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To the same effect see Cook on Corporations, vol. 2, section 595. See also Langan v. Franklin, 26 Abb. N. C. 102; Jones v. Railroad, 67 N. Y. 234; South School District v. Blakeslee, 13 Conn. 227; and Evans v. Boston Heating Co., 157 Mass. 37.

The notice as given not only seems ample and sufficient, and in all respects conforming to the requirements of the statute, but the objecting stockholder appeared at the meeting and participated in the discussion and voted upon the proposition to authorize the mortgage, thereby exercising his right of self protection, to enable him to have an opportunity to exercise which right is the purpose of the statutory requirement for notice.

2. The objection to the right of the Interborough-Metropolitan Company or Windsor Trust Company as trustee, to vote the pledged stock : It appears from the proofs submitted that the stockholders of record, to a number in excess of the statutory requirement, appeared at the special meeting and voted to consent to the mortgage, and it is not within the competence of the Commission to go behind such record and determine who are stockholders de jure, that being a matter exclusively for the courts, and it being the duty of the Commission to recognize the stockholders de facto until any questions of law with respect to the holding of such stock shall have been judicially determined.

3. The legality of the investment in the stock of the Subway Realty Company has been already considered, and as hereinbefore appears it is my opinion that the objection is not well taken.

4. As to the objection that the company's claim against the city should not be included in the mortgage, it is unnecessary to consider it other than to note that it was not proposed by the company that the same should be included in the mortgage, and it has not been deemed wise by the Commission to include the same, but rather that the same, whatever it may be if any, when recovered shall be a free asset in the hands of the company for its general corporate purposes.

5. As to the objection that the mortgage is not large enough, it is obvious that it is quite ample for the purpose, and that to authorize a larger issue at this time would be improper and injudicious. The mortgage is ample to meet the requirements of the company at least for some years to come, and when it becomes indubitable that the company's requirements are larger than those which could be properly cared for out of the proceeds of bonds to be issued under the present mortgage it will then be the proper time to consider the enlargement of the mortgage debt by a refunding, and to secure still further issues of the petitioner's bonds.

Thereupon the following final order was issued:

ORDER No. 438.

April 23, 1908.

Whereas, Interborough Rapid Transit Company filed with the Public Service Commission for the First District its petition verified the 4th day of March, 1908, praying for the approval by said Commission of the execution of a mortgage by said company to secure an issue of not to exceed $55,000,000 of its 45-year gold mortgage bonds, as well as certain of its outstanding gold notes, and authorizing the immediate issue of $30,000,000, face value, of said bonds, and for authority to issue its promissory notes to an amount not exceeding $25,000,000, face value. to be dated May 1, 1908, payable not exceeding three years from date, bearing interest payable semi-annually at not exceeding six per cent per annum, and to secure the said notes by the pledge of not exceeding $30,000,000, face value, of the said proposed new mortgage bonds; and praying also the consent of the said Commission as the successor to the Board of Rapid Transit Railroad Commissioners for the City of New York, pursuant to the terms of the leases of said rapid transit railroads, to assign and encumber the said leases of the rapid transit railroads from the city of New York by including the same in said mortgage.

And whereas, the said Public Service Commission did thereupon by order dated March 6, 1908, direct the said petition to be heard on Monday, March 16, 1908, at 2:30 o'clock in the afternoon, and that the petitioner publish a notice of the said application and of the time and place of the said hearing, in the manner and as provided in said order, and the petitioner did thereupon cause notice of said application and of the time and place of said hearing to be published in pursuance of such order, and did file proof thereof with the Secretary of the said Commission before the opening of the said hearing;

And whereas, the petitioner with the leave of the Commission filed its amended petition bearing date March 14, 1908, and on the said 16th day of March, 1908,

the matter coming on to be heard upon the said petition and said amended petition, and said petitioner having duly appeared by George W. Wickersham, its counsel, and the Continental Securities Company having appeared by Clarence H. Venner, its president, and Thomas L. Feitner having appeared in person, and the petitioner having submitted proofs in support of said application, and the hearing having been duly adjourned from time to time, and the Commission having taken the testimony and having examined the books and accounts of the petitioner, and having caused investigation to be made into the condition and value of the railroads and prop. erties of the petitioner, and being fully advised in the premises, it is hereby

