advised of the details of the company's past and current expenditures covered by this communication and all other information concerning the work. Thus, for the past year the work has been conducted under the supervision of the United States and with its approval.

The company respectfully requests reimbursement for such additional excavation work and proposes, as an equitable adjustment of the matter, that the President of the United States shall, as sole and final arbiter, conclusively fix and determine what sum, if any, in addition to the purchase price of its property the New Panama Canal Company is justly and fairly entitled to receive from the United States for the excavation work performed by the company since the execution of the work included in the Commission's said appraisal.

I have understood from you that this proposal has met the acceptance of the President, under your advice, and I shall be glad to receive your confirmation of the same.

I have the honor to be, yours, respectfully,

WM. NELSON CROMWELL,

General Counsel of the New Panama Canal Company.

That, gentlemen, is the letter which was answered by the AttorneyGeneral, with the authority of the President, accepting the arbitration, and under which the arbitration was made, with the result I have stated.

Senator MORGAN. That paper, and the letter that you have read here just preceding it, constitutes the only submission to arbitration, does it?

Mr. CROMWELL. That constitutes the submission; yes, sir. Following it, of course, there were the proof of claim and the testimony, and all that.

Senator MORGAN. I know; I am talking about the submission to arbitration.

Mr. CROMWELL. Yes, sir.

Senator MORGAN. These two letters comprise the whole affair?

Mr. CROMWELL. Yes, sir.

Senator MORGAN. In regard to the submission?

Mr. CROMWELL. Yes, sir.

Senator MORGAN. Is there any proposition in there for submission to arbitration of the President?

Mr. CROMWELL. Yes, sir; I have just read it.
Senator MORGAN. Please read it again.

Mr. CROMWELL. "The company respectfully requests reimbursement for such additional excavation work, and proposes, as an equitable adjustment of the matter, that the President of the United States shall, as sole and final arbiter, conclusively fix and determine what sum, if any, in addition to the purchase price of its property, the New Panama Canal Company is justly and fairly entitled to receive from the United States for the excavation work performed by the company since the execution of the work included in the Commission's said appraisal."

Senator MORGAN. You consider, then, that the paper that was signed in Paris a month later than that, or something like a month later, more than a month, was an acceptance of your proposition? Mr. CROMWELL. It was, sir.

Senator MORGAN. For a submission?
Mr. CROMWELL. It was.

6

Senator MORGAN. To the President of the United States? Mr. CROMWELL. Yes, sir; and under which he has acted. Senator MORGAN. Why was not that paper signed sooner? Mr. CROMWELL. Because all the details of closing the title had not been agreed upon. It was naturally held in reserve until the United States was sure that it was going to acquire the property.

Senator MORGAN. Well, you adhere, of course, to the statements that you have already made here?

Mr. CROMWELL. What statements, sir?

(Senator Morgan examined the record of Mr. Cromwell's testimony.) Senator KITTREDGE. Senator Morgan, would this be a convenient time for you to suspend for the day?

Senator MORGAN. Yes.

Mr. CROMWELL. Before you adjourn may I supplement the statement made a moment ago with reference to the directors of the Panama railroad our powers and duties? We switched off from that topic, sir, in following these other topics. I had in mind to state something to you which I now beg the privilege of doing.

Responding to your question as to whether the directors could be removed, I must call to your attention the fact that the Government has absolute and complete power to displace a director, not by commanding him to retire, but by disqualifying him as a stockholder. The Government owns, under option, the share of stock held by me, Mr. Farnham, Mr. Obaldia, and all of the other directors, assigned by us, indorsed by us, and held by the Government under the option agreements which I described in my previous attendance here; and under that the Government can at any moment pay the small balance due under the option, exercising the option, take to itself the share of stock, transfer the share of stock on the record, and in an instant each of us disappears as a director of the company, because we become disqualified to act.

Senator MORGAN. How much is that balance?

Mr. CROMWELL. Ninety dollars.

