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These were to be parts of larger amounts authorized but not issued. Thus the authorized amount of prior liens was ,000,000, of which ,000,000 were to be reserved, and to be issued after January 1, 1902, at the rate of not exceeding ,000,000 a year, for enlargement, betterment, or extension of properties covered by the prior lien mortgage; or for the acquisition of additions thereto. The authorized amount of first mortgage 4s was 5,000,000. Since the prior liens matured in 1925, and this mortgage not till 1948, ,000,000 were reserved for retirement of the prior issue. ,000,000 were further put aside for the new company; ,000,000 for the retirement of the Baltimore Belt Line 5s, and ,000,000 for enlargements, betterments, or extensions, etc., at a rate not exceeding ,500,000 a year for four years, and not exceeding ,000,000 a year thereafter. The reserves from these two mortgages, therefore, made liberal provision for new capital requirements. All of the common stock authorized was to be issued at once; but besides the ,000,000 preferred stock before mentioned, ,000,000 preferred were to be held in reserve for the new company.

Of the immediate issues ,073,090 prior liens, ,384,535 first mortgage 4s, ,218,700 preferred stock, and ,178,000 common stock went toward the retirement of old securities; and ,000,000 prior liens, ,450,000 first mortgage 4s, and ,450,000 preferred stock were for cash requirements. The better of the old mortgages received cash for their overdue interest, something over par in prior liens for their principal, and from 12 1/2 to 32 per cent in first mortgage 4s and preferred stock to compensate for reductions in their annual return. Inferior bonds received new first mortgage 4s with preferred stock as a douceur. The old stock, common and preferred, and the Washington City & Point Lookout 6s got mostly new stock for the principal of their holdings, and preferred stock for their assessments. The fundamental principle on which the exchanges were based was the retirement of old bonds bearing high interest rates by an increased volume of new bonds bearing lower rates; thus permitting a much smaller reduction in fixed charges than occurred in other reorganizations which we shall consider. To some extent reductions in annual yield were made up by allowance of preferred stock. The consolidated mortgage 5s of 1887, on which interest was reduced from annually to .75, received in 4 per cent preferred stock as a compensation. The Baltimore & Ohio Loan of 1874 saw a reduction in interest from to .41, partially made up from the dividends on 0 of new preferred stock. In fact, out of thirteen cases in which new bonds were given for old, ten included an allowance of preferred stock, thus bringing the Baltimore & Ohio in line with other reorganizations of the period. But the proportion of preferred stock given was small in each case, and the principle was not well carried out.

The cash requirements of the system were estimated at ,092,500; being swelled by arrears of interest, receivers' certificates, need for working capital, reorganization expenditures, and the like. The plan proposed to cancel them by assessments on stockholders and by the sale of securities before described. On the first preferred stock, a share was levied, on the second preferred, and on the common stock, with a syndicate guarantee for each. This netted ,460,000. Stockholders received new preferred stock for their payments. Deducting ,460,000 preferred stock from the securities reserved under the plan to be sold for cash, there remained ,000,000 prior liens, ,450,000 first mortgage 4s, and ,990,000 preferred stock, or a total of ,440,000; all of which a syndicate agreed to take. In addition the company disposed of securities in the treasury, including ,800,000 stock of the Western Union Telegraph Company, for ,500,000.

Both classes of stock were vested in five voting trustees, for a period of five years. The trustees might, however, deliver the stock at an earlier date in their discretion, and in fact did so in August, 1901. No additional mortgage was to be put upon the property, and no increase in the amount of the preferred stock was to be made, except in each instance after obtaining the consent of the holders of a majority of the whole amount of preferred stock outstanding, given at a meeting of the stockholders called for that purpose, and the consent of the holders of a majority of such part of the common stock as should be represented at such meeting, the holders of each class of stock voting separately. During the existence of the voting trust similar consent of holders of like amounts of the respective classes of trust certificates was to be necessary for the purposes indicated. Only a portion of the leased and dependent lines were provided for in the plan, but the various cases were left to be passed on separately. Thus the Baltimore Belt Line was finally leased at a rental equivalent to 4 per cent on the outstanding 5 per cent bonds; while the acquisition of the Baltimore & Ohio Southwestern and the Central Ohio railroads involved the payment of a cash bonus, and an increase in the preferred and common stock outstanding. The mileage of the system suffered little change. Many of the branches were sold at foreclosure, and bought in by the parent line; and a glance at the balance-sheet in 1899 shows that besides the prior liens and the first 4s, an issue of Pittsburg Junction and Middle Division bonds was the principal tool employed. These securities, bearing 3 1/2 per cent, and falling due in 1925, were issued; 1st, to retire branch-line securities, and to weld the system into one united whole; and 2d, to provide new capital for enlargement and betterment and extension.

