Chapter XIX: Conclusion (4)

“3d. Is it true that the majority of the committee appointed for the purpose of negotiating the purchase of the stock of the East Tennessee Company consisted of directors of the Terminal Company largely interested in the minority stock of the Danville Company?” Chron. 46:579, 1888.

[339] Chron. 46:449, 1888. The opposition pamphlet is reprinted in Chron. 46:579, 1888. It contained thirteen heads, each of which charged or insinuated fraud on the part of the existing board of directors.

[340] Chron. 46:699, 1888. The vote was 298,006 to 94,645. For resolutions condemning the action of the minority see Ry. Rev. 28:332, 1888.

[341] Chron. 47:499, 1888.

[342] The Erlanger or Queen & Crescent system comprised the following roads: Cincinnati Southern (336 miles); Vicksburg & Meridian (142 miles); Vicksburg, Shreveport & Pacific (189 miles); New Orleans & Northwestern (195 miles); Alabama Great Southern (295 miles). Total mileage, 1157. The road actually acquired was that of the Cincinnati Southern and Alabama Great Southern between Cincinnati and Meridian (about 631 miles); a close working contract being concluded with the rest. Ry. Age, 15:230, 1890. The East Tennessee made payment by the issue of $6,000,000 5 per cent collateral trust bonds, put out jointly by the East Tennessee and Richmond & Danville Companies and secured by deposit of the shares purchased. Chron. 50:560, 1890. For a monograph on the Cincinnati Southern Railway the reader is referred to a study by J. H. Hollander in the Johns Hopkins University Studies for January-February, 1894.

[343] Chron. 46:828, 1888.

[344] Ry. Rev. 28:386, 1888; Ibid. 397, 1888.

[345] Ry. Age, 16:76, 1891.

[346] Chron. 52:862, 1891.

[347] From the reorganization plan prepared by Drexel, Morgan & Co., dated May 1, 1893. Chron. 56:874 ff., 1893.

[348] Ry. Age, 14:78, 1889.

[349] The failure of this initial suit encouraged the Richmond Terminal to take steps to make its position more secure. In February, 1889, a collateral trust mortgage of $24,300,000 was announced, intended not only to pay off the floating debt and several classes of bonds, but also to purchase the balance of common stock of the Central of Georgia and Richmond & Danville and of the first preferred stock of East Tennessee outstanding. See Poor’s Manual for 1890; also Chron. 48:764, 1889. Subsequently the company issued common shares of its own instead of bonds in exchange for the East Tennessee first preferred, and succeeded in securing nearly $2,000,000 of the outstanding issue. Chron. 49:374, 1889. The rate of exchange was 3¼ to 1. The Richmond & Danville shares were retired by new collateral bonds at 85, plus $26 per share in cash, and in connection with the operation more stock and $5,700,000 collateral bonds were sold on favorable terms to stockholders to provide for the floating debt.

[350] For replies by Alexander and Inman, see New York _Herald_, August 10, 1891, and Chron. 53:224, 1891.

[351] At 97½. See R. R. Gaz. 23:718, 1891.

[352] Chron. 53:674, 1891.

[353] R. R. Gaz. 23:870, 1891. The composition of this committee was severely criticised, partly on the ground of the relations of Norton and Schiff to the Louisville & Nashville and to the Norfolk & Western respectively, and partly on the ground that the other members were creditors only and had no interest other than the repayment of their loans. It would seem, however, that the property was likely to have fared better in the hands of reputable New York bankers than in the hands in which it had formerly reposed.

[354] Chron. 53:922, 1891.

[355] Chron. 53:969, 1891. The members were: F. P. Olcott; Col. Oliver H. Payne; F. D. Tappan, president of the Gallatin National Bank; W. H. Perkins, president of the Bank of America; and Henry Budge, of Hallgarten & Co. These gentlemen appointed Messrs. Olcott, Budge, and Perkins a sub-committee to prepare a plan. Ry. Rev. 32:14, 1892.

[356] This excluded the Central of Georgia and the Alabama Great Southern. The figure was based on existing bonded debt, floating debt, and rentals. It included car trust payments, but excluded taxes, which were included in operating expenses, and excluded also the interest on securities owned by the system or the various corporations composing the system.

[357] The plan in full is reprinted in Chron. 54:487, 1892.

[358] Consider for instance the treatment of the Richmond Terminal preferred stock. This was quoted in December, 1891, as low as 45. The plan accorded it 100 per cent in new bonds and 20 per cent in new preferred stock. _Per contra_, the Richmond & Danville consolidated 5s were quoted the same months at 75 and received 100 per cent in new bonds and 40 per cent in new preferred. Was it any wonder that the holders of prior liens refused to come in?

[359] Chron. 54:846, 1892.

[360] These notes were to be secured by the same securities that were then pledged to secure the floating debt and were to be exchanged for $170 in new preferred stock if the plan should prove successful.

[361] Ry. Age, 17:414, 1892. It was not proposed to retain control of the Central of Georgia, but instead certificates of aliquot parts in the holdings of the Georgia stocks were to be issued to each stockholder, making him the actual owner of his proportionate share.

[362] This committee was subsequently enlarged and became known as the “Independent Committee of Seventeen.”

[363] Chron. 54:888, 1892.

[364] Ibid. 55:23, 1892. On July 6, Chairman Strong, of the Advisory Committee of Seventeen, appointed Messrs. George F. Stone, J. C. Maben, and W. E. Strong a sub-committee to further consider reorganization. Chron. 55:59, 1892. Subsequently Mr. Strong appointed Messrs. Coppell, Manson, and Plant a committee to look after the Terminal 5s, and Messrs. Bull, Goadby, and Cyrus J. Lawrence a committee to look after the 6s. Mr. Strong, as chairman of the Advisory Committee, was ex-officio member of each. The first of August Messrs. Thompson Dean, Albert B. Boardman, and Charles P. Huntington were appointed a committee by the holders of between 50,000 and 60,000 shares of stock and other securities of the Richmond Terminal system, “for the purpose of removing the obstacles which now stand in the way of a fair and equitable reorganization of the Richmond & West Point Terminal Railway & Warehouse Company and its constituent corporations, and to this end to employ attorneys and to take all necessary steps to secure the appointment of permanent receivers, who will be in the interest of no clique or faction in said companies.” Chron. 55:216, 1892. See in this connection Ry. Rev. 32:521, 1892.

[365] R. R. Gaz. 24:33, 1892. The deposit was made and the dividend paid.

[366] Ibid. 24:237, 1892.

[367] Chron. 54:965, 1892.

[368] It will be observed that although the minority stockholders of the Central of Georgia objected to the Terminal’s stock control they were not averse to having the precise terms of the lease to the Georgia Pacific carried out: that is, to being guaranteed 7 per cent upon their stock.

