ployed in manufacturing tobacco and its products, cash and bills and accounts receivable of the value of $53,408,498.94 as of December 31, 1910. The profits earned during the year 1910 on the brands and businesses to be conveyed by the American Tobacco Co. to Liggett & Myers Tobacco Co. amounted to $7,468,172.02, and the profits on the brands and businesses to be conveyed by the American Tobacco Co. to P. Lorillard Co. amounted to $5,264,729.38.

It is proposed that the value of the brands, trade-marks, recipes, formulæ, and good will to be sold to each of these companies be determined by their earning capacity, based upon the results for the year 1910, so that each shall have an earning capacity of 11.02 per cent per annum upon its total property, including both tangible property and brand value and good will. Upon this basis the consideration to be paid by the Liggett & Myers Tobacco Co. will be $30,607,261.96, value of tangible assets as above stated, and $36,840,237.04, value of brands, trade-marks, recipes, formulæ, and good will, making a total of $67,447,499; and the consideration to be paid by the P. Lorillard Co. will be $28,091,748.86, value of tangible assets as above stated, and $19,460,752.14, value of brands, trade-marks, recipes, formulæ, and good will, making a total of $47,552,501. The brands, trade-marks, recipes, formulæ, and good will of the American Tobacco Co. on December 31, 1910, were of the book value of $101,324,964.07. The payments for brand value, etc., to the American Tobacco Co. to be made by Liggett & Myers Tobacco Co. and P. Lorillard Co., as aforesaid, makes an aggregate of $56,300,989.18, and would thus leave the book value of brands, trade-marks, recipes, formulæ, and good will retained by the American Tobacco Co. at $45,023,974.89, which added to the $53,408,498.94 of tangible manufacturing assets to be retained by the American Tobacco Co., will make the total book value of manufacturing property to be retained by that company $98,432,473.83, upon which its earnings, based upon the results for the year 1910, would be $11,369,809.82, or 11.55 per cent.

The Liggett & Myers Tobacco Co. and the P. Lorillard Co. would pay for these conveyances, therefore, the aggregate as aforesaid, to wit:

or each with its earnings on the business for the year 1910 so capitalized that said earnings represent 11.02 per cent upon the capital.

Liggett & Myers Tobacco Co. and P. Lorillard Co. will issue securities to cover such capitalization in the aggregate as follows: To an amount equal to one-half of the outstanding 6 per cent bonds of the American Tobacco Co., that is, $26,441,325 at par in 7 per cent bonds; to an amount equal to one-half of the outstanding 4 per cent bonds of the American Tobacco Co., that is, $25,677,050 at par in 5 per cent bonds; to an amount equal to one-third of the outstanding preferred stock of the American Tobacco Co., that is, $26,229,700 at par in 7 per cent cumulative voting preferred stock, which, upon liquidation of the company, shall be paid at par with accrued unpaid dividends before any amount shall be paid to common stock, with balance of assets distributable ratably to the common stock, and the balance of said $115,000,000, that is, $36,651,925 in common stock. The 7 per cent bonds and the 5 per cent bonds to mature at the time fixed, respectively, for the maturity of the 6 per cent bonds and the 4 per cent bonds of the American Tobacco Co. now outstanding and to be issued under an indenture of substantially like tenor and terms with the present indenture of the American Tobacco Co. under which its 6 per cent bonds and 4 per cent bonds were issued. The 7 per cent bonds to have priority in charge over the 5 per cent bonds in the same way that the 6 per cent bonds of the American Tobacco Co. have priority of charge over the 4 per cent bonds Thus the capitalization of the Ligget & Myers Tobacco Co. and P. Lorillard Co. will be as follows

All of these securities of the Liggett & Myers Tobacco Co. and the P. Lorillard Co. to be turned over to the American Tobacco Co. in payment of the purchase price for the factories, plants, brands, and businesses and capital stocks of tobacco manufacturing corporations so to be conveyed to Liggett & Myers Tobacco Co. and P. Lorillard Co., respectively, as hereinbefore set out.

These securities will be disposed of by the American Tobacco Co. as follows:

The common stock will be offered for cash at par to the holders of the common stock of the American Tobacco Co. in proportion to their holdings, and any not purchased by the person thus entitled thereto shall be sold to persons other than the individual defendants, to the end that such offer of common stock of the two new companies to the common-stock holders of the American Tobacco Co. shall not be used by the individual defendants to increase their ownership therein beyond the proportion of their holdings of the common stock of the American Tobacco Co.

To each holder of the 6 per cent bonds of the American Tobacco Co. an offer shall be made to acquire his bonds for cancellation and to give in exchange therefor, as to one-half thereof, new 7 per cent bonds of Liggett & Myers Tobacco Co. and P. Lorillard Co. at par, and in payment for the other half thereof cash at the rate of $120 and accrued interest for each $100 face value of the bonds.

To each holder of the 4 per cent bonds of the American Tobacco Co. an offer shall be made to acquire his bonds for cancellation, and to give in exchange therefor, as to one-half thereof, new 5 per cent bonds of Liggett & Myers Tobacco Co. and P. Lorillard Co. at par, and in payment for the other half thereof cash at the rate of $96 and accrued interest for each $100 face value of the bonds.

