It is this use of preferred stock and income bonds which makes it possible to realize the last and highly important rule which the engineers of exchanges have in mind. Only by the combined use of securities upon which payment of interest is optional with securities upon which payment is obligatory can the claims which their corporations are forced to meet be reduced, while at the same time former bondholders are given the chance to share in future prosperity. Such a result is deliberately sought. “The general theory of adjustment of disturbed bonds,” said the Richmond Terminal reorganization plan of May, 1893, “has been to substitute for them the new 5 per cent bonds to such an extent as is warranted by the earnings and situation of the properties covered by the present mortgages, and the new preferred stock for the remainder of the principal.” This purpose receives, moreover, a natural development. Justice does not demand that old bondholders be given the unlimited chance at future surpluses which old stockholders should enjoy. Their former holdings could expect but a fixed amount, and the maximum to be paid on their new bonds and preferred stock is therefore rightly restricted. But fair play dictates that they be given opportunity to receive the _same_ income as before. If they must surrender 6 per cent bonds in exchange for 4 per cent bonds it is equitable to allow to them as well 50 per cent of their original holdings in new 4 per cent preferred stock. The corporation thus announces its intention of saving them unharmed if it can possibly do so, while it insists that its solvency be not dependent on the success of its attempt. This idea has been realized in a number of cases with approximate exactness. The old third mortgage 6 per cent bonds of the Northern Pacific in 1896 received 118½ per cent in new 3 per cents, 50 per cent in 4 per cent preferred stock, and 3 per cent in cash,—which together could yield nearly the same as the old mortgage. The holders of Chicago Division 5s of the Baltimore & Ohio in 1898 surrendered an annual income of $50 for a chance to receive $50.30; the Union Pacific first mortgage 6s in 1898 obtained precisely 100 per cent in new 4 per cent bonds and 50 per cent in new 4 per cent stock. It would be too much to expect that such exactness should generally obtain. The variations in security between issues, the well-founded desire to distinguish and not at the same time to swell unduly the amount of new stock put forth lead to fluctuations both above and below the point of equivalence of return. The important fact to remember is in short this: that the use of bonds with a fixed rate of interest, together with bonds or stock upon which payment of interest is optional, provides that compromise between the interests of the old bondholders and the interests of the corporation which alone can afford justice to both sides and can allow the reorganization to proceed.