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Bar News - February 18, 2011


Book Review: A Window in Time: Merrimack Farmers’ Exchange in Crisis and Transition By Charles F. (“Charlie”) Sheridan

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At the end of World War I, central New Hampshire farmers facing a postwar agricultural depression formed a cooperative organization so that they could buy supplies in bulk at lower prices and resell them within their group. Due to the lack of a law authorizing cooperatives as legal entities, the farmers formed a corporation: Merrimack Farmers’ Exchange, Inc. However, from the beginning, the Exchange was operated as a cooperative for the benefit of its members, with a constitution which provided that its shareholders would have one vote each, regardless of the number of shares that they might own. The Exchange operated relatively smoothly for more than half a century.

In 1976, it was discovered that the Exchange’s comptroller had been embezzling. He had altered documents and failed to record all of the funds being received by the Exchange, and had written checks to himself which were covered by the excess of the received amounts over the recorded amounts. When monthly bank statements arrived, he would remove the evidence that he had been writing unauthorized checks.

The scheme came to light when the comptroller took two days off from work. The monthly bank statement arrived while he was away, along with a cancelled check showing an unauthorized $18,000 payment to him. The Exchange immediately sought the help of Charles Sheridan of Sulloway & Hollis regarding what to do, especially with regard to recovering as much as possible of the embezzled funds, which ultimately were found to add up to about $570,000.

As narrated by Sheridan in his book, the Exchange followed the strategy recommended by him, which included pursuing (with the help of other lawyers from the Sulloway firm) civil rather than criminal remedies, and seeking the embezzler’s cooperation in returning funds.

Through fast-moving and diligent legal work, the Sulloway lawyers were able to obtain for the Exchange about $280,000 from the assets which had been in the comptroller’s possession (including $15,000 from under his bed), plus $25, 000 from the Exchange’s fidelity bonding company and $125,000 from the settlement of a claim against the Exchange’s outside accountants. As a result, the Exchange’s overall financial condition was not seriously impaired.

The embezzling did raise questions, though, in the minds of a number of Exchange members, about whether the Exchange was well-managed and about its future prospects for success as a cooperative. It was in these circumstances that a group, which included one of the Exchange’s directors, decided to attempt a hostile takeover of the Exchange with the intent of making it a typical business corporation instead of a cooperative, and with what appeared to be an objective of selling the Exchange’s assets at a profit. The Exchange’s directors relied upon Sheridan, and the Sulloway firm, to defend against the hostile takeover attempt.

Legal uncertainties arising from the Exchange’s unusual structure complicated the task of the would-be raiders. They argued that the one vote per shareholder provision, if applicable at all, was applicable only with regard to the 10,000 shares that were initially issued, and not to the larger number of shares issued later, for which one vote per share should be counted.

A key aspect of the defense strategy was to delay, as long as possible, making the list of shareholders available to the would-be raiders. In Sheridan’s words, this created a "window in time" for the development of "competing opportunities for the Exchange" and those opportunities did develop. The Exchange was obligated to notify its shareholders about bids from the would-be raiders, but in accordance with advice from Sulloway lawyers Fred Potter and Tony Tarbell, it countered each such bid with a higher bid of its own, while urging the shareholders not to accept it.

At the shareholders’ meeting in January 1980, a variety of measures proposed by the would-be raiders were rejected under both the one-vote-per-shareholder and one-vote-per-share methods of counting. In July 1980, the shareholders approved an arrangement under which the Exchange’s assets were sold to a different bidder, H.K. Webster Inc./Blue Seal, for an amount in excess of their cost-basis book value (inclusive of liabilities), and for far more than the would-be raiders ever offered.

The Exchange soon was dissolved, and the proceeds were distributed to the shareholders. At a champagne celebration, Sheridan, Potter, and Tarbell each received a wheelbarrow emblazoned with the words "Merrimack Farmers’ Exchange" from grateful ex-directors of the Exchange.

Sheridan’s account shows that he may justifiably take great pride in the work which he, other lawyers from the Sulloway firm, and the Exchange’s farmer-directors performed on behalf of the Exchange’s farmer-members.

Charles Sheridan is a senior counselor at Sulloway & Hollis in Concord, where he’s been a partner since 1962. Prior to that he was house counsel at Avis and before that an associate at Edwards & Angell in Providence.

A Window in Time is available from the author, c/o Sulloway & Hollis, 9 Capitol St., Concord, NH 03301 for $10.90, including shipping, or from Gibson’s Book Store in Concord.


Supreme Court Rule 42(9) requires all NH admitted attorneys to notify the Bar Association of any address change, home or office.

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