To each holder of the preferred stock of the American Tobacco Co. an offer shall be made to acquire one-third of his stock for cancellation in exchange for an equal amount at par of Liggett & Myers Tobacco Co. and P. Lorillard Co.

On account of the larger capitalization of the Liggett & Myers Tobacco Co., as compared with the P. Lorillard Co., each class of the new securities will issue in the proportion of 58.65 per cent thereof of Liggett & Myers Tobacco Co. securities and 41.35 per cent thereof of P. Lorillard Co. securities. The stocks will be issued in shares of $100, and coupon bonds in denominations of $1,000, and registered bonds in larger denominations, and in denominations of $100 and $50, and in actual issue fractions will be eliminated.

The common stocks of the two companies aforesaid are to be sold as above set out prior to March 1, 1912, with three years to be allowed for the retirement of the bonds and preferred stock of the American Tobacco Co., as above set out. Pending such, the said 7 per cent bonds, 5 per cent bonds, and 7 per cent preferred stocks of the Liggett & Myers Tobacco Co. and the P. Lorillard Co., together

with an amount in cash, or in securities owned by the American Tobacco Co., at their book value, or partly in cash and partly in such securities, equal to the amounts required if all such sales and exchanges are made, will be deposited with the Guaranty Trust Co. of New York, the trustee in the indenture under which the 6 per cent bonds and the 4 per cent bonds of the American Tobacco Co. are issued, as the agency to effect the purchase and exchange. Such deposit will be made, not to secure nor create a trust fund for the bonds, but for the purpose of sequestrating and taking from the control of the American Tobacco Co. the securities and cash so deposited. During the time of such deposit the securities shall be in the name of, as well as in the custody of, said trust company, with any voting rights attaching thereto, but the American Tobacco Co. shall receive from the trust company all dividends and interest collected by it on account of such securities; and the American Tobacco Co. shall have the right at any time and from time to time to sell, at such price as it may determine, and direct the delivery of any of such securities (except the securities of Liggett & Myers Tobacco Co. and P. Lorillard Co.), the consideration therefor to go into the hands of said trust company; or to withdraw any of such securities (except the securities of Liggett & Myers Tobacco Co. and P. Lorillard Co.) for the purpose of distribution among its common-stock holders, if its surplus at the time permits; or to substitute other securities of like book value for the securities so deposited (except as to the securities of Liggett & Myers Tobacco Co. and P. Lorillard Co.); or to alter the relative proportion of cash and securities, it being the intent of this provision that there shall be sequestrated from the control of the American Tobacco Co. all the securities of the Liggett & Myers Tobacco Co. and P. Lorillard Co., and an additional amount of cash or other securities equal, upon the purchase basis aforesaid, to the value of the 4 per cent bonds and the 6 per cent bonds of the American Tobacco Co. at the time outstanding. At the end of the three years, if there are any of such securities of the Liggett & Myers Tobacco Co. or P. Lorillard Co. in the hands of such trust company undisposed of by such exchange as aforesaid, then the American Tobacco Co. shall apply to this court for an order as to the disposition thereof. Nothing contained in this provision, and nothing done under this provision, shall be construed as providing for the creation of, or as creating, any lien or security on anything deposited with the trust company in favor of the 6 per cent bonds or the 4 per cent bonds of the American Tobacco Co., outstanding or otherwise.

G.

VOTING RIGHTS TO PREFERRED STOCK.

By proper amendment of the certificate of incorporation of the American Tobacco Co. the preferred stock will be given full voting rights.

H.

CERTAIN INCIDENTAL PROVISIONS.

(1) P. Lorillard Co. is a New Jersey company with $3,000,000 of common stock, all of which is owned by the American Tobacco Co., and $2,000,000 of 8 per cent preferred stock. Of this preferred stock the American Tobacco Co. holds $1,596,100 at par and there is held by others $403,900 at par. Under the laws of New Jersey the present P. Lorillard Co. may be dissolved by the holders of two-thirds of the outstanding stock, and upon such dissolution the preferred stock is entitled to be paid at par, the balance of the assets going to the common stock. In view of the fact, however, that the preferred stock of the present P. Lorillard Co. is an 8 per cent preferred stock with abundant assets and earnings to make the principal and income secure, it is deemed fair to the holders of this outstanding $403,900 of preferred stock that they be given an opportunity to take, at their option, either cash at par, which they are legally entitled to, or the 7 per cent preferred stock of the proposed new P. Lorillard Co. As the preferred stock of the new P. Lorillard Co. is to be a 7 per cent preferred stock, the holders of said $403,900 of said present preferred stock will be offered stock of the new company at the rate of $114.25 for each share. It is therefore proposed that the new P. Lorillard Co. provide for an additional amount of preferred stock sufficient to take care of $403,900 preferred stock on that basis, to wit, $114.25 in new 7 per cent preferred stock for each $100 of said stock, amounting to $461,600 at par of preferred stock in addition to that set out hereinbefore. In view of the fact that in the statements hereinbefore made as to earnings of the P. Lorillard Co. there is included only such part of the earnings of the present P. Lorillard Co. as accrued to the proportion of its stock held by the American Tobacco Co., this increase of preferred stock would increase proportionately the profits of the P. Lorillard Co., and does not derange any of the figures hereinbefore given or given in any of the exhibits hereto and hereinafter referred to.