Senator MORGAN. So the Government of the United States by paying you $90 could, then, remove you from the office of director? Mr. CROMWELL. Absolutely-not by technical removal; it disqualifies me as a director, which operates to remove me from office.

Senator MORGAN. I should think if you are disqualified you are removed.

Mr. CROMWELL. Yes, sir. I am simply making a distinction. Senator MORGAN. And the Government could not do it without paying you that $90?

Mr. CROMWELL. No, sir. I hope the Government is able to do it. Senator TALIAFERRO. Mr. Cromwell, do you know no process of law by which the holders of 99 per cent of the stock of a corporation could remove a board of directors who were conducting the business of the corporation in a way unsatisfactory to them?

Mr. CROMWELL. There is no law, sir, of the State of New York that would authorize it, except for--not to remove; no, sir. I still say no; but there would be this procedure, Senator: In cases where directors may abuse their trust

Senator TALIAFERRO. Yes; that is what I refer to.

Mr. CROMWELL. Then, upon a bill in equity filed by a stockholder, the supreme court of New York would not only enjoin the directors

from pursuing an improper course, but could appoint a receiver over the corporation to enforce and to prevent the threatened wrong; and the Federal courts, of course, have similar power.

Senator MORGAN. Suppose the stockholders of this corporation should become satisfied that a director, in virtue of his official relations to the railroad company, was embezzling the money of the company, and had embezzled it could not the stockholders' meeting remove that director?

Mr. CROMWELL. No, sir; not under the law, Senator. But the remedy then would be instantly by receivership; and in this caseSenator MORGAN. It might be done if you had a fair judge. Mr. CROMWELL. And in the case of the United States, always keep in mind that the Secretary of War has surrounded this question with the greatest caution by holding every share of stock of each director, under the option agreements I have described to you, and with the power upon his own part to immediately cause those stock shares to be transferred out of the name of the director in whom they are vested, to divest him of his position, and to disqualify him as a director in an instant.

Senator MORGAN. Do you think you understand fully, Mr. Cromwell, the relations that the board of directors now hold to this railroad company under the United States? Do you think you understand it fully?

Mr. CROMWELL. I do.

Senator MORGAN. I supposed you did, because the Secretary of War intimated, if he did not say, that you drew it. Was that a fact? Mr. CROMWELL. Drew what?

Senator MORGAN. The plan that you were the author of the plan. Mr. CROMWELL. The plan of what?

Senator MORGAN. By which this optional agreement to remain in there was made.

Mr. CROMWELL. I have already described the agreement, and I have already given its substance, and I have already told you that I had prepared the paper in concert with the Secretary of War.

Senator MORGAN. Yes; you prepared it, and then conferred with him about it?

Mr. CROMWELL. I prepared it in concert with him, and in a form which is quite customary, as I described, in corporation matters. Senator MORGAN. Well, I am glad to know that you and he are in accord about it. It gives great strength to his opinions.

Mr. CROMWELL. I drew it in accord with him and in pursuance of his instructions. There is nothing remarkable about the form of the agreement.

(The committee thereupon adjourned until to-morrow, Thursday, May 10, 1906, at 10.30 o'clock a. m.)

The following papers are printed by order of the committee:

WAR DEPARTMENT, Washington, May 7, 1906.

MY DEAR SIR: I beg herewith to transmit to you for printing in your record of evidence a report made to me by the chairman of the Isthmian Canal Commission with reference to the conditions on the Isthmus as found by him on his recent visit.

Very respectfully, yours,

Hon. J. H. MILLARD,

WM. H. TAFT,

Secretary of War.

Chairman Committee on Interoceanic Canals,

United States Senate.

ISTHMIAN CANAL COMMISSION,
Washington, April 23, 1906.

SIR: I have the honor to advise you as follows in regard to the results of my observations during a trip to the Isthmus of Panama, from which I returned on the 22d instant:

THE WATER SUPPLY.