It will be remembered that, while provision had early been made for foreclosure, it had been hoped to avoid such a drastic step. Hopes in this respect were fulfilled, and while a number of branch lines were sold the main stem escaped. Vigorous objections to the plan came from the preferred stock, which was in 1898 suing to compel payment of its dividends. In July, at a meeting of shareholders it was declared to be the sense of the meeting that the preferred stock could not justly be required to determine whether it would accept the proposition published by the reorganization committee before the case in the Supreme Court should be decided. Late in July an injunction was obtained, which, however, was dissolved in October. Still later in that year the suits were settled by the sale of the bulk of the first preferred stock to the reorganization committee. The only other considerable complaint came from the holders of the 4 1/2 per cent Baltimore & Ohio Terminal bonds, and was a protest against the reduction of 1/2 per cent in their interest without, as they said, the smallest compensation. Suits for the foreclosure of the mortgages of 1887, 1872, and 1874 were instituted in October, 1898. Decrees were obtained in February. Decrees were also given against the Philadelphia Division, the Parkersburg Branch, the Staten Island Rapid Transit Company, and others. Separate receivers had previously been appointed for the Sandusky, Mansfield & Newark, the Central Ohio, the Washington Branch, and others. Decrees were not asked for against the main line. In August, 1898, only three months after the publication of the plan, the reorganization managers were able to pronounce it effective.

The receivers surrendered control July 1, 1899, and the company started on its new career amid a buzz of satisfaction from all who had participated in its reorganization. In an address before the Maryland Bar Association Mr. John K. Cowen summarized the result as follows:

Every bondholder of the Baltimore & Ohio Railroad has received new securities which substantially pay his full debt. In other words, the bondholders have been paid in full.

The floating debt creditors have received every cent of their indebtedness.

The first preferred stockholders have received in cash 75 per cent of the par value of their stock, the court overruling their claim of preference over the bondholders and creditors. The second preferred stockholders have received securities which, after payment of the assessment, net about per share, at the market price, and at times over net could have been realized.

The common stockholders, instead of being wiped out, have received their common stock in the new company upon paying an assessment, the net amount of which would not exceed or .

The company saves its old charter for whatever value may be attached to it.

This statement presents the favorable side of the picture. On the whole, securityholders were tenderly handled, though the bondholders were by no means paid off in full. And on the other hand, this very tenderness made a voluntary reorganization possible, whereby the charter of the company was saved. The pertinent objections were from the point of view of the company itself, and these were silenced by the increase in earnings.

Since reorganization the Baltimore & Ohio has been enjoying great prosperity. On a mileage operated, which was some 1800 miles greater in 1907 than in 1900, it earned a return increased by over ,000,000; while its income from dividends and interest mounted from less than half a million to over ,000,000. Ton mileage figures were about 11,300,000,000 in 1907 as against 6,800,000,000 in 1900; passenger mileage had grown from 459,000,000 to 723,000,000. This prosperity has but reflected the condition of the country at large, but the Baltimore & Ohio has taken advantage of it in far-sighted fashion. No less than ,000,000 have been spent from earnings for additions and improvements between June 30, 1899, and June 30, 1907, not to mention maintenance of way expenditures which have ranged from about 00 to over 00 per mile of road operated. Besides the provision made by the reorganization plan, ,000,000 convertible debentures were issued under date of March 1, 1901, for new construction and improvements. There were authorized ,000,000 of common stock in November, 1901, to go in part for improvements, and the bulk of ,750,000 new common stock of 1906 will be applied to similar ends. As a result the company's equipment has largely increased, grades have been reduced, curves straightened, light rails replaced by heavy, and subsidiary track increased. There were two miles of second, third, and fourth track and sidings for every three miles of main track in 1900; there were three miles to every four in 1907. A considerable increase in average freight train load has accordingly occurred. In 1900 the average load was 366 tons; in 1907 it was 433.02. That this figure has not still more greatly increased from the 406.53 tons of 1901 is probably due to the somewhat greater proportion of manufactures handled and to a considerable decrease in average distance hauled, and is compensated for by an increase of over one cent in the average rate received.