Ordered, That the Public Service Commission for the First District does hereby consent to the execution by the said petitioner Interborough Rapid Transit Company, of a mortgage of its leasehold interests in the rapid transit railroads in the city of New York, and the equipment thereof, its leasehold interest in Manhattan Railway and the other property in said mortgage described unto Morton Trust .Company, as trustee, said mortgage to be dated as of November 1, 1907, to secure an issue of the 45-year gold bonds of the said company, said bonds to be dated as of November 1, 1907, to be payable November 1, 1952, to bear interest at not exceeding five per cent per annum, payable semi-annually, upon the terms and conditions in said mortgage set forth and contained, and also to secure two certain issues of gold notes of said petitioner, viz. :

(a) $15,000,000, face value, four per cent three-year gold notes, due May 1, 1908, issued under trust agreement with Windsor Trust Company, trustee:

(b) $10,000,000, face value, three-year five per cent gold notes, due March 1, 1910, issued under trust agreement with Morton Trust Company, trustee;

Provided that the total amount to be secured by the said mortgage of both bonds and gold notes shall not at any time exceed the sum of $55,000,000 of principal, and the said mortgage to be in the form identified as seventeenth revise and filed in the office of the Secretary of the Commission on this 23d day of April, 1908. Further Ordered, That the Commission does hereby authorize the issue by the petitioner of $30,000,000, face value, of bonds pursuant to the said mortgage, and the use of the same by pledging said bonds as collateral security for an issue of $25,000,000, face value, of the three-year six per cent notes of the petitioner, to be dated May 1, 1908, and to be issued under and in conformity with the provisions of a trust agreement between the petitioner and Morton Trust Company, as trustee, dated April 1908, to be in the form identified as seventh revise and filed in the office of the Secretary of the Commission on the 23d day of April, 1908. Further Ordered. That the Commission does hereby authorize the sale by the petitioner of the sald $25,000,000, face value, of said three-year six per cent notes and the application of the proceeds thereof,

(a) To the discharge or lawful refunding of its obligations, viz.:

$15,000,000, face value, of its four per cent three-year gold notes, due May 1, 1908, issued under trust agreement with Windsor Trust Company, trustee

$6.250.172.55 of the promissory notes of the petitioner outstanding April 1, 1908, payable on demand or from time to time on or before June 30, 1908; and

(b) The balance to pay obligations heretofore incurred by the petitioner for the acquisition of property, the construction, completion, extension or improvement of its facilities, or the improvement or maintenance of its service and including the sum of $3.770,000, or thereabouts, payable to Rapid Transit Subway Construction Company on the completion of the Brooklyn extension of the rapid transit railway to its terminus at Flatbush and Atlantic avenues, Brooklyn, being on account of the excess cost of said railway over and above the amount payable with respect to the construction thereof by the city of New York.

It being the opinion of the Commission that the use of the capital to be secured by the issue of said bonds and notes by the said Interborough Rapid Transit Company is reasonably required for the said purposes of the said corporation.

Further Ordered, That the Commission as successor to the Board of Rapid Transit Railroad Commissioners for the City of New York, and pursuant to the provisions contained in the contracts for the construction of the rapid transit railroads in the city of New York, viz.:

(a) Contract between said city and John B. McDonald, dated February 21, 1900, and agreements amendatory thereof and supplemental thereto;

(b) Contract between the city of New York and Rapid Transit Subway Construction Company, dated July 21, 1902, and agreements amendatory thereof and supplemental thereto;

The leasing portions whereof have been heretofore duly assigned to Interborough Rapid Transit Company, does hereby consent to the mortgage of the said respective leases by including the same in the mortgage aforesaid.

Further Ordered, That duplicate originals of the mortgage and note trust agreements consented to and authorized as aforesaid upon execution thereof be filed by the petitioner with the Secretary of this Commission.

The company having filed duplicate originals of the mortgage and agreement with the Secretary of this Commission the following final order was issued:

ORDER No. 445.
April 28, 1908.

Whereas, by resolutions duly adopted by the Public Service Commission for the First District on April 23, 1908, Interborough Rapid Transit Company was authorized to execute its mortgage unto Morton Trust Company, as trustee, dated as of November 1, 1907, to secure an issue of forty-five year gold bonds of the said company

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and of its gold notes, as therein specified, and also its trust agreement to Morton Trust Company, as trustee, dated as of May 1, 1908, said mortgage and trust agreement to be in the form identified by said resolutions as seventeenth revise and seventh revise, respectively, and

Whereas, pursuant to said resolutions, the said Interborough Rapid Transit Company has executed and filed with the Secretary of this Commission on April 28, 1908, duplicate originals of said mortgage and trust agreement, authorized as aforesaid, containing certain corrections and changes of form which have been heretofore submitted to and informally approved by this Commission as tending to improve and perfect said instruments, it is hereby

Ordered, That the Public Service Commission for the First District does hereby approve and consent to the execution by the said petitioner, Interborough Rapid Transit Company, of its said mortgage unto Morton Trust Company, as trustee, dated as of November 1, 1907, the duplicate original of which is filed in the office of the Secretary of the Commission on this 28th day of April, 1908, and

Further Ordered. That the Commission does hereby approve and consent to the execution by Interborough Rapid Transit Company of its said trust agreement unto Morton Trust Company, as trustee, dated May 1, 1908, the duplicate original of which is filed in the office of the Secretary of the Commission on this 28th day of April, 1908.

