ment of said board of directors may be necessary to maintain and renew said road and its equipment and appurtenances and to keep the same in good condition and to increase its equipment to such extent as may be commensurate with its business requirements, and to pay taxes, rentals, interest and sinking fund installments accrued or to accrue on any and all mortgages existing on the property hereby conveyed, and to satisfy all liens and charges thereon that are or may be prior in equity to this mortgage.

"From the net income thus ascertained the said board of directors shall first set aside an amount sufficient to pay, on the first day of the month next following, interest at the rate of six per cent. per annum and for a period of six months on all the outstanding debenture bonds of the series 'A' secured hereby. If the said net income shall not be sufficient to pay such interest in full then it shall be wholly applied so soon as it amounts to one per cent. of said bonds toward such interest payment. If said net income shall exceed said amount needed for payment of interest as aforesaid on the outstanding debenture bonds of series 'A,' the said board of directors shall next set aside from the excess an amount sufficient to pay on the first day of the month next following, interest at the rate of six per cent. per annum, and for a period of six months, on all the outstanding debenture bonds of the series 'B,' secured hereby, and if said excess shall not be sufficient to pay such interest in full, then it shall be wholly applied so soon as it amounts to one per cent. of said bonds towards such interest payment."

9. Differences arose between the management of the Wabash Railroad Company and certain of the debenture mortgage bondholders as to the proper construction of the provision for ascertaining and declaring the amount of net income applicable to the payment of interest on the debenture bonds, and such differences to a greater or lesser extent continued down to the time of the execution of the agreement for the retirement of such debenture bonds.

10. As before stated, the lines of railroad owned by the consolidated company, the Wabash Railroad Company, run through rich and highly competitive sections of country, and soon after the organization of said company it was demonstrated that there was in this territory as well as throughout the United States an increased industrial development, constantly growing, which brought unforeseen demands upon this company as well as others for increased trackage and terminal facilities, for modern equipment and other improvements, which demands. became more urgent as higher standards of efficiency came to be established and demanded by competing lines and by federal and state legislation. This is matter of common knowledge, and proof is hardly required to establish such facts. Large expenditures of money were required to make these improvements and necessary extensions. The earnings were insufficient to meet all demands for developments and improvements, and only those were made which were most urgent and could be made within the provisions of the debenture mortgage. With the debenture mortgage and debenture mortgage bonds outstanding, it was impossible upon any reasonable terms to raise money upon a security or lien junior to the first, the second, and the debenture mortgages. Attempts were made to interest capitalists in such a security, but these attempts were without successful result. These matters and difficulties were frankly stated in one or more of the annual reports to the stockholders and debenture mortgage bondholders.

11. The holders of the debenture bonds have claimed the right to control the property of the company to the exclusion of the stockhold

ers; also the right to vote at all meetings of stockholders casting one vote for every $100 par value of debenture bonds; and also that the debenture bonds of series B are or may be made, at the option of the holders thereof, a perpetual lien upon the surplus or net income of the company.

12. The continued application of the revenues of the company to certain of the purposes hereinbefore mentioned, consisting of necessary improvements, betterments, etc., met with the disapproval of certain holders of debenture mortgage bonds, who claimed and insisted that expenditures for such purposes could not be made out of earnings. without violating the provisions of the debenture mortgage to which attention has been called. The greater the demands upon the company for improvements which had to be made, the more acute were the differences between the managemnt and the debenture mortgage bondholders.

13. In 1905, a committee of the holders of the debenture mortgage bonds of series B was formed, and this committee was charged with the duty of demanding an accounting for revenues alleged to have been diverted to improvements not authorized by the debenture mortgage. Negotiations were had, but proved unsuccessful, and the Mercantile Trust Company, as trustee mentioned in the debenture mortgage, commenced a suit for an accounting in the Circuit Court of the United States for the Eastern district of Missouri. Broad and sweeping charges were made in the bill of complaint, and the demand for relief was such that a long and expensive litigation was impending, in which was involved a construction of the provisions of the debenture mortgage and an examination of all the acts of the management of the company. It was apparent that, should the suit be successful and a decree entered in favor of the Mercantile Trust Company for even a substantial part of the revenues of the company applied during the preceding 17 years to betterments and improvements, a receivership would follow and disaster result. To avert this, negotiations were opened with all concerned, and these negotiations for an adjustment of differences resulted in the making of an agreement or the adoption of a plan to which wide publicity was given, and which was substantially as follows: After reciting most of the pertinent facts, the appointment of a committee to represent the debenture mortgage bondholders, and the assent of that committee, and the desires and purposes- of the railroad company and its propositions, the agreement or plan dated August 15, 1906, and signed by the Wabash Railroad Company by E. T. Jeffery, chairman of the board, and by Henry Evans, Henry K. Pomeroy, and George M. Cumming, as committee representing the debenture mortgage bondholders, amongst other things, stated:

