Reporter's Statement of the Case

against the Weis-Van Wormer Company until after the formation of the Weis Fiber Container Corporation.

IX. The Weis-Van Wormer Company never made any money and never even had a set of books.

X. About August 30, 1913, Mr. Van Wormer withdrew from the Weis-Van Wormer Company and disposed of his interest in the company pursuant to an agreement reading as follows:

"MONROE, MICHIGAN, July 9, 1913. "For the payment of five thousand dollars ($5,000.00) to me in hand paid (the receipt of which is hereby acknowledged) and other valuable considerations hereinafter named-I hereby agree to sell and transfer my entire twenty-five per cent interest (25%) in the Weis-Van Wormer Company and all its interests to Andrew L. Weis on payment to me (or my heirs or assigns) the sum of five thousand dollars ($5,000.00) in cash and the entire interest of the Weis Manufacturing Company in all patents owned and held on folding cake box, with the stock of the cake box material (excepting the last shipment, amounting to $302.34, which is to be purchased at cost by me), also the dies, the glueing, folding machines, and paper-cutting machines, the above to be delivered to me at my order.

"It is further understood that should any territory for milk bottle or for package purposes be sold, either foreign or in the United States, either for cash or on a royalty basis, that I am to receive twenty-five per cent (25%) of all such returns, until fifteen thousand dollars ($15,000.00) additional to above have been paid to me.

"It is understood that this proposition is made as a guarantee as to my faith in the ultimate success of the Weis-Van Wormer paper or fibre bottle, and should it for any unforeseen reason prove not a success, then and in that event I do not expect any more payment than the five thousand dollars ($5,000.00) mentioned first and the transfer of the folding cake box business."

At the time this agreement was entered into the money that had been advanced by the Weis Manufacturing Company on behalf of the Weis-Van Wormer Company, as aforesaid, had not been repaid.

Reporter's Statement of the Case

XI. The first $5,000 provided for in the agreement was paid to Mr. Van Wormer, and in July, 1916, he was paid $10,000 additional by plaintiff (this sum being later repaid to him by the Weis Manufacturing Company) in settle-. ment of all claims that Van Wormer had under this agreement. Van Wormer's stock was distributed among the other stockholders proportionately to their stockholdings in the Weis Manufacturing Company.

XII. After Mr. Van Wormer's withdrawal from the Weis-Van Wormer Company its business was carried on as theretofore through the Weis Manufacturing Company until February, 1914, when a contract embodying the provisions of the two following resolutions was entered into between the Weis Manufacturing Company and the WeisVan Wormer Company:

"1. Stockholders' resolution: Mr. Krantz made a motion, seconded by Mr. Rumple, that the stockholders instruct the board of directors to make a contract between the Weis Manufacturing Co. and the Weis-Van Wormer Co. in effect that, inasmuch as the Weis Manufacturing Co. did all the work and furnished the finances to develop and conduct the business of the Weis-Van Wormer Co., that the Weis Manufacturing Co. be given absolute control of all the business connected with the paper-bottle patent, etc., in the United States and foreign countries now controlled by WeisVan Wormer Co., and that a very nominal sum be paid to the Weis-Van Wormer Co. by the Weis Manufacturing Co. each year.

"2. Directors' resolution: As per instructions from the stockholders at their annual meeting held February 17, a contract was to be drawn up between the Weis Manufacturing Co. and the Weis-Van Wormer Co. paying $25 per year for the same."

XIII. No part of the royalty called for in the contract was ever paid; and no profits were made by the Weis Manufacturing Company on the fibre container business.

XIV. On December 29, 1914, the stockholders of the WeisVan Wormer Company adopted by unanimous vote the following resolutions:

Reporter's Statement of the Case

"Resolved, That we pay the Weis Manufacturing Co. the sum of seventy-five thousand dollars for the release of the contract between them and ourselves, dated Feb. 24th, 1914. This sum to be paid either in cash or in stock of a new company to be formed to take over all assets of the WeisVan Wormer Co., and known as the Weis Fibre Container Corporation.

"The above resolution was voted on and unanimously adopted. After further discussion, the following resolution was offered by Mr. Consor and seconded by Mr. Goldstein: "Resolved, That we sell to a company to be organized and known as the Weis Fibre Container Corporation for one million dollars, all our assets consisting of machines for the manufacture of containers, patents granted or applied for, contracts, and any and all other assets used in connection with the manufacture of containers. The above sum to be paid in stock of the Weis Fibre Container Corporation when the assets are turned over.'

"This motion was voted on and carried unanimously."

