281 Organization and scope of the three Reading Companies. The Reading Company owns practically the whole of the capital stock of the Philadelphia & Reading Railway Company and the Philadelphia & Reading Coal & Iron Company, and all of the other stocks and securities which were acquired by the purchases under the sale made by the Trustees and the Receivers. It also owns the $20,000,000 purchase money mortgage bonds issued by the Philadelphia & Reading Railway Company, the locomotives, cars, steam collieries, tugs, and barges constituting the railway and marine equipment, and all the real estate of the old Philadelphia & Reading Railroad Company which was not appurtenant to the railroad itself. This, of course, does not include the depots, rights of way, etc., which belong to the Railway Company. The Philadelphia & Reading Railway Company owns all the roads formerly belonging to the Philadelphia & Reading Railroad Company, and it controls the roads hitherto leased to that company, either by transfer of the old leases or by new leases made since November 30, 1896. It leases from the Reading Company the railway and marine equipment which it uses in the conduct of its business and a number of wharves and warehouses on the Delaware River. Annual Report, 1898.

282 Chron. 64:84, 1897.

283 There are certain duplications in both of these figures, but the same duplications appear in each.

284 Chron. 79:2087, 1904.

285 See the nineteenth volume of the Industrial Commission’s report for a brief description of the renewed attempt at consolidation in the anthracite coal fields; also testimony in the case of W. R. Hearst against the Philadelphia & Reading Railway Company.

286 The Virginia state bonds were redeemable in 34 years from April 8, 1853, to September 30, 1854, by the payment of an annuity of 7 per cent. Of this rate 6 per cent covered the interest and 1 per cent, by continuous reinvestment at 6 per cent, was expected to yield the principal sum in the 34 years agreed upon. Annual Report, 1867. Like most new companies, the Richmond & Danville found difficulty at first in meeting its obligations, and was obliged to issue bonds to provide for overdue interest to the state and to keep its floating debt within bounds. R. R. Gaz. 5:499, 1873, and Ibid. 5:507, 1873.

287 R. R. Gaz. 3:279, 1871. This road stretched from Goldsboro in the eastern part of North Carolina to Charlotte in the southwestern part, via Greensboro. It was principally owned by the state of North Carolina. By the terms of the lease the Richmond & Danville agreed to pay $260,000 per annum for thirty years.

288 The whole road was opened for traffic in September, 1873. It went into the hands of a receiver in 1874, and was sold in foreclosure in 1876; but the Pennsylvania Railroad relieved the Richmond & Danville from all collateral liabilities incurred on its account. The reorganized line was leased by the Richmond & Danville in 1881. Chron. 32:367, 1881.

289 Annual Report, 1878.

290 Ibid. 1874.

291 Ulrich B. Phillips, A History of Transportation in the Eastern Cotton Belt to 1860. New York: The Columbia University Press, 1908, pp. 372 ff.

292 Including 37 miles of running rights over the N., C. & St. L.

293 R. R. Gaz. 5:475, 1873.

294 Ibid. 6:178, 1874.

295 Ibid. 8:540, 1876.

296 The Memphis & Charleston stockholders agreed to the lease in order to avoid bankruptcy. At a meeting in May, 1877, it was pointed out to them that the net earnings of the road had not been enough to pay the interest on its bonds, and that a large amount was due to the state of Tennessee which the company had no present means of paying. Either an assessment on the stock or a lease to the East Tennessee was declared to be necessary. Accordingly, a lease was concluded. The East Tennessee agreed so to discharge the principal of the company’s indebtedness to the state as to reduce the annual interest account from $360,000 to $310,000 as a maximum, and upon the fulfilment of this and of certain other minor conditions took over the operation of the road. Two years later the lease was extended for twenty years at a definite rental amounting to 7 per cent on $4,225,000 or a yearly payment of $295,750. See R. R. Gaz. 9:421, 1877, and Ibid. 11:672, 1879.