"Subject to authorization and approval by the stockholders and debenture mortgage bondholders of the railroad company, by appropriate corporate action in accordance with the provisions of law applicable thereto, of this agreement, and of all action herein provided to be taken on the part of the railroad company, the railroad company agrees that, in case not less than 95% face value of said debenture bonds, series B, now outstanding, shall be deposited with the United States Mortgage and Trust Company (hereinafter called the Trust Company'), in the city of New York, under this agree

ment, within sixty days from the date of the publication of the plan of exchange by the committee as provided in article 2 hereof, or such extended or lesser period as may be agreed upon between the committee and the railroad company, it will issue and deliver in exchange therefor the following amounts of new securities upon the issue of the same:

"For each $1,000 debenture mortgage bonds, series A, of the railroad company, $775 par value in new bonds, $500 par value in preferred stock, and $560 par value in common stock.

"For each $1,000 par value of debenture bonds, series B, $700 par value in new bonds, $500 par value in preferred stock, and $500 par value in common stock of the railroad company. Scrip will be issued in adjustment of fractional amounts."

This plan or agreement contained other provisions which it is unnecessary to recite, unless it may be incidentally. It had been approved at a meeting of the directors held June 11, 1906.

14. June 29, 1906, the board of directors passed a resolution to increase the preferred capital stock by $16,500,000, to consist of 165,000 shares of the par value of $100 each, and to increase the common capital stock by $81,500,000, to consist of 815,000 shares of the par value of $100 each, subject to the assent and approval of the stockholders of the company in the manner provided by law, and, upon the increase being made, the proper officers were authorized to issue an amount of the preferred stock not exceeding the amount of said increase, and an amount of the presently authorized but unissued common capital stock, not exceeding the sum of $16,500,000, "for the purpose of effecting the exchange of the debenture mortgage bonds upon. the terms set forth in the agreement and submitted to the meeting and approved by the board."

15. October 22, 1906, the plan was submitted to a meeting of the stockholders and debenture bondholders, held at Toledo, Ohio, and adopted by over 90 per cent. of those present and voting, and the bill of complaint states that this was the most largely attended meeting in the history of the company. At this meeting the following was adopted:

"Resolved, that the agreement dated August 15, 1906, heretofore entered into by this company, with Henry Evans, Henry K. Pomroy and George M. Cumming, as a committee, in the form submitted to this meeting, be, and the same is hereby in all respects, authorized and approved, and the board of directors of this company be, and it is hereby, authorized and empowered to take any and all action thereunder which may be necessary or proper to effect the exchange of the debenture mortgage bonds of the railroad company, as contemplated in said agreement, upon such terms and conditions as may be authorized and approved by said board of directors, with power in said board of directors to enter into any contracts or agreements with bankers for the underwriting of the new securities issuable in exchange for said debenture mortgage bonds, upon such terms and conditions as said board of directors may approve, and to cause such notice to be given of the terms of such exchange, as it may deem necessary, and to determine whether or not the plan for such exchange shall be and become effective."

16. On the 18th day of June, 1906, there was issued to James Pollitz, the complainant here, and registered in his name June 19, 1906, a certificate for 1,000 shares of the common stock of the Wabash Railroad Company, which shares of stock he says he purchased on the 13th of that month. It is the ownership of this stock that confers.

on the complainant his only interest in the questions involved, and he brings this suit as such owner of such common stock of the company. 17. At the said special meeting of the stockholders and debenture bondholders of the Wabash Railroad Company, held at Toledo, Ohio, October 22, 1906, said complainant, by his proxy and attorney, presented and caused to be entered on the minutes of the meeting the following notice, objections, and protest, viz.:

"The Stockholders and Debenture Mortgage Bondholders of the Wabash Railroad Company, in Special Meeting Assembled at Toledo, Ohio, October 22, 1906, Pursuant to a Call Signed by the President and Secretary of Said Company, Dated New York, August 16, 1906-Take Notice: "The undersigned, the holder of one thousand shares of the common capital stock of the Wabash Railroad Company, hereby protests against any action being taken at this meeting, or any adjournment thereof, by the stockholders or debenture mortgage bondholders of that company, which attempts or purports to authorize, in any manner or to any extent, the carrying out of the plan to issue new four per cent. fifty-year mortgage bonds and preferred and common stock of the company in exchange for the debenture mortgage bonds as set forth in the call for this meeting, and the explanatory circular issued by the president and secretary of said company under date of September 8, 1906, for the following reasons, among others:

"(1) In the circular issued by the said company under date of September 8. 1906, it is proposed to issue to the holders of $30,000,000 mortgage debenture bonds, upon which interest is payable only if earned, and upon $26,500,000 of which no interest has ever been paid, $21,262,500 of the proposed new four per cent. fifty-year mortgage bonds, $15,210,000 of preferred stock and $15,210,000 of common stock, or new bonds and stock to the amount of $51,682,500 to retire the $30,000,000 of debenture bonds, and to the extent of $21,682,500 the new stock will be fictitious, without consideration and void. "(2) The Constitution of the state of Missouri provides that capital stock can only be issued for money paid, labor done or property actually received, and that all fictitious increase of stock is void, and the laws of the other states wherein said company is incorporated, to wit: Ohio, Indiana, Illinois, Michigan and Iowa provide that capital stock can only be issued at par for money or property at its fair value.

