District Court of the United States 
 
 FOR THE EASTERN DISTRICT OF PENNSYLVANIA. 
 
 UNITED STATES OF AMERICA 
 
 VS. 
 
 READING COMPANY, ET AL. 
 
 PLAN, AND COUNTER-PROPOSAL OF 
 THE UNITED STATES. 
 
 FEBRUARY 14 1921. 
 
W0S1IM 
 
 111 
 
 U Yl 
 
 In the District Court of the United 
 States, for the Eastern District of 
 Pennsylvania. 
 
 The United States of America , Petitioner, 
 
 vs. 
 
 Reading Company, Philadelphia & Reading Railway Com- 
 pany, The Philadelphia & Reading Coal & Iron Com- 
 pany, The Central Railroad Company of New Jersey, 
 The Lehigh & Wilkes-Barre Coal Company, The Lehigh 
 Coal & Navigation Company, Wilmington & Northern 
 Railroad Company, Lehigh & Hudson River Railway 
 Company, Lehigh & New England Railroad Company, 
 George F. Baer, George F. Baker, Edward T. Stotesbury, 
 Henry C. Frick, Peter A. B. Widener, Henry A. duPont, 
 Daniel Willard, Henry P. McKean and Samuel Dickson, 
 Defendants. 
 
 In pursuance of the decree of mandate of this Court en- 
 tered October 8th, 1920, defendants, Reading Company, 
 Philadelphia and Reading Railway Company, and The Phil- 
 adelphia & Reading Coal & Iron Company, respectfully 
 ~ submit the following plan: — 
 
 1. The Reading Company will assume the $96,524,000 
 General Mortgage 4% bonds, which are a joint obligation 
 of the Reading Company and The Philadelphia & Reading 
 <f} Coal & Iron Company (hereinafter called the Coal Com- 
 pany), and will agree to save the Coal Company and its 
 property harmless therefrom, 
 o 
 
 h 564 m 
 
4 
 
 2. The Coal Company will pay to the Reading Company 
 $10,000,000 in cash, or current assets at market value, and 
 $25,000,000 in 4 % mortgage bonds of the Coal Company. 
 The mortgage under which they are to be issued may contain 
 provision for the issue thereunder of additional bonds to 
 provide for additions, betterments and improvements to a 
 limited amount, to be determined by the Reading Company 
 and the Coal Company prior to the creation of the mort- 
 gage, and shall contain provision for a proper sinking fund 
 for the retirement of bonds issued thereunder. The $25,- 
 000,000 bonds issued by the Coal Company to the Reading 
 Company shall mature on January 1, 1997, the same date 
 as the General Mortgage bonds. The bonds issued by the 
 Coal Company shall be subject to redemption at par and 
 accrued interest on any semi-annual interest date as a whole 
 but not in part, except out of the moneys in the sinking 
 fund. 
 
 3. Except as otherwise herein expressly provided, gen- 
 eral releases of all claims and liabilities as between the 
 Reading Company and the Coal Company, including the 
 claim of approximately $70,000,000 carried on the books 
 of the Reading Company as an asset and on the books of 
 the Coal Company as a liability, will be exchanged. 
 
 4. The Reading Company will agree that it will obtain 
 the release of the coal property from the lien of the Gen- 
 eral Mortgage and the discharge of the Coal Company from 
 liability on the General Mortgage bonds, provided such re- 
 lease and discharge can be secured by payment by the 
 Reading Company to the bondholders of a premium not 
 exceeding 10% upon the par value of the outstanding Gen- 
 eral Mortgage bonds. Such release and payment will be 
 made from time to time as the acquiescence of the several 
 bondholders shall be given. The Reading Company will 
 make payment of said premium on the order of the com- 
 mittee to be formed in the interest of the bondholders. Said 
 committee will call for the deposit of bonds and will be 
 authorized by the depositors to return to them their bonds 
 
5 
 
 stamped as assenting to the release and discharge above 
 mentioned, or to return to them, in the discretion of the 
 committee, refunding and improvement mortgage bonds of 
 the Reading Company hereinafter described for an equal 
 principal amount and bearing 4 % interest. Though the 
 committee will order payment of the premium from time 
 to time as the bonds are deposited, it will, in the first in- 
 stance, cause to be issued depository receipts for the Gen- 
 eral Mortgage bonds and will retain the General Mortgage 
 bonds until it shall have determined that a sufficient per- 
 centage of bonds has been deposited to declare in effect 
 the plan of exchange for refunding and improvement mort- 
 gage bonds, or that in its judgment it is improbable that a 
 sufficient amount of bonds will be so deposited. Upon 
 such determination it shall deliver to the holders of the 
 depository receipts the refunding and improvement mort- 
 gage bonds or General Mortgage bonds stamped as afore- 
 said, as the case may be. The depository will collect and 
 pay out the interest on the deposited bonds pending the 
 determination of the committee as aforesaid. 
 
 5. It is assumed that the Attorney General will ask the 
 Court to direct the release of the stock of the Coal Company 
 from the lien of the General Mortgage on such terms as 
 the Court may fix. If practicable the Coal Company will 
 consolidate with Delaware Coal Company, of which it owns 
 the entire capital stock, and the consolidated company will 
 issue stock without par value to the Reading Company. If 
 that is not practicable, a new corporation will be created to 
 acquire from the Reading Company the stock of the Coal 
 Company, or the interest of the Reading Company therein, 
 and such new corporation will issue no par value stock. The 
 number of shares to be issued of the consolidated Coal 
 Company or of such new corporation may be 1,400,000. 
 
