Appendix — Brooks v. St. Louis-San Francisco Railway Co.

Supreme Court brief1946

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(2Q APR 15 1946

GRARLIS ELMORE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1945

Nos. 1108-111]

ST. LOUIS-SAN FRANCISCO RAILWAY COMPANY,

Desror, LOLA BROOKS, Apmrnistratrix oF THE EstaTE

or F. 8S. Brooks, Deceasep, ET AL.,

Petitioners,

vs.

FORT SCOTT BONDHOLDERS’ COMMITTEE, BANK-

ERS TRUST COMPANY, TRUSTEE FOR THE KAN-

SAS CITY, FORT SCOTT & MEMPHIS R. CO., ET AL.

APPENDIX TO PETITIONS FOR WRITS OF CERTI-

ORARI TO THE UNITED STATES CIRCUIT COURT

OF APPEALS FOR THE EIGHTH CIRCUIT.

. Te en ae a eR LN en he RS HR

ey ee tt ME Ser CE ark as aaa ed

rr te

INTERSTATE COMMERCE COMMISSION

ST. LOUIS-SAN FRANCISCO RAILWAY

COMPANY REORGANIZATION

SUBMISSION OF PLAN OF REORGANIZATION

PuRSUANT TO SECTION 77 OF THE

Bankruptcy Act, As AMENDED

FInaNcE Docket No. 10008

CONTENTS

PAGE

Plan of Reorganization approved by the Commission and Court 1

Additional Clauses from Commission’s order ............... 23

Reports of the Commission:

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SO OE SD ONIN FI oc cnet ccenevsuvcesvers 108

WASHINGTON, D. C.

June, 1945

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PLAN OF REORGANIZATION OF ST. LOUIS-SAN FRAN-

CISCO RAILWAY COMPANY APPROVED BY THE COM-

MISSION IN ITS ORDER OF JULY 4, 1944, AND BY THE

COURT, IN ITS ORDER ENTERED APRIL 10, 1945.

Distribution of cash and new securities per $1,000 of present bonds with accrued

interest

—_-

First Second Preferred Common

stock

i RR Be inc encncnnetcnscuecasentescacns $61.

. 34 $733 $267 |.........---].-.-----2055

Prior lien, Series A, 4S.................-.+-+- 15. 36 219 171 6. 67

Prior lien, series B, 5’s...............-.--.++- 25. 39 233 182 353 7.10

Consolidateds, Series A, 4\4's peenccnsceseenec 21.05 221 158 174 3.48

Consolidateds, series B, 6’s................-- 36. 22 243 174 191 3. 83

1See hereinafter in plan for the treatment of the creditor banks.

Time of consummation of the plan—The plan shall be consummated

by the issue and delivery of the new securities provided for in the plan

as soon as practicable after confirmation of the plan and the reorganiza-

tio managers shall publish, as directed by the court, notice of the

date as of which the new securities are to be or shall have become avail-

able for delivery. The court on application of the reorganization man-

agers shall, in the light of the date or dates as of which the delivery of

the properties to the reorganized company, the execution of the new

mortgages, and the issue and the delivery of the new securities have

been, or are expected to be, accomplished, by order determine a con-

venient and appropriate date for giving effect to the plan (such date

being herein called the consummation date). The debtor shall be dis-

charged upon the consummation date from all its obligations other than

claims to be paid or to be assumed by the reorganized company, as here-

inafter provided, and all mortgage bonds, notes, certificates and shares

of stock, and other obligations of the debtor or enforceable against the

debtor or its property, other than as aforesaid, shall, on and after the

consummation date, become void and unenforceable against the debtor

or its suecessors or their property. Prior to the consummation date,

however, the plan shall not affect any claims of creditors, and any

distribution of cash prior to the consummation date shall be in respect

of the old securities. The new securities shall be dated as of the first

day of the calendar month in which the consummation date falls, or,

if interest accruing on the unpaid principal of the Fort Scott bonds

outstanding and pledged at 4 percent per annum from December 31,

1943, to said date shall not have been paid by cash distributions as

hereinafter provided, to the latest date to which such interest shall

have been paid.

The consummation of the plan shall not require any retroactive change

in the operations of the bankruptcy trustees or in their accounts or

in the reports made to the Commission or in any other reports or

returns for the period prior to the consummation date.

Reorganized company.—All property of the debtor, and of its trustees

appointed in the proceedings for its reorganization, shall be trans-

ST. LOUIS-S. F. RY. CO, REORGANIZATION

3 ferred to a new corporation, or, in the discretion of the reorganization

managers with the approval of the court, shall be retained by, or trans-

: ferred to, the debtor. As herein used, the term ‘‘reorganized company”’

means the corporation, whether the debtor or the new corporation,

which shall issue the securities herein provided for. The reorganized

company, if not the debtor, shall be incorporated under the laws of

such State as the reorganization managers, with the approval of the

court, shall determine, the laws of any other State to the contrary not-

withstanding. If the court shall so direct, there shall also be trans-

ferred to the reorganized company all or any part of the property of

any wholly owned subsidiary of the debtor, and any securities of such

subsidiary may, in such event, be canceled; if there shall be so trans-

ferred to the reorganized company all or any part of the property

of any wholly owned subsidiary of the debtor owning or operating

railroad properties in the State of Texas, the reorganized company

shall have its general offices at such place as the court may direct,

the laws of any State to the contrary notwithstanding. Any transfer

of property from any subsidiary to the reorganized company may be

effected by merger, consolidation, transfer of assets, or any other

means approved by the reorganization managers. All such transfers

shall be made subject to and in accordance with the plan.

New capitalization—tThe capitalization of the reorganized company

upon consummation of the plan shall be substantially as shown below,

subject to variation (@) by reason of payment or reduction of equip-

ment obligations or the incurring of additional equipment obligations,

and (b) to the extent necessary to avoid the issue of scrip in amounts

not expressible in even dollars or even hundredths of a share:

Amount

Equipment obligations, undisturbed (as of January 1,

W944) occcccceccccccessccceessenssneneeeennseensenseneaesenssannenenneensensenseeseeeneens $ 2,986000

First-mortgage, series A, 4-percent bONAS .......csseeeeserreees 73,385,342

Second-mortgage, series A, convertible 44o-percent income

ROURD wecacccccccccecscersscesccsreccvecensscncsecencnncassecesenesousanccncensensteneseacees 47,549,826

Preferred stock, series A, 5 percent, par value $100 a

QTE sccercciercncsiscarsiccesivcceccccsssecacceccnssenscabennesscnntecnsesvagenceseatecsenss 61,859,782

Common stock without par value, 1,241,158 shares stated

At PFO a Shave oo... cccccccercsecesesssseeesesenenerseanansnenaesenanenensesenens 62,057,858

OD ea cisweicsiccsivsnicinssascsestesentrcstarcertssncctnechusensbentonnen 247,838,808

Disposition of old securities. —Upon consummation of the plan and

the issue and distribution of new securities as herein provided, all

mortgage bonds, notes, and other securities and indebtedness of the

debtor (except equipment obligations which remain undisturbed) out-

standing or held by the bankruptcy trustees, ineluding any of such

securities pledged, all mortgage bonds, notes, certificates and shares

of stock, and other securities and indebtedness of St. Louis and San

Francisco Railway Company or St. Louis and San Francisco Railroad

Company (other than $1,000, principal amount, trust-mortgage bonds,

due 1987, of St. Louis and San Francisco Railway Company), and all

mortgage bonds, notes, certificates and shares of stock, and other securi-

ties and indebtedness of Kansas City, Memphis and Birmingham Railroad

PLAN OF REORGANIZATION 3

Company or the Kansas City, Fort Scott & Memphis Railway Company

outstanding or held by the bankruptcy trustees, including any of such se-

eurities pledged, shall be surrendered to the reorganization managers

and canceled, and all the mortgages on properties acquired or to be

acquired under the plan by the reorganized company (other than the

mortgages created pursuant to the plan) shall be satisfied of record

and canceled. Upon consummation of the plan, the reorganization

managers may, with the approval of the court, cause to be canceled all

mortgage bonds, notes, shares and certificates of stock, and other se-

eurities and indebtedness of predecessor and constituent corporations

of the debtor, and all mortgage bonds, notes, shares and certificates of

stock, and other securities and indebtedness of wholly owned subsidiaries

of the debtor, the properties of which are acquired under the plan by

the reorganized company, and whether such mortgage bonds, notes,

shares and certificates of stock, and other securities and indebtedness,

in any of the above cases, are then held by the bankruptcy trustees

or are in pledge, and procure the dissolution of any such corporations

which shall not own any property upon consummation of the plan.

First-mortgage bonds.—The new first-mortgage bonds shall be se-

cured by a new, open, first mortgage constituting a first lien, subject

only to the liens of equipment-trust obligations or other obligations for

the deferred or serial payment of all or a part of the purchase price

of equipment (herein called equipment obligations), on all properties

and assets, including securities and leaseholds, owned by the reorganized

company upon consummation of the plan and, subject to liens and mort-

gages in existence at the time of acquisition and to such purchase-

money liens and mortgages as may be permitted by the first mortgage

(including equipment obligations), upon all property acquired by the

reorganized company after reorganization, except such property, if

any, (whether owned upon consummation of the plan or thereafter

acquired), as the reorganization managers with the approval of the

court may determine to exclude; provided however, that (a) if the

reorganized company shall acquire the properties of any other company

(ether than a subsidiary wholly owned at the time of consummation

of the plan) constituting a class 1 earrier, such properties shall not be

subject to the lien of the first mortgage unless they are lien properties

as defined below and (b) if the reorganized company shall be con-

solidated with, or merged into, or shall sell its assets substantially as

an entirety to, any other class 1 carrier (other than a subsidiary wholly

owned at the time of consummation of the plan), no properties thereto-

fore owned or thereafter acquired by such other company, or by the

company resulting from such consolidation, shall be subject to the

lien of the first mortgage except such thereof as shall be lien properties

as defined below. Lien properties, for the purpose of the next preced-

ing sentence, shall include all properties which shall be appurtenant

or incident to properties subject to the lien of the first mortgage or

which shall consist of any line of railroad, or securities representing

control thereof, which will displace or otherwise adversely affect the

use thereof made of, or have the effect of diverting traffic from, any

line of railroad then subject to the first mortgage, or which shall be

within the maintenance or replacement covenants of the first mortgage

or which shall be acquired in whole or in part by the use of first-

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EO ORR LES) UAE NT OPE NCO BAST IG OIE TE REED OTIS PERE FONT TE RR I FR OT ——er —

4 ST. LOUIS-S. F. RY. CO. REORGANIZATION

mortgage bonds or second-mortgage bonds, or moneys deposited under

3 the first mortgage or the secoad mortgage.

i The first mortgage shall contain a convenant that the reorganized

company will at all times keep the mortgaged property supplied with

; such amount of motive power, rolling stock, and equipment (on which

4 the first mortgage shall constitute a first lien subject only to such liens

F in the nature of purchase-money liens, including equipment obliga-

tions, as may be permitted by the terms thereof), and maintain the

3 same in such condition, as may be necessary for the efficient and eeo-

nomical operation of the mortgaged property.

: First-mortgage bonds may be issued from time to time without limit

F as to aggregate amount in different series, subject to such limitations

and restrictions as may be specified in the first mortgage, payable on

such date or dates, in such denominations, bearing interest at such

rates, and containing such provisions in regard to sinking funds, re-

demption, conversion, taxes, place or places, and money or moneys of

payment and registration, and having such other characteristics as may

be prescribed by the board of directors of the reorganized company at

the time of issue, but, with respect to the lien of the first mortgage,

* all equally secured except in respect of any sinking fund created for

the benefit of any particular series.

First-mortgage bonds, series A, shall not be limited in authorized

principal amount, and shall be issued, on consummation of the plan,

in the amount necessary to carry out the terms of the plan.

First-mortgage bonds, series A, shall mature 50 years after their date,

shall bear interest at the rate of 4 percent per annum payable semi-

annually, and shall be redeemable as a whole or in part at any time on

30 days’ notice, at their principal amount and accrued interest, plus

a premium of 5 percent if redeemed within 10 years from their date,

such premium decreasing by one-half of 1 percent at the beginning of

each successive subsequent 4-year period, so that there shall be no

premium on redemption during the last 4 years prior to maturity.

Bonds of series A shall be redeemable for the sinking fund at the prin-

cipal amount thereof plus accrued interest.

The first mortgage shall provide for the payment on May 1 of each

year, while any series A bonds are outstanding, of an installment of

sinking fund in an amount equal to (a) one-fourth of 1 percent of the

maximum principal amount of series A bonds theretofore at any. time

authenticated and uncanceled and (b) interest on bonds and other

obligations acquired by operation of the fund that would have been

chargeable to income if the bonds and other obligations so acquired had

remained outstanding. Such sinking-fund installments shall be pay-

able only out of net income as hereinafter provided. Amounts in said

sinking fund shall be applied to the retirement of first-mortgage bonds

or obligations collaterally secured by not less than an equal principal

amount of first-mortgage bonds, by purchase, payment or redemption,

all as shall be provided in the first mortgage. All first-mortgage bonds

or other obligations acquired by the operation of the sinking fund shall

be held in the sinking fund and continue to draw interest, which shall

be paid into the fund, so long as any series A bonds are outstanding,

but shall not be deemed outstanding for any other purpose, and no

bonds or other obligations shall be issued in lieu thereof. :

PLAN OF REORGANIZATION 5

‘The first mortgage shall provide that the board of directors of the

reorganized company may create an additional sinking fund or sinking

funds in respect of the issue of first-mortgage bonds of series other

than series A, and that any such sinking fund or sinking funds may

be subordinated to, or may rank equally and ratably with, but not

prior to, the sinking fund established in respect of the issue of bonds

of series A.