"(3) The said proposition alters the position of the present stockholders in the following respects, among others:

"(a) The changing of a noncumulative, nonpaying bond, the principal of which does not become due until 1939, into a bond with a fixed interest charge, which, if not paid, will subject the property to foreclosure and the capital stock to extinguishment.

"(b) It places ahead of the present common stock $15,210,000 of preferred stock, upon which dividends of seven per cent. must be paid before the common stock may receive anything, and to the extent of $6,472,500 the proposed issue of preferred stock will be without any consideration, thus diluting that class of stock and depreciating the value of both the preferred and common stock.

"(c) It is proposed to issue $15,210,000 of common stock without consideration, thereby diluting and making less valuable the present common stock. "(4) The debenture mortgage bondholders are disqualified to vote upon this proposition, which contemplates their advantage and enrichment to the injury of the present stockholders, and changing the position of the mortgage bonds from a noncumulative, nonpaying security to that of a foreclosable mortgage bond with a definite fixed charge.

"I respectfully request that the foregoing protest be entered in full upon the minutes of this meeting, and it is herewith handed to the secretary for that purpose. James Pollitz,

"Toledo, Ohio, October 22, 1906.

"By his Proxy and Attorney, Stephen M. Yeaman."

18. Thereafter, and on the 26th day of October, 1906, at a meeting of the stockholders and debenture bondholders, the following was adopted:

"Whereas, the capital stock of this company is insufficient and it is necessary that the same be increased to the amount hereinafter stated for the construction of its road, the construction of a second additional track, the extension of its line and the construction of branches thereof, the increase of its machinery, rolling stock or other fixtures, each and all of which has become necessary for the speedy and convenient transaction of its business, and also for the purpose of paying bonds issued or guaranteed by it, or for the liquidating or paying any unfunded or floating debt, or for the purpose of extending its line of railroad and constructing branches thereof, and for each and all of the purposes aforesaid:

"Resolved, that the authorized capital stock of this company be, and the same is hereby, increased by the amount of $98,000,000, which increase shall consist of 980,000 shares of the par value of $100 each, of which 165,000 shares shall be preferred stock and 815,000 shares shall be common stock, so that the total authorized capital stock of this company, of all classes, shall be $200,000,000, consisting of 2,000,000 shares of the par value of $100 each, and of which capital stock 405,000 shares shall be preferred stock and 1,595,000 shares shall be common stock.

"Further resolved, that the proper officers of this company be, and they are hereby, authorized and empowered to make such certificates and payments and take such other action as may be necessary in order to effect the increase of the authorized capital stock of this company provided for by the foregoing resolution."

On the same day, at a meeting of the board of directors of the Wabash Railroad Company, a resolution was adopted reading as follows:

"Resolved, that the authorized capital stock of the company be, and the same is hereby, declared to be increased to the amount of ninety-eight million dollars ($98,000,000), such increase consisting of 165,000 shares of preferred stock and 815,000 shares of common stock, making the total authorized capital stock of the company, of all classes, two hundred million dollars ($200,000,000), par value, consisting of 405,000 shares of the par value of $100 each of preferred stock and 1,595,000 shares of the par value of $100 each of common stock."

19. December 22, 1906, at a meeting of the board of directors, a report was made that there had been deposited, under such plan and agreement, of debenture bonds, series A, $2,824,000, and of series B, $19,995,000, and promised, $852,000. Thereupon the promised bonds were accepted, and the plan and agreement was declared operative.

20. The exchange of bonds and securities was to be made through the defendant United States Mortgage & Trust Company, and the defendant Mercantile Trust Company, was to countersign the certificates for capital stock as issued.

21. The defendant George I. Gould, is a director of the MissouriPacific Railway Company, and he and said company and its other directors are large holders of said debenture mortgage bonds, and it is alleged that they would be greatly benefited by the proposed exchange. 22. Upon this state of facts, and after proceedings were in motion for carrying into effect the said plan and agreement, Pollitz commenced the first of these consolidated actions in the Supreme Court of the state of New York on the 10th day of November, 1906, whence it was removed to this court, and thereafter, and after the commencement