in the Circuit Court for the Southern District of New York. Treble damages aggregating $500,000 were asked for by the plaintiffs. The officers of the Company refused to put in verified answers and when directed to do so refused to comply with the order on the ground that to do so might incriminate them. Repeating the order Judge Ward on January 2, 1912 said: It is intimated by the defendants that the court's suggestion that a corporation which has no officer who can verify its answer without tending to incriminate himself and who is willing to do so should elect one who can, is immoral. Why? It can hardly be assumed that a corporation in such case (which, indeed, is very hard to imagine) ought to submit to a judgment by default if it has a defence. On the contrary, it would seem to be clearly its duty to elect an officer who can verify its answer without incriminating himself. Next they say that such an officer would be a dummy, elected to deceive the court and evade the law. This suggestion of theirs is really immoral. I assumed exactly the contrary, namely that such an officer is elected because he can verify without incriminating himself and the corporation will not ask him to verify a false answer, and if it does he will refuse to do so. Another criticism made is that by-laws of the corporation may not enable it to fill a vacancy. There may be such a corporation, but I will not make my decision depend on such an assumption. Judge Ward held that the decision of the United States Supreme Court in Hale against Henkel asserts that a corporation has no privilege against self-incrimination under the Fifth Amendment of the Constitution and that its officers and employees cannot set up their personal privilege for its benefit. Another Sherman law suit for $300,000 damages brought against the American Tobacco by L. Locker & Co, tobacco dealers is pending (1912) in the United States District Court for the Southern District of New York. The American Snuff Company in September, 1911, instituted a trade-mark suit in the Circuit Court for the Southern District of New York against the old Indian Snuff Mills, claiming that the latter had no right to use the brand “Copenhagen." Counsel for the defendant asking for permission to put in an amended answer on September 28, 1911, raised the point that as the Supreme Court had decreed the American Tobacco Company and its subsidiaries to be an illegal combination, the American Snuff Company could not prosecute a suit. He said: We now have the situation where a complainant who had been convicted of conducting business in violation of the law, stands before a court of equity, and demands that the court grant it exclusive rights to continue its unlawful business by enjoining others from trading in the very article that the complainant has employed in monopolizing the industries, and crushing competition. Surely, a court of equity will not protect a wrongdoer, and give him exclusive rights to continue wrong-doing. The stockholders of the American Tobacco Company learned the exact terms of the pro rata distribution from a circular sent out on December 8, 1911. Like the Standard Oil Company, the American Tobacco Company had an uneven amount of the $100,000,000 common stock outstanding, and was therefore constrained to use the fractional method of indicating the allotments. There were 401,824 shares of the common stock of the American Company outstanding, and this was used as the denominator of a fraction of the numerator, as in the case of the Standard Oil distribution, representing the number of shares of the stock of the subsidiary held in its treasury. The American Tobacco fraction's denominator was less than half that of the fraction the Standard Oil shareholders had to wrestle with. In no case except that of the British-American Tobacco Company did the allotment on a single share of American common amount to a full share. The smallest number of shares required to get a full share of any of the other eleven stocks distributed was 6 in the case of the American Snuff Company common stock, and the largest number required was 233 shares to obtain a full share of the Johnston Tin Foil & Metal Company stock. The exact pro rata distribution of the various stocks is given in this table, in which the figures represent the numerators of fractions having 401,824 for their denominators: COMPANY American Snuff Company common stock... No. of 401,824ths allotted to each share of American Tob. Com. 75,908 23,764 27,602 27,602 21,129 7,043 4,950 British-American Tobacco Company, Limited, ordinary shares (£1 each) 5 full shares and ... . .270,892 The company issued this explanation of the table: Each common stockholder of the American Tobacco Company may in advance ascertain the number of shares that he will be entitled to receive by multiplying the foregoing fractions by the number of shares of common stock of the American Tobacco Company standing in his name on Dec. 1, 1911. Certificates of stock will be issued only for whole shares. Each common stockholder will receive stock certificates for the whole number of shares, and warrants for the fractions of shares, to which he is entitled. Such warrants will not entitle the holder thereof to vote or to receive dividends, but by combining such fractions into whole shares or multiples thereof the warrants may at any time be converted into stock certificates at which time the holder thereof will receive accrued dividends, if any. The shares of stock thus distributed will not carry or entitle the holder to receive any dividend