The last step has been the sale of part of the Pennsylvania holdings to the Union Pacific system. It appears that the former's interest in the company was largely due to anxiety over the coal situation. Before 1895 rates on bituminous coal had been depressed and demoralized. Rebates had been freely given in spite of any agreements which could be arranged. Under these circumstances the Pennsylvania had determined to buy enough stock of the Chesapeake & Ohio, the Baltimore & Ohio, and the Norfolk & Western companies to control the policies of these roads, and, through stock ownership in the Reading by the Baltimore & Ohio, to influence that company also. Unfortunately for the project public attention became concentrated on the coal industry at this time because of the discovery of certain flagrant abuses, and it seemed wise for the Pennsylvania to dispossess itself of a part of its stock. The Union Pacific was in the market with large resources derived from its sale of Great Northern and Northern Pacific stock. It was out of the question for the Pennsylvania to sell its shares to a competitor, but there was less objection to a sale to Mr. Harriman, providing a reasonable portion should be retained. Accordingly, the Pennsylvania sold and the Union Pacific interests bought, in October, 1906, some ,540,600 in Baltimore & Ohio common and preferred stock, being in the neighborhood of half of the former's holdings. This is the present situation of the property. The Baltimore & Ohio is independent, in the sense that it is not controlled by any single interest, but large amounts of its stock are owned by its competitor, the Pennsylvania, and by its connection, the Harriman system. On the whole the alliance with these interests augurs well for the future of the company.

ERIE

Early history--Reorganization--Wall Street struggles--Financial difficulties--Second reorganization--Development of coal business --Extension to Chicago--Grant & Ward--Financial readjustment--New York, Pennsylvania & Ohio--Third reorganization--Later history.

The New York & Erie Railroad was organized in 1833 in the hope of bringing to the southern tier of counties in New York State a prosperity equal to that which the Erie Canal had secured for the northern tier. It was to run from New York or some suitable point in its vicinity to Lake Erie. A six foot gauge was adopted, partly because the grades encountered were thought to require locomotives with more power than a narrower gauge could accommodate, and partly because it was wished to make the road independent of any connection which might lead trade away from the city of New York.

With 1864 began the career of the Erie as a speculative Wall Street stock. Its large capitalization and the painful slowness with which its earnings grew kept the quotations of its shares normally at a low figure and invited speculation; while the location of its lines tempted more serious efforts to obtain control. Up to 1867 Daniel Drew was in power, while Commodore Vanderbilt spent his best efforts to drive him out; after that date Jay Gould and Jim Fisk became more and more prominent, and manipulated the Erie securities with enthusiastic regard to profits which they might derive both from the Erie Company itself and from operators who wished to speculate in its stock. In the course of the abundant litigation to which Gould's methods gave rise, various receivers were appointed; but the orders of appointment were subsequently vacated, and the receiverships were nominal only. The details of the Wall Street struggles have little interest for us here. But the result is of importance. In the eight years from 1864 to 1872, when Gould was turned out of Erie by General Sickles and his English backers, the bonded indebtedness of the company increased from ,822,900 to ,395,000, and the common stock from ,228,800 to ,000,000; in the one case a growth of 48 per cent and in the other of 221 per cent, at a time when the mileage increased 53 per cent and the net earnings but 22 per cent. No more disgraceful record exists for any American railroad. The stock was not issued for the sake of improving the road, and it was subsequently shown that the road was not improved; but it was thrown upon the market at critical times in support of bear operations by the Erie managers, while portions of it, on at least one occasion, were bought back with the funds of the company to aid speculation for a rise. The result was to ruin the credit of the Erie, and to make it the favorite tool of cliques of gamblers. The increase in bonds occasioned an unmistakable increase in fixed charges, which rose from 20 per cent of gross earnings in 1864 to 25 per cent in 1871, 21 per cent in 1872, and 30 per cent in 1873, while the purchase of worthless bonds of subsidiary roads, such as the Boston, Hartford & Erie, lessened the assets without disclosing the real position to the casual observer.