 Such no par value stock will be sold to the stockholders 
 of the Reading Company, preferred and common, share 
 and share alike, for $5,600,000., or $2.00 for each share of 
 Reading Stock. It is proposed to carry out this sale, in ac- 
 cordance with the precedent established by the Union Pa- 
 
6 
 
 cific-Southern Pacific case, by distributing to Reading stock- 
 holders assignable certificates of interest in the Coal Com- 
 pany stock exchangeable for such stock only when accom- 
 panied by an affidavit that the holder is not the owner of 
 any stock of Reading Company. Any further steps, which 
 may be deemed necessary by the Court, will be taken to the 
 end that an independent board and management to be ap- 
 proved by it will be maintained for the Coal Company, so 
 that the independence of this company need not await the 
 necessarily gradual process of the distribution of the stock 
 of the Coal Company among persons not holders of stock 
 in the Reading Company. 
 
 6. The Reading Company will merge the Philadelphia & 
 Reading Railway Company under the authority contained 
 in the present charter of the Reading Company, and will 
 subject the Railway property to the direct lien of the Gen- 
 eral Mortgage. The name of the Reading Company, after 
 merger, will not be changed. The Reading Company will 
 accept the Pennsylvania Constitution of 1874, and it will 
 proceed under the Act of 1856 to surrender those of its 
 powers which are inappropriate for a railroad corporation 
 of Pennsylvania. Thus the Reading Company will be in all 
 respects subject to the regulation of State and Federal au- 
 thorities as a common carrier, and the relation of the Read- 
 ing Company, as a specially chartered holding company, to 
 the Philadelphia and Reading Railway Company will be 
 terminated. 
 
 7. If and whenever the General Mortgage bondholders’ 
 committee shall determine to declare the plan of exchange 
 effective, the Reading Company shall execute a refunding 
 and improvement mortgage, which shall constitute a direct 
 lien upon all the railroads, railroad property, railroad equip- 
 ment and railroad stocks and bonds then owned by the 
 Reading Company or thereafter acquired by means of 
 bonds issued thereunder. Deposited General Mortgage 
 bonds will be kept alive under said refunding and improve- 
 ment mortgage until the General Mortgage is released. 
 
7 
 
 The refunding and improvement mortgage will contain ap- 
 propriate provision for the reservation of bonds to refund 
 outstanding General Mortgage bonds and other prior lien 
 bonds or obligations. It will be an open mortgage in mod- 
 ern form with appropriate provision for the issue of addi- 
 tional bonds for the acquisition of new property and for 
 additions, betterments and improvements to the mortgaged 
 property. 
 
 8. The Court will be asked to defer the actual sale of the 
 stock held by the Reading Company in the Central Railroad 
 of New Jersey pending the grouping of railroads by the 
 Interstate Commerce Commission under the Transportation 
 Act, but subject to the further order of the Court. It is 
 assumed that the Attorney General will ask the Court to 
 make an order assuring the voting of the stock pending such 
 sale in the manner approved by the Court. A detailed plan 
 for the prompt disposition of the stock of the Lehigh and 
 Wilkes-Barre Coal Company by the Central Railroad of 
 New Jersey has been submitted separately. 
 
 Wm. Clarke Mason, 
 
 R. C. Leffingwell, 
 
 Chas. Heebner, 
 
 Dated, February 14th, 1921. 
 
 Of Counsel. 
 
In the District Court of the United 
 States for the Eastern District of 
 Pennsylvania. 
 
 United States of America 
 
 vs. 
 
 Reading Company , et al. 
 
 No. 1095. 
 
 COUNTER PROPOSAL BY THE UNITED STATES 
 TO PARAGRAPH EIGHT OF THE DEFEND- 
 ANTS’ PLAN. 
 
 Comes now the United States by Frank K. Nebeker, 
 Assistant to the Attorney General, and Abram F. Myers, 
 Special Assistant to the Attorney General, and respectfully 
 represents unto the Court that the provision in the plans 
 submitted by the defendants for the placing in the hands of 
 a trustee of Reading Company’s interest in the stock of the 
 Central Railroad Company of New Jersey, pending the 
 working out of a plan for the re-grouping of railroads by 
 the Interstate Commerce Commission under the Trans- 
 portation Act of 1920, is not a satisfactory compliance with 
 the requirements of the Supreme Court. 
 
 Complying with the requirement in the interlocutory 
 decree that the United States shall embody its suggestions 
 in reference to the defendants’ plan in a plan of its own, 
 the United States respectfully suggests that the following 
 paragraphs be submitted for paragraph eight of the de- 
 fendants’ plan: — 
 
10 
 
 “Reading Company shall, with all due diligence, 
 offer for sale at a reasonable price and upon reason- 
 able terms the stock of the Central Railroad Company 
 of New Jersey now owned by it for a period of 
 years. If at the expiration of such 
 period a sale of such stock has not been made, then, 
 upon application of the Attorney General, the Court 
 may decree a sale at public auction at a price not less 
 than a minimum price to be agreed upon between the 
 Reading Company and the Attorney General. During 
 this period Reading Company shall accept any offer by 
 a reasonable purchaser made in good faith and at a 
 reasonable price and in the event of any disagreement 
 between an intending purchaser, who has complied with 
 the foregoing provisions, and the Reading Company, 
 then the matter shall be referred to the Attorney Gen- 
 eral for his advice and if the parties shall still be at a 
 disagreement, then any party (Reading Company, the 
 United States, or the intending purchaser) may bring 
 the matter to the attention of the Court for its deci- 
 sion. A purchaser under this provision must be ap- 
 proved by the Attorney General, and, if a railroad 
 company, shall apply to the Interstate Commerce Com- 
 mission for its authority to make such purchase under 
 paragraphs two and three of Section 407 of the Trans- 
 portation Act of 1920. 
 
 “For the purposes of carrying out such a provision, 
 jurisdiction of the case shall be retained by the Court.” 
 
 The suggestions of the Government in reference to the 
 other provisions of defendants’ plan, which suggestions 
 relate only to matters of detail, are embodied in the memo- 
 randum attached hereto. 
 
 FRANK K. NEBEKER, 
 
 Assistant to the Attorney General. 
 