First-mortgage bonds, in addition to those to be issued in the re-

organization, may be authenticated from time to time, with all requisite

approval of public regulatory authority, as follows:

(a) To refund first-mortgage bonds (excluding bonds retired by

operation of any sinking fund or pursuant to elause (3) of subpara-

graph (d) of this paragraph) or obligations secured by mortgage liens

prior to the lien of the first mortgage, or obligations secured by first-

mortgage bonds to the extent so secured; or

(6) Upon the deposit of cash equal to the principal amount to be

issued; or

not exceeding 75 percent of expenditures made after consummation

date which under applicable accounting rules are properly chargeable

to capital account; provided, however, that (1) the said 75 percent shall

be applied to the net amount of capital expenditures after making

deductions from gross capital expenditures to such extent and on such

basis as may be specified in the first mortgage for depreciation, amor-

tization, and retirements of roadway and structures; (2) if any prop-

erty shall be acquired subject to existing liens, the amount of addi-

tional first-mortgage bonds issuable therefor, or issuable to refund

prior-lien obligations thereon, together with the aggregate amount of

existing liens to which such property is subject, shall not exceed 75

percent of the cost thereof, including as part of such cost the amount

of such existing liens whether or not the indebtedness secured thereby

is assumed by the reorganized company; and (3) no bonds shall be

issued on the basis of the acquisition of equipment (other than equip-

ment acquired with the line or terminal by which it was owned and

operated for the purposes of such line or terminal) or on the basis

of the construction of equipment or on the basis of additions and

betterments to equipment or refund equipment obligations; or

(d) Bonds, hereinafter referred to as ‘‘emergency bonds,’’ may be

issued and sold or pledged without regard to any of the restrictions

contained in the plan, except those in this subparagraph (d), upon

resolution adopted by the vote of two-thirds of the entire number of

directors that funds are needed and cannot be raised except by sale,

exchange, or pledge of the bonds applied for; provided, however, that

(1) if all emergency bonds (or a like principal amount of other first-

mortgage bonds) are not retired and canceled within 2 years from the

date of issue, there shall thereafter, until such retirement is accom-

plished, be an additional annual sinking fund (hereinafter called the

emergency-bond sinking fund), equal to 10 percent of the maximum

principal amount of emergency bonds theretofore outstanding at any

time since the last previous time when no emergency bonds were out-

standing to be paid as hereinafter provided in the subparagraphs re-

‘S to application of available net income, and applicable in the

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same manner as above provided in respect of the series A sinking fund;

(2) the amount of emergency bonds outstanding shall not exceed at

any one time $10,000,000; and (3) the reorganized company shall re-

acquire all emergency bonds (or a like principal amount of other first-

mortgage bonds outstanding or pledged) as soon as practicable, and

all such bonds so reacquired by the reorganized company shall forth-

with be surrendered to the trustee under the first mortgage for can-

celation.

The amount of emergency bonds outstanding at any time shall be

deemed to be the principal amount of first-mortgage bonds theretofore

at any time authenticated pursuant to the foregoing, less (a) the amount

of first-mortgage bonds retired and canceled (when any emergency

bonds are outstanding) under such circumstances that no first-mortgage

bonds may be issued in lieu thereof and (b) the amount of first-mortgage

bonds otherwise issuable, the privilege of issuing which shall, when any

emergency bonds are outstanding, have been irrevocably waived.

The first mortgage shall contain a covenant to the effect that no first-

mortgage bonds, other than those to be issued under the plan, shall

be sold or pledged by the reorganized company unless the board of

directors of the reorganized company shall, by resolution adopted by

two-thirds of the entire number of directors, have determined that,

in the opinion of the board, taking into account market and other

relevant conditions at the time, it is impracticable to provide the amount

of money needed (i) by the sale of second-mortgage bonds having a

suitable maturity at a price which would give a yield to maturity of

5 percent or less, or (2) by the sale of preferred stock at a price which

would give a current dividend return of 6 percent or less, or (3) by

the sale of common stock at a price which would give a current dividend

return of 6 percent or less, based on the regular dividend rate then in

effect, or, if no regular rate is in effect, based on the average rate at

which dividends have been paid during the past 12 calendar months,

or if no dividends have been paid durmg the past 12 calendar months,

based on a dividend rate of $3 per share per year.

The first mortgage shall contain a covenant that (a) the excess of

the principal amount of first-mertgage bonds at any time pledged over

the principal amount of indebtedness secured by pledge of first-mort-

gage bonds shall not exceed 10 percent of the aggregate principal

amount of all first-mortgage bonds then outstanding, including bonds

pledged but excluding bonds held in the treasury of the reorganized

company and (b) the excess of the aggregate principal amount of

first-mortgage bonds and second-mortgage bonds at any time pledged

over the principal amount of indebtedness secured by such pledge shall

not exceed 10 percent of the aggregate principal amount of all first-

mortgage bonds and second-mortgage bonds then outstanding, includ-

ing bonds pledged but excluding bonds held in the treasury of the

reorganized company.

The first mortgage shall provide, within conditions and limits to be

therein prescribed, for the modification and alteration thereof and of

any or all supplements thereto, and of the rights and obligations of the

reorganized company and of the holders of the bonds issued thereunder,

at any time, with all requisite approval of public regulatory authority,

by the concurrent action of the reorganized company and of the holders

6 ST. LOUIS-S. F. RY. CO. REORGANIZATION

of not less than two-thirds of the aggregate principal amount of bonds |

PLAN OF REORGANIZATION 7

then outstanding affected by such modification or alteration; and, with-

out limitation, such modification or alteration may specifically in-

elude procedural provision for ascertaining available net income with-

out the maintenance of separate books of account, in the event that

the reorganized company shall be merged into or consolidated or unified

with another class I carrier, whether or not a subsidiary of the reor-

ganized company; provided, however, that no such modification or

alteration shall (a) alter or impair the obligation of the reorganized

company to pay the principal of, or interest on, any bond at the time

and place and at the rate and in the currency provided therein, (b)

permit the creation by the reorganized company of any mortgage or

lien in the nature of a mortgage ranking prior to or on a parity with

the lien of the first mortgage, except as in the first mortgage other-

wise expressly provided, or (c) alter the provisions of the first mort-

gage conforming to this sentence and the next following sentence. Not-

withstanding the limitation in the foregoing clause (a) of this para-

graph, the first mortgage shall provide that the obligation of the

reorganized company to pay the principal of and/or interest on first-

mortgage bonds may, with all requisite approval of publie regulatory

authority, be modified by the concurrent action of the reorganized com-

pany and of the holders of not less than three-fourths in aggregate

principal amount of the bonds affected by such modification then out-

standing, so as to postpone the time of payment of all or any part of

such principal and/or interest; provided, however, that if the reor-

- ganization managers shall advise the court that, in their opinion, the

inclusion of the foregoing provision in the first mortgage would impair

the negotiability of the first-mortgage bonds, and that such impair-

ment would, in their opinion, be materially disadvantageous, and the

court shall so decide, the foregoing provision may be modified by the

reorganization managers to the extent necessary to prevent any im-

pairment of negotiability.

Special reserve fund.—Immediately after the consummation date the

reorganized company shall set aside in a special bank account, out of

the cash turned over to it by the bankruptcy trustees, the sum of

$500,000. Moneys from time to time in said special account (herein

ealled the special reserve fund) may be used only (1) for investment

in securities issued by the United States Government, the proceeds of

which upon payment or sale, shall be restored to the special reserve

fund; or (2) to pay fixed charges of the reorganized company; or (3)

for capital expenditures; provided, however, that no part of the special

reserve fund shall be used for payment of fixed charges or for capital

expenditures unless the board of directors shall, by resolution adopted

by the affirmative vote of two-thirds of the entire board, (a) authorize

such use; (b) determine that funds necessary for payment of fixed

charges or for capital expenditures are unavailable from other sources;

and (c) in case the special reserve fund is to be used for capital ex-

penditures, determine that such capital expenditures are essential for

the safe operation of the properties of the reorganized company or

for the realization of customary standards of efficiency or economy in

the operation of such properties.

If, at any time, the sum of cash in the special reserve fund and

the principal amount of United States Government obligations in which

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moneys in the special reserve fund are then invested (such sum

being hereinafter called the special reserve fund balance) is less

than $500,000, no dividends shall thereafter be paid on common stock

unless and until an amount equal to such deficiency shall have been

deducted from available net income which would otherwise be applica-

ble to the payment of dividends on common stock and transferred to the

special reserve fund.

Second-mortgage bonds.—The new second mortgage shall constitute

a lien, subject to the lien of the first mortgage, on all property from

time to time subject to the lien of the first mortgage.

Second-mortgage bonds may be issued from time to time without

limit as to aggregate amount in different series, subject to such limita-

tions and restrictions as may be specified in the second mortgage, pay-

able on such date or dates, in such denominations, bearing interest at

such rates, and containing such provisions in regard to accumulations

of interest, sinking funds, redemption, conversion, taxes, place or places,

and money or moneys of payment and registration, and having such

other characteristics, as may be prescribed by the board of directors

of the reorganized company at the time of issue, but, with respect to

the lien of the second mortgage, all equally secured except in respect

of any sinking fund created for the benefit of any particular series.

No interest shall be mandatorily payable on second-mortgage bonds,

except at maturity by expiration of the term or at redemption, other-

wise than out of available net income, as hereinafter provided. The

second mortgage shall contain provisions permitting the extension of

any first-mortgage bonds or other obligations secured by lien prior

to the lien of the second mortgage from time to time outstanding.

Series A bonds shall not be limited in authorized principal amount,

and shall be issued, on consummation of the plan, in the amount neces-

sary to carry out the terms of the plan. They shall mature 75 years

after their date, and shall bear contingent interest at the rate of 4%

percent per annum payable, as in the following paragraph hereof pro-

vided, annually «n the first day of May in each year, and shall be

redeemable as a whole or in part at any time on 30 days’ notice, at

their principal amount plus (a) interest at the rate of 44% percent

per annum for the last preceding calendar year, if not theretofore

paid, whether or not earned, (b) all unpaid accumulated interest for

prior years, and (c) interest at the rate of 444 percent per annum from

the end of the last preceding calendar year to the redemption date.

The series A bonds shall have a conversion privilege and be entitled

to the benefits of a sinking fund as hereinafter provided.

Interest on the bonds of series A accruing for each calendar year

shall, up to the limits of accumulation hereinafter specified, become

absolutely owing as a debt on December 31 in such year, but shall be

payable on May 1 of the next succeeding year or thereafter as pro-

vided below. Such interest shall be mandatorily payable, except as

herein provided, only when the available net income of the reorganized

company is sufficient for the payment thereof upon the application of

such available net income as hereinafter provided. All interest not

paid because of the limitation in the last preceding sentence shall

accumulate up to the maximum accumulation of 18 percent, but not

beyond. Interest accruing in any year which is paid on May 1 in

8 ST. LOUIS-S. F. RY. CO. REORGANIZATION

PLAN OF REORGANIZATION 9

the next succeeding year shall not be included in calculating the 18

percent. Accumulated interest shall be mandatorily payable (a) when-

ever, and to the extent that available net income is sufficient for the

payment thereof upon the application of such available net income

as hereinafter provided, in which case such amount shall be paid on

the next following May 1, or (b) in any event, whether earned or

not, at the maturity or on redemption of the second-mortgage bonds.

Upon the maturity of the series A bonds, whether by acceleration or

otherwise, there shall be paid (a) interest at the rate of 444 percent

per annum for the last preceding calendar year, if not theretofore

paid, whether or not earned, (b) all unpaid accumulated interest for

prior years, and (c) interest at the rate of 442 percent per annum from

the end of the last preceding calendar year to the date of maturity.

All interest after maturity shall be a fixed obligation. The board

of directors may, in its discretion, at any time pay any interest on

second-mortgage bonds, which is at the time accumulated or cur-

rently accrued but not mandatorily payable, out of any funds law-

fully available therefor, but only if the board of directors shall, by

resolution adopted by the affirmative vote of two-thirds of the entire

board, determine that the funds to be used for such payment are not

needed for additions and betterments that are necessary or desirable

for the safe operation of the properties of the reorganized company

or for the realization of customary standards of efficiency or economy

in the operation of such properties.

To compensate for any reduction of interest payments on the second-

mortgage bonds through utilization of subparagraph (1) hereinafter

set forth relating to the application of available net income, the

second mortgage shall contain a covenant substantially to the effect

that if the amount of interest paid or payable on second-mortgage

bonds shall have been reduced by any appropriation from available

net income for capital expenditures pursuant to said subparagraph

(1), the amount of any such reduction shall be supplied from avail-

able net income and distributed pro rata among holders of outstanding

second-mortgage bonds, in addition to any other interest required to

be paid thereon, before any dividend shall be paid on preferred stock

or common stock.

Until ealled for redemption, the bonds of series A shall, at the option

of the holders, be convertible into shares of common stock, as at the

time constituted, at any time within 5 years after the date of such

bonds, at the rate of 30 shares for each $1,000 principal amount of

such bonds, and at any time thereafter at the rate of 25 shares for

each $1,000 principal amount of such bonds.

The second mortgage shall provide for an annual sinking-fund pay-

ment for series A bonds to be made on each May 1 so long as any

series A bonds are outstanding, from available net income as herein-

after provided, in an amount equal to one-half of 1 percent of the

maximum principal amount of series A bonds theretofore at any time

authenticated and unecaneceled. The series A sinking fund shall be

applied from time to time to the retirement of series A bonds by

purchase or redemption, as provided in the second mortgage. All

bonds of series A purchased or redeemed by operation of the sinking

fund shall be forthwith canceled, and uo bonds shall! be issued in lieu

thereof.

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Sinking funds may be provided for other series of second-mortgage

bonds, and any such sinking fund or sinking funds may be sub-

ordinated to, or may rank equally and ratably with, but not prior to,

the sinking fund for the bonds of series A.

Second-mortgage bonds, in addition to those to be issued in the

reorganization, may be authenticated from time to time, with all

requisite approval of public regulatory authority, as follows:

(1) For the purposes and subject to the restrictions contained in

the plan in respect of the issue of additional first-mortgage bonds, to

the extent that first-mortgage bonds are not issued for such purposes;

provided, however, that no emergency bonds may be issued under the

second mortgage; and (2) to refund second-mortgage bonds (exclud-

ing bonds retired by operation of any sinking fund) or obligations

secured by second-mortgage bonds, to the extent so secured.

