64 CIRCULAR 10 0, U. S. DEPARTMENT OE AGRICULTURE 



The plan followed by the association was to make the demanded 

 cash payment for the warehouse and to pay the balance by the issue 

 of serial income bonds and preferred stocks, and to retire one-fifth 

 of the preferred stock each year. To sell the bonds and preferred 

 stock, the association guaranteed the payment and retirement of the 

 preferred stock within five years. To meet these payments the con- 

 tract between the association and the growers provided that not more 

 than 1 per cent of the proceeds from the sale of tobacco should be 

 deducted for commercial credit and general purposes. The money 

 derived from this source was used to retire the stocks and bonds. 31 



Only 11 shares of common stock with a par value of $10 per share 

 were originally authorized, of which no member could originally 

 purchase more than 1 share. The common capital stock was to be 

 increased from time to time in such amounts as would equal one 

 class of the preferred stock. The preferred stock was retired as 

 the corporation issued common capital stock in an equivalent amount. 

 The common stock was issued to members as soon as the aggregate 

 deductions from their tobacco sales were equal to the volume of one 

 or more shares. Only members could purchase or have issued to them 

 the common stock which had all of the voting power of the corpora- 

 tion, but no restriction was placed upon the sale of preferred stock, 

 which was to bear 7 or 8 per cent cumulative dividends. The com- 

 mon stock was to receive dividends up to but not exceeding 8 per 

 cent. 



The warehouses purchased became the property of the different 

 warehouse corporations, which also acquired control by lease over 

 other warehouses used by the association. Each warehousing cor- 

 poration had its own board of directors and was incorporated for 

 20 years. 



The corporations were bound to the parent association by a cross 

 contract which provided that the Tobacco Growers' Cooperative 

 Association should undertake to pay all the expenses of operation, 

 and dividends and payments on the preferred stock and bonds as 

 they fell due, in return for the use of the property, and that the 

 warehousing corporations be operated on a nonprofit basis. 32 The 

 nature of the relationship was virtually as follows: The tangible 

 property was in the hands of the various corporations, whereas the 

 operation of the warehouse was in the hands of the association 

 warehouse department, one of the main departments of the parent 

 association. 



31 In an agreement between the various warehousing corporations and the Tobacco 

 Growers' Cooperative Association, the association had guaranteed the redemption or 

 retirement of the preferred capital stock and the serial income bonds of the warehousing 

 corporations, together with the dividends and interest thereon. At a meeting of the 

 board of directors on September 18, 1924, a plan was adopted whereby there would be 

 withheld from the proceeds of the sales of each year's crop, an amount sufficient to retire 

 one class of preferred capital stock, plus one year's dividends on all classes of stock issued 

 or to be issued. 



32 Paragraph 16 (g) of the association agreement. The association shall make a cross 

 contract with tbe corporation, providing substantially as follows : That the corporation 

 shall handle, process, dry, cure, condition, manufacture, treat, store, ship, and deliver all 

 as required and directed by the association, the tobacco delivered to it by and at the 

 order of the association. Such service will be on a nonprofit basis ; and the corporation 

 shall receive therefor only the actual costs of such operations and amounts, apportioned 

 over the operation of any one season, sufficient to pay a dividend of 8 per cent on the 

 outstanding common stock and the dividends on the outstanding preferred stock and to 

 retire each of the five calendar years, beginning with 1923, one-fifth of the preferred stock, 

 or one class thereof ; and sufficient amounts for taxes, insurance, depreciation, betterments, 

 and commercial and secondary charges, all as the directors of the association may instruct 

 and limit the corporation, and not otherwise. 