[369] W. P. Clyde, etc.

[370] Chron. 54:1010, 1892. Messrs. Huidekoper and Foster were also appointed receivers by courts in Virginia, North Carolina, and South Carolina. For reply by President and Receiver Comer, of the Central, to Clyde’s statement, see Chron. 55:22, 1892.

[371] Ry. Rev. 32:549, 1892. The committee also stated that the Terminal Company had been made to purchase $1,800,000 Georgia state bonds at par and interest, which paid only 3½ per cent a year, although the company was unable to borrow money at less than 6 per cent; that the drafts of the directors to a large amount were paid by the company, and that no vouchers were on file to show how this money was expended.

[372] Chron. 55:938, 1892.

[373] Chron. 55:1078, 1892. For replies of defendants see Chron. 56:414, 1893, and Ibid. 972, 1893.

[374] This was the letter finally declining to undertake the reorganization in 1892 because of lack of assurances of support.

[375] The correspondence appears in full in Chron. 56:207, 1893, and Ibid. 56:622, 1893.

[376] Ry. Rev. 33:95, 1893.

[377] These needs had already been emphasized by the Olcott plan.

[378] Lack of space forbids a full statement of the criticisms which the Drexel plan had to make upon the physical condition and financial practice of the Richmond Terminal properties. The following is from the plan, section 9: “As an example of the manner in which accounts have been kept, it may be mentioned that in the operating expenses of the entire Richmond & Danville system only $20,000 were charged for renewal of rails in the fiscal year ending June 30, 1890, and not a dollar in the fiscal years ending June 30, 1891 and 1892, respectively. In seven months under the receivership (July, 1892, to January, 1893, inclusive) about $600 were charged. Since that date, it is understood, about $18,000 have been charged. With these exceptions all renewals of rails were charged to construction accounts. Renewals, properly to be included in operating expenses, would be at least $100,000 to $150,000 per annum.” Other instances, almost as bad, could be stated.

[379]

Total cash requirements, as estimated, were:
Floating debt, including equipment notes $12,900,000
New construction and equipment during two years 8,000,000
Expenses of reorganization and contingencies 2,350,000
-----------
$23,250,000

To be provided from:
Assessments on Terminal stock $8,750,000
Assessments on East Tennessee stocks 2,700,000
Sale of $33,333,000 new common stock 5,000,000
Sale of $8,000,000 new bonds 6,800,000
-----------
$23,250,000

[380] The new company reserved the right at any time to redeem its preferred stock in cash at par.

[381] Of which $104,303,894 for stock and the rest for bonds outstanding.

[382] The reorganization plan estimated the capitalization under its provisions at about $20,000 per mile of road owned and controlled; about $10,000 preferred stock per mile owned and controlled; about $25,000 common stock per mile owned and controlled.

[383] The plan is published in full in Chron. 56:874, 1893.

[384] Ry. Rev. 33:388, 1893.

[385] Modified reorganization plan. Chron. 58:385, 1894. Some information concerning traffic conditions in the South in 1894 is to be found in the Eighth Annual Report of the Interstate Commerce Commission, pp. 20–24.

[386] From $140,000,000 5 per cent bonds, $75,000,000 preferred and $160,000,000 common stock to $120,000,000 bonds, $60,000,000 preferred and $125,000,000 common stock. Since, however, some of the poorer properties were cut off and the terms granted to others were made more liberal, the smaller absolute amount of new securities represented a greater relative increase than before.

[387] The actual charges in 1895 were $4,195,000.

[388] “The increase in car trusts is due to the existence of about $1,200,000 of such obligations on the Richmond & Danville system, _which, up to the date of the plan of reorganization, had not been entered on the ledger of either the Railway Company or its Receivers, although, as it appears, they were well known_.” Modified reorganization plan.

[389] R. R. Gaz. 26:613, 1894.

[390] Statement compiled by the reorganization committee. Chron. 59:515, 1894. The mileage controlled by the Richmond Terminal system on November 30, 1892, had been 9053.3.

[391] J. P. Morgan, Charles Lanier, and George F. Baker. See Chron. 59:836, 1894, and Ibid. 880, 1894.

[392] See statement by Receiver Comer. Chron. 55:805, 1892.

[393] Chron. 60:1008, 1895.

[394] With a charter from the state of Georgia.

[395] The capital stock of the Central of Georgia Railway was held by the Richmond Terminal Reorganization Committee until the spring of 1907. It was then sold to Oakleigh Thorne, president of the Trust Company of America, and Marsden J. Perry. Later the same year these gentlemen resold this stock to E. H. Harriman and his associates.

[396] The original estimate was $19,000,000. The amount available seems to have been finally $20,000,000.

[397] The voting trust was extended in 1902, in respect to a majority of the stock, for a period of five years. See Chron. 75:442, 1902, and R. R. Gaz. 34:826, 1902.

[398] Annual Report, 1906.

[399] The narrow-gauge equipment included in these figures is as follows:

1895 1907

Locomotives 9 4
Locomotives 9 4
Freight cars 86 106

[400] “It will hardly be claimed,” said the Interstate Commerce Commission, of the Southern Railway in 1900 (8 I. C. C. Rep. 583), “that the cost of reproducing that property in its present state would equal $40,000 a mile.”

[401] This route followed roughly the old Santa Fe Trail.

[402] Chron. 29:583, 1879.

[403] Ibid. 33:23, 1881.

[404] Chron. 34:315, 1882, Circular of Sonora Railroad Company to stockholders.

[405] Chron. 29:630, 1879. Statement by Vice-President Baker.

[406] Ibid. 29:630, 1879.

[407] Chron. 34:243, 1882.

[408] Chron. 41:444, 1885.

[409] Annual Report, 1885, contains a discussion of the Atlantic & Pacific and of the California Southern projects.

[410] Chron. 42:462, 1886; Annual Report, 1887.

[411] Ibid. 42:518, 1886.

[412] Annual Reports, 1886 and 1887.

[413] Annual Report, 1888.

[414] Ry. Rev. 29:511, 1889.

[415] Ry. Age, 12:107, 1887.

[416] Ibid. 12:325, 1887.

[417] This increase in dividend gave rise to sharp and well-merited criticism. The directors defended their action as follows:

“In forming a just opinion of this matter,” said they, “it is necessary to recall to the stockholders the statement made in the circular of July 30, 1887.... It was stated in the circular referred to that for the six months ending July 1, 1887, the net earnings exceeded by more than $1,200,000 the net earnings for the first six months of the year 1886, that the earnings were still increasing, and what has always been true in the past may be expected this year also; namely, that the revenue of the second six months of the year will be considerably in excess of that of the first six months.... It will ... be seen that ... the year 1887 formed a remarkable exception to what had hitherto been the regular course of Atchison’s earnings; the second half of that year showing an increase over the first half of only $278,096 gross, and $204,144 net.... Drouths, failure of crops, excessive competition, continually decreasing rates, unwise legislation, strikes, and other calamities have befallen us as they have other Western roads; but your directors could not know in advance that any of these unfavorable conditions would have to be met, much less that they would all have to be met at one and the same time.” Annual Report, 1888.