 A. F. MYERS, 
 
 Special Assistant to the Attorney General. 
 
In the District Court of the United 
 States for the Eastern District of 
 Pennsylvania. 
 
 The United States of America, 
 
 vs. 
 
 Reading Company, Philadelphia & Reading Railway Com- 
 pany, The Philadelphia & Reading Coal & Iron Com- 
 pany, The Central Railroad Company of New Jersey, 
 The Lehigh & Wilkes-Barre Coal Company, et al. 
 
 Plan for the Disposal by The Central Railroad 
 Company of New Jersey of all the Stock of The 
 Lehigh & Wilkes-Barre Coal Company now Owned 
 or in any Manner Controlled by it. Framed in 
 such Form as to be Embodied in the Decree. 
 
 The Central Railroad Company of New Jersey shall dis- 
 pose of all its capital stock of The Lehigh & Wilkes-Barre 
 Coal Company now owned by it to persons or corporations 
 who are not its own stockholders or stockholders in either 
 Reading Company, Philadelphia & Reading Railway Com- 
 pany or The Philadelphia & Reading Coal & Iron Com- 
 pany, and who previous to or at the time of purchase shall 
 qualify as purchasers by a duly executed affidavit in one 
 of the forms hereto annexed. 
 
12 
 
 The affidavit in the case of an individual purchasing in 
 his own right shall be substantially in the form hereto an- 
 nexed, marked “Form A.” 
 
 If the purchaser is a corporation or a joint-stock com- 
 pany, the affidavit shall be executed by its president, vice 
 president, secretary or treasurer, or, in the case of a cor- 
 poration of a foreign country, by one of its managing offi- 
 cers, and shall be substantially in the form hereto annexed, 
 marked “Form B.” 
 
 If the purchaser is a partnership the affidavit shall be 
 executed by one of the partners and shall be substantially 
 in the form hereto annexed, marked “Form C.” 
 
 All of the said stock shall be disposed of within six 
 months after entry of this decree, or previous to any other 
 later date which may be fixed by the Court. Stock may be 
 disposed of in such manner and upon such terms as The 
 Central Railroad Company of New Jersey may determine; 
 provided, however, that it shall only be acquired by persons 
 or corporations qualified to receive it under the terms of 
 the said affidavits. And provided further, not less than 
 twenty per cent, shall be paid in cash at the time of its dis- 
 position by persons or corporations acquiring it. 
 
 On or before the date fixed by the Court before which 
 the disposal of such stock shall be completed The Central 
 Railroad Company of New Jersey shall file or cause to be 
 filed with the clerk of this Court a statement containing 
 the names of the persons, corporations or partnerships to 
 whom such stock has been disposed of and the number of 
 shares acquired by each, which statement shall be annexed 
 to the said affidavits. 
 
 Should all of the said stock not be disposed of before the 
 expiration of six months after entry of this decree or pre- 
 vious to any later date which may be fixed by the Court, 
 the remainder shall be then transferred to the Central 
 Union Trust Company of New York (hereinafter called 
 the “Trustee”) as the custodian and depository of the 
 Court, subject to the provisions of this decree and to the 
 further orders and decrees of the Court herein. Such stock 
 shall be registered in the name of the Trustee on the books 
 
13 
 
 of The Lehigh & Wilkes-Barre Coal Company and certi- 
 ficates therefor delivered to the Trustee. 
 
 Such stock, together with any dividends received by the 
 Trustee thereon, shall be transferred by the Trustee from 
 time to time to persons to whom The Central Railroad 
 Company of New Jersey may have sold the same and who 
 are qualified to receive it under the terms of this decree. 
 
 Pending transfer the Trustee shall receive all dividends 
 declared on any stock standing in its name and may vote 
 thereon at any stockholder meeting. 
 
 The said Trustee, having declared its submission to the 
 jurisdiction of this Court for the purpose of carrying out 
 this provision of this decree and having entered its appear- 
 ance herein by counsel, is made a party hereto. 
 
 The Central Railroad Company of New Jersey shall 
 from time to time, upon the request of the Attorney Gen- 
 eral of the United States, furnish him with any informa- 
 tion which he may require relating to the carrying out of 
 this decree. 
 
 In order to enable The Central Railroad Company of 
 New Jersey to dispose of the said stock of The Lehigh & 
 Wilkes-Barre Coal Company to the greatest advantage 
 without any accumulated dividends, the injunction hereto- 
 fore granted in this suit shall be modified so as to permit 
 The Central Railroad Company of New Jersey to collect 
 and receive any dividends which have been or may be de- 
 clared upon the stock of The Lehigh & Wilkes-Barre Coal 
 Company previous to disposition thereof. 
 
 Robert w. Deforest, 
 
 Of Counsel. 
 
 February 14, 1921. 
 
14 
 
 FORM A. 
 
 State of 
 County of 
 
 , being duly sworn, deposes and 
 says: That deponent is the bona fide purchaser in his own 
 proper right of a certificate or certificates for 
 shares of the capital stock of The Lehigh & Wilkes-Barre 
 Coal Company, transferred to him by The Central Railroad 
 Company of New Jersey under a decree entered on the 8th 
 day of October, 1920, in the suit of The United States of 
 America vs. Reading Company, Philadelphia and Reading 
 Railway Company, The Philadelphia & Reading Coal & 
 Iron Company, The Central Railroad Company of New Jer- 
 sey, The Lehigh & Wilkes-Barre Coal Company, et al, and 
 makes this affidavit at or previous to the time of the issu- 
 ance to him of such certificate or certificates for the purpose 
 of evidencing his right to receive the same. That deponent 
 does not own in his (or her) own right any shares of the 
 capital stock of The Central Railroad Company of New 
 Jersey, Reading Company, Philadelphia & Reading Railway 
 Company, The Philadelphia & Reading Coal & Iron Com- 
 pany, whether registered in his- (or her) own name on the 
 books of said companies or any of them or registered in 
 the names of others for deponent’s use and benefit. That 
 deponent in receiving this said certificate or certificates is 
 not acting for or on behalf of any stockholder of The Cen- 
 tral Railroad Company of New Jersey or of any other of 
 the said Companies or in concert, agreement or understand- 
 ing with any other person, firm or corporation for the 
 control of The Lehigh & Wilkes-Barre Coal Company in 
 the interest of The Central Railroad Company of New Jer- 
 sey or of any other of the said companies, but is acting in 
 his own behalf in good faith. 
 