One of the first things brought to my attention upon arrival on the Isthmus was the condition of the water supply at Colon. Chief Engineer Stevens reported that the present dry season had extended over a period longer than any other during the past twenty-five years. As a result streams available for water supply were lower and the fear of a possible water famine greater than for many years. While the reservoirs supplying the districts of Panana, Empire, Gorgona, and Bas Obispo contained sufficient water for many months to come, the stock of water in the reservoir supplying the district of Colon had become reduced to 1,500,000 or 2,000,000 gallons Therefore, as a means of impressing upon persons residing in that district the danger of extravagant use of water, Mr. Stevens equipped a water train, erected three temporary water stations in the Colon district, and began hauling into that district 250,000 gallons per day for daily consumption, holding the supply in the reservoir for a possible emergency. This means of adequately meeting the daily needs will be continued until the rainy season again provides an exhaustless supply through the use of the reservoir system.

In this connection it may be stated that a short time ago the water supply of the district of Colon, which had been owned and operated by the Panama Railroad as a commercial proposition, was transferred to the jurisdiction of the Canal Commission, and the Commission, following the policy adopted upon the completion of the waterworks system of the district of Panama, ordered that water be furnished free to persons living in the district of Colon. The emergency measures above outlined, to provide sufficient water, resulted in no change in this policy, and the inhabitants continue to be furnished water free of cost. My attention being called to statements circulated to the contrary, an inquiry developed that a certain hotel keeper in the district of Colon had incurred expense in providing water for his guests.

This, however, was because of his desire to serve a particular kind of water to be found upon the line of the Panama Railroad. An arrangement was accordingly made with the Panama Railroad, for which service he paid a nominal transportation rate. He could, however, have availed himself of the regular water supply without cost, if he so desired.

The reservoirs created for distribution of water in the districts above mentioned have capacities as follows:

Panama
Empire..
Gorgona.

Colon

Bas Obispo: Unlimited supply from perpetual running stream.

HEALTH CONDITIONS.

Under the direction of Governor Magoon health conditions on the Isthmus are most satisfactory. Notwithstanding the fact that there are more employees and their dependents on the Isthmus than ever before (the monthly pay rolls showing from 22,000 to 23,000 employees, with a daily effective force of about 16,000 or 17,000) there were fewer patients in hospital than for many months past. Doctor Gorgas reported 450 beds vacant in hospitals. There has been no authentic case of yellow fever since last November. Mosquitoes are so scarce that many persons sleep in unscreened houses and discard mosquito netting without incurring personal discomfort. Doctor Gorgas is sanguine that he has the health situation so well in hand that no epidemic can arise within the Canal Zone. The danger can come only from the outside. The question of quarantine is therefore of paramount importance, and is receiving the earnest attention of the health department. Following a case of yellow fever recently occurring at Bocas del Toro, on the Carribean coast, 159 miles distant from Colon, an officer of the sanitary department was sent to that port to take charge of its sanitation, at an expense to the Commission of not to exceed $500 per month. This action was not taken, however, until after a conference with the officials of the Republic of Panama, who are willingly cooperating in the matter. It is considered wise, as an additional quarantine precaution. As an evidence of the general health conditions Doctor Gorgas stated the rate of sickness was only 20 per thousand.

FOOD AND QUARTERS FOR EMPLOYEES.

Under the direction of Chief Engineer Stevens, through the building department, the policy adopted to provide for the employees suitable quarters in which to live has been carried forward with great vigor. The building department has not only provided ample quarters for the existing force, but at this time has a reserve sufficient to accommodate 3,000 additional laborers. It has also provided suitable quarters for all American employees who may now be living in Commission houses, except in isolated cases where economic and other conditions may make a change undesirable.

Under the direction of Chief Engineer Stevens, through the labor and quarters department and the commissary of the Panama Railroad, the policy adopted to provide suitable food at reasonable prices, while