This defence was altogether unsatisfactory. An increase in the dividend rate is too important to be justified by anything but earnings actually in hand. Moreover, the conditions which the directors held responsible for the decline in Atchison earnings were either well known at the time when the dividend was declared, or could easily have been anticipated. It was even alleged that the decrease in business which the annual report for 1888 disclosed was due to lessened carriage of company material to the West for construction of new track, and not to crop failure or other decline in general business. See R. R. Gaz. 21:327, 1889.

[418] Chron. 47:472, 1888. The use of $3,000,000 of the notes was specifically deferred.

[419] Ry. Age, 14:644, 1889.

[420] Cash requirements were (Circular No. 63, Oct. 15, 1889):

To retire outstanding lease warrants $1,445,660
To expend on incomplete construction of existing lines,
and for new equipment as required 5,000,000
To pay floating debt 3,554,340
-----------
$10,000,000
And the provision for cash subscription was
General mortgage 4s $12,500,000
Income 5s 1,250,000
-----------
$13,750,000

[421] The income bond certificate is printed in full in W. A. Wood, Modern Business Corporations, pp. 237–9.

[422] Ry. Age, 14:682, 1889.

[423] Annual Report, 1890. Economies were secured at this time through consolidation of branch lines with the main stem and in other ways.

[424] Annual Report, 1891.

[425] Chron. 51:171, 1890.

[426] Ibid. 53:474, 1891.

[427] Annual Report, 1892.

[428] Ry. Age, 17:413, 1892.

[429] Annual Report, 1892.

[430] Chron. 56:1014, 1893; Ibid. 57:1038, 1893.

[431] Ry. Rev. 34:68, 1894.

[432] Ry. Times, 64:533, 1893.

[433] See Chron. 58:42, 1894, for an official statement of the reasons for the application to the courts.

[434] Ibid. 57:1121, 1893. Some information concerning subsequent railroad competition during the Atchison receivership is to be found in 7 I. C. C. Rep. 61.

[435] R. R. Gaz. 26:465, 1894.

[436] Ry. Rev. 34:358, 1894.

[437] Ry. Times, 65:817, 1894.

[438] Ry. Rev. 34:379, 1894.

[439] Report of Mr. Stephen Little to the New York, London, and Amsterdam Committees of Reorganization, 1894.

[440] Chron. 59:233, 1894.

[441] Ry. Times, 66:543, 1894.

[442] Chron. 59:878, 1894; Ibid. 59:919, 1894.

[443] In addition, prior lien bonds were authorized to a maximum of $17,000,000, of which $12,000,000 might be used if desirable in place of general mortgage bonds in the retirement of guarantee fund notes, equipment bonds, etc., and $5,000,000 for necessary improvements within five years.

[444] Second mortgage A bonds received 113 per cent in new preferred stock. Second mortgage B bonds received 118 per cent. “After careful consideration,” said the plan, “it was decided to be best for the interest of those [the second mortgage] securities that they should now be converted into 5 per cent preferred stock, possessing full voting powers and preferential rights as to principal as well as interest, rather than revert to their original form of ‘Income Bonds.’ It was not thought that a greater assessment than $10 could be raised from the stock, and the remainder had to come from the junior bonds.”

[445] The plan of reorganization was published separately, but was reprinted in Chron. 60:658, 1895.

[446] Ry. Rev. 35:208–9, 1895.

[447] Ry. Age, 20:199, 1895.

[448] Ry. Times, 67:482, 1895.

[449] R. R. Gaz. 26:675, 1894.

[450] Ry. Times, 66:506, 1894.

[451] Ry. Rev. 34:589, 1894.

[452] Chron. 61:1064, 1895.

[453] Chron. 64:609, 1897.

[454] Ibid. 67:841, 1898.

[455] This was not all the Atchison stock which Union Pacific interests acquired. President Ripley testified before the Interstate Commerce Commission on January 8, 1907, that two years before E. H. Harriman and his associates had secured $30,000,000 of Atchison stock, and had caused the election of Messrs. H. C. Frick and H. H. Rogers to the Atchison directorate to represent them.

[456] Statutes at Large, 37th Congress, 2d Session, chap. 120.

[457] Statutes at Large, 38th Congress, 1st Session, chap. 216.

[458] Aldrich Committee Report. The value of gold used is that given in the American Almanac for 1878, and varied from year to year as follows:

1864 155.5
1865 216.2
1866 140.1
1867 134.6
1868 138.5
1869 135.6

[459] John P. Davis, History of the Union Pacific Railroad, p. 151.

[460] Useful accounts of the Crédit Mobilier may be found in Davis, Union Pacific Railroad; Crawford, Crédit Mobilier of America; Hazard, The Crédit Mobilier of America; White, History of the Union Pacific Railroad; Poland Committee, Report and Testimony, 42d Congress, 3d Session, House Reports, No. 77.

[461] Davis, pp. 163–70.

[462] Union Pacific Railway Commission Report, 1887, p. 52. The Government endeavored to force the cancellation of the above mentioned construction contracts and the restoration of unlawful profits, but was held by the Supreme Court to have no standing in the case which would entitle it to demand relief. U. S. _vs._ Union Pacific Railroad Company, 98 U. S. 569.

[463] Statutes at Large, 39th Congress, 1st Session, chap. 159.

[464] United States Pacific Railway Commission Report, 1887, p. 55.

[465] Ibid. vol. 8, p. 4975.

[466] Records in Union Pacific Railway Foreclosure Cases, 55th Congress, 1st Session, Senate Document 10, Part 3.

[467] Parties to agreement were: Sidney Dillon, Fred L. Ames, Jay Gould, C. S. Greeley, John D. Perry, Robert E. Carr, Adolphus Meier, B. W. Lewis, Jr., Henry Villard, John P. Usher, D. M. Edgerton, Artemas H. Holmes.

[468] United States Pacific Railway Commission Report, 1887, testimony of A. H. Holmes, p. 165.

[469] Ibid. Testimony of Jay Gould, pp. 454–6. The change to a mortgage was made between April, 1878, and May, 1879.

[470] Records in Union Pacific Railway Foreclosure Cases, 55th Congress, 1st Session, Senate Document 10, part 3 (contains text of mortgage).

[471] United States Pacific Railway Commission Report, 1887, testimony of A. H. Holmes, pp. 130 and 133.

[472] Ibid. vol. 8, p. 4987, Report of William Calhoun, Accountant.

[473] United States Pacific Railway Commission Report, 1887, testimony of Jay Gould, p. 463.