The second mortgage shall contain a covenant to the effect that no

bonds, other than those to be issued under the plan, may be sold or

pledged by the reorganized company unless the board of directors

of the reorganized company, by resolution adopted by two-thirds of

the entire number of directors, shall have determined that in the

opinion of the board, taking into account market and other relevant

conditions at the time, it is impracticable to provide the amount of

money needed (1) by the sale of preferred stock at a price which

would give a current dividend return of 6 percent or less, or (2) by

the sale of common stock at a price which would give a current divi-

dend return of 6 percent or less, based on the regular dividend rate

then in effect, or, if no regular rate is in effect, based on the average

rate at which dividends have been paid during the past 12 ealendar

months, or if no dividends have been paid during the past 12 calendar

months, based on a dividend rate of $3 per share per year.

The second mortgage shall contain a covenant that (a) the excess

of the principal amount of second-mortgage bonds at any time pledged

over the principal amount of indebtedness secured by pledge of sec-

ond-mortgage bonds shall not exceed 10 percent of the aggregate

principal amount of all second-mortgage bonds then outstanding,

ineluding pledged second-mortgage bonds but excluding second-mort-

gage bonds held in the treasury of the reorganized company and (b)

the excess of the aggregate principal amount of first-mortgage bonds

and second-mortgage bonds at any time pledged over the principal

amount of indebtedness secured by such pledge shall not exceed 10

percent of the aggregate principal amount of all first-mortgage bonds

and second-mortgage bonds then outstanding, ineluding bonds pledged

but excluding bonds held in the treasury of the reorganized company.

The second mortgage shall contain a covenant with regard to the

maintenance and replacement of equipment similar to the correspond-

ing covenant in the first mortgage heretofore described and shall also

contain appropriate covenants to carry out the provisions heretofore

stated relative to the special reserve fund.

The second mortgage shall provide, within conditions and limits to

be therein prescribed, for the modification and alteration thereof, and

of any or all supplements thereto, and of the rights and obligations

of the reorganized company and of the holders of bonds issued there-

under, at any time by the concurrent action of the reorganized com-

pany and of the holders of not less than two-thirds of the aggregate

ee ie ee | i i ee ee ee

2 EIS eI SAH LN

PLAN OF REORGANIZATION 11

principal amount of bonds then outstanding affected by such modifi-

cation or alteration; and, without limitation, such modification or

alteration may specifically include procedural provision for ascertain-

ing available net income without the maintenance of separate books

of account, in the event that the reorganized company shall be merged

or consolidated or unified with another class I carrier, whether or not

a subsidiary of the reorganized company ; provided, however, that no

such modification or alteration shall (a) alter or impair the obligation

of the reorganized company with respect to the determination and

application of income available for interest on the second-mortgage

bonds (except as herein specifically provided) or with respect to the

payment of the prineipal amount of or accumulated interest on any

second-mortgage bonds at the time and place, at the rate and in the

currency provided therein, (b) permit the creation by the reorganized

company of any mortgage or lien in the nature of a mortgage ranking

prior to or on a parity with the lien of the second mortgage, except

as in the second mortgage otherwise expressly provided, or (c) alter

the provisions of the second mortgage conforming to this sentence

and the next following sentence. Notwithstanding the limitations in the

foregoing clauses (a) and (dD) of this paragraph, the second mortgage

shall provide that the obligation of the reorganized company referred

to in said elause (a) may be modified, and mortgages or liens referred

to in said clause (b) may be created, with all requisite approval of

publie regulatory authority, by the concurrent action of the reorgan-

ized company and of the holders of not less than three-fourths in

aggregate principal amount of the bonds affected by such change then

outstanding; provided, however, that if the reorganization managers

shall advise the court that, in their opinion, the inclusion in the second

mortgage of a provision permitting modification of the obligation of

the reorganized company referred to in said elause (a) would impair

the negotiability of the second-mortgage bonds, and that such impair-

ment would, in their opinion, be materially disadvantageous, and the

eourt shall so decide, the provision permitting such modification may

be modified by the reorganization managers to the extent necessary

to prevent any impairment of negotiability.

If the applicable accounting rules shall have been so changed as

substantially to reduce the amounts of cash available for capital ex-

penditures from sources other than available net income, the provisions

of the second mortgage may be modified (notwithstanding the limita-

tions in the last preceding paragraph) by the concurrent action of

the reorganized company and of the holders of not less than a majority

of the aggregate principal amount of bonds then outstanding, so as

to permit the deduction of amounts for capital expenditures before

determining available net ineome or to increase the appropriation for

capital expenditures permitted by subparagraph (1), hereinafter set

forth relating to application of available net income.

Ascertainment and disposition of available net income.—Available

net income shall be determined for each calendar year that begins

after the calendar year in which the new securities shall be dated,

and for that part of the calendar year in which the new securities

shall be dated following the date of the new securities (such part of

such ealendar year being hereinafter included within the term calen-

dar year). Available net income for each such calendar year shall be

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12 sf. LOUIS-S. FP. RY. CO. REORGANIZATION

determined by deducting all fixed charges of the reorganized com-

pany and its wholly owned railway subsidiaries accruing during such

calendar year from the consolidated income of the reorganized com-

pany and its wholly owned subsidiaries available for fixed charges

for such calendar year (determined in accordance with the applicable

accounting rules, subject to the adjustments specified in the next

sueceeding paragraph). If any period for which available net income

is to be determined precedes the consummation date, the consolidated

railway operating revenues, and the consolidated income available for

fixed charges, to be used for the ascertainment of available net income

for such period shall be those of the bankruptcy trustees and their

wholly owned railway subsidiaries for such period.

Available net income shall be ascertained for each calendar year,

as the accounts shall be stated on the books of the reorganized com-

pany when its accounts are closed for such calendar year, without

adjustments, except that (1) no amounts shall be charged to operat-

ing expenses for retirements of nondepreciable property, (2) any

adjustment necessary to correct the income account for any prior year

shall be made by appropriate entries which may either be made in

the accounts of the current year and/or, in the discretion of the board

of directors of the reorganized company, and subject to the approval

of the Commission or such other governmental agency as may at the

time have jurisdiction over the accounts of the reorganized company,

may be made in whole or in part in the accounts of any subsequent

year or years, and any such debits or credits to adjust income in prior

years shall be treated as income items for the year in which entered

on the books, whether cleared through income or profit and loss

accounts and (3) if, in respect of any calendar year, the available net

income (ascertained in all cases after the adjustments provided in

this paragraph) is a deficit, the amount of such deficit shall be carried

forward and be deducted in determining available net income for the

sueceeding calendar year or calendar years until such deficit (or

accumulated or remaining deficits) be extinguished by earnings which,

in the absence of such deficit or deficits, would be available net income.

Available net income for each calendar year shall be applied on the

May 1 next following the end of such ealendar year to the following

purposes and in the following order:

(1) To provide for such appropriation for capital expenditures, not

exceeding the excess of (a) $500,000 or 1 percent of consolidated rail-

way operating revenues of the reorganized company and its wholly

owned railway subsidiaries for such calendar year, whichever shall be

greater, over (b) the special reserve fund balance as of the end of

such calendar year, as the board of directors may, by resolution

adopted by the affirmative vote of two-thirds of the entire board,

determine to be unavailable from other sources, and necessary to

provide for capital expenditures in such ealendar year or the next

succeeding calendar year which, in the opinion of the board of diree-

tors, are essential for the safe operation of the properties of the

reorganized company, or for the realization of customary standards

of efficiency or economy in the operation of such properties.

(2) To the payment of all sinking-fund installments payable for

any first-mortgage bonds, including the emergency-bond sinking fund,

if then payable, such payments to be made equally and ratably except

PLAN OF REORGANIZATION 13

to the extent that, as hereinabove provided, sinking funds for series

other than series A shall have been subordinated.

(3) To the payment of interest on the then outstanding second-

mortgage bonds (not including any thereof held in any sinking fund),

and any accumulations thereof. No interest need be paid if it would

amount to less than one-quarter of 1 percent. Any excess available

for such interest, but not paid because of the last preceding sentence,

shall be reserved and added to the income available for interest on

the second-mortgage bonds for the next sueceeding calendar year. In

case more than one series of seecond-mortgage bonds is outstanding,

and in any calendar year the amount available for the purposes speci-

fied in this subparagraph (3) is less than all interest (including un-

paid accumulated interest) owing on all such bonds, the amount

available shall be prorated among the several series in proportion to

the respective interest rates thereon until second-mortgage bonds

of each series shall have received an amount equal to 1 year’s interest

thereon, any then remaining balance to be prorated among the several

series in proportion to the balance owing thereon respectively.

(4) To the payment of all sinking-fund installments payable for

any second-mortgage bonds, such payments to be made equally and

ratably except to the extent that, as hereinabove provided, sinking

funds for series other than series A shall have been subordinated.

(5) To the payment of any interest required to be paid on second-

mortgage bonds pursuant to the provisions of the paragraph herein-

above set forth relative to compensation for any reduction in interest

payments on the second-mortgage bonds through utilization of sub-

paragraph (1) of this series of subparagraphs.

(6) To any proper corporate purpose, ineluding, if, when, and as

declared by the board of directors of the reorganized company, the

payment of dividends on the preferred stock and the common stock,

subject to the relative rights of the two classes of stock, and to the

provisions of the last paragraph hereinabove set forth relative to the

special reserve fund.

If the date of the new securities shall be other than January 1,

aceruals of sinking-fund installments payable on May 1 of the next

sueceeding calendar year shall be computed on a proportionate basis.

Dividends may be paid on stock of either class, subject to the rela-

tive rights of the two classes of stock and to the provisions hereof

for a special reserve fund, out of the income of any calendar year

prior to the close of such calendar year if, but only if, prior to the

declaration of such dividends, the board of directors shall have deter-

mined that the available net income for such year applicable for the

purposes specified in the foregoing subparagraphs (1), (2), (3), (4),

and (5) will be more than sufficient to pay the amounts payable out

of such available net income pursuant to said subparagraphs, and such

amounts shall have been deposited in trust for the purposes specified

in said subparagraphs.

Preferred stock.—The amount of the new preferred stock to be

originally authorized shall be fixed by the reorganization managers

without limitation by the amount of the initial issue and there shall be

issued upon reorganization an amount of preferred stock, series A,

sufficient to carry out the plan. Additional preferred stock of any

< - wre “aS

Y 14 ST. LOUIS-S. F. RY. CO, REORGANIZATION |

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series may, subject to the conditions hereinafter stated, be issued

: from time to ‘time for any proper corporate purpose.

: The new preferred stock, series A, shall be of the par value of $100

} per share, and shall entitle the holders thereof in preference to the

holders of the common stock to receive dividends, when and as de-

elared by the board of directors, at the rate of 5 percent per annum

out of the available net income for any calendar year. Dividends

on the preferred stock, series A, shall be cumulative in respect of

each calendar year, but only to the extent that available net income

for such calendar year is applicable to dividends on the preferred

stock, series A, under the provisions hereof (or would have been so

applicable except for any deduction made from such available net

income pursuant to subparagraphs (1) or (5) relative to the appli-

cation of available net income), but is not distributed. If there are

outstanding shares of preferred stock of different series of the same

class, (@) the earnings of each calendar year applicable to dividends

thereon shall, for the purpose of determining dividend accumulations,

be apportioned among the respective series in proportion to the divi-

dend rates on such series, respectively, and (b) all amounts paid in

dividends on the preferred stock shall be prorated among the several

; series in proportion to the respective dividend rates thereon until pre-

: ferred stock of each series shall have received an amount equal to

1 year’s dividends thereon, and the balance of such dividends shall

be prorated among the several series in proportion to the remaining

accumulated unpaid dividends thereon, respectively. No dividend

shall be paid on the common stock in any calendar year unless all

7 accumulated unpaid dividends for ll prior calendar years shall have

been paid or declared and set apart for payment on the preferred

stock, and, if the dividend on the common stock shall be payable out

of available net income for the year in which payment is made, unless

full dividends for such year at the stipulated dividend rate of the

respective series shall also have been paid or declared and set apart

for payment on the preferred stock.

In the event of the dissolution, winding up, or liquidation of the

reorganized company, the holders of preferred stock, series A, shall

be entitled to receive out of the assets of the reorganized company

$100 per share, together with an amount equal to all accrued, unpaid,

and aceumulated dividends, before any distribution shall be made

to the holders of common stock.

The preferred stock, series A, shall be redeemable in whole or in

part at any time on 60 days’ notice at its par value, plus an amount

equal to dividends at the rate of 5 pereent per annum, whether or

not earned, from the beginning of the last preceding calendar year

to the redemption date, less any dividends paid for that period, plus

all accumulated dividends for preceding years. The holders of pre-

ferred stock, series A, shall have no preemptive right to subscribe to

any shares of stock of any class or to securities convertible into stock

of any class.

The preferred stock, series A, shall be convertible, at the option of

the holder, at any time on or before 15 days prior to the date as of

which such stock shall have been called for redemption, into common

stock as at the time constituted, at the rate of two shares of common

stock for one share of preferred stock.

ee eae ne > eN

PLAN OF REORGANIZATION 15

The certifieate of incorporation of the reorganized company shall

provide in substance that the reorganized company shall not, without

the vote or consent of the holders of at least two-thirds in par value

of the outstanding preferred stock, series A, (a) amend the certificate

of incorporation of the reorganized company or any certificate

amendatory thereof or supplemental thereto so as to alter or change

adversely the preterences and voting rights to which the holders of

preferred stock, series A, are entitled thereunder, (b) create any

additional stock ranking either as to assets or dividends in priority

to or on a parity with the preferred stock, or (¢) issue any of the

shares of preferred stock which shall be originally authorized for any

purpose other than to carry out the plan or to refund outstanding

obligations or to provide for expenditures chargeable to capital

account,

Holders of preferred stock shall be entitled to one vote a share on

all matters, except that in elections of directors, which shall be by

cumulative voting, each holder of stock of any class shall be entitled

to as many votes a share as the number of directors for which the

stock of such class has at the time the right to vote. Until regular

dividends at the full rate borne by the preferred stock shall have

been paid for 3 consecutive years on all outstanding preferred stock

and thereafter, so long as there shall be any accumulated dividends on

the preferred stoek which shall have remained unpaid for 12 months

after the close of the year in respect of whieh such dividends shall

have accumulated, the holders of the preferred stock, voting as a

class, shall be entitled to elect a majority of the directors of the

reorganized company and the holders of the common stock, voting

as a elass, shall be entitled to elect the remaining directors. If, after

the holders of the preferred stock shall have ceased to be entitled to

elect a majority of the board of directors, (a) the reorganized com-

pany shall fail for 3 consecutive calendar years to pay full dividends

on all preferred stock at the time outstanding or (b) accumulated

unpaid dividends on the preferred stock of any series shall amount to

10 pereent or more, the holders of the preferred stock shall again be

entitled to elect a majority of the board of directors until full current

dividends shall have been paid on the preferred stock for 3 econseeu-

tive years, and all dividends accumulated up to the end of the last

preceding calendar year shall have been paid. Holders of the pre-

ferred stock, voting as a class, shall have the right to elect not less

than two directors after default of the equivalent of six quarterly

dividends.