In disposing of the $25,000,000 of short-term notes the Interborough incurred an expense of $1,450,000 as explained in the following letters:

INTERBOROUGH RAPID TRANSIT COMPANY.

Executive Committee,
115 Broadway,

THEODORE P. SHONTS, Chairman.

NEW YORK, June 26, 1908.

DEAR SIR. In connection with our recent $55,000,000 forty-five year mortgage, dated November 1, 1907, it became necessary, as you know, owing to the bond market conditions then prevailing, to issue $25,000,000 of short-term notes as a temporary relief measure, these notes being secured by $30,000,000 of the bonds. In carrying out this temporary expedient an expense of $1,450,000 was incurred, consisting of discounts, commissions and recording tax.

This expense having been eliminated from construction expenditures under a recent ruling of the Interstate Commerce Commission, therefore it follows that it becomes a charge against income account, and while I am not advised of any definite ruling by the Commission as to how it should be treated in income account, I think it is only fair to assume that the same could be distributed over the life of the securities.

Inasmuch as these short-term notes were incidental to and a part of the financing covered by the forty-five year mortgage, and are exchangeable for said mortgage bonds, the amount In question, together with any further tax or discount paid for marketing the remaining bonds should, therefore, it is believed, be distributed over the life of the 45-year mortgage.

As there has been no ruling on this question by your Commission, and as it is necessary for us to close out our accounts for the month of May. I have given instructions to the Auditing Department to follow the practice herein outlined. Very truly yours.

(Signed)

T. P. SHONTS,

INTERBOROUGH RAPID TRANSIT COMPANY,

Executive Committee,
115 Broadway,

Hon. WILLIAM R. WILLCOX, Chairman, Public Service Commission for the First District, State of New York, 154 Nassau Street, New York City.

Chairman.

Yours very truly,
(Signed)

THEODORE P. SHONTS, Chairman.

NEW YORK, July 8, 1908. Hon. WILLIAM R. WILLCOX, Chairman, Public Service Commission, First District, 154 Nassau Street, New York City:

DEAR SIR-Replying to the letter of the Secretary of your Commission, dated July 6, 1908, requesting the details of the $1,450,000 expense connected with the issue of bonds and notes of this company. Our proposition to Messrs. J. P. Morgan & Co. was to undertake the formation of a syndicate to purchase the $25,000,000 of notes at 97% of their face value and accrued interest, for which service in forming and managing the same, they were to receive a commission of 2%, which made the price 95 net, the discount and commission being $1,250,000. On April 28, 1908, we paid the recording tax upon $40,000,000 of forty-five year gold mortgage bonds, dated November 1, 1907, the same being 50 cents per $100, namely, $200,000; total, $1,450,000.

T. P. SHONTS,

Chairman.

The chairman, at the direction of the Commission, sent the following letter showing how this expense should be disposed of:

NEW YORK, July 17, 1908.

T P. SHONTS, Esq., Chairman Executive Committee Interborough Rapid Transit Co., 115 Broadway, New York City:

DEAR SIR-Your letters of June 26 and July 8 have been considered by the Commission. The points raised therein will be covered by the ystem of accounts for street and electric railroads, which is now being formulated, and which will probably be adopted by the Commission in the near future. In the meantime, however, that you may be advised of the attitude of the Commission, I will say that, in view of all the facts, the Commission considers the suggestion made by you to be wise and prudent. In the opinion of the Commission, therefore, a separate account should be kept to cover the following items:

Discounts and commissions upon an issue of notes of a par value

of $25,000,000

Recording tax upon a par value of $40,000,000 of 45 year gold bonds, dated November 1, 1907..

Total. . .

$1,250,000 200,000 $1,450,000

A sinking fund or an amortization account should also be kept, to show the amounts paid in to the fund year by year, and the total amount to the credit of the fund at the end of each year, including payments thereto and interest paid or accrved. This fund seould be sufficient at the end of forty-five years to amount to $1,450,000, and the annual payments thereto should be sufficient, with interest thereon, to amount to this sum at the end of the period.

