(a) Common Stock$102,000,000  
(b) Five per cent non-cumulative preferred stock 111,486,000  
(c) General mortgage 4 per cent bonds  96,990,582  
(d) Adjustment 4 per cent bonds51,728,310[443] 

Of the above the interest on only the general mortgage bonds was to be a fixed charge;—the stock obviously got a return only when earned, and the adjustment bonds were income bonds in fact if not in name. Additional issues to a comparatively small aggregate were provided for, but no mortgage, other than the general and adjustment mortgages, was to be executed by the company, nor was the amount of preferred stock to be increased, unless the execution of such mortgage, or such increase of preferred stock, should have received the consent of the holders of a majority of the whole amount of preferred stock at the time 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 said meeting. The securities mentioned were to retire all previously existing issues. Old common stockholders were to receive share for share in the common stock of the new company. They were to be assessed $10 per share, and to receive for the assessment $10 in new preferred stock, while a syndicate guaranteed payment of assessments by engaging to take the place of non-assenting or defaulting stockholders. The general mortgage bondholders were to get 75 per cent of their holdings in new general mortgage 4s and 40 per cent in adjustment 4s. The second mortgage and income bondholders were to be assessed 4 per cent and were to get new preferred stock.[444] The prior lien bondholders were dealt with separately, and were to be paid either in general mortgage 4s of the additional issues (over the $96,990,582) mentioned, or in the new prior lien bonds. If in the latter, the general mortgage bonds which would otherwise have been issued were to be held for the ultimate retirement of these bonds. Provision was made for future construction and additions by the allowance of $3,000,000 general mortgage bonds, to be issued each year to a limit of $30,000,000, and then of $2,000,000 adjustment bonds, to be issued each year to a limit of $20,000,000. Additional new general mortgage bonds, up to $20,000,000, might be issued and used in such amounts respectively and in such proportions as the Joint Executive Committee might determine, for the acquisition of the Atlantic & Pacific, the St. Louis & San Francisco, and the Colorado Midland; and for like purposes $20,000,000 preferred stock. The lien of the new general mortgage was to cover all properties which should be vested in the new company, and also any other property which might be acquired by use of any of the new bonds, but the Joint Executive Committee might, in its discretion, except from the new general mortgage the stocks and bonds deposited under the existing general mortgage, representing branch lines, the operation of which should be found to be unprofitable and an unnecessary burden to the system. A voting trust was considered, but was rejected as unsatisfactory; and the committee confined its efforts to the securing of the best possible management.

The proposed fixed charges amounted to $4,528,547 
Net earnings according to Mr. Little had been in1891 5,204,880 
1892 7,853,173 
1893 8,085,608 
1894 5,956,615 

Thus the new charges appeared well within the earning power of the road. The plan made the following, provision for cash requirements:

Assessment on Atchison stock at $10 per share$10,000,000 
Assessment on second mortgage and on income bonds at 4 per cent3,567,644 
$13,567,644 

The estimated cash requirements were:

For receiver’s debt, preferred or secured floating debt of the Atchison Company, estimated as of January 1, 1895$7,793,875  
Leaving for receivers and floating debt, accrued interest and undisturbed securities, etc.,773,769  
$13,567,644[445] 

This reorganization had certain interesting features. As before remarked, it sought, as did the reorganization of 1889, to replace securities, the interest on which was a fixed charge, by securities on which payment of interest or dividends should be optional. But whereas the earlier reorganization had depended on income bonds, this plan included both income bonds and preferred stock. There are several reasons why preferred stock is preferable to income bonds, and it will be remembered that a peculiar difficulty experienced from the income bonds of 1889 had arisen from the impossibility of putting other mortgages ahead of them; yet that this was not the chief obstacle sought to be avoided by the use of preferred stock at this later date appears from the current use of adjustment bonds. Provision for future capital requirements was in fact made in another way, and the question was not here involved. So far as the acceptability of the income bonds and the preferred stock respectively to the old bondholders was concerned, it should be noted that the men who received the greater part of the new issue were the holders of the old income and second mortgage bonds; that is, Englishmen who had already shown their preference for income bonds as opposed to stock. The chief reason for the new expedient seems to have been the desire to retain for the general mortgage holders a priority of lien, while reducing part of their holdings to the level of an optional obligation. If income bonds or preferred stock alone had been used, these would necessarily have been given to the owners both of general mortgage and of second mortgage or old income bonds; so that the former might have received a larger amount, but not any lien different in kind. By the scheme proposed, all possible interest on the securities given for old mortgage 4s was to be met before anything was to be paid on the equivalent of issues which had been inferior before the reorganization took place. Abundant provision was made for future capital requirements. That lesson had been learned once for all. Cash requirements were met by an assessment. In speaking of the reorganization of 1889 the rule was laid down that the disposal of securities for cash is impossible except at an enormous sacrifice in a time of general depression. There was widespread depression in 1895, and the reorganization managers wisely made no attempt to negotiate a sale. The amount of the assessment on the common stock was very considerably above the quoted price of the shares, but it was correctly figured that the hope of future increase in value would be sufficient to induce stockholders to furnish the sums required. Not to tax them too heavily call was made also on the junior securities. On the whole, the decrease of $5,000,000 in fixed charges more than compensated the stockholders for the additional obligations put between them and their property; their claim on the road itself was made more remote, but their chances for dividends were improved. Examination of the plan shows clearly that nothing was taken from either bonds or stock which those securities had a right to retain. The bondholders could not, in any case, have received more than the earnings of the road; and an amount equal to the return previously due them was assured, whenever the road should earn it, by the new combination of mortgage and income bonds and preferred stock. As it was, in return for an assessment they retained the right to participate in any future prosperity, a right which has proved of extreme value.

