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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
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"ocrText": "RE-ORGANIZATION MEMORANDOM\nJuly 3, 1936.\n1.\nDesirabilit of Re-Organisation:\nde\nFor a number of yeara the Corporation has had a capitalization far\nin excess of its business requirements. This capitslization could\nnot be reduced with safety on account of the series of suits which\nhas been standing against the Corporation since 1924. However, since\nthe decision in the LaPorte case handed down by the Federal Court, all\nsuits have been discontinued, so we are now, for the first time in many\nyeara, free from litigation.\nb.\nOur prosent eapitalization requires net earnings of $28,000. per year\nto pay proforred dividends. On account of present volumo of business\nand reasonable prospective volume, this is probably an amount which is\nin excess of that the Gorporation can hope to earn. The earnings have\nalso been greatly effected during the past year on account of keen\nprice competition. At the close of 1936 there will be an accumulation\nof unpaid dividends amounting to $168,000. Therefore, a re-orgenization\nshould be based on a plan to oliminate this accusulation of unpaid\ndividends.\nO.\nIf the Corporation is to continue as a going concorn, a reduction in\ncapitalization to a point consistent with prospective business, would\noffect considerable savinga in taxation, particularly on Federal\nCapital Stock Tax.\n2.\nContinuing VS. Liquidation:\na. The question naturally arises as to the extent to which any dis-\ntribution of assets may be carried. Some of our stockholders may fool\nthat the largest amount possible should be distributed at this time.\nHowerver, the Corporation has certain obligations in the way of\nannuities to two former employees, and carrying charges on an idle\nplant, which amount to $3,000. or $4,000. per year. It is reasonable\nto expect that this obligation may incresse as the two former employees\nrequire more medical attention. Thorefore, it would seem that a fair-\nly substantial capital structure should be retained in order to pro-\nvide for these contingencies.\nb.\nHith most of the unusual expenses, sueh as those involved in litigation,\neliminated, it is reasonable to expect that the Corporation may be\ncontinusd on a profitable basis. If this is the case, our Proferred\nStockholders would no doubt prefer to continue the business with a\nreasonable capital.\n3. Preferrad Stock VS. Debentures\na.\nIn the set-up of a now capital structure, our present Preferred Share\nholders can be given a certain amount of eash and either new Preferred\nStock or Debenturo Bonda. The thought is that in case new Preferred\nStock is issued, one share of new Preferred should be given for 2\nshares of the present Proferred, and that the new stock should be of\nNo Par Value $5.00 Dividend Non-Accumlative. The stock could be made"
}