297 The Selma, Rome & Dalton was bought from the purchasers at foreclosure sale for $2,600,000. The Georgia Southern cost $367,369. Outstanding debts were assumed. To provide for these and other outlays $10,000,000 new 5 per cent bonds were authorized. R. R. Gaz. 12:622, 1880.

298 This line was completed in 1882. Chron. 35:430, 1882; R. R. Gaz. 13:420, 1881.

299 Chron. 33:357, 1881.

300 R. R. Gaz. 13:420, 1881.

301 Prominent among them were Messrs. Clyde, of the Coast Line railroads, Wilson and McGhee of the East Tennessee, Stewart, Plant, Logan, and others.

302 This had been the Atlanta & Richmond Air Line.

303 Chron. 37:128, 1883.

304 Chron. 39:733, 1884.

305 Chron. 40:29, 1885.

306 The committee overestimated the net earnings of the next few years. Instead of $1,400,000 each year these proved to be $1,288,343 in 1885 and $1,382,749 in 1886.

307 Chron. 40:60, 1885. There was some dispute as to the jurisdiction of the different courts in this connection. The Circuit Court appointed Mr. Fink receiver for the whole line on January 7. The next day a state court appointed R. T. Dorsey and E. P. Alexander receivers for the lines in Georgia under another mortgage. This suit was removed to the Federal Court and Dorsey, who had meantime been appointed sole receiver in Georgia, was displaced. Subsequently the Georgia Supreme Court held that the transfer was illegal, and Dorsey vainly endeavored to regain his position. The dispute was ended by the withdrawal of the suit upon which the Georgia application was based.

308 Son-in-law of George Seney.

309 This committee was chosen by the consolidated bondholders. Its membership consisted of Robert Fleming, a representative of the foreign holders; Charles McGhee, president of the Memphis & Charleston; G. W. Smith, of Kountze Bros.; Frederic D. Tappan, president of the Gallatin National Bank; E. W. Corlies, vice-president of the Bank of America; and Frederick P. Olcott, president of the Central Trust Company, which was trustee of the mortgages of the company. Chron. 42:155, 1886.

310 As might have been expected, this estimate was too optimistic. The actual reduction was to $1,167,000. Even this constituted a cut of about one-third.

311 Chron. 42:186–7, 1886. See also Poor’s Manual for 1886.

312 The reader will remember that that same year the general manager had estimated the sum required for steel rails, iron bridges, and other improvements at $1,000,000.

313 It is true that the severity of the treatment of the junior securities caused sharp protest. A number of the stockholders met in New York February 23, and appointed a committee to prepare a plan of assessment and to oppose foreclosure. Under the auspices of this committee, Messrs. William H. Sistare and Harold Clemens filed a suit against the reorganization committee of the East Tennessee Company. The capitalization of the company, said they, had been fraudulently inflated by the members of the Thompson-Seney-Brice syndicate. By false reports these financiers had unloaded upon the public securities which they had previously distributed among themselves, and then had entered upon a scheme for wrecking the property. The suits made specific charges of irregularity, and prayed for relief. Ry. Age, 11:192, 1886.

314 Chron. 42:364, 1886.

315 Ibid. 42:575, 1886.

316 Ibid. 42:663, 1886. In a circular to their constituents this committee said: “That after a full and satisfactory presentation of the case by very able counsel it appeared that the committee had been misinformed as to the material facts upon which their case was predicated. It especially appeared to the Court that there was no ground for the charge of fraud against the directors of the Company or the Central Trust Company. It further appeared that the litigation must be a protracted one, without substantial benefit to either party. Your committee were not willing to assume the responsibility of such a contest, in view of the expressed willingness of the majority to give to the minority the same terms which they had accepted for themselves. It was deemed wise to harmonize all interests, and join hands to promote the future of the property.”

