. You do have a corporate account. In which corporation is that? Mr. HURWITZ. I think MCO holdings and MAXXAM. Mr. DINGELL. How long have you had that account with Jefferies? Mr. HURWITZ. Many years. Mr. DINGELL. Now, do you negotiate sales of stock with Mr. Jefferies on the third market, or do you function strictly according to the rules of the over-the-counter there, or how do you function? Mr. HURWITZ. Both. Mr. DINGELL. Both? Mr. HURWITZ. Yes, sir. Mr. DINGELL. When you function in the third market, what do you do with the Jefferies firm when you call and say, you want to buy stock on the third market how do you do that? Mr. HURWITZ. Sometimes they offer positions and it is a net sale or could be with a commission. Since they are not a member of the New York Stock Exchange, they often trade when certain securities have news and they close on New York, Jefferies and other continue to trade, and that is third market, and they do that and will trade at any time. Mr. DINGELL. Is that a negotiated sale or an over-the-counter purchase? Mr. HURWITZ. I don't know that there is any difference. Mr. DINGELL. Isn't it true that in over-the-counter, one has bid and offered? When you read the reports in the press, it says bid, it says offer, and on the electronic communications that flow through that system, you see bid and offered, do you not? Mr. HURWITZ. Yes, sir. Mr. DINGELL. If you want to bid, you bid, and if you want to offer, you offer. If you see an offer, you offer, but you don't necessarily have to bid‹those are not negotiated, are they? There is no element of negotiation, you just say here it is? Mr. HURWITZ. It could well be. Usually the bid and ask may be 100 shares, and you may want to do 500 shares. You have to negotiate whether that bid or ask is for that number of shares. Mr. DINGELL. At this time the Chair will recognize minority counsel for questions. Mr. SMITH. Mr. Hurwitz, did you and Mr. Jefferies in the course of your discussions have conversations as to what would happen if the put-call arrangement was not effected? Mr. HURWITZ. No. Mr. SMITH. In a formal put-call agreement, I think you have testified and staff is aware that there is provision for compensation; i.e., the carrying cost of the money for the stock that is held for whatever period it is held. You have indicated to us that the $29.10 that you paid for the stock would have been the price pursuant to the put-call arrangement; is that correct? Mr. HURWITZ. Yes. Mr. SMITH. And you have also indicated that you anticipated that the put-call arrangement would contain terms covering the carrying costs; is that correct? Mr. HURWITZ. Yes. Mr. SMITH. In fact, when this over-the-counter purchase or negotiated sale, however you might want to term it, took place, the net price was $29.10; is that correct? Mr. HURWITZ. Yes. Mr. SMITH. Can you give us any indication of what happened to the anticipated carrying costs that you would have had to pay? Mr. HURWITZ. I think that that was built into that price of $29.10. Mr. SMITH. So far as the negotiated sale was concerned, but it would not have been built in under the put-call arrangement; is that correct? Mr. HURWITZ. It is my understanding, and I am not an expert in this also, but if an arrangement like that had been put in that it would have been put in at $29.10 plus interest on how many days it took to get Hart-Scott, so it would be $29.10, plus whatever interest on top of that, and since there wasn't any more carrying date, it was purchased outright, there wouldn't have been that extra charge. Mr. SMITH. So, there would not have been a charge for the carrying costs from the time shares were accumulated until the time the option was met? Mr. HURWITZ. It was my understanding that that was all built into the $29.10. I can't reconstruct the $29.10, exactly how I got there, but I understood that was cost to carry and commissions and everything else in the $29.10. Mr. SMITH. As far as the $29.10 on September 27, do you have any knowledge that this was an open price that Jefferies was making available to anybody who wanted to buy Pacific Lumber stock at that point? Mr. HURWITZ. I don't know that. Mr. SMITH. In the course of the New York Stock Exchange investigation of the Jefferies transactions, the Stock Exchange indicated the following: The Exchange via the NASD ascertained the following information concerning the Pacific Lumber purchase attributable to Jefferies and Co., Inc.: ³One, Jefferies and Co., Inc. acquired a position of 539,600 shares of Pacific Lumber in order to establish a risk arbitrage position. The position was accumulated over the period of August 1, 1985 through September 20, 1985.² Would you consider that to be a correct statement in light of your knowledge from your discussions with Mr. Jefferies? Mr. HURWITZ. It is certainly possible. Mr. SMITH. ³Two, the firm maintains that it had no agreements with MAXXAM or any of the parties that were involved in the ultimate acquisition of Pacific Lumber.² Would you consider that to be an accurate statement in the context of your discussions with Mr. Jefferies? Mr. HURWITZ. Yes, sir. Mr. SMITH. ³Three, Lloyd L. Jefferies was the trader who effected the Pacific Lumber purchase on behalf of the firm.² Is that correct to your knowledge? Mr. HURWITZ. Yes. Mr. SMITH. ³Four, on September 27, the firm sold its entire position to MCO holdings. The sale was noted in the 14-D-1 filing and the filing did not allude to any previous agreements regarding the sale of stock by Jefferies.² Is that correct? Mr. HURWITZ. Almost. A small piece in the document went to MPI, 44,000 shares, but other than that, yes, sir. Mr. SMITH. Thank you very much. Mr. Chairman, I have no further questions.