Yours very truly,
(Signed)

WM. R. WILLCOX,

Chairman.

The system of accounts for street and electric railroads subsequently adopted provides as follows:

"18. Discounts upon securities not to be charged to capital accounts.- Discounts upon securities and other commercial paper issued in payment for capital are to be provided for in other accounts and must in no case be charged to the capital accounts."

"(928.) AMORTIZATION OF DEBT DISCOUNT AND EXPENSE.

"Charge to this account at or before the close of any fiscal period that proportion of the unamortized discount and debt expense on outstanding debt which is applicable to the period. This proportion shall be determined according to a rule, the uniform application of which during the interval between the issue and the maturity of any debt will completely amortize or wipe out the discount at which such debt was issued and the debt expense connected therewith. Such amortization may at the option of the corporation be earlier effected by charging all or any portion of such discount and debt expense to the account (No. 939.) 'Other Deductions from Surplus,' immediately upon issue of the debt or thereafter."

** (939.) OTHER DEDUCTIONS FROM SURPLUS,

"Charge to this account all deductions from surplus because of erroneous accounting in prior fiscal periods, and all other deductions from surplus not elsewhere provided for.

Note. A complete analysis of this account will be required in annual reports of corporations to the Public Service Commission."

Long Acre Electric Light and Power Company. Application for authority to issue $10,000,000 of preferred stock, and $50,000,000 of bonds to be secured by a mortgage on its property.

In the Matter

of the

Hearing Order No. 419.
Opinion of Commissioner Maltbie.
Final Order No. 607.
Rehearing Order No. 750.
Final Order No. 797.

Application of the LONG ACRE ELECTRIC LIGHT AND POWER COMPANY for authority to issue $10,000,000 of preferred stock, and also to issue $50,000,000 of bonds to be secured by a mortgage on its property.

ORDER No. 419.

April 17, 1908.

Whereas, the Public Service Commission for the First District has received the petition of the Long Acre Light and Power Company, verified the 1st day of February, 1908, praying

First. That the Commission authorize the issue by said company of ten million dollars ($10,000,000) par value, of preferred stock, the said stock to be noncumulative and nonvoting, with a specified dividend rate of seven (7) per cent.

Second. That the Commission authorize the issue by said company of six per cent (6%) bonds to the extent of fifty million dollars ($50,000,000) of which,

Twelve million dollars ($12,000,000) are to be issued at the present time, and The remainder are to be issued as may hereafter be authorized by the Public Service Commission.

Third. That the Commission authorize the execution by said company of a mortgage or pledge of all its property to secure the said bonds.

Resolved, That the said petition of the said Long Acre Electric Light and Power Company be heard by and before the Public Service Commission for the First District on the 30th day of April, 1908, at 2:30 o'clock in the afternoon, and that the said company publish the following notice of the said application and of the time and place of the said hearing in the following newspapers, namely: The Evening Post and the New York Times, published in the borough of Manhattan, in the city of New York, at least three days in succession before said hearing, and file proof of such publication with the Secretary of this Commission on or before the opening of the said hearing.

Notice is hereby given, that an application and petition of the Long Acre Electric Light and Power Company to the Public Service Commission for the First District, has been made, praying

First. That the Commission authorize the issue by said Company of ten million dollars ($10,000,000) par value, of preferred stock, the said stock to be noncumulative and nonvoting, with a specified dividend rate of seven (7) per cent.

Second. That the Commission authorize the issue by said company of six per cent (6%) bonds to the extent of fifty million dollars ($50,000,000), of which, Twelve million dollars ($12,000,000) are to be issued at the present time, and The remainder are to be issued as may hereafter be authorized by the Public Service Commission.

Third. That the Commission authorize the execution by said company of a mortgage or pledge of all its property to secure the said bonds.

And that said application and petition will be heard by the said Commission at Its office, No. 154 Nassau street, borough of Manhattan, New York city, on April 30th, 1908, at 2:30 o'clock in the afternoon.

Dated, New York,
1908.
LONG ACRE ELECTRIC LIGHT AND POWER COMPANY,

By

Hearings were held April 20th, May 5th, 8th, 12th, 15th and 23d.

[It is not desirable to introduce a competing electric company into the city of New York. The advantages of competition can be secured through the exercise of the powers of the Commission without the disadvantages.

That no certificate to begin construction has been obtained by an electric company and that there is doubt of the legality of the stock and bonds already issued and of its title to the franchise claimed are grounds for denying an application for permission to issue further securities.]

* See footnote, page 9.

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