Subject to the foregoing provisions relative to preferred stock, the

certifieate of incorporation will permit the authorization and issuance

of additional preferred stock of sueh series and amounts, with such

par value and entitled to such dividends, voting rights, priority,

redemption, conversion, and other special privileges and restrictions

as the board of directors may determine in its diseretion.

Common stock—-The number of shares of common stock to be origi-

nally authorized shall be fixed by the reorganization managers with-

out limitation by the amount of the initial issue, and there shall be

issued upon reorganization a number of shares of common stock suffi-

cient to carry out the plan. All the common stock shall be without

Se LA MEL II IOC

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16 ST. LOUIS-S. F. RY. CO, REORGANIZATION

par value. The necessary number of shares of common stock shall he

reserved for conversion of the second-mortgage bonds, series A, and

the preferred stock, series A, to be issued under the plan.

Holders of common stoek shall be entitled to one vote a share on

all matters except that (@) directors shall be elected by cumulative

voting as aforesaid and (b) holders of preferred stock may be entitled

to elect stated proportions of the board of directors by separate

class vote as provided above.

So far as permitted by law, any vote or consent by the holders of

common stock authorizing the issuance of additional shares of stock

of any class or of securities convertible into stock of any class may

waive, on such terms and conditions, if any, as may be specified in

such vote or consent, the preemptive right of all the holders of

shares of common stock to subseribe to such additional shares or

securities.

TREATMENT OF EXISTING SECURITIES AND CLATMS

Holders of outstanding bonds of the several elasses shall receive,

respectively for each $1,000 principal amount thereof, cash and new

securities approximately in the amounts specified below (the amounts

of cash specified being herein ealled the eash allocations) :

New securities to be issued

Old securities Cash Common

allocations | First mort-} Income | Preferred ——

gage 4's 44's stoc! stated at

ACD. . ocnacenhiins sabte+=5s0d0useunse $61. 34 $733 | ee ee

Prior lien, series A... ..............--.-.--- 15. 36 219 71 $332 $333.8

Prior lien, er ee 25. 39 233 182 353 355.0

Consolidated, series A . 21.05 221 1m 174 174.6

Consolidated, Pectuledienccetiadeated 36. 22 243 174 191 191.9

The new securities may be issued in temporary form in the first

instance or interim certifieates may be issued therefor. Serip may be

issued and distributed in lieu of fractions of a bond or share of stock.

Sueh serip shall be nondividend bearing or non-interest-bearing and

nonvoting, but shall be exchangeable within 5 years after the eonsum

mation date for new securities (or interim certificates therefor) whey

presented in proper multiples upon terms and conditions approved,

by the reorganization managers.

The bank creditors or their transferees shall receive, respectively,

cash and new securities approximately in the amounts specified below,

being the cash and new securities allocable to the collateral held by

them, respectively :

PLAN OF REORGANIZATION V7

New securities to be issued

Cash alloca- rs Comenn

tions rst Income Preferred Seer ©

t iD no-par value

— we i}4's stock stated at

$50 a share

Chase National Bank ........ ..| $151, 526.37 |$1, 016, 590. 50 $727,929 | $799, 048. 50 $801, 140.00

Quaranty Trust Company. -... S56, 403,75 379, 687. 50 271, 875 298, 437. 50 299, 219.00

Bankers Trust Co 22, 637. 50 151, 875.00 108, 750 119, 375.00 119, 687. 50

Bank and Trust

—" ov 22, 637. 50 151, 875. 00. 108, 750 119, 375. 00 119, 687. 50

First ‘National Bank in StL Vouis. 22. 637. 50 181, 875.00 108, 750 119, 375.00 119, 687. 50

ercantile Commerce

Mvaet Co LebRAESALen SECEREGASERRS 22. 637.50 151, 875.00 108, 750 119, 375. 00 119, 687. 50

Nothing in the plan shall restrict the right of the court to order

distributions of available cash from time to time before the consumma-

tion date or shall limit the amount of any such distributions. All

such distributions shall be divided as follows: For each $1,000,000

of distribution, the following amounts shall be paid per $1,000 bond:

On the Fort Seott bonds, $10.01; on the prior-lien bonds, series <A,

2.88, on the prior-lien bonds, series B, $3.07; on the consolidated

bonds, series A, $3.10; and on the consolidated bonds, series B, $3.41.

Cash so paid shall be credited against the cash allocations payable

under the plan. For each amount of $1,000,000 in which the aggre-

gate of such payments on the Fort Seott bonds outstanding and

pledged shall exceed the aggregate of the cash allocations payable on

such Fort Scott bonds under the plan, plus interest accruing on the

unpaid principal of such Fort Seott bonds at 4 percent per annum

from December 31, 1943, to the date of the new securities, the follow-

ing changes shall be made in the allotment of income bonds per

$1,000 bond of the existing issues.

fest Gets bands. eel eet hn CLEKKSERanebahbAGAKAs aRESATK MANS SGA Cun Ab ele

series A bonds

Prior-lien series B bonds ibs re ‘ igen

Consolidated series A bon SRE ET 3

Consolidated series B bonds... ...... -. ... 6... 65... i SP EERE RRS te SANE AET

Allocations of new securities, other than income bonds, shall not be

changed beeause of any cash distributions or reallocations of income

bonds made pursuant to these provisions.

Subject to the foregoing provisions, such distributions shall be

credited against claims and taken into account in such manner as

the reorganization managers may determine with the approval of the

court.

The interests or equities of (1) general creditors, of the debtor, (2)

holders of preferred stock of the debtor, (8) holders of common stock

of the debtor, and (4) holders of claims against the debtor entitled to

priority or preference over the claims of general creditors, but not

over any one or more of the mortgages, have no value, and nothing

shall be distributable to them.

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Claims not uffected by the plan.—The equipment obligations of the

debtor and of the bankruptcy trustees, outstanding upon consumma-

tion of the plan, shall remain undisturbed, and shall be assumed by

the reorganized company. ‘The interests of the holders of such obli-

gations will not be adversely and materially affected by the plan.

Claims against the debtor entitled to priority over the respective

mortgages and claims, current liabilities, and obligations incurred by

the bankruptcy trustees during the reorganization proceedings, or by

the receiver or receivers appointed by the court in the proceedings

begun on November 1, 1932, to the extent unpaid at the date of con-

summation of the plan, shall be paid in eash or assumed by the

reorganized company (subject to any applicable statutes of limita-

tions). All such claims, liabilities, and obligations may be paid and

discharged by the reorganized company, or may be adjusted or

compromised and dealt with in such manner as may be determined by

the board of directors of the reorganized company, subject to the

approval of the court. The interests of the holders of such claims,

liabilities, and obligations will not be adversely and materially affected

by the plan.

The reorganized company shall assume liability for and shall pay

in full, in due course, any and all taxes due to the United States

from the debter or from the bankruptey trustees subject to the stat-

utes of limitations normally applicable to the assessment and collec-

tion of such taxes, without requiring proof in the reorganization pro-

ceeding of any such taxes; provided, however, that the liability of

the reorganized company for any taxes which are the subject of

litigation on the date of confirmation of the plan, or which may

become the subject of litigation on any date thereafter and prior

to the expiration of the applicable statutes of limitations, shall be

determined pursuant to law, and provided, further, that this provision

shall not be deemed to preclude the debtor, the bankruptcy trustees,

or the reorganized company from contesting the merits of any such

tax claim in the manner provided by law. The interest of the United

States as the holder of such tax claim will not be adversely and

materially affected by the plan.

The expenses of reorganization, as allowed by the court, subject to

the provisions of section 77 of the Bankruptey Act, shall be paid in

eash. The interests of the holders of claims for such expenses of

reorganization will not be adversely and materially affected by the

plan.

All eontraets made by the bankruptey trustees pursuant to their

duties as such trustees, and not fully performed, and all executory

contracts made by the debtor and not disaffirmed by the bankruptey

trustees prior to the consummation date, shall be assumed by the

reorganized company. The interests of the other parties to such

contracts will not be adversely and materially affected by the plan.

Since the holders of 100 shares of preferred stock of the Kansas

City, Fort Scott and Memphis Railway Company (hereinafter called

the Fort Scott Company) not owned by the debtor have not procured

a judgment of the court determining their rights. as required by the

opinion of the court dated July 25, 1942, no provision can be made

herein for such stockholders. If such stockholders shall be held to

be not barred from assertion of their claims by the lapse of time, and

co inital 5 nas a ee . Nee RNA NL - a ts ocr =

18 ST. LOUIS-S. F. RY. CO. REORGANIZATION

}

AIS NORD ETN A BNE ATT I ALE RI

PLAN OF REORGANIZATION 19

shall establish any claim against the debtor which the court shall

determine to be secured by a lien or charge ahead of, or to be entitled

to priority over the prior-lien mortgage, the court may direct the

reorganized company to issue to such stockholders such securities, or,

to pay to such stockholders such amount in cash, as, in the opinion

of the court will fairly represent their relative rights in respect of

such claim. In view of these provisions the interests, if any, of the

holders of said preferred stock of the Fort Scott Company will not

be adversely and materially affeeted by the plan. If such stockholders

shall fail to establish a claim, the interest or equity of such holders

has no value, and nothing shall be distributable to them.

The debtor, as reorganized, or the transferee of the property of the

debtor, in connection with any settlements 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 with-

out 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. The interests of the United States

as the holder of such claims will not be adversely and materially

affected by the plan.

Voting trust—A voting trust shall be created in order to assure a

stable, experienced, and impartial management during the transition

period which will follow the consummation of the reorganization and

the termination of the war. All of the preferred stock, series A, and

the common stock of the reorganized company, issued in the reorganiza-

tion, and all other voting stock thereafter issued by the reorganized

company during the continuance of said voting trust shall be de-

posited in said voting trust, and voting-trust certificates will be issued

therefor. All references in the plan to stock of the reorganized com-

pany shall, unless the context otherwise requires, be deemed to mean

voting-trust certificates for such stock.

The voting trustees shall be three in number. One voting trustee

shall be designated by the committee for the prior-lien mortgage bonds

of the debtor (hereinafter called the prior-lien committee) and one by

the committee for the consoblidated-mortgage bonds of the debtor (here-

inafter called the consolidated committee), both subject to the approval

of the court, and one voting trustee shall be designated by the court;

provided, however, that if the court shall find that at the time of desig-

nation any of the committees has ceased to hold or to represent a sub-

stantial interest in the property, the court may, in its discretion, desig-

nate, in lieu of such committee. Such voting trust shall continue for

5 years from the consummation date. The voting-trust agreement shall

provide that, if any vacaney shall occur among the voting trustees,

such vacancies shall be filled by the remaining voting trustee or voting

trustees.

Board of directors—The board of directors of the reorganized com-

pany shall consist of not less than il and not more than 17 members.

The members of the first board of directors shall be designated by the

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20 ST, LOUIS-S. F. RY. CO. REORGANIZATION

reorganization managers with the approval of the court ; provided, how-

ever, that if the court shall disapprove any person or persons desig-

nated by the reorganization managers as a member of the board of

directors, the court, in the absence of a designation by the reorganiza-

tion managers that is acceptable to the court, may itself designate a

member or members of the board of directors in lieu of such person

or persons so disapproved.. Thereafter, the directors shall be elected

annually by the voting trustees so long as the voting trust shall continue

in effect, and thereafter by the stockholders.

Reorganization managers.—There shall be four reorganization man-

agers, of whom one shall be designated by the committee for the Fort

Seott refunding-mortgage bonds, one by the prior-lien committee, and

one by the consolidated committee, all subject to the approval of the

court, and one by the court; provided, however, that if the court shall

find that at time of designation any of the committees has ceased to

hold or to represent a substantial interest in the property, the court

may in its diseretion designate in lieu of such committee. Should any

of the parties named fail to make such designation within such time

after confirmation of the plan and notice as the court shall consider

reasonable, the court shall appoint the reorganization manager whom

such party was entitled to designate. If there be any vacancy, however

created, after the appointments are made, the successor reorganization

manager shall be appointed by the party or parties who designated

the reorganization manager whose position has become vacant, subject

to the approval of the court, or, as the case may be, by the court.

In case of failure of any party to designate any such successor within

such time as the court shall consider reasonable, such suecessor shall be

designated by the court.

Subject to any limitations of law, the reorganization managers shall

have full diseretionary power (a) to take all such action and to enter

into such arrangements, financial and otherwise, as they may deem nec-

essary or advisable in order to consummate and carry into execution

the plan; (>) to fix the compensation of trustees, depositaries, counsel

and others whose services they may employ in the execution of their

powers and of the voting trustees, which, together with their reason-

able expenses, including counsel fees, shall be paid by the reorganized

company; (¢) to incorporate the reorganized company (if it be deemed

necessary or desirable to form a new corporation) or to amend the

certificate of incorporation of the debtor, to supervise the transfer of

any properties to the reorganized company and to make agreements

and commitments for its account; (d@) to provide the method by which

creditors and other interested parties may participate in the plan; and

(e) to determine the form and provisions (so far as not otherwise

specifically provided in the plan) of the certificate of incorporation or

amendment thereto of the reorganized company, its bylaws, the new

bonds, and the mortgages under which the same shall be issued, the

voting-trust agreement and certificates, the stock certificates, scrip,

interim certificates, and any other instruments deemed by the reor.

ganization managers to be necessary or proper in connection with the

plan; (f) to make such minor adjustments in details of the plan as

they may deem advisable; and (g) to construe the plan. Any con-

struction of the plan approved by the reorganization managers on

TEN en ARNG BORO

PLAN OF REORGANIZATION 91

advice of counsel shall, subject to approval by the court, be conclusive.

