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interest in proportion to the unpaid amount thereof accrued on the bonds of such issues or series, respectively, to the end of the last preceding calendar year.

Unsecured contingent interest is also to be fully cumulative and will accrue as an absolute obligation of the applicant, and, to the extent available income for any calendar year is sufficient therefor, will be declared payable and paid on or before the next following May 1. The payments of unsecured contingent interest will be made, as among the several issues or series of bonds bearing such interest in proportion to the amount of unsecured contingent interest accrued on bonds of such issues or series, respectively, to the end of the last preceding calendar year.

Contingent interest need not be paid on any issue or series of bonds if the amount payable is less than one-fourth of 1 percent. Any contingent interest not paid for this reason, however, is to be reserved and paid on the first succeeding contingent interest date on which the aggregate of all amounts available for the payment of contingent interest is equal to or greater than one-fourth of 1 percent. Any contingent interest may be prepaid, in the discretion of the board of directors, but no unsecured interest is to be prepaid unless all secured contingent interest accrued or to accrue for the period of prepayment has been declared payable and provision made for the payment thereof. All contingent interest accrued and unpaid at the maturity of the bonds to which it applies will become due and payable at such maturity.

Restrictions on dividends.—So long as the plan is in effect, the applicant will not pay any dividends on any class of its stock, except out of accumulations of available income allocated to "any other proper corporate purpose" and will not declare any dividend until after all contingent interest for previous years has been paid or provision has been made for the payment thereof, and it has been determined that the available income for the current year will be sufficient, and provision has been made for the payments required under paragraphs 1 to 5 for the capital fund, the sinking fund, and contingent interest for such year. In any year in which, as of the date of declaration of such dividend, system charges for interest and guaranteed dividends, on an annual basis, exceed $20,000,000, the applicant will pay into the sinking fund out of such accumulated available income an amount, in addition to the regular sinking-fund payments previously described, equal to the dividend to be paid.

Other provisions of the plan.-The plan will provide that new prior-lien mortgages may be created under each of which bonds may be issued only (1) to refund all but not less than all the bonds outstanding or pledged, secured by any of the four existing first-lien

mortgages, designated in the plan, or by any mortgage created pursuant to this provision, or (2) to provide for improvements or betterments to property to be subject to the prior lien of such new mortgage. Each such new mortgage may contain such provisions as to sinking fund, maturity, interest rate, and other features as the applicant may determine, subject to approval of this Commission, and may have the same priority in lien and after-acquired property rights for both principal and interest over those of the refunding mortgage as the mortgage or mortgages securing the bonds to be so refunded. The new mortgage may also provide that bonds may be issued thereunder to refund the trust bonds. In that connection, the supplemental indenture to be executed to the refunding mortgage will contain a covenant providing that in the event of such refunding, $102,388,750 of refunding bonds, securing the trust bonds, will be canceled, and the trustees of the refunding mortgage will be given a second lien upon any collateral assigned to the trustee of the new mortgage in connection with such refunding. Appropriate provision will also be made in the indenture supplemental to the indenture for the convertible bonds to provide that the creation of such new prior-lien mortgages or the issue of bonds thereunder will not be considered the creation of a new mortgage, deed of trust, or instrument of pledge within the meaning of those terms in the convertible indenture.

The supplemental indentures to be executed in pursuance of the plan will set forth in detail the respective provisions of the new bonds to be issued for exchange and will provide that bonds to be issued to finance improvements or to refund the proposed bonds may contain such terms and provisions as the applicant may determine, subject to approval of this Commission. There is to be no tax free covenant in respect to interest to be payable on the new bonds to be issued in exchange.

Upon the execution and delivery of the supplemental indentures, $6,350,650 of the applicant's bonds will be canceled. These consist of $3,409,150 of first-mortgage bonds, $2,250 of refunding bonds, series E, $4,250 of refunding bonds, series F, and $267,000 of convertible bonds held in the applicant's treasury, and $1,668,000 of first-mortgage bonds and $1,000,000 of Pittsburgh, Lake Erie & West Virginia bonds held by the mortgage trustees.

The plan does not contemplate any change in the voting rights in or control of the applicant, or in the identity of its officers and directors. Their powers and the manner of selecting them will in no wise be changed by the plan.

Provision is made in the plan that it maybe modified at any time prior to the filing of the application with this Commission, but there

after and until the issue of our report and order herein, it may be modified only by us or with our approval, and after that time it may be modified only by the special court.

Until the petition is filed with the court, interest will be paid on the outstanding bonds and notes affected by the plan in accordance with their terms as modified by the 1938 plan. After such filing, it will be paid in accordance with the respective terms of the notes and bonds as proposed to be modified by the plan, until the purchase or exchange date. Thereafter interest will be paid only on the new bonds to be issued in exchange and on the trust bonds. However, in determining the contingent interest to be payable on the May 1 following the exchange date, the calculation is to be made as provided in the plan regardless of the date of issue.

The plan also provides, in the event of unification of the applicant's property with that of another company which has outstanding bonds. bearing contingent interest, that the earnings from such property, with the consent of the holders of a majority of the bonds bearing contingent interest under the terms of the plan, may be excluded wholly or in part in determining available income, and provision may be made for such determination without the maintenance of separate accounts.