 Sworn to before me, this 
 
 day 
 
 , 1921. 
 
i5 
 
 FORM B. 
 
 State of 
 County of 
 
 , being duly sworn, deposes and 
 says: That he is of , a 
 
 corporation (or a joint-stock company). That said corpora- 
 tion is the bona fide purchaser on its own proper right of a 
 certificate or certificates for shares of the capital 
 
 stock of The Lehigh & Wilkes-Barre Coal Company, trans- 
 ferred to it by The Central Railroad Company of New Jer- 
 sey under a decree entered on the 8th day of October, 1920, 
 in the suit of The United States of America vs. Reading 
 Company, Philadelphia & Reading Railway Company, The 
 Philadelphia & Reading Coal & Iron Company, The Central 
 Railroad Company of New Jersey, The Lehigh & Wilkes- 
 Barre Coal Company, et al., and makes this affidavit at or 
 previous to the time of the issuance to it of such certificate 
 or certificates for the purpose of evidencing its right to 
 receive the same. That corporation does not own in its 
 own right any shares of the capital stock of The Central 
 Railroad Company of New Jersey, Reading Company, 
 Philadelphia & Reading Railway Company, The Philadel- 
 phia & Reading Coal & Iron Company, whether registered 
 in its own name on the books of said companies or any of 
 them or registered in the names of others for its use and 
 benefit. That said corporation in receiving the said certifi- 
 cate or certificates is not acting for or on behalf of any 
 stockholder of The Central Railroad Company of New Jer- 
 sey or of any other of the said companies or in concert, 
 agreement or understanding with any other person, firm or 
 corporation for the control of The Lehigh & Wilkes-Barre 
 Coal Company in the interest of The Central Railroad Com- 
 pany of New Jersey or of any other of the said companies, 
 but is acting in its own behalf in good faith. 
 
 Sworn to before me, this 
 
 day of 
 
 , 1921. 
 
i6 
 
 FORM C. 
 
 State of 
 County of 
 
 , being duly sworn, deposes and 
 says : That he is a member of the partnership of 
 
 (hereinafter called the “Partnership”). 
 That said Partnership are the bona fide purchasers in their 
 own proper right of a certificate or certificates for 
 shares of the capital stock of The Lehigh & Wilkes-Barre 
 Coal Company, transferred to them by The Central Rail- 
 road Company of New Jersey under a decree entered on 
 the 8th day of October, 1920, in the suit of The United 
 States of America vs. Reading Company, Philadelphia & 
 Reading Coal & Iron Company, The Central Railroad Com- 
 pany of New Jersey, The Lehigh & Wilkes-Barre Coal Com- 
 pany, et al. } and makes this affidavit at or previous to the 
 time of the issuance to them of such certificate or certifi- 
 cates for the purpose of evidencing their right to receive the 
 same. That said partnership does not own in their own 
 right any shares of the capital stock of The Central Rail- 
 road Company of New Jersey, Reading Company, Philadel- 
 phia & Reading Railway Company, The Philadelphia & 
 Reading Coal & Iron Company, whether registered in their 
 own name on the books of said companies or any of them 
 or registered in the names of others for their use and benefit. 
 That said partnership in receiving the said certificate or 
 certificates is not acting for or on behalf of any stockholder 
 of The Central Railroad Company of New Jersey or of any 
 other of the said companies or in concert, agreement or un- 
 derstanding with any other person, firm or corporation for 
 the control of The Lehigh & Wilkes-Barre Coal Company 
 in the interest of The Central Railroad Company of New 
 Jersey or of any other of the said companies, but is acting 
 in their own behalf in good faith. 
 
 Sworn to before me, this 
 
 day of 
 
 , 1921. 
 
i7 
 
 MEMORANDUM OF UNITED STATES IN RE. 
 
 Disposition by Central Railroad Company of Stock 
 of Lehigh & Wilkes-Barre Coal Company. 
 
 The Central Railroad Company having already disposed 
 of the bonds of the Lehigh & Wilkes-Barre Coal Company, 
 the proposal to dispose of the stock in accordance with the 
 Union Pacific precedent is satisfactory. 
 
 Respectfully submitted, 
 
 FRANK K. NEBEKER, 
 
 Assistant to the Attorney General. 
 
 A. F. MYERS, 
 
 Special Assistant to the Attorney General. 
 
 February 14th, 1921. 
 
c 
 
District Court of the United States 
 
 FOR THE EASTERN DISTRICT OF PENNSYLVANIA. 
 
 UNITED STATES OF AMERICA 
 
 vs. 
 
 READING COMPANY, ET AL. 
 
 MODIFIED PLAN. 
 
 MAY 12, 1921. 
 
§ 
 
In the District Court of the United 
 States for the Eastern District of 
 Pennsylvania. 
 
 The United States of America, Petitioner, 
 
 vs. 
 
 Reading Company, Philadelphia & Reading Railway Com- 
 pany, The Philadelphia & Reading Coal & Iron Com- 
 pany, The Central Railroad Company of New Jersey, 
 The Lehigh & Wilkes-Barre Coal Company, The Lehigh 
 Coal & Navigation Company, Wilmington & Northern 
 Railroad Company, Lehigh & Hudson River Railway 
 Company, Lehigh & New England Railroad Company, 
 George F. Baer, George F. Baker, Edward T. Stotesbury, 
 Henry C. Frick, Peter A. B. Widener, Henry A. duPont, 
 Daniel Willard, Henry P. McKean and Samuel Dickson, 
 Defendants. 
 