With the approval of the court, the reorganization managers may make

such changes in the allotment of new securities as may be necessary

to avoid the issue of scrip in excessively small denominations. The

reorganization managers, however, shall exercise only such powers as

shall be necessary to carry out the plan in accordance with its provi-

sions, subject to the direction of the court, and the court shall approve

the form of the certificate of incorporation or amendments thereto,

bylaws, mortgages, bonds, coupons, stock certificates, voting-trust cer-

tificates, scrip, and interim certificates before they are put in use. The

reorganization managers may act by a majority of the reorganization

managers as from time to time constituted, at a meeting or in writing

without a meeting, may employ such agents, attorneys, and others

as they may deem desirable to carry out the plan, and may delegate

to others any power or discretion conferred upon them, and no re-

organization manager shall be liable for any action taken by him in

good faith or by any person employed by the reorganization managers,

except for his individual malfeasance or willful neglect. The mort-

vage trustees, transfer agents, and registrars of the new securities, and

such depositaries as may be necessary in connection with the distribu-

tion thereof, shall be appointed by the reorganization managers.

Nothing herein contained shall be construed as authorizing the re-

organization managers to solicit deposits of securities or authorizations

to represent security holders, except upon approval by the Commission

of the terms of such solicitation by further action pursuant to Section

77 (p) of the Bankruptcy Act, as amended.

Miscellaneous provisions of mortgages, et cetera—Each of the mort-

gages, certificates of incorporation, and other instruments herein pro-

vided for shall contain such provisions, in addition to those herein

specified (including, without limitation, provisions for releases of mort-

gaged property), as the reorganization managers may deem necessary

or proper, and as may be approved, where required hereby or by law,

by the Court.

In the event that the reorganized company shall be merged or eon-

solidated or unified with any other class 1 railroad, whether or not

a subsidiary of the reorganized company, then by vote or consent of

the holders of a majority in par value of the preferred stock and a

majority of the shares of common stock then outstanding, procedural

provision may be made for ascertaining available net income without

the maintenance of separate books of account, and such provision shall

be binding on all holders of stock of such classes.

The new first mortgage and the new second mortgage may contain

such provisions as the reorganization managers may approve either (1)

permitting the reorganized company, while it is not in default in the

performance of its obligations under said mortgages respectively and

during any period of grace therein specified, to use and dispose of, to

the same extent as if not subject to the lien of such mortgages respec-

tively, cash, temporary cash investments, tools, supplies, and other

current items or (2) excluding such property from the liens of said

mortgages.

Funds on deposit with mortgage trustees —Upon consummation of

the plan, all funds (except funds deposited with Old Colony Trust

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22 ST, LOUIS-S. F. RY. CO. REORGANIZATION

Company or its depositary for the payment of principal and interest

on the general-mortgage bonds and income-mortgage bonds of the

Kansas City, Memphis & Birmingham Railroad Company, and funds

deposited for payment, or funds or securities deposited as indemnity

in respect of the obligations referred to in the following paragraph)

on deposit with the trustees under mortgages on the property acquired

or to be acquired by the reorganized company (other than the mort-

gages created pursuant to the plan) and all collateral pledged under

such mortgages shall be surrendered to the reorganization managers for

delivery to the treasury of the reorganized company or for cancelation

as hereinbefore provided.

Payment of unpresented securities and coupons.—The bankruptcy

trustees or the reorganized company shall pay, upon presentation and

surrender, (1) all securities issued by the bankruptcy trustees or by

the debtor which shall have become due and payable prior to the con-

summation date, and shall not have been paid solely because of failure

of presentation for payment (including any of such securities issuable

in exchange for securities of St. Louis and San Francisco Railroad

Company not yet exchanged under the plan and agreement of reor-

ganization dated November 1, 1915), and any unpaid coupons appur-

tenant to any such securities, (2) $1,000, principal amount, trust-

mortgage 5-percent bond, due 1987, of St. Louis and San Francisco

Railway Company, and appurtenant coupons, (3) all coupons matured

prior to November 1, 1932 appurtenant to Fort Scott bonds, prior lien

bonds, and consolidated bonds ‘eéutstanding in the hands of the public

(excluding pledged bonds) and (4) all coupons or portions thereof that

the court shall, before consummation of the plan, have ordered to be

paid, whether before January 1, 1944, or, subject to the provisions

hereinabove set forth relative to cash distributions before the consum-

mation date, on or after January 1, 1944; provided, however, that each

such security or coupon (other than said trust bond of St. Louis and

San Franeiseo Railway Company and coupons appurtenant thereto)

shall be presented for payment within 6 years after the consummation

date, and all such securities or coupons (other than as aforesaid) not

presented for payment within such period shall become void, and all

funds then remaining on deposit for the payment thereof shall be paid

to the reorganized company.

Executing the plan by sales.—If so ordered by the court, the plan,

after it shali have been found fair and equitable, and shall have been

confirmed by the court, may be executed by a sale or sales, at not less

than fair upset prices to be fixed by the court, of all or any part of

the property of the debtor, on such conditions, including the extent

to which the sale may be free of liens or subject to prior liens or in-

terests, and in such manner, as the court may direct. Upon any such

sale or sales, the property and assets offered for sale may be purchased

for the benefit of the reorganized company by the reorganization man-

agers, and in that event there shall be applied on account of the pur-

chase price the distributive share of the proceeds of such sale of all

securities, the holders of which shall have assented to the plan, and

of the securities, though not assenting to the plan, of all classes the

holders of two-thirds of the voted claims in which shall have accepted

the plan. If the property of the debtor so offered for sale should be

PLAN OF REORGANIZATION 23

sold to others than the reorganization managers, the plan (other than

the foregoing provisions of this paragraph) shall be inoperative.

In the event of any such sale to the reorganization managers, the

reorganization managers may in their discretion sell all or any portion

of the new securities distributable under the plan in respect of se-

curities of any bondholder, if neither such bondholder nor two-thirds

of the voted claims in the class to which such bondholder belongs shall

have accepted the plan; provided, however, that any bondholder of a

class the holders of two-thirds of the voted claims in which shall not

have accepted the plan, who shall not himself have accepted the plan,

shall have the right, if he shall so notify the reorganization managers

within a period of 30 days after the confirmation of such sale, to assent

to the plan and receive the securities allocated to him under the plan

in lieu of his aliquot share of the proceeds of such sale. The proceeds

of such sale of securities, together with any other funds which, in the

judgment of the reorganization managers, are available among the

assets of the debtor's estate or of the reorganized company, may be used

to pay the portion of the purchase price payable in cash on any such

sale of properties of the debtor.

Upon any such sale, nonassenting creditors of any class the holders

of two-thirds of the voted claims in which shall not have accepted the

plan in accordance with the provisions of section 77, and/or the stock-

holders of either class shall be entitled to receive, in lieu of the securi-

ties, if any, otherwise issuable under the plan, their equitable propor-

tion of the proceeds of such sale, after deducting therefrom all expenses

of such sale and the amount which would be required to pay in full,

to all creditors whose claims equitably marshaled are prior in lien or

superior in equity to the claims of such nonassenting creditors or the

rights of such stockholders, the principal of their claims and all unpaid

interest accrued thereon to the date of such sale.

Effect of accepting the plan——Acceptance of the plan shall include

acceptance of the provisions of the new bonds, mortgages, stock cer-

tificates, certificate of incorporation or amendments thereto, voting-trust

certificates, and all instruments necessary or appropriate to the carry-

ing out of the plan, other than the orders of the court and the Com-

mission, to the same effect as though the terms of such instruments

were set forth in full herein.

Construction of plan—The construction of the plan by the court,

whether before or after the submission of the plan to creditors, shall

be final and conelusive. The court, whether before or after submission,

may cure any defect, supply any omission, or reconcile any inconsistency,

in such manner or to such extent as may be necessary or expedient in

order to carry out the plan effectively. ‘

The carrying out of the plan shall be as provided in the Bankruptcy

Act as at the time in effect.

Additional Clauses

from Commission’s Order of July 4, 1944

In addition to the provisions of the plan approved hereinbefore shown,

the Commission’s order approving the plan also ordered—

(1) That the authorization and approval herein granted by this Com-

mission are upon the condition that the journal entries covering the

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24 ST. LOUIS-S. F. RY. CO. REORGANIZATION

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.

(2) That nothing herein contained shall be, or be construed as, a

grant of authority for the issue of any securities, assumption of obliga-

tions, transfer of any property, sale, consolidation, or merger of the

debtor’s properties, or pooling of traffic, pursuant to either the Bank-

ruptey Act or the Interstate Commerce Act, until further action by this

Commission upon confirmation of the plan by the court.

(3) That except as thus modified, the terms and conditions of said

prior orders of July 6 and November 16, 1940, shall be, and remain,

in full force and effect.

ORIGINAL REPORT OF COMMISSION 25

INTERSTATE COMMERCE COMMISSION

Finance Docket No. 10008

ST. LOUIS-SAN FRANCISCO RAILWAY COMPANY

REORGANIZATION

Submitted November 20, 1939. Decided duly 6, 1940

Plan of reorganization for the St. Louis-San Franciseo Railway

Company, pursuant to section 77 of the Bankruptey

Act, as amended, approved.'

William V. Hodges, Jesse McDonald, Martin Jacobs, and Wiliam

V. Hodges, Jr., for debtor.

Henry B. Day, Albert Hale, Eph A, Karelsen, Frederick Baum,

Edwin S. S. Sunderland, Thomas O'G. FitzGibbon, George J. Miller,

Henry W. Anderson, George D, Gibson, Robert T. Swaine, Leonard

D. Adkins, Littleton Groom, Cassius M. Clay, Florence de Haas

Dembitz, Frederick E. Baukhages, LI, D. Willard, Jr., William J.

Kane, E. G. Buckland, Jack Louis Kraus, Il, Fitzhugh MeGrew,

Ripley L. Dana, Charles J. Winkler, Jr, Frederick M, Dearborn,

Jr. A. M. Lewis, Hovey C. Clark, Curtis Heath, M. Barratt Walker,

Oreidic W. Wood, Joseph M. Hartfield, Carl BE, Newton, George W.

Martin, A. A. Berle, Jr, James B. Alley, W. Meade Fletcher, Jr.,

Fred N. Oliver, John C. Donnally, DeCoursey Fales, Merrill M.

Manning, C. S. Bates, Haughton Bell, Sterling Pierson, Alfred H.

Meyers, Ross MeLeod, Victor House, J. Kemp Bartlett, Alfred N.

Heuston, Edward H. Stiefel, Albert L. Reed, and H. Vincent Smart

for interveners.

Chester 1. Long, Samuel W. Melntosh, Jerome J. Shuman, Lawrence

Cake, Harold J. Gallagher, and Alexander B. Royce for other interested

parties.

Revort oF THE CoMMISSION

Division 4, Comaissioners Porter, Mauarvir, AND MILLER

By Division 4:

Exceptions to the report proposed by the examiners were filed, aud

the case was argued orally before us.

1. GENERAL

A. NATURE OF PROCEEDINGS; HEARINGS; INTERVENERS

The St. Louis-San Franeiseo Railway Company, a Missouri cor-

poration, hereinafter called the debter, tor the purpese ol effecting

a reorganization under seetion 77 of the Bankruptey Act, as amended,

1 Prior reports, 207 I. C. C, 623, 221 L. C. C. 199 and 251, 224 1. C. C. 29, 228 1. 0.0.

73, and 233 I. C. C. 627 and 780.

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TERRIER Sete te ty

26 st. LOUIS-S. F. RY. CO. REORGANIZATION

in proceedings entitled “In the Matter of St. Louis-San Francisco

Railway Company, a Corporation, im Proceedings for the Keorgan-

ization of a Railroad, No. 7004—1’’, then and now pending in the

District Court of the United States for the Eastern District of

Missouri, Eastern Division, on November 24, 1937,? filed with this

Commission for its approval a modified plan of reorganization. A

hearing on this plan, pursuant to notice, was held by the Commis-

sion on February 8, 1938, and upon request of committees represent-

ing holders of bonds ot the Kansas City, Fort Scott & Memphis

Railway Company, hereinafter ealled the Fort Scott, and the debtor's

prior-lien and consolidated bonds, the hearing was adjourned to

May 3, 1938. The adjourned hearing was postponed from time to

time. On October 21, 1938, the committees, pursuant to authority

granted, filed a plan of reorganization with the Commission for its

approval. The three committees urged the same provisions in most,

but not in all, instances. Further hearings, pursuant to notice,

were held by the Commission on November 1, 2, and 8, 1938. The

committees’ plan was supplemented at the hearing and modified on

initial brief, complete agreement being finally reached by the pro-

ponents, such agreement being to the plan as an entirety, however,

and not necessarily to any single provision apart from the plan

as a whole. Further references herein to the committees’ plan are

to the plan in the form reached on initial brief. Plans generally

conforming to the plan proposed by the examiners were subsequently

filed by the committees, with their exceptions, showing the changes

urged in event of an approval in general outline of the provisions

of the examiners’ plan. References hereinafter to matters urged

by the committees at variance with the committees’ plan are to

matters thus urged conditionally in the conformed plans.

In addition to the committees which represented holders of the

Fort Seott refunding-mortgage bonds, holders of the debtor’s prior-

lien bonds, and holders of the debtor’s consolidated-mortgage bonds,

hereinafter designated, respectively, the Fort Seott committee, the

prior-lien committee, and the consolidated committee, the Reconstrue-

tion Finanee Corporation and the Railroad Credit Corporation, here-

inafter sometimes called, respectively, the Finance Corporation and

the Credit Corporation, the trustees of the three mortgages men-

tioned, the trustee of the general mortgage of the Kansas City,

Memphis & Birmingham Railroad Company, hereinafter called the

Birmingham, a number of holders and representatives of holders of

bonds issued under one of the several mortgages, and others inter-

vened in the proceeding before the Commission. Each of the three

protective committees for the bondholders represents in excess of 60

2 The debtor’s petition, stating that it was unable to meet its debts as they matured

and that it desired to effect a plan of reorganization under section 77 of the Bank-

ruptey Act, as amended, was filed with the court on May 16, 1933, the debtor having

been in receivership since November 1, 1932. On May 27, 1933, the court entered an

plan of readjustment and, pursuant to notice, hearings on the plan were held by the

Commission on July 18 and 19, 1933, and December 1, 1936, concluding on the latter

date. The Commission, division 4, in its report herein, 291 T. C. C. 199, decided Mareh

17, 1937, concluded that approval at that time of any plan of reorganization of the

debtor should be refused, without prejudice to continuation of the proceedings, and

entered an order to that effect.

eee, ee ee ee a es

ORIGINAL REPORT OF COMMISSION 27

percent of the part of the respective issues outstanding in the hands

of the public. Several of the interveners, though not filing plans,

submitted evidence, filed briefs, or were heard in oral argument. The

positions taken by such interveners will be stated hereinafter follow-

ing an outline of the plans submitted.