The new corporation provided for in the foregoing resolutions was to be formed in order to develop the beforementioned fibre container patent, it having been determined to separate the fibre container business from the regular business of the Weis Manufacturing Company, which was the making of filing cabinets, bookcases, card cabinets, &c.

XV. Pursuant to the resolutions, and to carry out the before-mentioned purpose, the Weis Fibre Container Corporation was incorporated under the laws of South Dakota, plaintiff being one of the incorporators. The articles of incorporation were dated March 4, 1915, and the Secretary of State certified under date of March 8, 1915, that it had become a body corporate. The authorized capital stock was $2,000,000, divided into 80,000 shares of the par value of $25 each.

XVI. After the contract was entered into between the Weis-Van Wormer Company and the Weis Manufacturing Company pursuant to the resolution adopted at a meeting of the stockholders of the Weis-Van Wormer Company on February 17, 1914, the said Weis-Van Wormer Company

Reporter's Statement of the Case

ceased doing business, and was dissolved on or about April 11, 1918.

XVII. On September 8, 1916, after the formation of the Weis Fibre Container Corporation all of the assets of the Weis-Van Wormer Company were transferred to the former. The physical assets remained in the factory of the Weis Manufacturing Company until the completion of the buildings of the Weis Fibre Container Corporation in 1916. In these buildings the Weis Manufacturing Company continued to manufacture the fibre container for development purposes on behalf of the Weis Fibre Container Corporation.

A formal assignment of the fibre container patent was dated September 8, 1916. The same applies to some other minor patents which had been taken out in connection with the container and machinery to manufacture it.

XVIII. The Weis Fibre Container Corporation began business with the assets which it had acquired from the Weis-Van Wormer Company, and for these assets issued to the stockholders of the Weis-Van Wormer Company $1,000,000 par value of its stock, and to the Weis Manufacturing Company $75,000 par value of its stock; the latter either in release of the contract which that company had with the Weis-Van Wormer Company whereby it was to pay the Weis-Van Wormer Company a royalty of $25 a year on the business connected with the fibre container, or in satisfaction of the indebtedness of the Weis-Van Wormer Company to the Weis Manufacturing Company. Of this $1,000,000 of stock, however, $500,000 par value was to be held in escrow until a 6% dividend should be paid on the balance of the stock that might be issued. This stock was actually placed in escrow, and was subsequently returned to the treasury of the Weis Fibre Container Corporation without having been used or enjoyed by the persons who were entitled to it upon the fulfillment of the escrow condition. The agreement to issue the stock for these assets is evidenced by a resolution of the Weis Fibre Container Corporation reading as follows:

"Moved by Paul S. Rumpel and supported by Frank W. Ainslie that the Weis Fibre Container Corporation pur

Reporter's Statement of the Case

chase from the Weis-Van Wormer Company all patents granted or applied for, all machinery, tools, dies, and jigs used in the manufacture of the fibre containers or fibre container making machinery, all equipment used in their manufacture and owned by them, also all stock, manufactured product, orders, contracts, good will, etc.; the consideration to be $1,075,000, payable as follows: $1,000,000 of stock in this corporation at par and $75,000 in cash, cash to be payable when the balance of stock is sold and paid for. The consummation of this purchase to be dependent on the Weis Manufacturing Company agreeing to place one-half of the stock received in escrow, same to be held by a trustee, to be appointed by the directors of this corporation; also agreeing that the stock to be held shall not participate in any dividends until such time as dividends at the rate of 6 per cent are being paid on balance of outstanding stock. This stock to be released and returned to owners when 6 per cent dividend is paid on balance of stock. Purchase also depended on Weis Manufacturing Company agreeing to spend not to exceed $2,500 for the printing of prospectus, stock certificates, and necessary blanks; also for the selling of stock."

XIX. At the time of the formation of the Weis Fibre Container Corporation and the transfer of the assets of the WeisVan Wormer Company to it the before-mentioned indebted. ness of $35,549.74 of the Weis-Van Wormer Company to the Weis Manufacturing Company was outstanding.

During the taxable year 1916 the $1,075,000 of stock issued by the Weis Fibre Container Corporation in the manner and for the purposes aforesaid had a market value of $25 per share as evidenced by the fact that $800,000 of stock in the Weis Fibre Container Corporation of equal par value was sold by the Weis Fibre Container Corporation through brokers to the general public at par. The value of the $10 par value stock of the Weis-Van Wormer Company on March 1, 1913, was $40,000, and the value on said date of each share thereof was $13.3313.

XX. The assets of the Weis-Van Wormer Company acquired by the Weis Fibre Container Corporation for its stock of $1,075,000 as hereinbefore stated were transferred to the