The Jersey City news. (Jersey City [N.J.]) 1889-1906, 1896-04-27
FRAUD CHARGED.
TNHUU UEIHnUEU.
Argument on the American
Tobacco Company's Case
in Chancery Today.
NICE POINTS OF CORPORATION LAW
Counsellor Thompson Claims That
the Payment Of Scrip Div
idends Is Illegal.
NICE POINTS OF CORPORATION LAW

| The order to show cause why an in
| junction should not issue to restrain the
| American Tobacco Company from paying
| out scrip dividends of twenty-five per
| cent. from their surplus came up this
morning before Chancellor McGiH in
Chancery Chambers here this morning.
The petition for this injunction filed
last week with the Chancellor on behalf
of Frank Hillman Hall of Jersey City,
one of the stockholders, who declares that
the payment of two per cent. of cash
and twenty per cent. of scrip upon the
common stock of the company is unlawful
and in direct violation of the conditions
| for the issue Of preferred stock Mr.
Hall, through his counsel, Messrs Dickin-
son, Thompson and McAIaster further
states that by the investment of upwards
| OF. four millions of dollars on the purchase
OF new business and the proposed dividend
| upon the common stock practically the
whole of the undivided surplus of the
| company is to be divided and paid out,
so that no part of the surplus will be
kept IN the treasury for the benefit of
| holders OF preferred stock and secure to
them the preference on the assets of the:
company provided for by the certificate
OF organizat tion. Mr.. Hall continuing.
cites the action in New Jersey taken BY
the Attorney General to break up the
trust, and said by the laws OF New Jer-
been guilty of fraud because it was a
combination. of certain persons and com
panles for the purpose of endeavoring to
destroy all competition in the manufac-
ture Of cigarettes, and for the purpose Of
lnJurlng the business OF other manufac-
! turers than those controlled by the
american Tobacco Company
Counsel for Mr.. Hall told the Counsellor
liiis morning that in view of these pro-
eeeelngs to break up the trust it may be
arsGTeea rahe against the company, the American
Tobacco tCOmDaOxy I.e of,I4o
WIND up its affairs and dissolve If the.
present action of the directors in issuing
sile ulvlaend pc tolerated there would be
no assets to be divided among the pre-
ferred stockholders - q
counsellor Richard v. LindaiblIry yvfe,,
of ofe peatlon ts was read, read the answer
Which set up that the cornpany,s canifa1I
Mnen - organized, was S25. 100000, divided
diVjdd IivG 4vooo shapss a5 OF which 1000 was
lars each. issued as general or common
stock, and Sl0,0000O0 of stock divided intn
called called sasS preerre 9f pne e ngnarea dollars wsrs
of per cent. - Z =
&c contin1aing, NUN Mr. Lindabury said that.
$50, ,0O0, 600. Then counsel attjaclxed tl,.fs
/ / sco1aptaanant, Mr.. Frank Hill, by saving
that he is not a bona fide stockholder Of 81
any shares OF the Tobacco Conpany
AS for the SURPLUS, continued CONN
sci on the 3lst of December, 1895, the
smouag q sta a., e earned and accomplished was
cash and scrip declared on common stock
od the company amounted only 20 s3.asS
wv. Ine preferred stockholders have
dend and the surplus,r IS, 900 81. .S6' belongs
to the common stockholders sole,y Nv
New se Jerseys laws; As for the proceei-
IN New Jersey Mr.. Lindabury denied fhat
| it was illegal. -
,,s Counsellor Charles D. Thompson for
argument for the injunction. In the
main he directed his attention 10 tht
payment Of the scrip of 20 per cent.
Although the value of preferred stock
| was was, Twice as much as the com
MOI, mon oa, stock. yet the latter being more
numerous could at any time outvote the
| preferred stockholders, who really neid
| more stock than they. Counsel said that
Dy pne constitution of the company s
per cent should be paid first as diyi-
dend TO the holders of preferred stock
/ snen ine common stockholders were to
De De y, paad a per cent. and the surplus pro
fdua De dIyl ed between both. The com.
pany, he said, by their new project pro
pose to. create 100000 of indebtedness
me aI0s.I holders 4 Of which could come in and
! OF the preferred stockholders. which wa 3
clearly an infringement and violation Of
! the charter. of the company and it should
be enjoined from such a proceeding.
Turning, to the 2 per cent. dividend
Mr., Thompson said that BY the. e. act &c t'io of
| incorporation the working capital and
/ surplus at certain time can be Divided
once a year, but within the year they
cannot divide the surplus as in the nres
ent plan to take S4,000, 900 out of the sur
| stockholders.
should this company be wound IN and
! Ine surplus impaired as proposed there
preferred stockholders under fher s1s,, " ~
amy, said Mr.. Thompson
fou are In error, interposed Mr.. Lin
and $so0ooo0 assets 9 inaISina ls ~ s7sy9V00o 0 oo
remains $3S, 600, ,000.'' go
of assets outside of the S8. 600 600. refo,sf-
! ed Mr.. Thompson, who further added
enSn1a ennt fe ;n atttempt nt to attack Mr. Hall the
permit the defendants to escape. He
| closed by asking for an Injunction. Mr
Hali was legitimate, bona fide stock
Counsel for the Tobacco Company. Mr.
Fuller, in reply, entered what is known
as general denial. He said that on the
final dissolution of the company the pre
Isferred stock can only be redeemed after
an the claims had been paid Preferred,
stock gould not be considered as guar
| of Mr.. Thompson as to the distribution
| Of dividends, namely preferred stock.
eight per cent; then the common stock
| eight per cent. and the surplus divided
! between both. Such proceeding was nsf
! In accordance with business rules he con-
| tended. AS for the stock or scrip Issuance
| there is no diminution in the assets Of the
| company.
But your certificate of organization
| does not permit you to issue scrips. ;, in
'terrupted Mr.. Thompson, a point which
counsel on the other SIDE admitted was
| correct.
| He said further that the division sim.
ply meant a dilution of stock among the
/ common stockholders.
Mr.. Lindabury followed his colleague
! Mr.. Fuller, and related the transfer of
/ ten shares of stock to Mr. Frank III
I Hall which small amount in relation to
/ the 600 of capital stock in the COM
| pany counsel said did not entitle him to
/ Interfere. The filing of the bid was not
/ q bona fde one, and cited opinions Of
English equity judges whip decreed
1 against complainants who, for a supposed
! injury of a small amount of stock, bring
| and incur expensive suits against big cor
! porations. There was a secret motive
| and someone else was moving the cause.
/ Mr.. Lindabury contested. The action. he
/ sad, if his contentious were right.
should be dismissed as a fraud, and IN
support Of that position cited a large
number of cases. : q
Give me New Jersey cases upon that 81
Interrupted the Chancellor; but ldr. Lin
Gabury didn't have these cases with him.
and Mr.. Thompson S face wore a broad
smile at his opponents dascornfi tlire.
Mr. ~ iy1abury after the luncheon hour
resumed his argument, laying stress on
| the right OF the company to do what
they please with the earnings Of the