 In pursuance of the decree of mandate of this Court en- 
 tered October 8th, 1920, defendants, Reading Company, 
 Philadelphia and Reading Railway Company, and The Phil- 
 adelphia & Reading Coal & Iron Company, respectfully 
 submit the following plan: — 
 
 1. The Reading Company will assume the $96,524,000 
 General Mortgage 4% bonds, which are a joint obligation 
 of the Reading Company and The Philadelphia & Reading 
 Coal & Iron Company (hereinafter called the Coal Com- 
 pany), and will agree to save the Coal Company and its 
 property harmless therefrom. 
 
22 
 
 2. The Coal Company will pay to the Reading Company 
 $10,000,000 in cash, or current assets at market value, and 
 $25,000,000 in 4% mortgage bonds of the Coal Company. 
 The mortgage under which they are to be issued may contain 
 provision for the issue thereunder of additional bonds to 
 provide for additions, betterments and improvements to a 
 limited amount, to be determined by the Reading Company 
 and the Coal Company prior to the creation of the mort- 
 gage, and shall contain provision for a proper sinking fund 
 for the retirement of bonds issued thereunder. The $25,- 
 000,000 bonds issued by the Coal Company to the Reading 
 Company shall mature on January 1, 1997, the same date 
 as the General Mortgage bonds. The bonds issued by the 
 Coal Company shall be subject to redemption at par and 
 accrued interest on any semi-annual interest date as a whole 
 but not in part, except out of the moneys in the sinking 
 fund. 
 
 3. Except as otherwise herein expressly provided, gen- 
 eral releases of all claims and liabilities as between the 
 Reading Company and the Coal Company, including the 
 claim of approximately $70,000,000 carried on the books 
 of the Reading Company as an asset and on the books of 
 the Coal Company as a liability, will be exchanged. 
 
 4. The Reading Company will agree with the Coal Com- 
 pany that, at or before the maturity of the General Mort- 
 gage bonds, it will obtain the release of the Coal Company's 
 property from the lien of the General Mortgage and the 
 discharge of the Coal Company from liability on the Gen- 
 eral Mortgage bonds. 
 
 5. If the Court so orders, the Reading Company will, 
 subject to the lien of the General Mortgage, sell, assign and 
 transfer all its right f title and interest in and to the stock 
 of the Coal Company, including the present right to vote 
 and receive dividends thereon, to a nezv corporation to be 
 formed with appropriate powers, and zvill agree to save 
 the nezv corporation and said stock harmless from the lien 
 
23 
 
 of the General Mortgage , and will agree to obtain , at or 
 before the maturity of the General Mortgage , the release 
 of the stock of the Coal Company from the lien of the 
 General Mortgage and the assignment, transfer and deliv- 
 ery of said stock to the new corporation — all in consid- 
 eration of the payment by the new corporation to the 
 Reading Company of the sum of $5,600,000, and its agree- 
 ment to issue its shares to the stockholders of the Reading 
 Company as hereinafter provided. The new corporation 
 will issue 1,400,000 shares of stock without par value. 
 Such no par value stock will be sold by the new corpora- 
 tion to the stockholders of the Reading Company, pre- 
 ferred and common, share and share alike, for $5,600,000, 
 or $2.00 for each share of Reading stock. Provision will 
 be made for the disposition by the Reading Company of 
 any rights to subscribe which may not be availed of by the 
 Reading stockholders within such period as may be fixed 
 by the Reading Company, with the approval of the Court, 
 to the end that the new corporation shall receive the full 
 purchase price of $5,600,000. It is proposed to carry out 
 this sale in accordance with the precedent established by the 
 Union Pacific-Southern Pacific case, by issuing to Reading 
 stockholders, with or without the intervention of a trustee, 
 as may be provided for in the final decree of the Court, 
 assignable certificates of interest in the stock of the new 
 corporation exchangeable for such stock only when accom- 
 panied by an affidavit that the holder is not the owner of 
 any stock of the Reading Company. 
 
 In addition there will be embodied in the final decree a 
 permanent injunction against the nezv corporation exercis- 
 ing its voting power on the stock of the Coal Company in 
 such a way as to bring about any new relations between the 
 Coal Company and the Reading Company of the character 
 complained of in the present suit. Any further steps, which 
 may be deemed necessary by the Court, will be taken to the 
 end that an independent board and management to be ap- 
 proved by it will be maintained for the Coal Company, so 
 that the independence of this company need not await 
 
24 
 
 the necessarily gradual process of the distribution of the no 
 par value stock of the new corporation among persons not 
 holders of stock in the Reading Company. 
 
 The final decree may provide that if by reason of default 
 on the General Mortgage bonds the Trustee, the Central 
 Union Trust Company, shall exercise the right to vote the 
 stock of Reading Coal Company, it shall so exercise that 
 right as not to bring about unity of management between 
 said Coal Company and Reading Company, and the final 
 decree may further provide that, in the event the Trustee 
 at any time is obliged to sell the stock or properties of Read- 
 ing Coal Company, it shall dispose of such stock and proper- 
 ties separately from the properties of Reading Company and 
 to different interests. 
 
 6. The Reading Company will merge the Philadelphia & 
 Reading Railway Company under the authority contained 
 in the present charter of the Reading Company, and will 
 subject the Railway property to the direct lien of the Gen- 
 eral Mortgage. The name of the Reading Company, after 
 merger, will not be changed. The Reading Company will 
 accept the Pennsylvania Constitution of 1874, and it will 
 proceed under the Act of 1856 to surrender those of its 
 powers which are inappropriate for a railroad corporation 
 of Pennsylvania. Thus the Reading Company will be in all 
 respects subject to the regulation of State and Federal au- 
 thorities as a common carrier, and the relation of the Read- 
 ing Company, as a specially chartered holding company, to 
 the Philadelphia and Reading Railway Company will be 
 terminated. 
 
