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Although the contestants, Colgate and others, seemed to be fighting for the rights of a small minority, a large part of those who joined the suit were actuated by no such lofty ideals of abstract justice. Many of them acquired their stock long after the plan of reorganization was made public and some even after the suit had passed through the preliminary stages of trial. These men entered the contest with no purpose of defending rights already existent. They had a speculative interest only. Reduced to its simplest terms they believed they were in a position, by restraining the merger, to compel the management to offer exorbitant terms of settlement. All reorganization proceedings are impeded by the horde of gamblers who stand ready to buy, on a speculative basis, almost any security of doubtful value and then to clamor loudly for the abstract justice of their rights.

It is not difficult to summarize the history and final reorganization of the United States Leather Company. Conceived originally at a most unfortunate time the combination had to face, at the very outset, the most trying period of the last thirty years. It operated in a business where the burden of a long depression and falling prices was particularly heavy. Had the company been heavily capitalized with bonds instead of preferred stock it would have succumbed. But since the capital charges were contingent, they could be postponed. As a result the unpaid dividends began to accumulate during the first year of the company's history and acted as a burden during its entire existence. The company did not suffer from the administration of inferior men. The first president of the United States Leather Company, Mr. Procter, was said to have been the ablest man in the leather business. But it is improbable that there exist men of sufficient business ability to manage a large tanning business producing upwards of $50,000,000 worth of leather a year with the same skill that the man of ordinary endowments could manage a small tannery. During the first few years the company felt no need of additional working capital as is shown by the fact that two fifths of the issue of $10,000,000 of debenture bonds were never sold. But beginning with the trade expansion which set in about 1899 this need began to be felt. So that in

the successful reorganization of the company the provisions for an ampler working capital were quite as important as the relief from the burden of accumulated dividend charges. The reorganization turned on the consent of the preferred stockholders to suffer a reduction in income and the common stockholders a reduction in the par value of their security. As a result both the capital charges and the capitalization were reduced. In these respects the reorganization is typical of most industrial reorganizations and in contrast to most railroad reorganizations. It is its simplicity that makes the history of the United States Leather Company significant for the general study of industrial finance.

XII

UNITED STATES SHIPBUILDING COMPANY1

INCORPORATION

THE

HE United States Shipbuilding Company was incorporated on June 17, 1902, under the laws of the state of New Jersey. The incorporators were Howard K. Wood, Horace S. Gould, and Kenneth K. McLaren. . . . The incorporators collectively subscribed for fifteen shares of the preferred and fifteen shares of the common stock of the company.

On June 24, 1902, the incorporators above named, constituting the stockholders of the company, held their first meeting. . At this meeting Frederic K. Seward was elected a director for one year, Raymond Newman was elected a director for two years, and Louis B. Dailey was elected a director for three years, the minutes of the company reciting that Howard K. Wood, one of the incorporators and subscribers to the stock, had assigned his right to one share of common stock to each of the persons above named to qualify them as directors. No stock of the United States Shipbuilding Company, however, was issued to or placed in the name of these directors, so far as the records of the company disclose.

On the said 24th day of June, 1902, the first meeting of the directors of the United States Shipbuilding Company was held. At this meeting there were present Louis B. Dailey, Raymond Newman, and Frederic K. Seward, being all of the directors. The minutes recite that the Board proceeded to the election of officers for the ensuing year, and, ballots having been cast and counted, it was found that Raymond Newman had been elected

1 From Report of James Smith, Jr., Receiver, filed Oct. 31, 1903; United States Circuit Court, District of New Jersey, R. R. Conklin, et al. v. United States Shipbuilding Co. [Condensed by omission of immaterial parts and legal repetitions.] For additional references, see p. 438.

president; Louis B. Dailey, vice-president; and Frederic K. Seward, secretary and treasurer. The persons above named as incorporators were . . . all connected with the Corporation Trust Company of New Jersey as officers or otherwise, and the place of residence above stated being the New Jersey office of said Trust Company. The directors were also employees of said company.

At this meeting of the directors an offer was received from one John W. Young, of which the following is a copy:

OFFER OF PROMOTERS

TO THE BOARD OF DIRECTORS, etc.,

NEW YORK, June 24, 1902

unto your Company for the

I hereby offer to convey, sell, etc., consideration hereinafter stated, the following property, viz. :

(1) All of the capital stock of the Union Iron Works of San Francisco, Cal., . . . together with all of its property, real and personal, business and good will as a going concern, I hereby agreeing that this corporation has no bonds out and no indebtedness except current accounts, etc.

Messrs. Henry T. Scott and Irving M. Scott have agreed with me ... to enter into the usual contract with your Company not to compete with it in its business, and not to employ their capital . . . for the period of ten years.

This offer of the stock and property of the Union Iron Works is made also upon the following express conditions, viz. : That your Company shall enter into a contract extending over a period of five years with Messrs. . . ., now connected with the management of the Union Iron Works, to act as officers or managers . . . for this period of five years at an annual salary to be paid to each of $10,000, etc.

(2) The entire capital stock of the Harlan & Hollingsworth Company of Wilmington, Del., etc.

(3) Also the entire capital stock of the Eastern Shipbuilding Company, etc.

(4) All of the real estate of the Canda Manufacturing Company, etc. (5) Also the entire capital stock of the Crescent Shipyard Company .. and the business of the Crescent shipyards heretofore conducted by Lewis Nixon.

(6) Also the entire capital stock of the Samuel L. Moore & Sons' Company.

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(7) Also the entire capital stock of the Bath Iron Works . . and of the Hyde Windlass Company. . . .

(8) Also 300,000 shares out of an entire issue of 300,000 shares of the capital stock of the Bethlehem Steel Company . . . engaged in the business of manufacturing and dealing in iron and steel and the products thereof.

I will also pay, or cause to be paid, to your Company $1,500,000 for working capital, and will also deliver, or cause to be paid and delivered to your Treasurer or other nominee, the following securities, viz. : $1,500,000 in par value 5 per cent, thirty-year gold bonds of United States Shipbuilding Company, the same to be held as Treasury assets and disposed of for working capital or other purposes of the Company as your Board of Directors shall hereafter determine.

It is a further condition of this offer that in cases where your Company shall acquire both capital stock and properties of any of the corporations included in this offer, you shall guarantee, or otherwise assume, any promissory notes or other obligations which it may be necessary or desirable to put into the treasuries of such corporation or corporations for the protection of their creditors, or to avoid violation of the statutes of any state or states.

I will accept in full consideration for the conveyances . . . above offered to be made $19,998,500 in par value of the full paid and nonassessable preferred stock of your Company, $24,998,500 in par value of the full paid and non-assessable common stock of your Company, $16,000,000 par value of the first mortgage five per cent sinking fund thirty-year gold bonds, Series A, of your Company secured by a mortgage which will be a first lien upon all the property and plants of the Union Iron Works, etc. (above named companies); also $10,000,000 par value of the 5 per cent twenty-year gold bonds to be made by your Company and to be secured by a mortgage upon the shares of stock of the Bethlehem Steel Company and otherwise, as hereinafter stated.

In case you accept the offer of the stock of the Bethlehem Steel Company the purchase must be made upon the following conditions: (1) The stock . . . is to be deposited with the New York Security & Trust Company under a mortgage or deed of trust which shall be a first lien upon the stock so acquired, and, subject to the priority of the mortgage to secure said $16,000,000 of bonds, shall be a lien upon the property and plants covered by said $16,000,000 mortgage. . . . The holders of each $1,000 par value of said bonds to have the same voting power as the holders of each $1,000 par value of the stock of your Company.

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