With matters in this state the reorganization committee was genuinely discouraged by the refusal of Congress to pass the Reilly Bill, providing for a refunding of the government debt; although this had been reported to the House with the alternative amendment proposed by the committee accepting the payment in cash of the principal of the government debt in full satisfaction of claims against the company.[517] Since Congress had earlier refused a proposition to pay off the prior liens in full on condition that the government debt be refunded at 2 per cent,[518] it was felt that nothing but cash payment of principal and interest would be acceptable, and this the committee refused to undertake. On March 8 the announcement was made that the reorganization committee of the Union Pacific road had abandoned its task and would return the securities deposited with it, and a few days later the actual disbandment took place.[519]
Between March, 1895, and the following October little progress was made. With the dissolution of the general reorganization committee disappeared the one body capable of formulating a comprehensive scheme and of securing its widespread acceptance. The committees which remained represented each some one or two mortgages, and were thus confined too narrowly in their sympathies to command much confidence from bondholders as a whole. Late in 1895, however, new interests undertook the reorganization of the property, and another general committee was formed, comprising General Louis Fitzgerald; Marvin Hughitt, president of the Chicago & Northwestern; Chauncey M. Depew, president of the New York Central; Jacob H. Schiff of Kuhn, Loeb & Co.; Oliver Ames, director of the Union Pacific; and T. Jefferson Coolidge, Jr., president of the Old Colony Trust Company.[520] This committee’s plan of action was noteworthy in three particulars. First, it contemplated a foreclosure sale. This, it is true, was but resignation to the inevitable, for foreclosure suits were already under way, and an attempt to check them would have had scarcely a possibility of success. Second, it made no definite provision for the government debt. A certain amount of bonds and stock were reserved from the securities proposed to be issued for the purpose of settling the government claim, but the exact method in which that indebtedness should be treated was left for future arrangement. Third, it did not attempt to meet the collateral trust notes of 1891, which constituted so large a portion of the floating debt. “The securities embraced in these trusts,” it declared, “are largely those of companies which have already, by orders of court made in the original general receivership, or in independent foreclosure proceedings, lost in part or in whole their character as parts of what has been known as the Union Pacific system. Independent reorganization of many of these properties are pending. The purposes which brought into existence guarantees of the obligations of many of these auxiliary companies have been accomplished by construction or otherwise, and considerations will not exist, upon reorganization, for continued relations with (them) upon the basis of any assumption of their fixed charges.”[521] Thus, at the very outset, this new committee removed the three matters which had given its predecessors the most trouble. The proposed foreclosure made it both easier to get assents to a plan and more difficult to block its operation; the postponement of the question of the government debt allowed the committee to go ahead without waiting for Congress; and the refusal to provide for the collateral notes relieved it of many difficulties, and threw the holders of these notes back upon the collateral which they had exacted as security.
The plan of the Fitzgerald Committee followed, for the rest, the general lines earlier laid down by the Brice Committee. To retire all existing mortgage indebtedness it proposed to issue:
| First mortgage railway land grant 50-year 4 per cent gold bonds | $100,000,000 | |
| 4 per cent preferred stock | 75,000,000 | |
| Common stock | 61,000,000 |
The reasoning by which these sums were arrived at was as follows:
| The lowest net earnings the Union Pacific Railway had ever recorded had been those of 1894 | $4,315,077 | |
| The committee planned to issue $100,000,000 4 per cent 50-year bonds, on which the interest would be | 4,000,000 |
This would be all the company would have to pay in any one year.
| The average net earnings for the 10 years before 1894 had been | $7,563,669 | |
| To the $100,000,000 bonds the committee proposed to add $75,000,000 preferred stock. The annual dividend on this would be | 3,000,000 |
Payment on bonds and preferred stock together thus equalled the average earnings.
| Net earnings between 1885 and 1894 had gone in some years as high as | $9,000,000 |