 7. The Court will be asked to defer the actual sale of the 
 stock held by the Reading Company in the Central Railroad 
 of New Jersey pending the grouping of railroads by the 
 Interstate Commerce Commission under the Transportation 
 Act, but subject to the further order of the Court. It is 
 assumed that the Attorney General will ask the Court to 
 make an order assuring the voting of the stock pending such 
 
25 
 
 sale in the manner approved by the Court. A detailed plan 
 for the prompt disposition of the stock of the Lehigh and 
 Wilkes-Barre Coal Company by the Central Railroad of 
 New Jersey has been submitted separately. 
 
 Reading Company, 
 
 By 
 
 Charles Heebner, 
 
 General Counsel. 
 
 Wm. Clarke Mason, 
 
 Solicitor. 
 
 R. C. Leffingwell, 
 
 Counsel. 
 
 Approved on behalf of the United States, 
 
 Abram F. Myers, 
 
 Special Assistant to the Attorney General. 
 
 (The objection of the Attorney General to the provisions 
 of paragraph 7, and also the plan for the sale of the stock of 
 the Lehigh and Wilkes-Barre Coal Company remain the 
 same as in the original plan.) 
 
0 
 
 c 
 
IN THE 
 
 District Court of the United States 
 
 FOR THE EASTERN DISTRICT OF PENNSYLVANIA. 
 
 No. 1095. 
 
 THE UNITED STATES OF AMERICA, 
 
 VS. 
 
 READING COMPANY, et al., 
 
 OPINION 
 
 Filed, May 21, 1921 
 
0 
 
 c 
 
In the District Court of the United 
 States for the Eastern District of 
 Pennsylvania 
 
 In Equity. No. 1095. 
 
 United States , 
 
 vs. 
 
 Reading Co., et al. 
 
 Before Buffington and Davis, Circuit Judges, and 
 Thompson, District Judge. 
 
 Buffington, J. 
 
 On the return to this Court of the mandate of the 
 Supreme Court of the United States directing, inter alia, 
 this Court to enter a decree “dissolving the combination 
 of the Reading Company, the Philadelphia and Reading 
 Railway Company, the Philadelphia and Reading Coal and 
 Iron Company, the Central Railroad Company of New 
 Jersey and the Lehigh and Wilkes-Barre Coal Company, 
 existing and maintained through the Reading Company, 
 with such provisions for the disposition of the shares of 
 stock and bonds and other property of the various com- 
 
30 
 
 parties , held by the Reading Company, as may be necessary 
 to establish the entire independence from that company and 
 from each other, of the Philadelphia and Reading Railroad 
 Company, the Philadelphia and Reading Coal and Iron 
 Company,” etc., we called before us the counsel for the 
 United States and the counsel for the Reading Company 
 and directed the latter, in consultation with the former, 
 to formulate a dissolution plan in conformity with the said 
 mandate. In accordance with these directions, and after 
 consultation by all of said counsel from time to time with 
 the Court, a tentative plan was eventually drafted and 
 placed on file in the Clerk’s office, for the inspection of all 
 parties concerned. Subsequently, the Court gave a hearing 
 to all parties who desired to be heard and signified its 
 willingness to receive for consideration, petitions to inter- 
 vene. Numerous parties and representatives of various 
 interest having thus been heard and numerous briefs having 
 been filed showing the views of the parties concerned, the 
 Court was thereby placed in possession of such information 
 as enabled it to determine what parties should be allowed 
 to intervene and also to formulate such questions, issues 
 and objections to the proposed plan as would afford a basis 
 for an enlightening and constructive discussion on the part 
 of all parties of record. Accordingly, this Court, by its 
 order of April 12th, 1921, directed it would on May 2d, 
 1921, hear arguments on the following questions: — 
 
 “1. (a) Whether the sale provided for in para- 
 graph Five of the Reading Plan is such a disposition 
 of the interest of Reading Company in the stock of 
 the Philadelphia & Reading Coal & Iron Company as 
 accomplishes the express purpose of the mandate of the 
 Supreme Court of the United States requiring disposi- 
 tion by Reading Company of such stock because the 
 holding of it has been and would be unlawful: ( b ) and 
 if the mandate is thereby complied with, whether such 
 disposition confers upon any one class of stockholders 
 of Reading Company any benefit to the prejudice of 
 the legal rights of any other class of stockholders. 
 
3i 
 
 “2. Whether the stock of the Coal Company should 
 be sold free from the lien of the General Mortgage, 
 or whether a sale of Certicates of Interest therein 
 would be a compliance with the provisions aforesaid 
 of the mandate of the Supreme Court of the United 
 States. 
 
 “3. Whether the Reading Company should offer a 
 premium of ten per cent, to the General Mortgage bond- 
 holders for release of the Coal Company’s property 
 from lien of the mortgage, or whether the require- 
 ments of the mandate of the Supreme Court of the 
 United States may be fulfilled by proper injunctive pro- 
 visions in the decree to be entered in this cause,” 
 
 and directed that all parties who desired to be heard 
 should file briefs on April 30, 1921, containing in substance 
 their proposed arguments. Having thus in advance the 
 advantage of the proposed arguments, the Court found 
 on the day set for argument that, due to a modification 
 of the plan agreed to by the Attorney General of the United 
 States, the counsel for the Reading Company and counsel 
 representing certain holders of bonds secured by the Gen- 
 eral Mortgage of the Reading Company, substantially all of 
 the above questions were disposed of save those arising 
 under sub-division b. of the first question. And this feature, 
 briefly stated, resolved itself into an issue as to the relative 
 rights of the preferred and common stock of the Reading 
 Company, arising out of the disposition of the stock of the 
 Philadelphia & Reading Coal & Iron Company, which latter 
 stock was owned by the Reading Company. The stock of 
 the Philadelphia & Reading Coal & Iron Co. so owned by 
 the Reading Company has a par value of eight millions of 
 dollars. It will be noted that this stock holding by the 
 Reading Company in the Coal Company was decreed by 
 the Supreme Court an unlawful holding and was one as to 
 which the Supreme Court directed this Court to enter a 
 decree “with such provision for the disposition of the shares 
 of stock and bonds and other properties of the various 
 companies, held by the Reading Company, as may be neces- 
 