The plan was underwritten by Messrs. Baring Bros. & Co. and other strong foreign and American bankers, who assumed the liability of paying the assessment and of taking the stock.[446] The comment at the time was favorable. “On the whole,” said the Railway Age, “we do not believe that any one who is acquainted with the properties could have expected a more satisfactory plan than that which the committee has evolved.”[447] The London bondholders promptly accepted the plan. “We are disposed,” said the Railway Times of London, “to regard the latest of Atchison reorganization schemes as a praiseworthy attempt to grapple with a very thorny problem.”[448] Such opposition as there was came from a minority of the stockholders, and was directed at two points: the prevention of foreclosure, and the inauguration of an entirely new administration. It was asserted that certain old members of the board of directors who had been forced to resign by the earlier disclosures, had nevertheless secured the election of successors to perpetuate their policy and to protect their interest. With a directory so constituted, it was maintained that the stockholders would have no guarantee of important changes in the executive offices, financial policies, or business methods of the company.[449] Sharp criticism was directed to a statement of the existing board which referred to the “mistakes and misfortunes of the previous management.” “Only those who believe,” said the Stockholders’ Protective Committee, “that gross irregularities, if not worse, have been perpetrated ... may be relied upon to probe to the bottom the acts of the former officers of the Atchison.”[450] On the other hand, the accusations of the committee were asserted by the directors to be unqualifiedly false.[451] It soon became apparent that the opposition could not muster enough votes to control an election, and although their fight had been begun in August, they had proxies by November for only 250,000 out of the 1,020,000 shares of stock. Recourse was had to the courts, and an attempt was made to secure at least a minority representation on the coming board by the enforcement of a provision for cumulative voting embodied in a Kansas law of 1879. This failed in November, 1894, and no further obstacle to reorganization was encountered.

Practically all of the assessments were paid in by September 21. On November 25 Mr. E. P. Ripley was elected president, and in the first week of December, 1895, Mr. Aldace F. Walker was elected chairman of the board of directors of the new company. On December 10, 1895, the property and franchises of the Atchison were sold at foreclosure, and were purchased for $60,000,000 by Edward King, Charles C. Beaman, and Victor Morawetz, representing the reorganization committee.[452] The Atchison, Topeka & Santa Fe Railroad Company was then organized by the purchasers pursuant to the laws of Kansas, under a certificate of incorporation dated December 12, 1895. A board of directors was elected, and by-laws were adopted. The entire estate embraced in the foreclosure sale was duly conveyed by deed of the same date as the incorporation of the company, in consideration of which the company executed a delivery to the Joint Executive Reorganization Committee of the securities acquired under the plan of reorganization. Certain subsidiary roads were subsequently foreclosed and bought in, notably the Atlantic & Pacific and the Chicago, Santa Fe & California. The St. Louis & San Francisco was not so bought in. “The question of retaining the St. Louis & San Francisco as a part of the Atchison system,” said the annual report of 1896, “received very careful consideration from the Directors.... A series of conferences was held, which resulted in the matter ultimately presenting the alternative of the sale of our existing interest upon favorable terms, or the purchase by us of all other outstanding interests upon terms involving the outlay of a very large amount of both cash and securities. While the future control of that road was regarded as important, the financial considerations affecting the situation prevailed, and the sale was decided on the whole to be more prudent than the purchase.” “With the acquisition of the Frisco,” said Mr. Fleming of the Joint Executive Committee, “the fixed charges on the Atchison system of 7780 miles would have been increased from $7000 to $9000 per mile. Atchison is financially much stronger without Frisco.”