[474] United States Pacific Railway Commission Report, 1887, p. 58.

[475] Ibid. pp. 59 to 65.

[476] Ibid. Testimony of F. L. Ames, p. 668. The combined capital is given in the agreements as $51,762,300, but this is apparently a mistake.

[477] Quotations of Kansas Pacific common during 1879 (Chron. 1880):

January February March April
Low High Low High Low High Low High
9⅛ 13 11½ 22¼ 17 22½ 20½ 60

May June July August
Low High Low High Low High Low High
50 59¾ 54 59 56 60 53⅝ 59½

September October November December
Low High Low High Low High Low High
55 73½ 70 85¼ 83½ 92 85 92½

[478] United States Pacific Railway Commission Report, testimony of Jay Gould.

[479] United States Pacific Railway Commission Report, 1887, p. 100.

[480] Except the Missouri Pacific, which Gould retained.

[481] United States Pacific Railway Commission Report, 1887, testimony of Jay Gould, pp. 467–9, 523, 524.

[482] United States Pacific Railway Commission Report, 1887, testimony of Charles Wheeler, pp. 1735–6. Amount, $571,000.

[483] Ibid. Testimony of John Evans, pp. 1853–4.

[484] Ibid. Testimony of C. F. Adams, p. 47.

[485] United States Pacific Railway Commission Report, 1887, pp. 91 ff.

[486] Thirty Years of American Finance, pp. 86 to 98.

[487] Chron. 35:578, 1882.

[488] United States Pacific Railway Commission Report, 1887, p. 67.

[489] Annual Report, 1884, p. 5.

[490] United States Pacific Railway Commission Report, 1887, testimony of C. F. Adams, pp. 45–6.

[491] Chron. 53:436, 1891.

[492] Annual Report, 1884, p. 165.

[493] 91 U. S. 72.

[494] Statutes at Large, 45th Congress, 2d Session, chap. 96.

[495] The Court held that while up to the passage of the Thurman Act expenditures for improvements could be deducted from gross earnings in calculating net, the language of that Act seemed to preclude the deduction of any charges for improvements or betterments, or increase of permanent value of the works in any manner whatever. See 99 U. S. 402; 99 U. S. 455; 138 U. S. 84.

[496] Report of the Government Directors for 1893.

[497] Chron. 57:684, 1893.

[498] Ibid. 57:639, 1893.

[499] Sen. Com. 1896, 54th Congress, 1st Session, Doc. No. 314, p. 42, testimony of E. E. Anderson. For bill of complaint see Report of the Commissioner of Railroads, 1894, pp. 99–120.

[500] Ibid. pp. 391–2, testimony of O. W. Mink. This gave to the Government three out of the five receivers. For petition of the Attorney-General see Report of the Commissioner of Railroads for 1894.

[501] Chron. 16:292, 1873.

[502] Report of the Commissioner of Railroads, 1895, p. 14.

[503] Ry. Rev. 34:335, 1894.

[504] Chron. 58:775, 1894.

[505] Ibid. 60:132, 1895.

[506] Report of the Commissioner of Railroads, 1895, pp. 9–10.

[507] Senate Commission, 54th Congress, 1st Session, Document 314, testimony of W. S. Pierce. See generally the report of this committee for a discussion of alternatives from the government point of view.

[508] Ibid. Testimony, pp. 451–2.

[509] Chron. 60:303, 1895.

[510] Ry. Times, 64:732, 1893. Mr. Brice was also a member of the Senate Committee on Pacific Railroads.

[511] Ry. Age, 18:883, 1893.

[512] Ry. Times, 65:336, 1894.

[513] Ry. Times, 65:750, 1894. The reorganization committee stated that this plan was not final. They concurred, however, with Mr. Boissevain in his recommendation of the above scheme.

[514] Chron. 60:132, 1895.

[515] Ibid. 60:303, 1895.

[516] For a summary of the foreclosure suit pending in 1895 see the Report of the Government Directors for that year.

[517] Chron. 60:303, 1895.

[518] Chron. 60:132, 1895.

[519] Ry. Rev. 35:153, 1895.

[520] Chron. 61:663, 1895.

[521] Chron. 61:705, 1895. (Reorganization plan in full.)

[522] See testimony of W. S. Pierce, Senate Commission, 1896, 54th Congress, 1st Session, Document 314.

[523] Testimony, Senate Commission, 1896, p. 23.

[524] Ibid.

[525] Chron. 62:187, 1896.

[526] Report of Commissioner of Railroads, 1897, p. 8. The Government’s dealings with the reorganization committee followed upon the defeat in the House of a renewed proposition for refunding the Government’s loan.

[527] The guarantee was provided by a syndicate with the same personnel as that which had agreed to advance the money for reorganization expenses.

[528] Chron. 65:730, 1897; Report of Commissioner of Railroads, 1897, p. 9.

[529] Ry. Age, 24:897, 1897.

[530] Report of the Commissioner of Railroads, 1898, p. 9.

[531] The entire indebtedness of the Kansas Pacific to the Government was $12,891,900. After the sale the Government brought suit for the balance, but received a decree for $821,898 only.

[532] Cf. H. R. Meyer, The Settlements with the Pacific Railways, Quarterly Journal of Economics, July, 1899. The receivership records have been published in fourteen volumes.

At its final meeting in 1898 the reorganization committee nominated a proxy committee of five members “to permanently represent, at the annual and other meetings, such holders of common and preferred stock as (should) desire to entrust their proxies to the said committee for the purpose of maintaining the management and general policies inaugurated by the reorganization committee.” This took the place of a compulsory voting trust.

[533] Thomas Warner Mitchell, The Growth of the Union Pacific and its Financial Operations, Quarterly Journal of Economics, vol. 21, p. 569, 1907.

[534] Besides $824,910 in Northern Securities stubs.

[535] See B. H. Meyer, A History of the Northern Securities Case, Bulletin of the University of Wisconsin, July, 1906.

[536] As in the Southern Pacific purchase the acquisition of the Northern Pacific stock was financed mainly by the issue of convertible collateral bonds. Some $30,000,000 besides, it is supposed, were borrowed from the banks.

[537] Testimony of Mr. Harriman before the Interstate Commerce Commission. It is true that the Northern Securities stock held by the Union Pacific system had been pledged as security for an equal amount of Oregon Short Line 4 per cent and Participating 4s, and that when these bonds were refunded there was pledged for the new issue whatever the Union Pacific interests should receive in exchange for their Northern Securities holdings, and any other shares or bonds at not exceeding 80 per cent of their appraised value. But the purchase of the Southern Pacific and of the Northern Pacific stocks had been previously financed by an issue of convertible collateral bonds for which other collateral had been pledged. From 1904 on, the rising price of Union Pacific stock made conversion desirable and rapidly released the securities back of the original issue. These released securities, with $18,000,000 Southern Pacific preferred stock paid to the Union Pacific in 1904 (with $2,460,960 cash), proved a sufficient pledge for the Oregon Short Line refunding bonds, and the Great Northern and Northern Pacific stock shares were therefore free for other purposes.