The provision of the plan for the redemption of the bonds and the redemption premiums has been discussed at another place in this report, in connection with the description of the proposed bonds. This provision should be modified as heretofore stated.

Method of carrying out the plan.-The plan is to be carried out in pursuance to the provisions of chapter XV of the Bankruptcy Act, which are essentially as stated below. Upon the authorization by this Commission of the modification of securities or issue of new securities contemplated in the plan as set forth therein or as they may be modified by or with the consent of this Commission and the making of the necessary findings by the Commission, as heretofore or hereinafter set forth, the applicant, in pursuance to chapter XV of the Bankruptcy Act, will solicit assents to the plan by the creditors to be affected thereby. After creditors holding more than two-thirds of the total amount of claims to be affected including at least a majority of the total amount of claims of each affected class, assent to the plan as approved by this Commission, the applicant will petition the United States District Court for the District of Maryland to approve and confirm the plan.

Upon the filling of such petition, a special court of three Federal judges will immediately be convened, before which, proceedings in

respect to the plan will be conducted. Upon approval of the filing of the petition, a date will be fixed by the court for hearing, and notice thereof will be given in such manner as the court may direct to all parties in interest.

After such hearing, the special court may approve the plan as filed or propose to modify it. If the court proposes to modify the plan, it may require, prior to granting final approval, that the plan as so modified be resubmitted to the Commission or to any creditors whose interests may be materially or adversely affected by such modification, or to both. If the plan as proposed to be modified is resubmitted to such creditors they and any person in interest will be given an opportunity to object to such modification at a hearing to be held by the special court; and thereafter and within a time limit to be fixed by the court, such creditor may withdraw his assent and the failure of any creditor to withdraw his assent within the prescribed time will be construed as acceptance of the plan as so modified.

Upon a showing to, and finding by, the court that creditors holding more than three-fourths of the total amount of affected claims including at least three-fifths of each class, have assented to the plan as originally filed or as modified by the court, and that the other requirements for confirmation of a plan under chapter XV of the Bankruptcy Act have been met, a decree will be entered affirming and approving the plan. Thereupon, the plan will be put into effect and its provisions will be binding upon the applicant and all the creditors and security holders, and the rights of all creditors and security holders with respect to claims and securities affected by the plan will be those provided in the plan as so approved and confirmed.

As soon as convenient after confirmation of the plan, notice will be given of the dates on and after which old bonds may be exchanged for the new ones. Each such notice is to be first published not less than 10 days prior to the earliest exchange date designated therein, and the exchange date designated for each issue and series of bonds is to be at least 20 days prior to the next date on which interest will be payable thereon.

MATTERS PERTINENT TO SPECIFIC FINDINGS

The applicant alleges that it is not in need of financial reorganization of the character provided for under section 77 of the Bankruptcy Act; that its inability to meet its debts matured and about to mature is expected to be temporary only; and that the adjustment plan meets the requirements of chapter XV of the Bankruptcy Act.

261 I. C. C.

Among the requirements of chapter XV in respect of which it is necessary for us to make specific findings in authorizing the issue or modification of securities under section 20a are

That such plan of adjustment, after due consideration of the probable prospective earnings of the property in the light of its earnings experience and of such changes as may reasonably be expected—

(i) is in the public interest and in the best interests of each class of creditors and stockholders;

(ii) is feasible, financially advisable, and not likely to be followed by the insolvency of said corporation, or by need of financial reorganization or adjustment;

(iii) does not provide for fixed charges (of whatsoever nature including fixed charges on debt, amortization of discount on debt, and rent for leased roads), in an amount in excess of what will be adequately covered by the probable earnings available for the payment thereof;

(iv) leaves adequate means for such future financing as may be requisite; (v) is consistent with adequate maintenance of the property; and

(vi) is consistent with the proper performance by such railroad corporation of service to the public as a common carrier, will not impair its ability to perform such service:

It is generally understood that reorganization of the character provided for under section 77 of the Bankruptcy Act is primarily for the purpose of formulating a capital structure for a railroad which it can support by anticipated earnings. It was asserted at the hearing that a measure of this character, in the case of the applicant, is neither necessary nor desirable, that from the standpoint of both the general balance sheet and earnings the applicant is clearly solvent. In support of its allegation the applicant has furnished as a part of the application, or as exhibits introduced at the hearing, copies of its general balance sheet, statements showing its income and profit and loss accounts over a period of years, the classes and amounts of its obligations, and the annual charges thereon and other pertinent data, as well as the testimony of witnesses qualified by experience to testify as to the matters in question. These subjects will be discussed with the view of determining whether we can make the findings required to be made by us in authorizing the securities contemplated in the plan.

Balance sheet. The applicant's general balance sheet as of October 31, 1944, shows assets consisting of investment in road and equipment property $609,078,517.12, donations and grants, credit $6,815,858.59, investment in transportation property $602,262,658.53, sinking funds $10,142.92, deposits in lieu of mortgaged property sold $17,197.95, miscellaneous physical property $10,359,687.07; investment in affiliated companies $459,929,985.92 and other investments $101,939,170.15, total investments $1,174,518,840.54; current assets, including $46,343,

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