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1902) MARINE REVIEW. 1s ENJOINING THE STOCK CONVERSION PLAN. C. H. Vennor & Co., as the owners of 500 shares of common stock of the United States Steel Corporation, and James Pollitz, owner of 100 shares, preferred, have brought an action in the supreme court of New Jersey, which was removed on Saturday last on the petition of the defend- ants to the United States circuit court, to enjoin the carrying out of the plan which the stockholders have approved for the issue of $250,000,000 of bonds in part in exchange for $200,000,000 shares of the preferred stock, and to prevent any lien being placed upon the property of the company to secure the proposed issue of bonds. J. P. Morgan & Co., who were to finance the plan, are made defendants. The plaintiffs say the corporation cannot issue these bonds except for money or in payment for property purchased or acquired by it in the transaction of its business and that the purpose of issuing bonds to take up preferred stock would be unlawful. . The papers state that the company, which is incorporated in New Jersey, has an authorized capital of $1,100,000,000, of which $550,000,000 is pre- ferred stock, paying 7 per cent. dividends, and the rest is common stock. It is stated that the holders of preferred stock who may surrender their holdings to carry out the new plan will get greater security through the exchange for bonds, which would be unfair to other stockholders. The plan requires the raising of $250,000,000 in bonds in all, but $50,000,000 is to be employed for additional working capital. It is stated that the com- pany has now a surplus of $20,000,000 held as working capital. It is further averred that to carry out the plan 4 per cent. commission is to be paid, of which J. P. Morgan & Co. are to get $2,000,000 and the other par- ties in the syndicate $8,000,000. The plaintiffs further allege that the com- pany can readily raise the $50,000,000 for additional working capital with- out issuing bonds at 4 per cent.:commission, and that the real scheme is to enable certain preferred stockholders to get a better security, more easy to be sold, and to create large profits in commissions. It is further averred that the act of the legislature of New Jersey passed on March 28 last on which the plan is based, is unconstitutional, as there is no limita- tion upon a corporation in the issuance of bonds. It is contended that the ' annual saving of $1,500,000, exceeding by $490,000 the annual sinking fund contribution of $1,010,000 required by the proposed mortgage.' Now to me it seems that Mr. J. P. Morgan and Mr. Perkins fail to understand the difference between interest on a debt and a dividend on stock. The interest is a sum which the corporation is forced to pay out of its resources, although it may be working at a loss, and it is a fixed charge on the assets. The dividend is not a charge on the assets, it is only payable out of profits; it is the residue of the profits, which the corporation--having liberally supplied its own needs in the way of reserve funds, etc.--has no use for, and which it, therefore, distributes to its stockholders. # "Apply this distinction to the case in point. Supposing that, after paying the interest and sinking fund of Mr. Carnegie's first mortgage, there should be just $14,000,000 on hand. Under the directors' scheme, before it could use a dollar for its own needs, the corporation would have to pay out $13,510,000 as interest and sinking fund for the $250,000,000 mortgage, and it would be left with the pittance of $490,000 with which.to make good its necessary reserves. But without the conversion scheme, the only forced payment out of the $14,000,000 would be $2,700,000, being the interest and sinking fund on the $50,000,000 mortgage. It would therefore, be left with the handsome sum of $11,300,000, instead of only $490,000, and out of this it would be able to make good its reserves and supply all its corporate needs; having done that, it would distribute the residue, which it did not want itself; among its stockholders. As I see it, therefore, the proposed conversion. scheme, instead of increasing the saving power of the corporation even by the trivial sum of $490,000, would decrease it by $10,810,000, being the difference between the $13,510,000 fixed charges under the mortgage for $250,000,000 and the $2,700,000 fixed charges under the $50,000,000 mortgage." STEEL CORPORATION'S PRICE POLICY FOR 1903. It is reported from New York that the United States Steel Corpora- tion will soon announce its price policy for 1903. Ordinarily a steel com- pany is not expected to do this until late in the old year, but the corpora- NORTHWESTERN TRANSPORTATION CO.'"S NEW STEAMER HURONIC, FOR SARNIA-COLLINGWOOD SERVICE. Built by Collingwood Ship Building Co., Collingwood, Ont. act impairs the obligations of the contracts made with the original stock- holders. The constitutional question involved is the ground for trans- ferring the case to the United States court. : : John Trehane, the London lawyer and shareholder in the United States Steel Corporation, who prior to the meeting of the Steel Corpora- tion's shareholders on May 19 to ratify the bond conversion plan, issued an open letter attacking the plan, has issued another letter, under date of London, May 24, which states that "an influentially-signed request for three months' delay was cabled on May 17 to the directors of the United States Steel Corporation from London," and comments that, despite ob- jections, the plan was put through. Mr. Trehane's letter goes on to say: "In this extraordinary affair the conundrum which puzzles me is this: Why, if the corporation is as prosperous as the directors say it is, are they in such an indecent haste to reduce their income from 7 per cent. to 5 per cent. and take a mortgage security? Ifthe corporation is not as prosper- ous as they say it is, how dare they, being trustees, encumber ss property, which they manage, with a mortgage in their own favor for $200,000,000: Note how painful and embarrassing to sensitive men of honor will their position be if, through unavoidable misfortunes or their own reckless mis- management, the corporation shall one day be unable to meet the new fixed charge of $10,800,000 they are forcing upon it. They will then have to foreclose on themselves, and for their own protection they will have to cut out all the stock, both preferred and common. The circular of the directors contained a financial fallacy, which one would not expect from such experienced financiers as Mr. J. P. Morgan and his partner, the chairman of the finance committee. These gentlemen invited the stock- holders to increase the mortgage debt of the corporation by $200,000,000 without a dollar of direct consideration, because it would thereby gain the following advantage, and this, mark you, is the only inducement they can think of.. They say, speaking of the $250,000,000 mortgage: * "'The consequent $14.000,000 reduction of dividend payments, as compared with the $12,500,000 increase of interest, would result in a net tion finds nearly all of its plants booked for the maximum of their capacity for the remainder of this year and orders are pressing for delivery in 1903. A lot of business has already been booked for 1903 delivery on the present price basis, but most of these orders have been special and in some in- stances hedged about with qualifications. Some business has been ac- cepted at current prices to be delivered either late this year or early next year at the convenience of the combine. Another kind of business for which the corporation has taken large orders running into 1903 is structu- ral steel contract work, involving not only material but construction as well. The American Bridge Co. has in hand orders for. bridge and office construction work which cannot possibly be finished in the current year. The pressure of orders is so great that the management has found it nec- essary to open its books for 1903 in the regular way, and hence the forth- coming announcement of a policy as to next year's prices. Structural forms and steel rails are the two products most in demand for 1903 de- livery. It is current information that very large orders for steel rails to be delivered next year will soon be placed with the United States Steel Corporation. The expected announcement will cover practically all of the products of the corporation and the books will then be. opened for 1903 orders for various grades of material in any quantity desired. It is un- derstood that the price policy for 1903 will be very similar to that for the current year. It is believed, at least, that there will be no important changes in quotations. Referring to the. rumor, again sent out from Buffalo, that Capt.. James Davidson of West Bay City, Mich., is planning upon the establish- ment: of a ship yard for the construction of steel vessels on property ad- jacent to the Lackawanna Steel Co.'s new plant at South Buffalo, a Buf- falo vessel owner says: "Capt. Davidson is interested in the property to which the Buffalo dispatches refer. His plans are along the line of a real estate deal, more so than any serious intention of starting a ship yard."