32 
 
 sary to establish the entire independence from that com- 
 pany and from each other, of the Philadelphia & Reading 
 Railway Company, the Philadelphia & Reading Coal & Iron 
 Company,” etc. In the plan proposed this order was com- 
 plied with in that the offending stock was, under proper 
 restrictions and elections, to be disposed of to all the stock- 
 holders, both common and preferred, of the Reading Com- 
 pany. By this stockholding passing from the ownership 
 of the Reading Company and being vested in the disasso- 
 ciated ownership of the individual stockholders with such 
 provisions for safeguarding against an unlawful combina- 
 tion between them as is provided in the proposed decree, 
 and as will be hereafter described, it will be seen the letter 
 and spirit of the mandate of the Supreme Court are complied 
 with. The offending stock passes out of the ownership of 
 the unlawful holder and neither it nor the proceeds of its 
 sale can be hereafter used in unlawful combination. In 
 that connection it will be noted that the mandate directs a 
 “disposition of shares of stock and bonds and other prop- 
 erty held by the Reading Comany,” and in that respect 
 the mandate has been complied with precisely, in that there 
 has been a “disposition” of the stock, it being taken from 
 the Reading Company, and it has not even been distributed 
 by that company, but, treated as an unlawful holding of 
 that company, it is to be taken by the Court and disposed of 
 absolutely by it, by sale through the agency of a corpora- 
 tion created under the provisions of this decree, to such 
 persons as have qualified to lawfully acquire it. The mere 
 circumstance that those persons are stockholders of the 
 Reading Company is attributable to the fact that in the 
 application of equitable principles and without sacrifice of 
 the spirit of the mandate, they compose a class of suitable 
 recipients, in the manner above stated, of the stock which 
 was unlawfully held by the company of which they were 
 stockholders. In other words, if the carrying out of the 
 mandate had necessitated the use of this stock to reduce, 
 for example, the bonded or other indebtedness of the Read- 
 ing Company, the stockholders of that company, which un- 
 lawfully held the stock to be disposed of would have no 
 
33 
 
 claim in law to prevent such disposition. From these con- 
 siderations it is apparent that whatever this disposition of 
 the stock may be called, it is in no sense an earning of the 
 Reading Company which is to be disposed of by that com- 
 pany as a dividend. It is a taking by the law of an asset 
 of that company, a stock asset, which was and has been 
 owned in specie by Reading Company since the Reading 
 reorganization was formed, and which never was earned or 
 could be earned by the Reading Company itself. Indeed it 
 is now disposed of in substantially the same way as the law 
 would dispose of the property of that company were it being 
 dissolved, and in that connection we deem it proper to say 
 that, under the facts and circumstances before us, the legal 
 question of dividend distribution between different classes 
 of stockholders is not here involved, and on that question 
 we express no present opinion for the simple reason that 
 we are not dividing profits or earnings. 
 
 Seeing then that this stock is not an earning of the Read- 
 ing Company to be distributed as a dividend, but is a part 
 of its capital disposed of in this case to qualifying share- 
 holders, in the manner provided for by the creation of this 
 intermediate corporation, it will be apparent that this decree 
 of equal right to all shareholders, preferred and common 
 alike, to participate in the sale as ultimate purchasers, is 
 based on the general equitable principle that equality is 
 equity and on the corporate right of all shareholders in a 
 Pennsylvania corporation to share equally on a disposition 
 of its assets. We are therefore of opinion that the plan 
 which embodies these equitable principles should be ap- 
 proved and that the claim of the common shareholders to 
 take all of this stock to the exclusion of the preferred stock- 
 holders should be denied. And in approving such plan we 
 note that in point of fact the equity of a common participa- 
 tion of all stockholders, preferred and common, has not 
 only the approval of the Government of the United States 
 that has no interest in the controversy, save to see that 
 equity is done to all; of the Reading Company which has 
 no interest save an impartial stewardship for all its share- 
 
34 
 
 holders; and lastly the silently expressed approval of sub- 
 stantially two-thirds of the shares held by common stock- 
 holders. This significant and impressive fact cannot but 
 be regarded as highly persuasive of the substantial equity 
 of this plan. Of the 1,400,000 shares of the common stock 
 of the Reading Company, less than one-third object to it. 
 The other two-thirds, having had the opportunity to object 
 and failing to do so, we are warranted in treating as ac- 
 quiescing in the proposed plan. Indeed, we are justified 
 from one circumstance in concluding from the positive atti- 
 tude of a hundred thousand of those shares that the remain- 
 der are not only passively acquiescing but really actively 
 approving. This particular block of a hundred thousand 
 shares of the common stock is represented by one man who 
 is a trustee of an estate which owns it and he himself is 
 the owner of one-half of such trust estate. He or the 
 estate have no preferred stock whatever. He is also a 
 Director of the Reading Company and as such favored the 
 plan. By his counsel he appeared at the hearing and 
 strongly urged its adoption, asserting his consent to the 
 preferred stock sharing equally with the common in the 
 disposition of the shares of the Coal Company. His con- 
 tention was that this equal participation by common and 
 preferred stockholders was not only fair, legal and equit- 
 able, but that such a proportionate division tended to the 
 welfare of all parties concerned and indeed was a course 
 which made the plan possible. When it is considered that 
 the non-participation of the preferred stockholders in the 
 shares of the Coal Company and the absorption of all the 
 stock by the common shareholders would have benefited this 
 particular hundred thousand shares by a large sum, this 
 Court may rest assured that the proposed plan by its equal- 
 ity works equity. Without entering upon a further discus- 
 sion of the questions involved, we are of opinion, after care- 
 ful and matured consideration, that the plan as amended 
 should be approved and we therefore direct the preparation 
 of a formal decree embodying its terms. We deem it proper 
 to add that such decree shall provide for the creation of a 
 
