The equity of the holders of the debtor's preferred and common stock has no value. The debtor, as reorganized, or the transferee of the property of the debtor, in connection with any settlement of transportation accounts between the United States and the debtor or the reorganized company, shall be required to recognize and pay or allow for any and all sums, determined through audit, adjustment, compromise, or litigation, as due the United States by virtue of the provisions of section 322 of the Transportation Act of 1940, 54 Stat. L. 955, for overpayments made prior to the date of confirmation of a plan of reorganization, without requiring proof thereof in this reorganization proceeding and without prejudice by reason of such sums not having been proved herein, with the same relative priority as they now have with respect to other obligations of the debtor. XV. MISCELLANEOUS PROVISIONS No inaccuracy contained in the plan or omission therefrom shall constitute the basis for any claim for rescission of any assent or approval to the plan or of acceptance of any new securities or for damages. Acceptance of the plan shall include acceptance of the provisions of the new bonds, mortgages, stock certificates, scrip, voting-trust agreements, voting-trust certificates, and all instruments necessary and appropriate to the carrying out of the plan, other than the orders of the court and of the Commission, with the same effect as though the terms of such instruments were set forth in the plan in full. The construction of the plan by the court shall be final and conclusive. The court may correct any defect, supply any omission, or reconcile any inconsistency in such manner and to such extent as may be necessary or expedient in order to carry out the plan effectively. In case of any changes in the law applicable to the plan, any approvals which may become unnecessary under such law shall be dispensed with. A court finding, after the submission of the plan to creditors, that for any reason any one or more of its provisions are invalid shall not prevent its consummation without resubmission to creditors, with such modification on account of such invalidity as the reorganization managers, with the court's approval, may determine, provided the court shall find that such resubmission is not required by law. Nothing contained herein with respect to limitations on total authorized issues of new securities or total capitalization of the reorganized company or otherwise shall prohibit the issue by the reorganized company of equipment trust obligations upon the purchase of equipment, pursuant to appropriate approval by the Commission where required. Unless otherwise provided in any order or orders of the court, whenever notice shall be required or permitted to be given under or pursuant to the plan, such notice shall be deemed to have been duly and properly given if a copy thereof shall have been published once in each week on any secular day in each such week for 2 successive weeks in one newspaper published and of general circulation in the Borough of Manhattan, City of New York, and in one newspaper published and of general circulation in the city of Newark, N. J. The term "reorganized company" as used herein shall be deemed to include the successor or assigns of such reorganized company. The term "Commission" as used herein shall mean the Interstate Commerce Commission and shall be deemed to include any successor to the Interstate Commerce Commission or any other Federal regulatory body having jurisdiction. The carrying out of the plan shall be as provided in the Bankruptcy Act. It is further ordered, That the authorzation and approval herein granted by this Commission are upon the condition that the journal entries covering the necessary accounting adjustments under the order will be submitted to this Commission for approval before they are recorded on the books of the reorganized company under the plan of reorganization herein approved. It is further ordered, That nothing herein contained shall be, or be construed as, a grant of authority for the issue of any securities, assumption of obligations, transfer of any property, sale, consolidation, or merger of the debtor's properties, or pooling of traffic, pursuant to either the Bankruptcy Act or the Interstate Commerce Act, until further action by this Commission upon confirmation of the plan by the court. It is further ordered, That, except as stated in the accompanying report and as reflected in the plan of reorganization herein approved, the petitions for modification of the plan approved July 19, 1944, are hereby, denied. And it is further ordered, That the order entered herein by division 4 on July 19, 1944, be, and it is hereby, revoked and superseded by this order. 261 I. C. C. FINANCE DOCKET No. 13170 FLORIDA EAST COAST RAILWAY COMPANY Submitted December 8, 1944. Decided January 8, 1945 Upon further hearing, the plan of reorganization for the Florida East Coast Railway Company, pursuant to section 77 of the Bankruptcy Act, as amended, further modified and approved.' Appearances as in prior reports and also Shelton Pitney, J. Henry Blount, Charles Cook Howell, F. K. Conn, E. N. Claughton, Thomas H. Anderson, Edward J. Kenn, Louis Kurz, William A. W. Stewart, W. E. Brownback, Alfred F. Tokar, Thomas O'G. FitzGibbon, H. Plant Osborne, Richard B. Gwathmey, and John C. Donnally. SECOND SUPPLEMENTAL REPORT OF THE COMMISSION BY THE COMMISSION: By report and order of April 6, 1942, 252 I. C. C. 423, this Commission, division 4, approved pursuant to the provisions of section 77 of the Bankruptcy Act, 11 U. S. C. 205, a plan of reorganization for the Florida East Coast Railway Company. A certified copy of the report and order was filed in the District Court of the United States, Southern District of Florida, in which court proceedings for the reorganization of the debtor herein are pending. This court hereinafter will be referred to as the court. By our supplemental report and order of August 10, 1942, 252 I. C. C. 731, upon petitions filed by various parties in interest, we modified the order of April 6, 1942, supra, in certain particulars and filed in the court a certified copy of the supplemental report and order. Thereafter, a hearing was held before the court on objections to the plan. By order entered October 19, 1943, the judge (a) sustained an objection to the plan that the existence of unallocated cash on hand at the time of his order renders the plan inequitable, (b) sustained an objection of Florida National Building Corporation, an intervener in the proceeding, that its present security holdings entitle it to designate a reorganization manager and (c) decreed that a new effective date should be designated. The court 1 Previous reports, 252 I. C. C. 423 and 731, and 254 I. C. C. 865. 