(Superseded matter is here omitted)

C. DESCRIPTION OF DEBTOR *S PROPERTY

The St. Louis-San Francisco lines comprise a system of railroads

in the States of Missouri, Kansas, Texas, Oklahoma, Arkansas, Ten-

nessee, Mississippi, Alabama, and Florida. Points served by the

system include St. Louis, Springfield, and Kansas City, Mo.; Colum-

bus and Wichita, Kans., Tulsa and Oklahoma City, Okla., Dallas,

Fort Worth, and Quanah, Tex., Fort Smith and Blytheville, Ark.,

Memphis, Tenn., Tupelo, Miss., Birmingham, Ala., and Pensacola,

Fla. As of December 31, 1936, the debtor owned 6,561.41 miles of

track, operated 6,788.08 miles, and jointly owned and used 36.65

miles. The mileage operated includes 19.41, 37.78, 103.19, 38.98, and

19.09 miles leased from the Birmingham Belt Railroad Company,

the Butler County Railroad Company, the Jonesboro, Lake City &

Eastern Railroad Company, the Miami Mineral Belt Railroad Com-

pany, and the St. Louis, Kennett & Southeastern Railroad Company,

respectively. The Birmingham Belt Railroad Company is an operat-

ing company, and the other four are lessors only. The securities of

all five are all owned by the debtor. System lines operated sepa-

rately are the Birmingham Belt Railroad Company, which, in addi-

tion to the tracks leased to the debtor, owned 24.99 miles of yard

tracks and sidings and operated 27.62 miles, and the following lines

in the State of Texas: Quanah, Aeme & Pacifie Railway Company,

owning 128.82 miles and operating 141.51 miles; and St. Louis, San

Francisco & Texas Railway Company, hereinafter called the Texas

company, owning 158.71 miles, operating 266.76 miles, and jointly

owning and using 0.22 mile. Included in the latter operated mileage

are 107.27 miles of the Gulf, Texas & Western Railway Company, a

nonoperating company, the properties of which were leased July 1,

1930, to the Texas company and the securities of which are all

owned by the debtor. The latter lessor company was granted a

certificate on June 16, 1939, permitting abandonment of its line.

Gulf, T. & W. Ry. Co. Abandonment, 253 1. C. C. 321. The debtor

formerly owned all the capital stock and first-mortgage bonds of

the Fort Worth & Rio Grande Railway Company, which owned

221.68 miles of main and branch line tracks in Texas. This prop-

erty, with the exception of terminals at Fort Worth and certain

cattle traps, was sold March 1, 1937, to the Atchison, Topeka &

Santa Fe Railway Company, pursuant to authority granted by

division 4 on December 31, 1936, in Fort Worth & R. G. Ry. Co. Con-

trol and Operation, 217 1. C. C. 659. The terminals and cattle traps

mentioned were sold to the Texas company.

As of December 31, 1936, the debtor thus owned direetly or con-

trolled through ownership of all securities a total of 7,199.65 miles of

track and operated a total of 7,266.84 miles, including 36.87 miles of

BS eS Prin Lathes oh ea AL Na i a. ce ae “ca

28 ST. LOUIS-S. FP. RY. CO. REORGANIZATION

track jointly owned and operated. This mileage does not inelude the

mileage of the Fort Worth & Rio Grande Railway Company. Of the

mileage owned and controlled, 5,242.08 miles were first main track and

139.65 were second main track. Since the date shown, we have issued

certificates permitting the abandonment of approximately 115 miles of

the debtor’s branch lines and connecting tracks. St. Lowis-S. FP. Ry.

Co. Abandonment, 221 I. C. C. 241, St. Lowis 8. W. Ry. Co. Abandon-

ment, 224 I. C. C. 639, St. Lowis-8. F. Ry. Co. Trustees Abandonment

of Operation, 228 I. C. C. 271, and St. Louis-S. F. Ry. Co. Trustees

Abandonment, 228 I. C. C. 795, 233 I. C. C. 665, and 236 I. C. C, 792.

On the other hand, approximately 13.8 miles of additional line were

acquired, St. Lowis-S. FP. Ry. Co. Trustees Purchase, 239 1. C. C. 165,

The debtor owns all the securities of the Arkansas Mining & Coal

Company, Friseo Construction Company, and Frisco Refrigerator

Line, and approximately 49 and 51 percent of the securities of the

Crawford County Mining Company and the New Mexico & Arizona

Land Company, respectively. All of these are active nonrailroad com-

panies. The debtor also owns all or the majority of the securities of

10 inactive railroad corporations,® and has an interest in 7 active

operating railroad terminal companies.* The debtor owns all the

outstanding securities, except directors’ qualifying shares, of its wholly

owned system lines. The debtor uses 12.3 miles of line and the St.

Louis, San Francisco & Texas 70.12 miles of line under trackage agree-

ments. The system is in good physical condition, and no funds will

be required for rehabilitation. There is no acerued depreciation or

deferred maintenance of way and structures, except $1,287,481 accrued

on the Arkansas & Memphis Railway Bridge & Terminal Company.

3 Kansas City & Memphis Railway & Bridge Company; Kansas City, Clinton &

Springfield Railway Company; Kansas City, Fort Scott & Memphis Railway Com.

; Kansas City, Memphis & Birmingham Railroad Company ; Metropolitan Rapid

t, Light & Power Company ; the Muscle Shoals, Birmingham & Pensacola Rail-

road ; Railway Construction & Improvement Company; Red River, Texas &

Southern way Company; Sapulpa & Oil Field Railroad; and the West Tulsa Belt

Railway Company. : ;

4 Birmingham Terminal Company, Kansas City Terminal Railway Company, Rock

Island-Frisco Terminal Railway Company, Terminal Railroad Association of St. Louis,

Tulsa Union De ee Union Terminal Company (Dallas, Tex.), and the

Wichita Union Terminal way Company.

5 These lines and the securities of each owned by the debtor are as follows:

St. Louis, San Francisco & Texas Railway Company first-mortgage 4-percent bonds

due January 1, 1930, but extended subject to demand by trustees of the prior-tien

mortgage of the debtor, $200,000, capital stock $975,000; Paris & Great Northern

Railroad Company first-mortgage 5-percent bonds due October 1, 1987, $339,000;

Blackwell, Enid & Texas Railway Company first-mortgage bonds due January 1,

1934, $173,000; Red River, Texas & Southern Railway Company first-mortgage 4-per-

cent bonds due March 1, 1933, $815,000, eapital stock $400,000; Gulf, Texas &

Western Railway Company first-mortgage 5-pereent bonds due November 1, 1939,

$2,000,000, capital stock $500,000; Quanah, Acme & Pacific Railway Company first-

mortgage @-percent bonds due October 1, 1939, $2,915,000, capital stock $150,000;

Butler County Railroad Company capital stock $200,000; Miami Mineral Belt Rail-

road Company capital stock $200,000 ; Jonesboro, Lake City & Eastern Railroad Com-

pany first-mortgage 5-percent bonds due September 1, 1925, $674,000, capital stock

$600,000; St. Louis, Kennett & Southeastern Railroad Company refunding and im-

provement mortgage 6-percent bonds due March 1, 1934, $150,000, capital stock

$300,000; Birmingham Belt Railroad Company first-mortgage 4-pereent bonds due

October 1, 1922, $982,000, capital stock $50,000; total, par value, $11,623,000; total,

book value, $12,550,525.

a ee ee ee eee ee

ORIGINAL REPORT OF COMMISSION 29

D. PRESENT CAPITALIZATION

The debtor's total capitalization as of December 31, 1937, was $391,-

634,843, comprising $114,711,526 of capital stock, $234,547,597 of

funded debt unmatured, and $42,375,720 of funded debt matured

unpaid. The long-term debt securities of the system companies out-

standing in the hands of the public as of August 31, 1938, were in

principal amount as follows:

St. Lounis-San Francisco Ry. Co. : ;

Equipment obligations ....... $ 7,331,000

Collateral-trust mortgage 5-percent bonds of 1887... 4,000

Prior-lien mortgage 4-percent bonds, series A, due

July 1, 1950 91,887,097

Prior-lien mortgage 5-percent bonds, series B, due

July 1, 1950 ........ : 25,561,500

Consolidated-mortgage 4%4-percent bonds, series A,

due Mar. 1, 1978 108,305,000

Consolidated-mortgage 6-pereent bonds, series B, due

June 1, 1936 10,000,000

Kansas City, Memphis & Birmingham R. R. Co. general-

mortgage 4-pereent bonds due Mar. 1, UB84..........000 3,323,390

Kansas City, Memphis & Birmingham R. R. Co. 5-percent

income bonds Aue Mar. 1, VIBE .........ccccccccneeerceesseeneeeenennes 3.182.780

Kansas City, Fort Scott & Memphis Ry. Co. refunding-

mortgage 4-percent bonds due Oct. 1, 186... eee 25,835,000

Total - 275,429,767

The short-term notes, obligations of the debtor, were as follows:

Loan from Mereantile-Commerce Bank & Trust Co., St.

Louie, Mo, de daly 2, BGS .....c.cccccecccseccscssssscenes $ 402.115

Loan from Guaranty Trust Co. New York, N. Y., due

Daly 1, TOD crcnccewennee . 1,042,894

Loan from First National Bank, St. Louis, Mo., due July

. “ 342,984

Loan from Bankers Trust Co., New York, N. Y., due July

I a cncivetsccreticecnieseneesieciepeatiinencrentnntirarennnincectiintiadscnmtentitin 422.811

Loan from Central Hanover Bank & Trust Co., New York,

N. V¥., Gee Sealy 2, BSB... ..ccccccsseseccssssereceseesessssseesnenensensons 433,469

Loan from Chase National Bank, New York, N. Y., due

SS. 3 ee 2,492,592

Loan from Railroad Credit Corporation, due Dee. 31, 1935 3,307 482

Loan from Reconstruction Finance Corporation, due on

NRE 6. cccintnsaitiniiiitiadnnninianwanions ; 5,190,000

I as nateenbidiiitiichiniabion 13,634,295

ee. es

ee ee ene) ie ee Sn ere . oe

30 ST. LOUIS-S. F. RY. CO, REORGANIZATION

The capital stock was as follows:

St. Louis-San Francisco Ry. Co. :

Preferred stock, 6-percent noncumulative? ..........008 $ 49,158,300

Common stock ws 65,543,226

Kansas City, Fort Scott & Memphis Ry. Co. preferred

stock, 4-percent noncumulative .......cccceeeeceeeereneereeerensenes 10,000

BURRS | tment siininilhiteiniheanAAANA RCIA 114,711,526

1 Preferred as to dividends, but not as to assets.

Interest is in arrears on all obligations except the equipment obliga-

tions, the Birmingham general-mortgage bonds and income bonds,

and the collateral-trust bonds of 1887. Interest matured and unpaid

on the Fort Seott bonds as of August 31, 1938, was $4,733,440; on

the prior-lien bonds, series A and B, $22,052,903 and $7,668,450, re.

spectively; on the consolidated bonds, series A and B, $29,242,350

and $3,600,000, respectively; and on the short-term notes $3,959,391;

a total of $71,256,534. A part of this interest has since been paid.

Guaranties outstanding other than in intrasystem account are for

securities of jointly controlled termimal companies.

E. PROPOSED PLANS OF REORGANIZATION

1. Capitalization and new securities—(a) Debtor’s plan.—Under

the debtor’s plan, the equipment-trust certificates totaling $7,331,000

as of August 31, 1938, and the Birmingham general-mortgage and

income bonds totaling $6,506,170, would be left undisturbed, except

that the maturity date of the bonds would be extended to Mareh 1,

1954. In exchange for the other securities of the debtor outstanding

in the hands of the public there would be newly created and presently

issued $86,720,000 of series-A first-mortgage bonds, $61,309,600 of

series-A income bonds, $50,487,800 of prior-preferred stock, 294,944

shares of 5-percent preferred stock without par value, and = 1,452,062

shares of common stock without par value. The capitalization pro-

posed under this plan, including no-par stock at $100 a share, approxi-

mates $387,055,170 as of August 31, 1938.

The new first-mortgage bonds would be secured by a first lien,

subject to the equipment-trust liens and liens of the Birmingham

general-mortgage and income bonds on all property of the reorgan-

ized company, and, subject to certain exceptions, on after-acquired

property. The series-A bonds would be dated January 1, 1938, would

bear interest at the rate of 334 percent per annum, payable semi-

annually, would be subject to redemption at any time prior to matur-

ity, and would mature December 31, 1978. The new first mortgage

would provide for the issue of additional bonds of other series to

an unlimited amount for various purposes and subject to various

restrictions.

The new income bonds would be secured by a lien upon all property

and assets which should at any time be subject to the new _ first

mortgage, subject only to the prior lien of the first mortgage and any

liens prior thereto. The series-A bonds would be dated January 1,

HOA RE A te TRENT

ORIGINAL REPORT OF COMMISSION 31

1938, would bear interest, noncumulative, at the rate of 4 percent

per annum, payable annually if earned, would be subject to redemp-

tion at any time prior to maturity, would be entitled to the benefit

of a sinking fund, and would mature December 31, 1988. The new

income mortgage would also provide for the issue of additional bonds

of other series to an unlimited amount for various purposes and

subject to various restrictions,

If in any calendar year the reorganized company should fail to

earn its fixed charges, such deficit would be added to the fixed charges

in the next succeeding year or years, so that no income would be

thereafter available for income bonds of any series until such deficit

should have been made up. Interest on all income bonds would be

payable in multiples of one-fourth of 1 percent. The indenture under

which the first-mortgage and income-mortgage bonds would — be

issued would contain provisions to avoid default in case any install-

ment of interest or sinking-fund payments should become due before

the plan is consummated.

