Memorandum, July 3, 1936

RE-ORGANIZATION MEMORANDOM July 3, 1936. 1. Desirabilit of Re-Organisation: de For a number of yeara the Corporation has had a capitalization far in excess of its business requirements. This capitslization could not be reduced with safety on account of the series of suits which has been standing against the Corporation since 1924. However, since the decision in the LaPorte case handed down by the Federal Court, all suits have been discontinued, so we are now, for the first time in many yeara, free from litigation. b. Our prosent eapitalization requires net earnings of $28,000. per year to pay proforred dividends. On account of present volumo of business and reasonable prospective volume, this is probably an amount which is in excess of that the Gorporation can hope to earn. The earnings have also been greatly effected during the past year on account of keen price competition. At the close of 1936 there will be an accumulation of unpaid dividends amounting to $168,000. Therefore, a re-orgenization should be based on a plan to oliminate this accusulation of unpaid dividends. O. If the Corporation is to continue as a going concorn, a reduction in capitalization to a point consistent with prospective business, would offect considerable savinga in taxation, particularly on Federal Capital Stock Tax. 2. Continuing VS. Liquidation: a. The question naturally arises as to the extent to which any dis- tribution of assets may be carried. Some of our stockholders may fool that the largest amount possible should be distributed at this time. Howerver, the Corporation has certain obligations in the way of annuities to two former employees, and carrying charges on an idle plant, which amount to $3,000. or $4,000. per year. It is reasonable to expect that this obligation may incresse as the two former employees require more medical attention. Thorefore, it would seem that a fair- ly substantial capital structure should be retained in order to pro- vide for these contingencies. b. Hith most of the unusual expenses, sueh as those involved in litigation, eliminated, it is reasonable to expect that the Corporation may be continusd on a profitable basis. If this is the case, our Proferred Stockholders would no doubt prefer to continue the business with a reasonable capital. 3. Preferrad Stock VS. Debentures a. In the set-up of a now capital structure, our present Preferred Share holders can be given a certain amount of eash and either new Preferred Stock or Debenturo Bonda. The thought is that in case new Preferred Stock is issued, one share of new Preferred should be given for 2 shares of the present Proferred, and that the new stock should be of No Par Value $5.00 Dividend Non-Accumlative. The stock could be made