261 I. C. C. reserved its decision on all other questions, disapproved the plan as inequitable, and held that, because of the accumulations of cash on hand, the plan does not afford due recognition to the rights of security holders, especially minority holders. The court referred the proceeding back to us for further consideration to afford us an opportunity to reexamine the entire situation in the light of the facts which have developed since our former hearing.2 We assigned the proceeding for further hearing before us on May 3, 1944. Subsequent to the hearing briefs were submitted. POSITIONS OF THE PARTIES At the further hearing or prior thereto and by briefs filed after the close of the hearing, oral and written statements were made or filed setting forth the opinions of several of the parties as to a proper and equitable plan of reorganization for the debtor. The principal features of these proposed modifications are as follows: The St. Joe Paper Company, (successor to the Florida National Building Corporation), is controlled by the Alfred I. duPont estate and, as of May 3, 1944, owned $23,259,000, principal amount, of the debtor's first and refunding mortgage 5-percent bonds, series A, due September 1, 1974, (hereinafter called first and refunding bonds) out of a total outstanding of $45,000,000, The duPont estate additionally owned on the same date $100,000 principal amount of these bonds and the president of the St. Joe Paper Company, Edward Ball, owned $34,000. About $8,000,000 of the bonds owned by the St. Joe Paper In his opinion accompanying his order, the judge found that the trustees of the debtor had cash on hand as of October 1, 1943, of $17,795,365 as compared with $1,301,857 as of December 31, 1940. The judge estimated that, as of December 31, 1943, the trustees would have a net cash balance of $14,580,205 after payment of all taxes for 1943, both State and Federal. The judge states that this is cash on which the bondholders have a lien and, "to the extent that it is prudently available, the bondholders are entitled to the benefit of this surplus cash, either by having it applied in an equitable manner in satisfaction of their claims, or by having it otherwise definitely allocated by the Commission as a component part of the reorganization plan, so that it may be equitably applied to the best advantage of all concerned." The judge stated further; "if the post-reorganization corporate directors were disposed to use this fund to pay off $12,000,000 of the proposed new First Mortgage bonds, it would be necessary to pay at 5% 'call' premium, aggregating $600,000. The existing $12,000,000 First Mortgage bonds could be retired as a part of this section 77 reorganization without penalty. If it is feasible to apply $12,000,000 of this cash surplus in discharge of the existing First Mortgage bonds, the capital structure of the new company could be desirably simplified and its annual cash requirements substantially reduced. Payment of the existing First Mortgage bonds would render unnecessary a judicial determination of existing lien priorities, now in dispute, thus avoiding extended and costly litigation, which would further delay this reorganization. If the use of $12,000,000 to discharge the present First Mortgage bonds would leave insufficient funds available, for working capital and for future capital expenditures after reorganization, a a new first mortgage could be devised, in lieu of existing mortgages, under which the two series of bonds could be issued, each sharing pari passu in the security of the mortgage, one series a fixed interest bond of not exceeding $6,000,000 aggregate principal to be used for capital expenditures, the other series an income bond, in an appropriate aggregate principal sum, for distribution amongst First Refunding bondholders." Company were acquired from the owners of bonds represented by the 5-percent committee subsequent to the former hearing held by us in 1942 in this proceeding. The St. Joe Paper Company offered evidence and filed a brief in support of its request for the following modifications of the plan: (1) To include, as a component part of the plan, provision for the payment of first-mortgage bonds at par plus accrued interest out of the funds of the trustee; (2) to retain the provision authorizing new first-mortgage bonds for the purpose of constructing extensions contained in the plan but provide that they shall be redeemable at par with accrued interest on reasonable notice; (3) to provide that the $4,500,000 general-mortgage income bonds issuable under the plan, shall, if the first mortgage is paid off, be issued as first-mortgage bonds and be distributed pro rata to the holders of the first and refunding bonds, as provided in the plan, ranking pari passu with any new first-mortgage bonds which may be issued for future betterments under the conditions now contained in the plan; (4) to eliminate the provision for the appointment of a reorganization manager by the institutional group of first mortgage bondholders and provide for the appointment of only two managers, one to be appointed by the St. Joe Paper Company and the other by the court; (5) to amend the provision which limits the maximum number of directors of the new company to 11 by permitting a maximum of 27; (6) to amend the provisions so as to provide that the term of office of directors shall be 1 instead of 3 years; and (7) to extend to January 6, 1945, the time within which reorganization shall be completed. Other intervening owners of first and refunding bonds appearing at the hearing on May 3, 1944, in support of these proposals of the St. Joe Paper Company were Edward Ball, president of the company and owner of $34,000 principal amount of the bonds, E. N. Claughton, owner of $2,141,000, Fred K. Conn and associates, owners of $1,030,000, Safe Deposit & Trust Company, owner of $1,900,000, Bancroft T. Foley, owner of $115,000, Ogden T. Davis, owner of $60,000, and Royal Palm Investment Company, owner of $88,000. These bondholders are included in a list of 76 parties holding a total principal amount of $7,738,800 of first and refunding bonds, which are additional to those owned by the St. Joe Paper Company, all of whom filed identical petitions for leave to intervene and identical petitions in support of the above proposals for modification of the plan. Since only the above parties appeared at the hearing in support of their petitions and as none of the others indicated any desire to participate in the proceeding by offering evidence or filing briefs or otherwise, the in Reference is to the deposit committee for the debtor's first and refunding mortgage bonds. |