The prior-preferred stock would have a par value of $100 a share

and would entitle the holder thereof to dividends at the rate of $5

a share per annum, cumulative in multiples of 25 cents a share to

the extent that net income should be available therefor and not paid,

before any dividends should be declared or paid on preferred or com-

mon stock. Each share would entitle the holder thereof to 1 vote.

The stock would be callable at $105 a share, together with all unpaid

dividends declared thereon, and in the event of dissolution would

be preferred over other classes of stock in the distribution of assets

to the extent of $100 a share plus unpaid dividends declared or accu-

mulated. In addition to the 504,878 shares required in reorganiza-

tion under the debtor’s plan, approximately 100,000 shares would

be available for issue for any corporate purposes.

The preferred and common stock would be without par value,

but would have a stated value of $100 a share, which could be changed

by the board of directors with the approval of the court. Dividends

on the preferred stock of $5 a share per annum would be cumulative

in multiples of 25 cents a share to the extent that net income is avail-

able therefor and not paid. Each share would entitle the holder

thereof to 1 vote. In the event of dissolution, the holder of each

share of this stock would be entitled to the same share in the assets of

the company as that to which a holder of common stock would be

entitled. The preferred stock would be callable at $100 a share,

together with all unpaid dividends declared or accumulated. Each

share of common stock would entitle the holder thereof to 1 vote. In

addition to the 294,944 shares of preferred stock required under the

plan, there would be approximately 100,000 shares available for issue

for any proper corporate purpose.

In addition to the 1,452,062 shares of common stock to be issued

under the plan, there would be approximately 200,000 shares avail-

able for issue for any proper purpose.

(b) Committees’ plan. — The plan of reorganization proposed by

the bondholders’ committees would leave undisturbed the equipment

obligations, which as of January 1, 1940, would amount to $5,874,000.

The plan contemplates the issue of $6,506,170 of new first-mortgage

series-A bonds, $71,714,623 of new first-mortgage series-B bonds,

pia rah ea

;

32 ST. LOUIS-S. F. RY. CO. REORGANIZATION

$50,482,355 of new income-mortgage series-A bonds, $77,307,713 of

new preferred stock, 1,100,181 shares of new class-A common stock

without par value, and 614,938 shares of new class-B common stock

without par value. The total new capitalization would thus be

$383,396,761, including no-par stock at $100 a share.

The new first-mortgage bonds would be unlimited in authorized

amount, and would be secured by a first lien, subject to the liens

upon equipment, on all the property and assets of the reorganized

company and, subject to certain exceptions and limitations, on after-

acquired property. The series-\ bonds would be dated January 1,

1940, would bear interest at the rate of 4 percent per annum, payable

semiannually, or such other rate as would be necessary to give them

a market price, when the reorganization is consummated, approxi-

mately equal to their principal amount, would be subject to redemp-

tion at any time prior to maturity, would be convertible into a like

principal amount of series-B bonds, and would mature January 1,

1950. The series-B bonds would be dated January 1, 1940, would bear

interest at the rate of 4 percent per annum, would be subject to re-

demption at any time before maturity, and would mature January 1},

1980. In addition to the first-mortgage bonds to be issued in re-

organization, $5,000,000 ef series-B bonds would be placed in the

treasury of the reorganized company for sale or pledge to provide

for contingencies.

The new income-mortgage bonds would be unlimited in authorized

amount, and would be secured by a lien, subject only to the lien of the

first mortgage and liens prior thereto, upon all property at any time

subject to the lien of that mortgage. The series-A bonds would be

dated January 1, 1940, would bear interest, cumulative to a maximum

amount of 2214 percent, but not beyond, at the rate of 41% pereent per

annum, payable annually only out of available net income, after pay-

ment of fixed charges and deductions for capital fund and part one of

the emergeney-bond sinking fund, would be subject to redemption on

May 1 in any year prior to maturity, would be entitled to the benefit of

a sinking fund to be created out of available net income, would be

convertible into common stock, elass A, as at the time constituted, at

any time on or before January 1, 1945, at the rate of 15 shares for each

$1,090 of such bonds, and thereafter at the rate of 1214 shares fer each

$1,000, principal amount, of such bonds, and would mature January 1,

2015.

The preferred stock would have a par value of $100 a share and

would be preferred over other issues of stock in the distribution of

dividends and in ease of liquidation or reorganization in the distribu-

tion of assets to the extent of its par value and accrued and unpaid

accumulated dividends plus such premium as might be specified in the

stock certificates. Each share would entitle the holder to eumulative

voting in the election of directors and to one vote in all other matters,

and under certain circumstances, the holders of the preferred stock

voting as a class would be entitled to elect the majority of directors.

Preferred stock, series A, would be entitled to dividends at the rate

of $5 per annum, cumulative to the extent earned in excess of sinking-

fund and eapital-fund requirements in any calendar year, but not paid.

Aceumulation of preferred-stock dividends would not be reduced by

the capital fund or by sinking-fund requirements after all income-—

are. a A PRS RINE PTCA Wena ar ET ~ Ae a ew — re

SF RT RN RN, FORO CONES RIES Hee PTE IL LE

ORIGINAL REPORT OF COMMISSION 33

mortgage bonds should cease to be outstanding. The stock would

be redeemable at any time and convertible, share for share, into com-

mon stock, class A, as at the time constituted. In addition to the

773,077 shares of preferred stock to be issued in the reorganization,

1,226,923 shares would be issuable, from time to time, with the consent

of the holders of the outstanding preferred stock.

The common stock, class A, would be entitled to dividends equal to

$5 a share in respect of each calendar year before any dividends were

paid on class B stock in respect of such year. After dividends of $5

a share on the class A common stock in respect of any year had been

paid or declared and set apart for payment, dividends up to but

not exceeding $5 a share might be declared and paid on the class B

common stock. After the dividend of $5 on the class B common stock

had been paid or declared and set apart for payment, additional divi-

dends, if any, would be paid equally, share for share, without distine-

tion between classes. Under certain circumstances, holders of class A

stock would be entitled to elect a majority of the directors. With

these exceptions, holders of both classes of common stock would rank

equally for all purposes and would be entitled to 1 vote a share on all

other matters. The total authorized issue of common stock, class A,

would be 2,700,000 shares, of which 1,530,312 would be reserved, so

long as required, to provide for the conversion of income-mortgage

bonds, series A, and preferred stock, series A. The total authorized

issue of common stock, class B, would be 650,000 shares.

2. Capital funds.—Under the debtor’s plan, the new first mortgage

would provide for the creation of a capital fund to which would

be credited, to the extent to which net earnings after fixed charges

should be available therefor, $500,000 each year until the fund should

amount to $5,000,000, and thereafter at any time when payments out

of this fund should reduce it below that figure. The fund would

be available in the discretion of the board of directors for improve-

ments, betterments, and equipment. The committees’ plan would

provide for the creation, if the board of directors should so deter-

mine, of a capital fund to be used, subject to certain limitations, for

various capital expenditures or to reimburse the reorganized com-

pany’s treasury for such expenditures, the amount to be set aside

in eapital fund out of such income of any calendar year not to

exceed 2 percent of the consolidated total railway operating revenues

of the reorganized company, less depreciation on roadway and strue-

tures charges against income in such year, plus the deficit in capital-

fund payments for the preceding year.

3. Allocation of new securities—(a) Debtor’s plan—Under the

debtor’s plan the holders of Fort Scott bonds would receive for each

$1,000 bond and acerued interest $650 in new first-mortgage bonds,

$350 in new ineome bonds, and 0.84 share of new common stock.

The holders of prior-lien series-A bonds would receive $300 in new

first-mortgage bonds, $200 in new income bonds, $250 in new prior-

preferred stock, and 1.98 shares of new common stock, for each

$1,000 bond and accrued interest. The holders of prior-lien series-B

bonds would receive $300 in new first-mortgage bonds, $200 in new

income bonds, $250 in new prior-preferred stock, and 2.2 shares

of new common stock, for each $1.090 bond and accrued interest.

The holders of consolidated series-A bonds would receive $250 in

Pat RECT ELS? Se Aas PBA

PMT ET

LEKI OBA SDI CST ALOE FE

SPELT Le Fe

34 ST. LOUIS-S. F. RY. CO. REORGANIZATION

new first-mortgage bonds, $200 in new income bonds, $150 in new

prior-preferred stock, and 2.72 shares of new common stock, for

each $1,000 bond and acerued interest. The holders of consolidated

series-B bonds would receive $250 in new first-mortgage bonds, $200

in new income bonds, $150 in new prior-preferred stock, and 3.1

shares of new common stock, for each $1,000 bond and accrued

interest. The Finance Corporation would receive $2,076,000 in new

first-mortgage bonds, $2,076,000 in new income bonds, $1,038,000 in

new prior-preferred stock, and 6,588 shares of new common stock,

for principal and interest on its loans. The Credit Corporation

would receive $985,800 in new first-mortgage bonds, $985,800 in new

income bonds, $1,314,500 in new prior-preferred stock, and 1,566

shares of new common stock, for principal and interest on its loans.

The ereditor banks would receive $2,054,800 in new first-mortgage

bonds, $2,054,800 in new income bonds, $1,027,300 in new prior-

preferred stock, and 6,582 shares of new common stock, for their

loans and acerued interest. The holders of preferred stock would

receive 60 pereent in new preferred stock and 40 percent in new

common stock in exchange for the outstanding preferred stock. The

holders of common siock would receive share for share in new

common stock.

(b) Committees’ plan.—Under the committees’ plan the holders of

the Birmingham general-mortgage and income bonds, other than

bonds pledged, would receive $1,000, principal amount, in new first-

mortgage bonds, series A, for each $1,000 bonds and accrued in-

terest. Holders of Fort Seott refunding bonds would receive $700

in new first-mortgage bonds, series B, $470 of new income bonds,

and $100 of new preferred stock, for each $1,000 bond and accrued

interest. Holders of prior-lien bonds, series A, would receive $205

of new first-mortgage bonds, series B, $150 of new income bonds,

$365 of new preferred stock, and 5.8 shares of new common stock,

class A, for each $1,000 bond and accrued interest. Holders of

prior-lien bonds, series B, would receive $215 of new first-mortgage

bonds, series B, $160 of new income bonds, $385 of new preferred

stock, and 6.15 shares of new common stock, class A, for each $1,000

bond and accrued interest.

Holders of consolidated bonds, series A, would receive $215 of

new first-mortgage bonds, series B, $150 of new income bonds, $230

of new preferred stock, 3 shares of new common stock, elass A,

and 4.3 shares of new common stock, class B, for each $1,000 bond

and accrued interest. Holders of consolidated bonds, series B, would

receive $235 of new first-mortgage bonds, series B, $165 of new

ineome bonds, $250 of new preferred stock, 3.3 shares of new common ~

stock, class A, and 4.7 shares of new common stock, class B, for each

$1,000 bond and accrued interest.

The Reconstruction Finance Corporation would receive for the

loans and acerued interest on such loans the new securities issuable

in respect of the collateral pledged for such loans, namely, $1,724,180,

principal amount, of new first-mortgage bonds, series B, $1,210,675,

principal amount, of new income bonds, $1,872,630, par value, of new

preferred stock, about 24,907 shares of new common stock, class A,

and about 33,469 shares of new common stock, class B. The various

banks would similarly receive $1,937,810 of new first-mortgage bonds,

Ag IS RTA ear ENE Od sy ae F

ORIGINAL REPORT OF COMMISSION 35

series B, $1,360,590 of new ineome bonds, $2,061,500, par value, of

new preferred stock, about 27,212 shares of common stock, class A,

and about 38,756 shares of new common stock, class B.

Of new common stock, class B, 30,000 shares would be reserved

to distribute among the unsecured creditors and the Railroad Credit

Corporation. That corporation would receive about 29,250 shares

of new common stock, class B (taken at $125 a share), for its total

claim, less the debtor’s receivable share under the marshaling and

distributing fund; and other unsecured creditors would receive the

same class of stock at the same rate per share in the amount allowed

by the order or orders of the court.

4. Provisions for execution of plan.—(a) Debtor's plan.—lt is pro-

posed in the debtor’s plan that the present St. Louis-San Francisco

Railway Company be continued, with necessary changes of capital

structure effected by decree under section 77, as amended, or that a

hd corporation be organized for the purpose of carrying the plan into

effect.

Certain general unliquidated claims which accrued prior to the

filing of the bill in equity for the appointment of a receiver for

the debtor’s property are outstanding, and it is proposed in the

plan that the reorganized company agree to give in payment of

such of these claims as may be finally allowed 1 share of preferred

stock for each $100 of debt so allowed.

The reorganized company would assume the debtor’s obligations as

guarantor on the outstanding bonds of terminal companies and would

assume all executory contracts not rejected by the trustees of the

debtor prior to the consummation of the plan. Any claimant for

damages arising out of rejection of an executory contract by the trus-

tees, as proposed, would have the status of a general creditor.

All eosts of administration, allowances made by the court for ex-

penses incurred in connection with the proceedings and the prepara-

ticn and consummation of the plan, and other allowances made by the

court, would be paid in cash by the reorganized company, except

where the person entitled to such allowances should consent to dif-

ferent treatment.

(b) Commiitees’ plan.—Under the committees’ plan, claims not af-

fected by the plan comprise current liabilities of the debtor incurred

in the ordinary conduct of its business prior to the institution of the

reorganization proceeding, which are entitled to priority over one or

more of the mortgages of the debtor, and current liabilities and obli-

gations of the bankruptcy trustees. To the extent that such claims,

liabilities, and obligations are not paid pursuant to order of the court,

they would be paid in cash or assumed by the reorganized company.

The reorganized company would assume such contracts of the debtor

which are execuiory in whole or in part, including any executory

leases and liabilities under guaranties, as have been affirmed by the

bankruptcy, trustees and approved by the court, and also any executory

contracts made by the bankruptcy trustees with approval of the court

which, by their terms, do not terminate at the conclusion of the re-

organization proceeding.

Other provisions of the plans proposed will be considered later in

connection with the consideration of provisions of like purpose to be

incorporated in the approved plan.