35 
 
 new corporation, ito which shall be sold the equities in 
 the shares of the Philadelphia & Reading Coal & Iron Com- 
 pany held by the Reading Company. The rights to pur- 
 chase the stock of this newly created company will be sold 
 to the preferred and common stockholders of the Reading 
 Company share and share alike. In the creation of such a 
 corporation by this Court’s order, we follow a general course 
 pursued in the case of United States vs. Du Pont, et al. , 188 
 F. R., 127, and the wisdom of so doing will be seen by an 
 examination of the opinion lately filed in that case, where 
 the purpose of such procedure is fully explained. By the 
 creation of this new corporation by the directions of this 
 Court and by its retention of jurisdiction to enforce this 
 decree as therein provided, the Court can, if such contin- 
 gency should arise, by its control of this newly formed cor- 
 poration, control all of its stockholders and prevent such 
 stock from ever being used to thwart the decree made in 
 pursuance of the plan. 
 
 The paragraph of the original Reading Plan numbered 
 eight, which is paragraph numbered seven of the plan as 
 modified in accordance with the agreement between Read- 
 ing Company and the Attorney General of the United 
 States as of May 12, 1921, contains the only provision in 
 the plan proposed to carry out the mandate of the Supreme 
 Court of the United States which is not agreed to in all 
 of its details by the Reading Company and the Attorney 
 General, and as to this provision of the plan the disagree- 
 ment relates only to a matter of time. 
 
 The section referred to concerns the disposition by the 
 Reading Company of the stock of the Central Railroad of 
 New Jersey owned by the former, and as to this disposition 
 Reading Company and the Attorney General agree, that the 
 stock shall be transferred to one or more trustees, individual 
 or corporate, to be held and voted under the terms of the 
 trust until sold to a purchaser other than the parties de- 
 fendant in this cause. 
 
 Reading Company contends that the spirit and the letter 
 of section five of the Interstate Commerce Act, as amended 
 by the Transportation Act of 1920, justifies its prayer that 
 
36 
 
 the value of this stock of the Central Railroad Company of 
 New Jersey shall not be subjected to possible sacrifice by 
 a sale until the Interstate Commerce Commission shall adopt 
 a consolidation plan which will designate the several rail- 
 roads of the East with which the Central Railroad Com- 
 pany of New Jersey may be consolidated, so that assurance 
 may be given to a railroad company purchaser of this stock 
 that the holding of it by such purchaser will not be objec- 
 tionable. 
 
 The Attorney General has contended that the stock should 
 be placed in the hands of a trustee or trustees under a decree 
 of this Court which shall direct Reading Company to pro- 
 ceed with all due diligence to offer the same for sale within 
 a definite period, and if at the expiration of such period a 
 purchaser has not been found by Reading Company, then 
 upon the application of the Attorney General the Court may 
 decree a sale of this stock at public auction or in such man- 
 ner as the Court shall then provide. 
 
 The Court is of opinion that because of the provisions of 
 the Transportation Act of 1920 there is presently no pros- 
 pective purchaser of the Jersey Central stock at a fair price, 
 and so long as the control of the voting power of this stock 
 is taken from Reading Company and lodged with a trustee 
 or trustees, acting under the supervision of this Court, there 
 is full compliance with the mandate of the Supreme Court, 
 which requires that there shall be established entire inde- 
 pendence between these two companies, and we are also of 
 opinion there is no good reason why the decree of this Court 
 shall now subject the stock to the possible sacrifice of a 
 forced sale to the detriment not only of the Reading Com- 
 pany but also to the almost equal number of other share- 
 holders of the Jersey Central who are not parties to this 
 record, who have no right to be heard and yet who may be 
 very seriously affected by a decree of this Court ordering at 
 the present time, a forced sale of this majority stock. 
 
 The final decree to be entered herein, therefore, will direct 
 the transfer of the stock of the Central Railroad Company 
 of New Jersey, owned by Reading Company, to such trustee 
 or trustees, individual or corporate, as the Court may name, 
 
3 7 
 
 and shall contain the terms of the trust, which in substance 
 shall provide that the stock shall be voted by the trustee or 
 trustees so that at all times there shall be entire indepen- 
 dence of directors and management between Reading Com- 
 pany, as it shall be hereafter merged with Reading Railway 
 Company, and the Central Railroad Company of New 
 Jersey; and that pending a sale of the stock all dividends 
 received by the trustee or trustees upon the same shall be 
 paid to Reading Company or as it shall direct, and that the 
 actual sale of the stock of the Central Railroad Company of 
 New Jersey shall be deferred in view of the possible group- 
 ing of railroads by the Interstate Commerce Commission 
 under the Transportation Act of 1920, subject, however, to 
 a provision in the decree that on motion of the United States 
 or other party, or upon the Court’s own initiative, that with- 
 out awaiting such action by the Interstate Commerce Com- 
 mission, an order may be entered hereafter, for the sale of 
 such stock, if and when it shall appear to the Court that the 
 facts require it, or the situation makes it possible. 
 
 It is, therefore, ordered that counsel for the Reading 
 Company, and the Attorney General of the United States, 
 shall prepare and submit to the Court within fifteen days a 
 form of Decree to make effective the mandate of the 
 Supreme Court of the United States in the above entitled 
 cause, in accordance with the provisions of the modified 
 plan agreed to by the Reading Company and the Attorney 
 General of the United States and in conformity with this 
 opinion. 
 
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