In 1872 the control of Erie was taken from Gould through a vigorous campaign managed by General Daniel E. Sickles, and an "eminently respectable" board of directors was elected. Temporary relief was obtained from the use of ,000,000, available from an issue of bonds previously approved, and dividends, first on the preferred and then on both preferred and common stock were declared. Unfortunately the dividends were not earned; and this fact, which was suspected from the previous record of the company and the marvel of its so early restoration to a dividend basis, was shown in the statements of ex-Auditor S. H. Dunan, who resigned in March, 1874, alleging that the accounts had been falsified to suit the company's purposes, and that he was unwilling any longer to be a party thereto. Investigations conducted by representatives of English bondholders showed that in the three years ending in September, 1875, the profits of the road had been ,008,775 instead of ,352,673 as stated in the company's accounts; and the severity of this finding was scarcely mitigated by the conclusion that in the opinion of the committee the dividends on the preferred stock at least were justified by the books. At the same time the report of Captain Tyler, another English representative, laid emphasis on the necessity for a change of gauge, a double track, improvements in gradient, fresh extensions and connections, and other similar matters.

Suit was brought in July, 1874, for the appointment of a receiver. The complaint reviewed alleged improper acts of the management in declaring dividends, in buying Buffalo, New York & Erie stock and sundry coal lands, and in issuing the new ,000,000 mortgage before mentioned. In October the Attorney-General of New York instituted suit on nominally the same grounds; not, as he explained, in the expectation that the appointment of a receiver would be required, but in order that this action might be taken if the conduct of the directors should make it necessary. Still other suits were begun before the year was out.

Meanwhile the management was changed. Whether or not Mr. Watson, who had been president since 1872, had done all humanly possible to set the Erie on its feet, his administration was not unnaturally in bad odor after the charges of Dunan and the report of the London accountants, to say nothing of the admittedly low earnings for the year 1874. An attempt was made to secure the very best man possible for the presidency, and to support him in necessary reforms, in the hope of some different results from those with which securityholders had become familiar. The man for the place was thought to be Mr. H. J. Jewett, a railroad man then in Congress from Ohio; and this gentleman was accordingly secured at an extremely liberal salary. Soon after his election a ten per cent cut in salaries was decreed, and an examination of the accounts of the stations along the line in behalf of the company was begun. It was too late, however, for the company. The business of the last of 1874 and first of 1875 was poor; floods in the spring damaged the property of the road, and rumors of a receivership were rife. On May 22 a private meeting of stockholders in New York passed resolutions to the effect that the borrowing of money by the sale of 7 per cent bonds at 40 cents on the dollar, and other means adopted by the Watson administration, would inevitably result in bankruptcy; that sound interest required that the money needed to pay interest should be raised by an assessment on the stockholders, and that the directors should be thereby requested to open books to examination, and to invite stockholders to contribute voluntarily a sum sufficient to keep the company from immediate failure. The proposal showed a proper spirit, but was impracticable. Four days later Mr. Jewett was appointed receiver on application of representatives of the Attorney-General and of the Railroad.

This was the second receivership which the Erie had had to face, and the situation was materially worse than at the previous failure. According to the statement of President Jewett the funded indebtedness in May, 1875, amounted to ,394,100, and the fixed charges to ,059,828; while the net earnings for the previous nine months had decreased 13.4 per cent from the corresponding period for the previous year, and a serious deficit was in view. Temporary measures of relief had served but to drag the company further into the mire; and, most important of all, the causes for the existing difficulties were of a permanent nature, so that the future gave promise of still harder conditions than had existed in the past. What was needed was a reorganization which should undo the evil work of Gould, Fisk, Drew, and their associates, and which should secure the margin of surplus earnings which the reorganization of 1859-62 had failed to provide. Perhaps the chief difficulty lay in the fact that the men who were responsible for the increased capitalization were not at all those on whom the brunt of reconstruction would fall; for while the managers of the road had been Americans, the gullible investors had been Englishmen; and it was reported that much of the watered stock of the Gould r?gime had been unloaded on the English market.