[538] Annual Report, 1907. See also Interstate Commerce Commission, Report in the Matter of Consolidations and Combinations of Carriers, Relations between such Carriers, and Community of Interests therein, their Rates, Facilities, and Practices, 12 I. C. C. Rep. 319.

[539] The Union Pacific acquired a half-interest in the San Pedro, Los Angeles & Salt Lake Railroad Company in 1904.

[540] Recent reports suggest that a holding company is to be formed, which will take over the securities now owned by the Union Pacific Railroad.

[541] Dividends upon Union Pacific Railroad Stock:

_Per Cent_
1898 1899 1900 1901–4 1905 1906 1907

Common 3½ 4 4½ 8 10
Preferred 1½ 3½ 4 4 4 4 4

[542] Entitled An Act granting Lands to aid in the Construction of a Railroad and Telegraph Line from Lake Superior to Puget’s Sound, on the Pacific Coast, by the Northern Route. Statutes at Large, 38th Congress, 1st Session, chap. 217.

[543] To make possible the selection of indemnity lands.

[544] Josiah Perham was the prime mover at first and after him certain Boston capitalists were prominent.

[545] Ellis Paxsom Oberholtzer, Life of Jay Cooke. Philadelphia, George W. Jacobs & Company, 1907. See also Smalley, History of the Northern Pacific.

[546] The notes were put on the market at par, though sold to the syndicate at 88.

[547] Chron. 18:16, 1874.

[548] R. R. Gaz. 6:135, 1874. The indebtedness of the Northern Pacific to Jay Cooke & Co. amounted to about $1,500,000.

[549] R. R. Gaz. 6:496, 1874; Congressional Record, 43d Congress, 1st Session, May 11, 1874, pp. 3749, 3773.

[550] Net earnings “shall be construed to mean such surplus earnings of the said railroad as shall remain, after paying all expenses of operating the said railroad and carrying on all its business, including all taxes and assessments and payments on incumbrances, and including the interest and sinking fund on the first mortgage bonds, the expenses of repairing or replacing the said railroad, its appurtenances, equipments, or other property, so that the same shall be in high condition, and of providing such additional equipment as the said Company shall deem necessary for the business of said railroad.” Annual Report, 1876, p. 45.

[551] Annual Report, 1876; Chron. 20:522, 1875; Ibid. 21:15, 1875.

[552] Annual Report, 1876.

[553] R. R. Gaz. 7:330, 1875. Deposits of bonds kept coming in, until on June 30, 1879, when the rights of conversion into preferred stock expired, there remained outstanding but $529,000. Annual Report, 1879.

[554] These lands were reserved for the time because some of them had not been surveyed, and others which had been surveyed had not yet been deeded to the company owing to a dispute with the Interior Department over the payment of the costs of the surveys. R. R. Gaz. 7:340, 1875.

[555] R. R. Gaz. 7:420, 1875.

[556] Annual Report, 1881.

[557] Annual Report, 1882, p. 13.

[558] Henry Villard, Memoirs, vol. 2, pp. 272–94.

[559] Memoirs, p. 297.

[560] For the manner in which the Northern Pacific directors attempted to keep Villard from obtaining control, see notices in the Chronicle for 1881.

[561] See First Annual Report of the Oregon & Transcontinental Company; R. R. Gaz. 14:516, 1882 (contains statement of organization and purposes).

[562] Annual Report, 1883. Arrangements had been made with the Oregon & Transcontinental Company for necessary advances in order to avoid the accumulation of a large floating debt.

[563] R. R. Gaz. 15:716, 1883. For attempted explanation of this deficit, see Villard’s statement to the stockholders in 1884, just after his retirement from the presidency.

[564] Memoirs, p. 315.

[565] Villard was back in control by 1887 with the backing of German capital.

[566] In 1886 the Oregon Railway & Navigation was obtaining 28 cents per 100 pounds for its haul of 213 miles from Wallula Junction to Portland, leaving to the Northern Pacific 28 cents for its haul of 1699 miles from St. Paul to Wallula. R. R. Gaz. 18:681, 1886, Report of Vice-President and General Manager Oakes.

[567] For the negotiations between the Union Pacific, the Oregon Railway & Navigation, and the Northern Pacific from 1885 to 1889, see the financial papers of that time and the reports of the railroads concerned.

[568] In 1890 it was reorganized as the North American Company.

[569] Annual Report, 1888, p. 8; Chron. 44:752, 1887; Ibid. 44:782, 1887.

[570] The preponderance of west-bound freight prior to 1888 forced the Northern Pacific to carry grain east-bound at very low rates in order to fill its empty cars. See Daniel Buchanan vs. the Northern Pacific Railroad Company, 5 I. C. C. Rep. 7.

[571] For immigrant traffic into the Northwest see Ry. Rev. 28:163, 1888.

[572] The capital stock of the Cœur d’Alene Company was $1,000,000, and there were $360,000 in 6 per cent guaranteed bonds outstanding. Ry. Rev. 28:551, 1888.

[573] Interest due and accrued, bills payable and accounts payable for the following years were:

1884 $6,941,513
1885 4,748,235
1886 4,959,406
1887 6,504,274
1888 9,287,616
1889 7,858,261

[574] Annual Report, 1889.

[575] Annual Report, 1889; Chron. 50:279, gives text of mortgage.

[576] Ry. Rev. 29:541, 1889. In fact the issues were all made at 5 per cent.

[577] Annual Report, 1890. For answer of directors see R. R. Gaz. 21:759, 1889.

[578] Chron. 51:539, 1890. The point of view of the stockholders is briefly but clearly set forth in a circular issued by Mr. Robert Harris, chairman of the board of directors. Ry. Age, 14:658, 1889.

[579] In 1919.

[580] Evidence of this appears in the $10,000,000 reserved for premiums.

[581] Memoirs, vol. 2, p. 336.

[582] Annual Report, 1889; R. R. Gaz. 21:318, 1889. The Wisconsin Central divided its gross earnings into two parts, 65 per cent and 35 per cent; retained 35 per cent for its own use, and appropriated 65 per cent for operating expenses and for certain improvements tending to reduce operating expenses. When operating expenses were less than 65 per cent the Wisconsin Central was to pay over one-half of the difference to the Northern Pacific in consideration of the business which the latter gave it. When operating expenses exceeded 65 per cent the Wisconsin Central was to pay not exceeding 2½ per cent of this excess out of its 35 per cent, and to divide one-half of any excess of operating expenses above 67½ per cent equally between the Wisconsin Central and the Northern Pacific. The Northern Pacific, however, was not bound to pay its half of such excess except out of future profits received under the contract.