317 Annual Report, East Tennessee, Virginia & Georgia, 1887.

318 Chron. 37:344, 1883. The debentures were cumulative income bonds entitled to 6 per cent out of earnings after payment of interest, rentals, and operating expenses, including expenditures made for the repair, renewal, and improvement of existing property and equipment necessary for the proper conduct of the business of the railroad. Certain provisions of the mortgage protected them against the insertion of new mortgage bonds before them. Chron. 37:373, 1883.

319 Curiously enough the chief saving seems to have been in maintenance of cars, an expenditure which one would expect to be least affected by the syndicate control.

320 Chron. 36:56, 1883.

321 R. R. Gaz. 18:138, 1886.

322 Chron. 42:575, 1886.

323 The Richmond & Danville guaranteed interest on some $12,500,000 of Virginia Midland bonds.

324 Cf. Poor’s Manual for 1887.

325 The very high average price of $200 per share was reported to have been paid. R. R. Gaz. 18:825, 1886; cf. R. R. Gaz. 19:162–3, 1887. The Terminal Company issued $5,000,000 new preferred and $9,000,000 common stock. Of this it sold the preferred and $7,500,000 of the common, giving to every holder of 100 of its shares the right to subscribe to the extent of one-third of the par value of his stock, and to receive for his subscription 33⅓ shares of the new preferred and 50 shares of common. Then to the $5,000,000 cash thus secured the Terminal Company added the $1,500,000 common stock left from its $9,000,000 issue, and turned the whole over to the Richmond & Danville in payment for the securities which it had purchased. R. R. Gaz. 18:825, 1886.

326 The floating debt amounted to $3,161,325 when Mr. Sully assumed the presidency, and $1,708,700 of it matured January 1. Chron. 44:401, 1887. To provide for it, and for the Richmond & Danville shares, $5,500,000 6 per cent collateral trust bonds were issued, secured by East Tennessee first preferred, Richmond & Danville stock, Columbia & Greenville stock, Virginia Midland stock, and Western North Carolina bonds; and also $16,000,000 common stock. The bonds were sold for cash and the returns applied to the East Tennessee purchase and to the floating debt; $5,000,000 of the stock went for East Tennessee first preferred, and the rest for Richmond & Danville common, Washington, Ohio & Western stock and income bonds, and for other purposes. Chron. 44:149, 1887. Also Poor’s Manual, 1890.

327 It was reported that the East Tennessee first preferred stock had been offered to the Norfolk & Western before the Richmond Terminal acquired it.

328 Chron. 47:410, 1888.

329 Chron. 47:532, 1888.

330 Chron. 47:532, 1888; Ry. Rev. 28:663, 1888; R. R. Gaz. 20:778, 1888.

331 Chron. 47:625, 1888.

332 Chron. 47:663, 1888.

333 Ry. Rev. 28:679, 1888.

334 Ry. Age, 13:788, 1888.

335 Cf. Central Railroad Company vs. Georgia, 2 Otto, 665. The Central Railroad was granted certain exemptions from taxation, and the question came up in 1874 whether the right to these exemptions was surrendered by consolidation with the Macon & Western, and whether, if not, they extended to the Macon & Western as well as to the original company.

336 Including 67 per cent paid in Confederate notes during the war.

337 See Ulrich B. Phillips, op. cit., chap, vi, for the early history of the Central of Georgia Railroad System.

338 The following is representative from a pamphlet issued by the Rice Committee:

“The matter of the purchase of sixty-five thousand shares of the first preferred stock of the East Tennessee Railroad Company and the circumstances attendant thereon.

“1st. Why did the directors of the Terminal Company purchase sixty-five thousand shares of that stock at par, when fifty-five thousand and one shares would have been sufficient to have given the Terminal Company a majority of that stock, the minority stock at that time selling at about eighty?

“2d. Why was the minority stock of the Danville Railroad Company purchased at the same time at a price which then amounted to about two hundred dollars per share, being a premium of one hundred per cent?

“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

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.