Committees sprang up promptly. The most important of them were the English committees of bond- and stockholders, soon consolidated under the chairmanship of Sir Edward Watkin. On August 7, Sir Edward left England on a visit of inspection, accompanied by Mr. Morris, counsel for the bondholders. Conference with the board of directors and with President Jewett followed, and a provisional scheme of adjustment was decided upon. In his report to his English constituents Sir Edward outlined the results. Current indebtedness, said he, was ,180,075; estimated net revenues for the year ending in June last were ,715,609; operating expenses had been for that year 79 per cent, due largely to the cost imposed by exceptional gauge, while the chief lines with which the Erie competed showed proportions of only from 60 to 66 per cent. Out of fourteen branches only three showed a profit above rentals, and pay-rolls had ordinarily been months in arrears. These facts were familiar; the remedy proposed was unfortunately familiar as well. "Let it be hoped," said this English financier, "that the bond- and stockholders will have the courage now to submit to a period of self-denial, and will consent to pay their debts and complete essential obligations out of available net profits, the bondholders receiving in place of cash such equitable obligations, realized out of surplus revenue in the future, as each, according to right of priority, may justly expect." What could this have meant save an issue of stock or income bonds for coupons falling due, with the result of adding to the unwieldy capitalization of the road instead of reducing it as should have been done! For the rest, Sir Edward Watkin concluded with Mr. Jewett the following arrangement:

Three nominees of the bond- and stockholders' committee proposed by Watkin were to take seats in the Erie board;

Mr. Morris was to be associated with counsel for the receiver and for the company, and was to be regarded and treated as one of the professional agents and officers of the undertaking;

Mr. Jewett was to transmit a memorandum of his views on reorganization;

Net earnings were to be retained for a while, and bondholders were to have a voice in their expenditure. Thus a vote was to be taken under the charge of the stock- and bondholders' committee in London on the constitution of a committee of consultation, consisting of representatives of each class of bondholders and of preferred and ordinary stock, and that committee was to designate a special representative whose consent and approval were to be taken by Mr. Jewett in the expenditure of net earnings;

Monthly reports of actual earnings and expenditures, together with reports from the president and receiver, were to be regularly transmitted to the office of the committee in London;

Bond- and stockholders were to be urged to give power of attorney and proxies to Watkin, or to such other person or persons as the above representatives of the bond- and stockholders should designate;

Any scheme of reorganization was to include a provision giving bondholders a voting power.

On the above resolutions Jewett, with his board, and Watkin, with his committee, agreed to co?perate. Under the circumstances the increased power given the bondholders was both a natural and a just demand, and it is probable that Mr. Jewett's prompt acquiescence in it had something to do with Sir Edward's advice to the securityholders "to rely on the honor, as I feel you may also upon the anxious labors and full experience of the President and Receiver."

Two months later appeared a plan by Mr. John C. Conybeare, an English bondholder, which was superior to the foregoing in that it proposed an assessment, and made some slight provision for an ultimate reduction in fixed charges. Mr. Conybeare proposed to assess preferred stock and common stock . Payment of the assessment was not to be compulsory, but was to have the effect of giving to the stock which did pay a right to dividends before anything should be received by that which did not pay. Shares of the company by the plan would thus have ranked as follows:

Preferred shares on which assessment had been paid, entitled to 7 per cent dividends before any other dividends were paid.

Preferred shares on which no assessment had been paid, with rights inferior to the preferred A shares, but superior to the common shares.

Common stock on which assessment had been paid, entitled to 4 per cent before further dividend on the common.

Unprivileged, unassessed common stock which was to take what there was left.

In addition there was to be a pre-preference 8 per cent stock, ranking before all the above, which was to be issued to exchange in part for second preferred and convertible bonds. First consolidated bonds and sterling bonds of 1865 were to accept one or two per cent of their 7 per cent interest in bonds, secured perhaps by the coal property of the company, while the second consolidated and the convertible gold bonds were to receive 4 per cent in gold and 3 per cent in the new pre-preference stock as above. To the obvious possibility that the stockholders would refuse to pay an assessment the plan opposed no remedy. In this case the very moderate amount of interest funded would have been the only relief secured.