[583] Annual Report, 1890. For a brief statement of the complicated relations between the Wisconsin Central, the Chicago & Northern Pacific, and the Chicago & Great Western, see R. R. Gaz. 22:350, 1890. Terms were agreed upon with the Baltimore & Ohio for the use of the Chicago terminals of the Chicago & Northern Pacific, by that corporation. Annual Report, 1891.

[584] Annual Report, 1890, p. 14; R. R. Gaz. 21:318, 1889.

[585] Chron. 54:845, 1892. Resolutions adopted at the stockholders’ meeting were in substance:

“_Resolved_, That the $3,347,000 of consolidated mortgage bonds now deposited with the Farmers’ Loan & Trust Company as trustee for the preferred stockholders ... be not sold below 90 and accrued interest.

“_Resolved_, If all the bonds be not sold as above, and smaller lots can be disposed of at 90 and interest, then the Directors may sell enough to make up the deficiency any year between the dividend actually paid to preferred stockholders and the 4 per cent which should be paid.

“_Resolved_, If 4 per cent dividends or more are declared by the Board of Directors any year, then enough bonds shall be sold to produce 1 per cent additional dividend to be paid to preferred stockholders.” Chron. 55:679, 1892.

[586] Ry. Rev. 32:687, 1892. Members were, Henry Clews, Brayton Ives, Frank Sturges, William Solomon, and Jay Cooke, Jr.

[587] Ry. Times, 63:275, 1893; Chron. 56:332, 1893.

[588] Ry. Rev. 33:143, 1893; Chron. 56:362, 1893; Ry. Times, 63:302, 1893; Ibid, p. 360. See also R. R. Gaz. 25:161, 1893.

[589] Memoirs, pp. 359–60.

[590] Among others the investigating committee protested loudly against a sale. Ry. Rev. 33:127, 1893.

[591] Ry. Times, 65:595, 1893.

[592] Chron. 56:1017, 1893; R. R. Gaz. 25:398, 1893.

[593] The heaviest subscribers were the Rockefellers and Villard and his friends.

[594] Annual Report, 1893; Ry. Times, 64:290, 1893.

[595] Criticism was aroused by the alleged fact that all three receivers were adherents and virtually protégés of Henry Villard. Ry. Times, 64:290, 1893. See also Smalley, p. 291.

[596] Except that Henry Stanton of New York was to be the Eastern receiver for all the branches.

[597] Ry. Times, 64:337, 1893.

[598] These officers had resigned in consequence of the non-payment of their salaries.

[599] Ry. Rev. 33:587, 1893.

[600] Chron. 59:697, 1894.

[601] Ibid. 57:765, 1893.

[602] Ry. Age, 19:40, 1894.

[603] Ry. Age, 23:154, 1897.

[604] Ry. Rev. 33:783, 1893; Chron. 57:1123, 1893; Ry. Age, 19:11, 1894.

[605] Ry. Age, 19:89, 1894.

[606] Ibid. 19:231, 1894.

[607] R. R. Gaz. 26:294, 1894; Chron. 58:683, 1894.

[608] R. R. Gaz. 26:642, 1894; Chron. 59:473, 1894.

[609] Chron. 59:738, 1894; Ibid. 59:697, 1894.

[610] This is not to be explained by more liberal expenditures by the receivers on maintenance of way and equipment, for the sums applied to both these purposes were materially less in 1894 than in 1893.

[611] Ry. Times, 65:87, 1894.

[612] Ibid. 65:38, 1884.

[613] R. R. Gaz. 27:160, 1895.

[614] For opposing circulars by the Livingston Committee and by the directors see Ry. Rev. 35:55, 1895. On February 20, 1896, a Stockholders’ Protective Committee was appointed, consisting of August Belmont, Brayton Ives, and George R. Sheldon of New York, and Charlemagne Tower, of Philadelphia. Chron. 62:365, 1896.

[615] Chron. 60:930, 1895.

[616] R. R. Gaz. 27:590, 1895.

[617] For the use of trackage and terminals at and between St. Paul and Minneapolis. See Ry. Age, 20:161, 1895; Ibid. 20:198, 1895; Ry. Rev. 35:209, 1895.

[618] Chron. 61:325, 1895.

[619] Pearsall _vs._ Great Northern Railway Company, 161 U. S. 647.

[620] Ry. Rev. 35:461, 1895.

[621] Proceedings were begun in the Seattle court in August. See Chron. 61:241, 1895; Ry. Age, 20:394, 1895; Ibid. 20:418, 1895; Ibid. 20:430, 1895.

[622] Up to this time such accounts had been filed in the Milwaukee court.

[623] Ry. Age, 20:442, 1895; Ry. Rev. 35:503, 1895.

[624] Ry. Age, 20:478, 1895; R. R. Gaz. 27:648, 1895.

[625] Chron. 61:611, 1895; Ry. Times, 68:442, 1895.

[626] Justices Brown, Harlan, Brewer, and Field.

[627] “We are of the opinion,” said Justices Field, Harlan, and Brewer, “that proceedings to foreclose a mortgage upon lines extending through more than one district should be commenced in the Circuit Court in which the principal operating offices are situated, and in which there is some material part of the railroad embraced by the mortgage. Such court should be the court of primary jurisdiction. But in view of the fact that a portion of the line of road owned by the Northern Pacific Company is within the State of Wisconsin, and that at the time of the filing of the creditors’ bill the Northern Pacific Railroad Company was operating a road through the Eastern District of Wisconsin, although such road was under lease to it for 99 years; and in view of the further fact that the railroad company assented to the action of the Circuit Court for the Eastern District of Wisconsin in taking jurisdiction, and as such jurisdiction has been recognized by the Circuit Court in every district ... for the space of about two years, we are of the opinion that the Circuit Court for the Eastern District of Wisconsin has jurisdiction to proceed to a decree of foreclosure which will bind the mortgagor company and the mortgaged property, and ought to be recognized by the Circuit Court of every district along the line as the court of primary jurisdiction.” Chron. 62:234, 1896.

[628] Justice Field of the Supreme Court declined to exercise his authority to remove Burleigh, intimating that the existing arrangement was satisfactory. Ry. Age, 21:174, 1896.

[629] The existing general mortgage covered only the main line, land grant, and equipment so far as owned by the company.

[630] See Circular of the Reorganization Committee, or Chron. 62:550, 1896; Ry. Times, 69:287–8, 1896.

[631] In addition there were $73,875 of unpaid interest on receivers’ certificates.

[632] See R. R. Gaz. 28:219, 1896, for editorial on plan.

[633] Ibid. 28:349, 1896.

[634] Chron. 62:1139, 1896; Ibid. 63:155, 1896.

