tion taken at the meeting. (See Chapter XXI of Machen's Modern Law of Corporations.)

The form of ballot used by the Erie Railroad (p. 90) is used where cumulative voting is not practiced, though it may be used even in connection with cumulative voting. For a description of cumulative voting, see the General Corporation Laws of the State of Illinois (p. 35). See an article on The Mathematics of Cumulative Voting, Journal of Accountancy, January, 1910.

Modern corporate monopolies became known as "trusts" because the first form of organization of importance and stability was a voting trust agreement (p. 91) wherein the stockholders in several corporations surrendered their right of control to trustees who elected the directors in the constituent companies and in that way were able to establish harmony of action. The common law of voting trusts, aside from any question of monopoly that may be involved, was established by the New Jersey cases of Chapman vs. Bates, 61 N. J. Eq. 658; Warren vs. Pim, 66 N. J. Eq. 353.

The Great Northern Iron Ore Certificate (p. 98) is a certificate of interest in properties held in trust, similar to the Massachusetts Trust. It is a certificate without par value. For a description of the properties and other matters relating to the trust, see the Report of the Commissioner of Corporations on the Steel Industry.

Mr. W. H. Lyon, in his Capitalization, A Book on Corporation Finance, very clearly brings out the attributes of ownership in a corporation, whether it is the immediate ownership of a stockholder or the contingent ownership of a bondholder. The three attributes of interest are control, income and risk; one security-a stock or a bond -differs from another security through some variation in control, risk or income. The control of stockholders is direct or indirect. Where a proposition is brought forward involving all the property of the company, stockholders usually have direct control; that is, there must be a referendum of the proposition to the body of stockholders. Matters involving ordinary management are subject to the stockholders' indirect control only; that is, they are passed on by the board of directors. The New York statutes (p. 99) are typical of the statutes of most States in respect to the questions that must be decided by a referendum to the stockholders.

The excerpts from the certificate of incorporation of the California Petroleum Company (p. 101), the Chicago, Milwaukee & St. Paul Railway Co. (p. 105), and the May Department Stores (p. 107) are given to illustrate the different kinds of preferred stock. The student will do well to analyze these excerpts very carefully and to make a table of the different kinds of stock illustrated. At the same time

he ought to undertake to tell whether a given provision in the charters has been included for the purpose of varying the control, the income, or the risk.

The Uniform Stock Transfer Law (p. 111) made certificates of stock wholly negotiable. If A endorsed a certificate in blank and then lost it, under the common law it would appear that his title would never be divested except if the loss was occasioned through his own negligence. Nobody could get title unless the finder or a subsequent holder procured a transfer of stock to his own name, and then with the certificate in his own name made assignment to an innocent purchaser for value. It would appear that this last-named person would get title as against the corporation, not as against A. Under the Uniform Law, the first bonafide purchaser for value gets title as against the original holder.

More stock is transferred in New York than in any other State, or perhaps than in all the other States taken together. The Transfer Tax Law (p. 114) of New York State and the regulations of the State Comptroller (p. 122) are therefore very important to the student of corporation finance. Transfers of stock are governed by statute, by bylaws, and by the Stock Exchange rules when the transfer is being made between members of the Exchange. A great many of the large corporations have found the rules of the Stock Exchange governing transfers (p. 126) at once safe and convenient, and therefore have adopted their own code of rules (p. 171) based on the Stock Exchange Regulations. See generally on this subject Goldman's A Handbook of Stock Exchange Laws.

The rules governing the listing of stock on the New York Stock Exchange (p. 151) are interesting to the student of corporation finance because they outline the practical considerations involved in an issue of stock. When a corporation makes an application to list its stock, the members of the Exchange are notified through a statement, an illustration of which is given on page 162. The whole subject of the control of the Stock Exchange over listed securities is important at this time on account of the agitation to get greater public control of the exchanges of the country, especially of the New York Stock Exchange. Notice in the application of the Pacific Light and Power Company (p. 163) the protection offered to bondholders through the modern device of the improvement fund. See generally on this subject Chapter VII of Meade's Corporation Finance.

The form of real estate bond and mortgage (p. 180 and p. 176) was prepared by the Lawyers' Title Insurance and Trust Company of New York. Before the student undertakes to study the corporate mort

gage, he should master the ordinary real estate mortgage, and study the rights of the mortgagee thereunder.

The corporate mortgage of the Jones Laughlin Steel Company (p. 183) is given in full, except that part of the description of the property pledged was omitted as being of no value to the student. This mortgage is a thoroughly typical mortgage and can well be made the basis of a study of bonds and of the subject of the rights of bondholders of insolvent companies. Notice particularly the restrictions on the issue of the second $15,000,000 worth of bonds to be issued and compare these restrictions with those placed on the issue of the first $15,000,000. (See generally Chapter V of Meade's Corporation Finance.)

Bonds may be classified on the basis of their purpose, their security of principal and interest, their manner of payment of principal and their manner of payment of interest. Besides the words listed below, many other words are used in the titles of bonds; the words given are most frequently used in practice.

Purpose of bonds: Adjustment; consolidated refunding; construction; extension; improvement; purchase money.