These plans were, however, but preliminary to the elaborate Watkin scheme which appeared in December. The most prominent feature herein was, as previously indicated, the funding of coupons, both those past due and those to become due for a time into the future. Given net earnings sufficient to meet fixed charges, the postponement of interest by this plan would obviously have released revenue with which to make needed improvements on the road. This funding was to be, however, limited to the first consolidated 7s, convertible sterling 6s, second consolidated 7s, and convertible gold 7s; the six earlier issues were to be left untouched. One permanent reduction was also to be made, in that for the second mortgage and convertible 7s were to be given two classes of ninety-year gold bonds: the first for 60 per cent of the principal, with interest at 6 per cent, and payable in bonds of the same class from the dates of default until March, 1877, and thereafter in gold; the second for 40 per cent of the principal, carrying 4 per cent until 1881 and thereafter 5 per cent, payable only out of net earnings. To start the company on its way and to meet present obligations an assessment was proposed of three dollars on the preferred and six dollars on the common stock, in return for which 5 per cent income bonds were to be given; while finally the dividends on the preferred stock were to be reduced from 7 to 6 per cent, and foreclosure was contemplated, so that the opposition of an irreconcilable minority might be more easily overcome. According to the figures in the Watkin plan, the old and new capitalization and interest compared as follows:

The amount of capital stock was unchanged.

Indebtedness on which interest was obligatory:

The net earnings for 1874-5 had been ,715,609, and those from 1871-3 inclusive, with the deductions declared proper in the report of the London accountants, had averaged ,175,699 each year, so that a safe margin seemed to intervene. The extent of the margin depended, however, on the fixed charges, such as rentals, over and above interest on the funded debt; and although it was proposed to cancel burdensome leases and contracts the actual leeway after 1880 was to be very small indeed. To speak briefly, the plan was definite but not sufficiently radical to meet conditions which were likely to arise. In counting upon the ability of the company to spare considerable sums from revenue for improvements during the next few years, it was leaning on a broken reed; in increasing the nominal amount of bonded indebtedness, it was making a step in the wrong direction; and by interposing additional claims on earnings while leaving the volume of stock the same, it took from the stockholders any very lively interest in the road's future welfare. The plan was nevertheless accepted by the English securityholders, subject to such modifications as might afterwards be found desirable.

The next step was to obtain the unanimous acceptance of this Watkin scheme. Messrs. Robert Fleming and O. G. Miller were accordingly sent to New York in February, 1876, to consult with the officers of the company and the securityholders in America. No very vigorous interest was taken on this side, but the Erie directors appointed a committee to confer with the English representatives, and discussions took place for something over a month. The committee criticised the plan proposed from the point of view of the stockholders; they maintained that it would destroy all their interest in the property unless they made further sacrifices, which they were unable to do, and suggested that the funding of from four to eight coupons by the first consolidated, gold convertible, and second consolidated bonds was all that would be needed to put the road in a prosperous condition, provide for steel rails, and for the narrowing of the gauge. This was so plainly inadequate that it is a matter of surprise that it was entertained by the English committee; and even they insisted that the stockholders agree to put a majority of the ,000,000 of stock in the hands of the bondholders as a preliminary, and would do no more than lay the proposal before their constituents.

On their return home in April Messrs. Miller and Fleming stated that the essential conditions to a successful reorganization were:

An effective control of the management by the real owners,--the bondholders;

The restoration of the equilibrium between the compulsory interest charge on the mortgage debt and the minimum net earnings;

A change of gauge from 6 ft. to 4 ft. 8 1/2 in.

"The foreclosure scheme of the committee" , said they, "is certainly the soundest plan and would doubtless be preferred by those shareholders who really care for the welfare of their property." Then referring to the directors' plan, "If it were possible to present to the bondholders the scheme of proceeding by amicable arrangement as practicable, and therefore as presenting a real alternative for their acceptance, we should suggest to you at the same time to lay the option before them. We feel, however, that that scheme can only be regarded as such an alternative when stockholders enough have signified their willingness to vest their shares in trustees on the footing of it, and so secure an effectual control to the bondholders for a certain period. We must, therefore, content ourselves for the present with suggesting that the committee should proceed with vigor in the direction of foreclosure, at the same time inviting the stockholders to signify their willingness to vest their stock in trustees as above mentioned."

