With the misfortune of being too late to sell Submachine guns during the first World War, followed by dismal post War sales to Law Enforcement agencies, by 1928 Auto Ordnance Corp. was deeply indebted to Thomas Ryan to the sum of $1,312,954. Then on November 23, 1928 Tom Ryan died, leaving his controlling interest in Auto Ordnance Corp. to his estate.
In 1929, the executor of the estate Elihu Root, and the Ryan family heirs, disliked the idea of becoming involved with the manufacture of arms and munitions. Eager to liquidate their undesirable inheritance, in 1929 they foreclosed on the chattel mortgage notes that had secured Tom Ryans cash advances to A.O. when the company began in 1916. This reduced the underlying property to ownership of the estate, which left the minority stockholders with shares that were valueless. Next the estate forced General Thompsons son, Marcellus, out of his position as vice president, filling the board with members and associates of the Ryan family. Elihu Root and the Guaranty Trust Company then placed Tom Ryans son, Walter, in control as President, General Manager, and Director. The Thompsons were reduced to minority stock holders with no voice in the running of the company.
For nine years Walter Ryan made every attempt he could to liquidate the company. But Marcellus Thompson blocked him at every turn. Ryan tried selling notes of indebtedness secured by chattel mortgage, against the remaining inventory of 4,700 Submachine guns, essentially giving the buyer the chance to foreclose on the mortgage and take possession of the entire inventory. But Marcellus and his attorney Thomas A. Kane put a stop to these attempts.
Then in 1938, Ryan was contacted by Wall Street broker Matthew j. Hall. Hall proposed to make the Ryans a cash offer for their holdings in Auto Ordnance. He suggested that the cash could be raised through the public sale of stock, and he knew a financier named Russel Maguire that would be willing to underwrite it.
With little investigation, Maguire discovered that Auto Ordnance was a very poor investment. It had a huge debt, a static inventory and just a few employees. But Maguire reckoned that Marcellus Thompson knew what he was talking about when he predicted that Europe was headed for a War that would create huge profits for arms manufacturers. So Maguire agreed to underwrite the stock offer if the Thompsons, and Blish family heirs, could get the Ryans to bind themselves into a contract of sale. Reluctantly they agreed, knowing that if Maguire failed to uphold his end, they would loose their minority interests, giving the Ryans full control to do as they wished with the company. The agreement called for a payment of $529,000 to the Guaranty Trust Corp. in two equal cash installments of $264,500, the first being due July 21, 1939, the second on September 21, 1939. Upon the final payment, the Ryans would transfer all stock, notes of indebtedness and interest. In the event the first payment was made, but not the second, the first payment would be forfeited to the Ryan family.
From the start the plan was in trouble. On May 23, 1939 Tom Kane filed a stock registration for the newly formed company The Thompson Automatic Arms Company. But problems arose when the SEC began showing doubts about the stock. On June 27, with the first payment due in less than a month, the SEC indicated that it would not approve the stock deal because of the companys poor financial condition. Then miraculously on July 3, without any warning, Auto Ordnance received an order from the US Army for 900 submachine guns worth $454,000. Although this still didn't convince the SEC, it thoroughly impressed Walter Ryan who realized that he was selling the company off for a little more than the paying price for this single order of guns. Ryans opinion of Auto Ordnance suddenly made an about face.
With renewed confidence from the Army order, and desperate to raise the money needed to make the first payment, Marcellus Thompson and Kane contacted the Marine Midland Bank & Trust Co., only to find out that Maguire had already secured a loan. Maguire had arranged for a loan of $539,000 by pledging all the assets of Auto Ordnance plus his personal holdings of $100,000. The loan would be ready at 2:00 PM July 21, the day the first payment to Ryan was due. The note would be paid off in full, leaving $10,000 for operating expenses. But, as payment for his services in obtaining the loan, Maguire demanded that he be given a block of 116,400 shares of stock in the new company.
In a hurried meeting of the board, just two nights before the deadline, Maguire was given his stock shares, and Thompson and Kane were each voted an additional 1,800 shares. At the same meeting Thompson was elected president, and Kane vice president. The survival of the company seemed assured. And all that was left to do was to attend to some last minute details and get the papers in order.
At 10 AM on Friday July 21, the morning of the deadline, Marcellus Thompson collapsed in great pain and was rushed to the Broad Street Hospital. He had suffered a severe stroke. Kane tried to get Guaranty Trust to extend the deadline but was refused. With the loan about to default Kane was approached by one of Maguires business associates who told him that Maguire had decided that he would not go through with the deal unless he was given additional compensation in the form of 7,500 more shares of stock. These shares were to be paid from the stock owned by Thompson and Kane. With this, Maguire would hold 50.8 percent of the issued stock, and take control of the company. Kane was astonished. Although initially rejecting Maguire's offer, Kane reluctantly agreed after Matthew Hall showed him that he had obtained Marcellus Thompson signature from the hospital authorizing the transfer of his stock shares.
At a little after 10 PM Kane signed the papers transferring his shares of stock to Maguire. The final papers transferring Ryans holdings to the new owners were signed just 15 minutes before the midnight deadline. Auto Ordnance Corp. Now became a wholly owned subsidiary of the Thompson Automatic Arms Company. Three months later on October 17, 1939 at age 55, Marcellus Thompson died from his stroke.
Newly financed, and under control of Russel Maguire, Auto Ordnance was re-organized; once again submachine guns would be rolling off the production line. Maguire approached Colt Firearms, who had manufactured the original 15,000 guns to subcontract the new production, but was turned down. It wasn't until several months after the outbreak of World War II (The neutrality act of 1935 prevented US companies from selling arms to warring countries) when the United States became involved, and revised the law, could Maguire find a company willing to make his guns; the Savage Arms Company in Utica, New York.
Throughout the War, Auto Ordnance made enormous profits on sales of the various models of the Tommy Gun. By 1944 combined sales of all orders for Thompsons totaled nearly $130,000,000, earning the company a net profit of some $14,845,000. But in February 1944, the Army took delivery of 2,091 Thompsons, its last order. The venerable Tommy Gun had been replaced by the cheap and ugly, but functional M3 and M3A1 Grease Gun.
At the wars end, Auto Ordnance was downsized to become simply the ordnance division of its parent company, Maguire Industries. The Bridgeport factory was stripped on its gun making machinery and retrofitted to produce radios, record players, and other consumer goods that were in short supply and high demand. Everything related to Thompson production was crated up and placed into storage.
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