[635] Chron. 62:990, 1896; Ibid. 62:1041, 1896.

[636] Chron. 62:1088, 1896.

[637] Ry. Times, 69:511, 1896.

[638] Chron. 62:779, 1896.

[639] Curiously enough the sale did not extinguish the old Northern Pacific Railroad Company. Some 25,000 or more shares did not assent to the reorganization plan and are still outstanding. They assert that it is because of them that the old organization is kept up.

[640] From 1898 to 1907 inclusive. This does not include advances to subsidiary companies, which have aggregated nearly $20,000,000.

[641] The average train load in 1907 was 406.77 tons; that in 1898 was 264.59 tons.

[642] Chron. 83:1524, 1906; Ibid. 84:103, 1907. The new issue is to go in part for improvements previously made out of income. The directors have adopted the questionable policy of charging all such expenditures to capital account.

[643] For this and for an account of the Northern Securities episode see B. H. Meyer, A History of the Northern Securities Case, Bulletin of the University of Wisconsin, July, 1906.

[644] Annual Report, 1901.

[645] The dividends declared by the Northern Pacific Railway have been:

1898 1899 1900 1901 1902 1903 1904 1905 1906 1907

Common stock 2 4 4 5½ 7 6¾ 7 7 5¼[A]
Preferred stock 5 4 4 4 1

[A] Including August.

[646] Poor’s Manual, 1878. The name was first the Rock Island & La Salle Railroad Company, and was changed to the Chicago & Rock Island Railroad Company in February, 1851.

[647] Chron. 30:356, 1880.

[648] Chron. 30:616, 1880.

[649] For the attempt of Vanderbilt to get representation on the board see the pamphlet issued by the Rock Island Company at this time; also R. R. Gaz. 16:420, 1884; Annual Report, 1884; Ry. Age, 9:428, 1884.

[650] R. R. Gaz. 16:891, 1884.

[651] R. R. Gaz. 16:709, 1884.

[652] Annual Report, 1891.

[653] Ibid. 1889.

[654] Ibid. 1892.

[655] Annual Report, 1892.

[656] “With the Chicago, Rock Island & Texas Railway Company this company has financial and traffic agreements under which the Chicago, Rock Island & Pacific Railway Company supplies all funds necessary to build and equip the road in consideration of receiving all the stock and all of the bonds of the Texas company, the latter issued at the rate of $15,000 per mile of completed road and additional for equipment to an amount equal to cost of the same, not exceeding $5000 per mile.” Annual Report, 1893.

[657]

Bonded indebtedness, 1900, amounted to $18,395 per mile.
Capital stock, 1900, amounted to 13,711
-------
$32,106 per mile.

[658] Ry. Age, 33:186, 1902.

[659]

Stock quotations: June 1, 1901 156¾
July 1, 1901 155¾
July 12, 1901 132½

[660] The par was $50 for both common and preferred.

[661] R. R. Gaz. 34:562, 1902.

[662] This line had been leased before, and the majority of its stock and that of the Rock Island & Peoria had been owned by the Chicago, Rock Island & Pacific.

[663] See financial papers for 1897.

[664] Annual Report, 1903.

[665] Quotations of securities:

_Jan. 2, _Jan. 2, _Jan. 2,
1903_ 1904_ 1905_

Rk. I. Co. common stock 49 22¾ 36¼
Rk. I. Co. preferred stock 83½ 61 84
C., R. I. & P. R. R. Co. 4 per cent bonds 87⅜ 66¾ 81⅝

[666] Chron. 75:212, 1902.

[667] Ry. Age, 34:301, 1902.

[668] R. R. Gaz. 34:750, 1902.

[669] Previous to this the stockholders of the Chicago, Rock Island & Pacific Railroad Company had approved the deal, had authorized the new bonds of 1913, and had voted to increase the capital stock of their company $20,000,000, which increase was turned into the treasury of the Rock Island Company of New Jersey, in return for an equal amount of this latter company’s stock. It is worth noting that the purchase was to be made by Railroad Company and not by Rock Island Company bonds, although the desire of the management was ultimately to see the indebtedness of all subsidiary roads replaced by Rock Island Company bonds.

[670] Ry. Rev. 43:408, 1903.

[671] Chron. 76:1192, 1903.

[672] Ry. Age, 36:1, 1903.

[673] Ry. Age, 37:1153, 1904.

[674] See the Annual Report of the St. Louis & San Francisco Railroad for 1904.

[675] A consolidation in 1905 of the Arkansas Southern Railroad Company, the Arkansas & Louisiana Railroad Company, and the Little Rock & Southern Railroad Company. See the Annual Report of the Chicago, Rock Island & Pacific Railroad Company for 1906.

[676] See letter from Mr. C. W. Hilliard, vice-president of the Colorado Southern, New Orleans & Pacific Railroad, and comptroller of the St. Louis & San Francisco Railroad Company, in Chron. 84:507, 1907.

[677] After October, 1906.

[678] Ry. World, 51:531, 1907.

[679] Chron. 85:468, 1907.

[680]

_Number of _Name of _Number
_Date_ reorganizations_ reorganization_ of plans_ _Foreclosures_

1900-4 1 Rock Island 1 No

1895-9 6 Atchison 2 Yes
Baltimore & Ohio 1 No
Erie 3 Yes
Northern Pacific 2 Yes
Reading 4 Yes
Union Pacific 3 Yes

1890-4 2 Atchison 1 No
Richmond Terminal 3 Yes

1885-9 3 Atchison 1 No
Reading 6 No
East Tennessee 2 Yes

1880-4 3 Reading 5 No
Rock Island 1 No
Union Pacific 1 No

1875-9 2 Erie 4 Yes
Northern Pacific 1 Yes

1859 1 Erie 1 Yes
-- --
18 42

Carl Snyder, American Railroads as Investments (N. Y., The Moody Corporation, 1907), offers, _inter alia_, an analysis of the results of operation of the railroads considered in the text.

[681] The lien of a floating debt is inferior to that of a bond when unsecured, except as it represents arrears of wages and payment for supplies. But it is usually very well secured.

[682] In the case of the Rock Island in 1902 there was no floating debt to be considered, while in 1885 the Erie funded overdue coupons and issued a 6 per cent mortgage on its Jersey City terminals to cover accumulated liabilities, but did not disturb its outstanding mortgage bonds, and cannot, therefore, be said to have reorganized.

[683] This was, in fact, a prominent feature of the reorganizations between 1893 and 1898. The Atchison surrendered the St. Louis & San Francisco; the Erie absorbed the New York, Pennsylvania & Ohio into its system instead of continuing the lease thereof; the Northern Pacific surrendered the lease of the Wisconsin Central and cancelled various unprofitable traffic contracts and traffic agreements; the Reading gave up the Lehigh Valley and its New England extensions; the Southern reduced its mileage by over one-half; and the Union Pacific shrunk from 7674 miles in 1892 to 5399 in 1899.