Divested of all complications, what this reorganization plan proposed for the salvation of the property was the funding of the coupons on four classes of bonds from 1875 to 1879; the reduction of the interest to be paid on ,000,000 second consolidated and convertible 7s one per cent per share; and the raising of a certain amount of cash by assessment upon the stockholders; while it dropped the one point of the earlier plan which might have given a key to the solution of the whole problem, viz. the exchange of mortgage and income bonds for the old second consolidated in the ratios respectively of 60 per cent and of 40 per cent. When we remember the desperate straits to which the company had been reduced, the permanent relief seems slight enough; and given the fact, which proved but too true, that the net earnings were to fall off until the road was little more than able to meet the alternate coupons which it was obliged to pay in cash, it appears to have been nothing at all. If we suppose no changes to have occurred in capital account between 1878 and 1883 save those provided for in the plan of reorganization itself, a comparison of the two periods would have stood as follows:

It thus appears that this reorganization plan contemplated an immediate increase in the cumbrous capitalization of the company to the amount of nearly ,000,000, and an eventual increase in fixed charges of over 0,000. It offered no reasonable assurance that the solvency of the company could be maintained under the average conditions existing in the past, and left no margin for contingencies of any kind. The trouble lay in the unwillingness of bondholders to sacrifice any part of their holdings to meet difficulties caused largely by inflation over which they had had no control. This reluctance was natural,--it should have been met, however, by the realization that the question was now of the future and not of the past, and that the best interests of the bondholders themselves demanded a reconstruction sufficiently radical to leave no doubt of the ability of the new company to pay its debts.

The plan adopted, foreclosure was in order, and suits which had been begun as early as 1875 were taken up and pushed. In November, 1877, a decree of foreclosure under the second consolidated mortgage was obtained, appointing a referee to conduct the sale, and providing for the sale of the road to representatives of the bondholders in case they made the highest bid. The opposition, which had not been able to prevent the approval of the plan, now appeared with a multiplicity of suits to prevent its consummation. In January, 1878, demands were made to secure a re-accounting from the receiver, and the reopening of an earlier suit of the people against the Erie which had been previously discontinued. On January 18 the postponement of the sale to March 25 was obtained. On January 19 a suit demanded the removal of Receiver Jewett, making sweeping charges of fraud; and on January 30, in still other proceedings, Mr. Jewett was arrested on a charge of perjury for swearing to incorrect statements in the annual report to the state engineer;--a culmination as disgraceful as it was absurd. In February a suit in Orange County, New York, demanded the removal of the receiver, and the appointment of a special receiver during the pendency of the action, with an injunction to prevent the sale of the road. In March a petition of one Isaac Fowler, a stockholder, for permission to examine the company's books, was granted; argument was heard on the petition of James McHenry to intervene in the foreclosure suits and further to postpone the sale; the application of Albert Betz and others to be made parties was granted; and postponement of sale to April 24 obtained. Last of all, on April 23 and 24, arguments in behalf of John F. Brown and F. W. Isaacson were heard, asking for postponement to a still later date. The litigation availed nothing. Judge Potter in the Brown suit held that the courts could relieve against any injustice occasioned by the sale, and on April 24 the property of the Erie Railway was sold for ,000,000 under foreclosure of the second consolidated mortgage. The new corporation formed to take over the railroad was called the New York, Lake Erie & Western Railroad Company, and had its articles of incorporation regularly filed at the office of the Secretary of State. Mr. Jewett was elected president. In May the receiver was discharged, and a new stage in the history of the road began.

For about seven years the Erie was to be free from the necessity for further reorganization. This result, unexpected from the nature of the adjustment of 1878, was due to the vigorous policy of Mr. Jewett, first, in developing the coal traffic for which the Erie was well located; second, in improving the condition of the road; and third, in securing connections with Chicago.

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