declared thereon prior to Jan. 1, 1912. All certificates of stock except those of the British-American Tobacco Company, Limited, and all warrants for fractions of a share will be sent to the common stockholders of the American Tobacco Company or upon their order, as and when the necessary computations can be made, and certificates and warrants issued. For the shares of the British-American Tobacco Company, Limited, each common stockholder of the American Tobacco Company will receive instruments of transfer, with directions for their proper execution and transmission. The amount of the common stock of the two new companies, the Liggett & Myers Tobacco Company and the P. Lorillard Company, which could be purchased under the plan at par by each share of common stock of the American Tobacco Company is 214,064 of the 401,824ths of the former and 151,556 of the 401,824ths of the latter. That is, it required a minimum of two shares of American Tobacco to get a full share of the former and a minimum of three shares to get a full share of the latter. The company did not, as was the case with the Standard Oil Company, make its computations of what was coming to each stockholder before announcing the distribution; but, unlike the Standard Oil Company, it arranged for the amalgamation of fractions into full shares. It explains: As soon as computations can be made, there will be sent to each common stockholder of the American Tobacco Company of record Dec. 1, 1911, a warrant showing the number of shares of the common stock of Liggett & Myers Tobacco Co., and a separate warrant showing the number of shares of the common stock of P. Lorillard Company, that he is entitled thus to purchase for cash at par, which warrants will be assignable. These warrants will provide that payments be made at Guaranty Trust Company of New York, 30 Nassau Street, New York City, on or before the 10th day of January, 1912, and that otherwise the said warrants will be valueless and void. These warrants will indicate the number of whole shares and the fraction of a share that each common stockholder of the American Tobacco Company is thus entitled to purchase, but no fraction of a share of Liggett & Myers Tobacco Co. or P. Lorillard Company will be issued; this company having made arrangements with Guaranty Trust Company of New York to eliminate any fractions of a share by purchase or sale, at the option of the holder of the warrant. Any common stock of Liggett & Myers Tobacco Co. or of P. Lorillard Company not taken and paid for by the holders of said warrants in accordance with the foregoing provision, will be disposed of to other persons. The terms of the exchange of the other American Tobacco securities for the securities of the new companies and the retirement of the bonds of the American Tobacco Company were: On Jan. 10, 1912, and until the time fixed by the decree, the holders of the 6 per cent bonds, the 4 per cent bonds, and the 6 per cent cumulative preferred stock of the American Tobacco Company may surrender their securities to the Guaranty Trust Company of New York, and receive new securities and cash as follows: 1. Each holder of the 6 per cent bonds may surrender his bonds for can cellation, receiving in exchange 7 per cent bonds of the Liggett & Myers Tobacco Company and of P. Lorillard Company, amounting together at par to one-half of the par value of the bonds so surrendered, and cash at the rate of $120 and accrued interest for each $100 face value of said bonds for the other half of said bonds so surrendered. 2. Each holder of the 4 per cent bonds will receive 5 per cent bonds of the Liggett & Myers Company and of P. Lorillard Company, amounting together at par to one-half of the par value of the bonds surrendered, and cash at the rate of $96 and accrued interest for each $100 face value of said bonds for the other half of said bonds so surrendered. 3. Each holder of the preferred stock of The American Tobacco Company may surrender his stock for cancellation, receiving in exchange. therefor 7 per cent cumulative preferred stocks of Liggett & Myers Tobacco Company and P. Lorillard Company, amounting together at par to one-third of the par value of the stock so surrendered, and new certificates for 6 per cent cumulative preferred stock of The American Tobacco Company, amounting at par to two-thirds of the par value of the stock so surrendered, such preferred stock of The American Tobacco Company to carry full voting rights. The circular explained that as each class of securities of Liggett & Myers Tobacco Company held by the American company exceeded in amount the corresponding class of securities of P. Lorillard Company held by the American Company in the proportion of 58.65 to 41.35, they would be allotted in the same proportion in exchange for bonds and preferred stock; so that, for example, a person entitled, upon an exchange of securities surrendered by him, to receive $1,000 at par in securities of Liggett & Myers Tobacco Company and of P. Lorillard Company, would receive $586.50 in a security of Liggett & Myers Tobacco Company and $413.50 in a corresponding security of P. Lorillard Company. 'RULE OF REASON" RETROACTIVE The Supreme Court of the United States in announcing its "Rule of Reason" in the big trust cases declared that there was no escape from its application, whether or not it conflicted with previous decisions of the court, although it insisted that it always had applied the "Rule of Reason," and that it would do so hereafter because there was no alternative but the "Rule of Unreason." |