[684] See Interstate Commerce Commission: In the Matter of Consolidations and Combinations of Carriers, etc., 12 I. C. C. Rep. 319.

[685] Testimony of C. F. Adams, United States Pacific Railway Commission Report, 1887, vol. 1, p. 45.

[686] “It is only by the fullest knowledge of the affairs of the company that a correct judgment of the best manner of meeting its wants can be formed, and there is no other practicable way to manage the business of the company to its best advantage than for the stockholders to elect directors worthy of confidence, and to leave the management to them.” Annual Report, 1887, Robert Harris, President.

[687] In the case of the Atchison, old income bonds were retired by new second mortgage bonds, with the result that the aggregate value of creditors’ holdings was largely increased.

[688] Speech at Columbus, Ohio, August 19, 1907.

[689] Forum, September, 1890, and March, 1894.

[690] The percentages for the Atchison are corrected according to the report of Mr. Little. Owing to the lack of available detail it has been necessary to increase operating expenses by the total amount of the errors which he discovered, and this figure is, therefore, unduly inflated.

[691] In 1893, after the Northern Pacific failure, the consolidated 5 per cent bondholders formed a committee; Mr. Brayton Ives invited bondholders to send in their names and addresses to him (1894); and later in 1894 the falling off in the railroad’s earnings induced the formation of the Livingston and Van Nostrand committees, and the announcement of the consolidated committee that it would accept the deposit of second and third mortgage bonds. Finally, within four months after the Atchison failure of 1893, four important reorganization committees were asking for deposits in the United States and one was soliciting deposits in London.

[692] The officers of bankrupt roads have no need of committees to make their wishes known, but only so far as they are bondholders, or in so far as they can influence bondholders by argument do their opinions carry weight. President Ives of the Northern Pacific in 1893 was able to use his position to fight his opponents through the courts, and secured besides appointment on a stockholders’ protective committee, but exercised no great influence on the reorganization; President Jewett, of the Erie, gained the confidence of the visiting committee of English bondholders in 1875, and had some voice accorded him; but generally speaking officers have to rest content if they can successfully defend themselves against charges of inefficiency and mismanagement. They are, in fact, both the choice and the representatives of the stockholders, and the stockholders having no authority in the event of bankruptcy can delegate none. Officers of the courts which are in control of bankrupt railroads enjoy sometimes a different position from officers of the corporations themselves, in that they do not represent or depend on stockholders, and may not be connected with the circumstances which have caused the ruin of the road. Thus the receivers of the Union Pacific in the nineties were called to testify before Congressional committees, and those of the Erie chose a committee which prepared the first reorganization plan suggested, but in both cases the functions of the court officers were purely advisory, and so they must always be.

[693] In 1895 the final Atchison reorganization plan announced the following arrangement: “A contract has been made with a syndicate to furnish an amount of money equal to the assessments of non-assenting or defaulting stockholders, and such syndicate, by such payment, shall take the place of the non-assenting or defaulting stockholders, and shall be entitled to receive the new common and preferred stock, which non-assenting or defaulting stockholders would have been entitled to receive if they had deposited their stock and paid their assessment in full. Syndicates may also be formed to furnish the money needed, in case of foreclosure, to pay the non-assenting bondholders their _pro rata_ share of the proceeds of sale, and to advance any cash which may be required during the reorganization and for other purposes.” Chron. 60:658–62, 1895. The reorganization plan of the Baltimore & Ohio in 1898 contained the following: “A syndicate has been formed ... which agrees: 1st, To purchase $6,975,000 of the new preferred stock, and $30,250,000 of the new common stock, and to offer the same for sale to depositing holders of old 1st and 2d preferred and common stock of the Baltimore & Ohio Railroad Company.... 2d, To purchase $9,000,000 3½ per cent prior lien bonds; $12,450,000 1st mortgage 4 per cent bonds; $16,450,000 preferred stock. 3d, To protect the new company in the ownership and possession of the properties covered by $49,974,098 ... of the existing mortgage bonds of the old company of different issues by agreeing to purchase from the new company the new securities not taken, but to which the holders of such bonds would have been entitled if depositing under the plan, at a price equal to the principal of the respective old securities, and also to make advances and perform other obligations essential for the purposes of the plan.” Poor’s Manual, 1898, p. 1381. Similar provisions appear in the plans of the Erie, the Northern Pacific, the Reading, the Southern, and the Union Pacific.

[694] In 1894.

[695] H. V. Poor (Manual, 1900) compiles the following statement for 57 selected companies reorganized between 1886 and 1898:

_Securities provided for other corporate purposes of new companies_

Capital stock: Bonded Indebt.
Preferred, $89,971,268 Int.-bearing, $538,277,638
Common, 96,555,753 Income, 48,902,701

[696] Where stock- or bondholders are compelled to subscribe to an issue of new securities the operation becomes an assessment and not a sale.

[697] Among the reorganizations of the eighties, for instance, the Denver & Rio Grande levied $8 per share in 1885 upon its $38,000,000 common stock; the Pittsburgh & Western assessed its common stock 4 per cent in 1887; the New York, Chicago & St. Louis assessed its common $10, and its preferred an equal sum; and the Central Iowa levied 2½ per cent on its debt certificates, 5 per cent on its 1st preferred stock, 10 per cent on its 2d preferred, and 15 per cent on its common. See Chron. 40:480; Ibid. 44:212, 370, 653.

[698] A syndicate guaranteed the assessment in each case between 1893 and 1898. The Reading assessment is calculated on a par of $100.

[699] The assessments before 1893 were as follows: The Erie levied 2½ per cent on its common and preferred in 1859, and a minimum of $4 on its common and $2 on its preferred in 1877, with no allowance of new securities in either case. The East Tennessee assessed its common stock 6 per cent and its income mortgage 5 per cent in 1886, and gave to the one a corresponding amount of 2d preferred, and to the other of 1st preferred stock. The Reading assessments in 1886 ranged from 2½ per cent on the deferred incomes to 15 per cent on certain junior securities, with an assessment of $10 on both classes of stock. Preferred stock was given for all assessments up to the full amount of the sums taken.

[700] The quotations six months after reorganization are for the combined securities given in exchange for the old preferred stock. In the case of the Baltimore & Ohio _e. g._, this was 150 per cent in new common; for the Northern Pacific it was 50 per cent new common and 50 per cent new preferred. Only $5,000,000 of Baltimore & Ohio preferred stock were outstanding before the reorganization of 1898, and no record of quotations can be found. Quotations are similarly unobtainable for the Reading in 1886.

[701] The very large increase in the Baltimore & Ohio quotations was doubtless due to the lateness of the reorganization.