Security of principal: Prior lien; first, second, third mortgage, etc.; underlying; overlying; senior; junior; bridge; ferry; dock; wharf; divisional; terminal; general mortgage; first and consolidated, and other phrases indicating that the mortgage is not the first mortgage on all the property; debenture; collateral trust; equipment or car trust; sinking fund; income; participating or profit sharing; joint; assumed; guaranteed; endorsed; stamped; receiver's certificate.

Manner of payment of principal: Gold; silver; currency or legal tender; redeemable or irredeemable; serial or equal installment; convertible.

Manner of payment of interest: Registered; coupon; interchangeable; registered as to principal with negotiable interest coupons.

In studying the mortgage try to discover the attributes of the various bonds above enumerated. For a complete description of all kinds of corporate bonds see Chamberlain's Principles of Bond Investment.

The mortgage of the Mortgage-Bond Company (p. 255) brings out the international nature of large flotations. It is also important as illustrating a method of securing bonds with shifting assets.

The subject of collateral trust bonds (p. 255) may be studied in connection with this mortgage as well as in connection with the Jones Laughlin mortgage, and should be coupled with a complete discussion of the financing of subsidiary companies. For a complete description of corporate mortgages, see Jones' Corporate Bonds and Mortgages.

Short term notes (p. 291) are temporary substitutes for bonds and their place in corporation finance is very important. It is said that they are used amongst the banks in New York to settle clearing house balances.

The reason why a safe investment like an equipment bond pays a high rate of interest should be understood by the student.

Equipment trust agreements (p. 299 and p. 313) do not take the form of an ordinary mortgage on account of the effect of the afteracquired clause in the usual corporate mortgage. The equipment trust device is used in order to provide a first lien on the equipment before it can be subjected to the lien of the general mortgage of the corporation. The device should be clearly worked out by studying the various transfers of the legal title to the property from the time it leaves the car company to the time the corporation gets physical possession. Another question of importance is, why are equipment trust notes (p. 301) well treated in reorganizations?

The subject of refunding and the function performed by the banker is a subject that may well be considered in connection with the advertisement of the Toledo Traction Company (p. 320). What is the object of the Toledo Traction Company in refunding the bond issues of its subsidiaries? Why do corporations refund their bonds instead of paying them? The theory of funding and refunding is thoroughly discussed in Chapter II of Lyon's Capitalization. See also pages 398 and 399 of Meade's Corporation Finance.

Convertible bonds make up a large part of the security issues of corporations. Their advantages are well pointed out in the Spencer Trask circular (p. 324). For a thorough discussion see Lyon's Capitalization, p. 43 et seq. and p. 90 et seq.

The advertisements printed on page 336 should be used in connection with a discussion of Article 4 of the Jones Laughlin Steel Company mortgage.

A complete compilation and analysis of the laws of forty-three States and of the Federal Government for the regulation, by central. commissions, of railroads and other public utilities has been published by the National Civic Federation (1913) under the title Commission Regulation of Public Utilities. The complete New Jersey Public Utilities Act is given on pages 337-349, and is typical of public service commission laws of other States. The rulings of the New York Public Service Commission on the issuing of securities have been abundant, and therefore the New York statute bearing on that point has been given (p. 350).

The general orders of the New Jersey Utilities Board on the issue of securities (p. 351) is a fair summary of the attitude of public ser

vice commissions toward new issues of securities or bonds, and may well be made the basis of a study of the formation of the financial plan for new corporations. For example, the corporation to be created referred to in the Engineer's Report (p. 457).

The whole subject of stockholders' rights (p. 358) has been thoroughly worked out by the New York Court of Appeals in the case of Stokes vs. Continental Trust Co., 186 N. Y. 285. The theoretical value

of a right may be found from the following formula:


1+ R

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where P

is the premium on the old shares and R is the rate or percentage of increase. For a discussion of rights and of the application of this formula see Lough's Corporation Finance, Chapter XXIV.

The various documents beginning with the newspaper advertisement announcing the sale of the United Dry Goods Company preferred stock (p. 367) down to and including the bond letter of N. W. Halsey and Co. (p. 404) should be considered carefully in connection with the problem of selling securities to the public. Compare the dignified letter of N. W. Halsey and Co. with the delightfully ingenuous letters of the Sterling Debenture Corporation (pp. 383-4). The editor has frequently wondered why that corporation did not more abundantly exult in the discovery of natural rubber trees. Probably only a quotation from Holy Writ could adequately express the Company's joy in finding itself in partnership with Nature. Apply to all these documents the fact and opinion test; to what extent does the corporation. or its agents make representations based on past facts instead of cunningly twisting expressions of opinion, upon which action for fraud cannot be based, into apparent statements of fact.

The subject of syndicate underwriting, illustrated by documents on pages 410-411, was first strongly called to public attention by the insurance company investigation of the State of New York, in which investigation Charles E. Hughes, now Supreme Court Justice, was inquisitor. For a statement of management, profits and losses, etc., of underwriting syndicates, see the report, entitled Testimony Taken by the Legislative Insurance Investigating Committee, New York, 1905. See also Chapters XVIII and XIX in Lough's Corporation Finance, Chapter II of Cleveland and Powell's Railroad Finance, and Chapter XIII of Meade's Corporation Finance.

Wall Street Ways (p. 421) will be especially interesting to those who care to use the book in a study of speculation and investment. This document, with those following down to and including those on puts and calls, might well be studied in connection with the Stock Exchange rules mentioned above. See generally on this subject Con

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