ROGET

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36 ST. LOUIS-S. F. RY. CO. REORGANIZATION

5. Objections to the plans of the parties.—The intervening Birming-

ham bondholders object to the treatment accorded their interests under

the committees’ plan because (1) they believe that such treatment

would seriously jeopardize the payment of future interest to holders

of those bonds; (2) it would reduce the rate of interest on the Birming-

ham income bonds from 5 to 4 percent; and (3) it would dilute the

security which safeguards the principal of the Birmingham bonds.

These Birmingham bondholders contend that they should be paid in

full in eash or the maturity date of these bonds should be extended

under the existing lien and interest rates, with provision for an ade-

quate sinking fund.

The Old Colony Trust Company, trustee under the general mort-

gage of the Kansas City, Memphis & Birmingham Railroad Com-

pany, intervened and objects to the debtor’s plan because it would

extend the maturity date of the Birmingham bonds to March 1, 1954,

at the same rates of interest, without specifically providing that the

reorganized company should assume these obligations, because it be-

lieves the period of extension would be unjustifiable in view of

the present strong priority position of these bonds, and because no

provision is made for a sinking fund in connection therewith. This

trustee also objects to the committees’ plan upon substantially the

same grounds as those referred to above in connection with the inter-

vening Birmingham bondholders’ position, and because the plan does

not provide that upon the failure of the issuer to pay the new first-

mortgage series-A bonds (to be issued in exchange for the outstanding

Birmingham bonds) at maturity, then the new first-mortgage series-B

bonds would become immediately due and payable. It is urged that

under any plan of reorganization the principal of, and any accrued

interest on, the Birmingham bonds should be paid in full in cash.

The Finance Corporation objects to both the debtor’s plan and the

committees’ plan, and contends that, because of the plan and agreement

of 1932 for readjustment of the debtor’s finances, and the agreements

of the debtor, and the assets and commitments of the bondholders, com-

mittees, and readjustment managers alleged to have been made in that

plan and agreement and in connection therewith, its loan amounting

to $5,190,000 and unpaid interest as of January 1, 1940, of $2,169,533

is entitled to priority over existing mortgages to the same extent that

priority would be aceorded to any new obligations of the receivers.

The Credit Corporation objects to both proposed plans and contends

that by reason of the afore-mentioned plan and agreement of 1932,

agreements of the debtor, and the assets and commitments of the others

mentioned, its loan of $3,307,432, principal amount, and unpaid interest

as of January 1, 1940, of $383,628 is entitled to a lien upon the prop-

erty of the debtor, subject only to the liens of the Birmingham and

the Fort Scott bonds, exclusive of pledged Fort Scott bonds, and prior

to the liens of the prior-lien and the consolidated bonds, including the

pledged Fort Scott bonds, at least to the extent that the holders of

the prior-lien and consolidated bonds assented to or became bound

thereby; a lien upon the distributive shares of the debtor under the

marshaling and distributing plan, 1931; and a second lien upon the

collateral pledged with the Finance Corporation.

The Central Hanover Bank & Trust Company and Daniel K. Catlin,

as trustees under the prior-lien mortgage, and the Chase National Bank

ME ADI Re Ri CAT TAI

ORIGINAL REPORT OF COMMISSION 34

of the City of New York and John A. Aid, as trustees under the

consolidated mortgage, interveners, support the committees’ plan of

reorganization.

The United States Fidelity & Guaranty Company intervened as

surety on appeal bonds of the debtor. It states that the debtor’s

plan makes no provisions for judgment claims arising therefrom and

requests that the plan of reorganization approved by the Commis-

sion provide that any such claims remaining unpaid upon final decree

be paid in cash or assumed by the reorganized company.

6. Conclusions as to certain features of plan—Under the provisions

of section 77 (d) of the Bankruptcy Act, as amended, the Commission

is required to render a report and order in which it shall approve a

plan, which may be different from any which has been proposed, that

will in its opinion meet with the requirements of subsections (b)®

and (e)* of the section, and will be compatible with the public

6 Subsection (b) of section 77 provides in part that a plan of reorganization

‘*(1) shall include provisions modifying or altering the rights of creditors generally,

or of any class of them, secured or unsecured, either through the issuance of new

securities of any character or otherwise; * * * (4) shall provide for fixed charges

(including fixed interest on funded debt, interest on unfunded debt, amortization of

discount-en funded debt, and rent for leased railroads) in such an amount that, after

due consideration of the probable prospective earnings of the property in light of its

earnings experience and all other relevant facts, there shall be adequate coverage of

such fixed charges by the probable earnings available for the payment thereof;

(5) shall provide adequate means for the execution of the plan * * *.’’

7 Subsection (e) of section 77 provides that the judge shall approve the plan

certified to the court by the Commission if satisfied, after hearing, and without hear-

ing if no objections are filed, ‘‘that: (1) It complies with the provisions of sub-

section (b), is fair and equitable, affords due recognition to the rights of each class

of creditors and stockholders, does not discriminate unfairly in favor of any class

of creditors or stockholders, and will conform to the requirements of the law of the

land regarding the participation of the various classes of creditors and stockholders ;

(2) the approximate amounts to be paid by the debtor, or by any corporation or

corporations acquiring the debtor's assets, for expenses and fees incident to the

reorganization, have been fully disclosed so far as they can be ascertained at the

date of such hearing, are reasonable, are within such maximum limits as are fixed

by the Commission, and are within such maximum limits to be subject to the approval

of the judge; (3) the plan provides for the payment of all costs of administration

and all other allowances made or to be made by the judge,’’ except that allowances

for the actual and reasonable expenses (including reasonable attorney’s fees) in-

curred in connection with the proceedings and plan by parties in interest and by

reorganization managers and committees, or other representatives of creditors and

stockholders, and the actual and reasonable expenses incurred in connection with the

proceedings and plan and reasonable compensation for services in connection there-

with by trustees under indentures, depositaries, and such assistants as the Commission

with the approval of the judge may especially employ, may be paid in securities pro

vided for in the plan, if those entitled thereto will aceept such payment. Subsee-

tion (e) further provides that upon receipt of certification by the Commission of the

results of submission to creditors and stockholders, ‘‘the judge shall confirm the plan

if satisfied that it has been accepted by or on behalf of creditors of each class to

which submission is required under this subsection holding more than two-thirds in

amount of the total of the allowed claims of such class which have been reported in

said submission as voting on said plan, and by or on behalf of stockholders of each

class to which submission is required under this subsection holding more than two-

thirds of the stock of such class which has been reported in said submission as voting

on said plan; and that such acceptances have not been made or procured by any

means forbidden by law: Provided, That, if the plan has not been so accepted by

the creditors and stockholders, the judge may nevertheless confirm the plan if he is

wt ar |

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Poet Dena

38 ST, LOUIS-S. F. RY. CO, REORGANIZATION

interest; or to render a report and order in which it shall refuse to

approve any plan. Each of the plans proposed appears to meet the

requirements of subsection (b) (1) and (5) in that they would in-

elude provisions for modifying and altering the rights of creditors

and would provide adequate means for the execution of the plan.

Each plan also appears to meet the requirements of subsection (e)

(3), and the proponents of each plan would no doubt in proper time

be able to meet the requirements of subsection (e) (2). There re-

mains to be determined whether any of these plans meets or some other

plan may meet, the requirements of subsection (b) (4) and subsection

(e) (1) and is compatible with the public interest.

Il. NEW CAPITALIZATION AND CHARGES

To meet the requirement of compatibility with the public interest,

the plan proposed should in our view provide a capitalization rep-

resented by securities with some prospects for yielding a return to

their holders, and having something more than mere speculative value.

To meet these requirements, as well as the requirements of subsection

(b) (4) of section 77, there must be adequate coverage of fixed charges

by the probable earnings available for the payment thereof.

A. ASSETS, CAPITALIZATION, TRAFFIC, REVENUES, ETC.

1. Book assets and valuation figures——The consolidated general

balance sheet of system companies as of December 31, 1937, shows

the following assets: Road and equipment $426,452,105, deposits in

lieu of mortgaged property sold $828,168, miscellaneous physical prop-

erty $677,903, investments in affiliated companies $1,409,906, and other

investments $11,531,386, a total of $440,899,468 of investments. Current

assets were $15,101,920, including $6,277,579 in cash and $5,813,381 in

material and supplies. Deferred assets were $229,438, and unadjusted

debits were $1,304,563. ‘Total assets were $457,535,389. <A total of

$103,574,150 of securities issued or assumed by system companies was

pledged, and a total of $21,653 was reported as held unpledged.

Liabilities shown on the same balance sheet comprise common stock

$65,543,226, preferred stock $49,158,300, grants in aid of construction

$525,666, long-term debt $234,547,597, current liabilities $125,471,849,

deferred liabilities $199,470, unadjusted credits $48,904,639, and a

corporate deficit of $66,815,358 after taking into account additions to

property through income and surplus of $1,884,039 and appropriated

surplus not specifically invested of $233,455,

Current liabilities include notes payable, secured, $13,634,295, traffic

and ear-service balances payable $350,753, audited accounts and wages

payable $2,652,826, miscellaneous accounts payable $111,782, interest

matured unpaid $62 793,532, dividends matured unpaid $13,565, funded

debt actually outstanding matured unpaid $42,375,720, unmatured

interest accrued $2,150,745, and other current liabilities $388,631.

satisfied and finds, after hearing, that it makes adequate provision for fair and equi-

table treatment for the interests or claims of those rejecting it; that such rejection

is not reasonably justified in the light of the respective rights and interests of those

rejecting it and all the relevant facts’’; and that the plan conforms to the above-

stated requirements of this subsection.

ORIGINAL REPORT OF COMMISSION 39

Unadjusted credits include tax liability $1,974,424, insurance and

casualty reserves $12,694, accrued depreciation of road $1,237,108,

accrued depreciation of equipment $44,429,977, and other unadjusted

eredits $1,250,437.

As of December 31, 1936, the original cost of the property of the

debtor was $208,133,792 for road and $89,354,756 for equipment, the

cost of reproduction new $239,492,025 for road and $94,474,274 for

equipment, the cost of reproduction less depreciation $168,318,419

for road and $48,351,025 for equipment, and the value of lands and

rights $22,030,860. The cost of reproduction less depreciation, plus

the value of lands and rights, and an allowance of $3,955,800 for

working capital, amounts to $242,656,104. It is further shown that

the cost of reproduction less depreciation of road and equipment

of all other system companies plus the value of lands and rights and

an allowance of $58,100 for working capital, amounts to $13,363,287.

The latter sum when added to the comparable figure for the debtor

would produce a total for the system of $256,019,391. Cost-of-re-

production-new figures were based on revised inventories as of Decem-

ber 31, 1934, with consideration given to subsequent changes in property

items as disclosed by the carrier’s records for 1935 and 1936. Period

prices were applied, determined from consideration of records of prices

and their individual trends prevailing in 1936 and during a period of

time prior and subsequent thereto. Cost of reproduction less deprecia-

tion was determined in accordance with methods frequently explained

in the valuation reports of this Commission.

2. Traffic and revenues.—The revenve freight and the freight rev-

enues of the system lines increased each year, rising from 24,102,790

tons and $62,498,060, respectively, in 19238, to 26,317,707 tons and

$71,681,444, respectively, in 1926, then declined each year, except

1929, amounting to 13,457,692 tons and $35,717,366, respectively, in

1932, and 13,756,787 tons and $34,932,836 in 19383. In 1929 the number

of tons was 27,097,973 and the freight revenues $70,376,366. In 1934,

1935, 1936, and 1937, 14,054,112, 13,981,609, 16,888,918, and 17,625,909

tons, respectively, were moved, producing revenues of $35,555,780,

$35,834,793, $42,298,701, and $42,909,254, respectively. Freight rev-

enues derived from principal commodities for the years indicated were

as follows:

Derived from— 1926 1936 1937

Products of agriculture. .............---..-----eeceee eee eeeeeee $12, 190, 741 $7, 245, 767 $7, 749, 411

Animals and products...... .. .. Lis padvekeckhestbbsakeeteenete 3, 750, 524 2, 081, 096 2, 016, 735

ee eee re 9, 318, 796 5, 223, 890 5, 428, 021

RN ne ng cu ccceuancecnnscavcknestacentoneten 6, S89, 056 2, 927, 070 3, 003, 648

Manufactures and miscellaneous ................-----------+- 30, 070, 927 21, 398, 913 21, 405, 136

L908 CHAM GRFRORGS. . 0. acc cc.ccecccncccccccccccccccesssenses 9, 461, 400 3, 421, 965 3, 308, 303

The average revenues per ton-for the years 1931-37 were $2.61, $2.65,

$2.54, $2.53, $2.56, $2.51, and $2.44, respectively.

The system lines carried 9,457,960 revenue passengers in 1923, pro-

ducing revenue of $20,597,709. Each year thereafter the number of

passengers decreased until 1933, when 690,022 passengers were carried,

producing revenue of only $2,340,957, An improvement in this traffic

began in 1934 when 980,119 passengers produced total passenger rev-

40 ST, LOUIS-S. FL RY, CO, REORGANIZATION

enues of $2,497,880. The improvement continued through 1986 - when

1,370,491 passengers were carried and passenger revenues of $5,451,938

were received, There were 1,418,115 passengers carried in 1937, pro-

ducing revenues of $3,785,055, The average revenues per passenger

for the years 1931-37, inclusive, were $3.371, $8404, $3.393, $2549,

$2.519, $2.519, and $2.669, respectively.

3. Earnings and expenses.—Earnings available for fixed charges.—

The system railway operating revenues increased from $89,633,152 in

1923 to $94,715,375 in 1925, declined to $85,782,818 in 1928, increased

to $89,109,286 in 1929, declined each year thereafter, reaching $40,-

693,596 in 1933, and then increased each year, reaching $51,218,937 in

1937. The railway operating expenses in 1923 were $65,954,620 and

remained at approximately that figure until 1927, when they were re-

duced to $62,263,277. They were $59,783,801 in 1928, $62,847,958 in

1929, and $33,822,276 in 1933, and then inereased each year, reaching

$41,170,783 in 1936. In 1987 these expenses were $43,194,545. The

operating ratios for the years 1923, 1927, 1928, 1929, 1933, 1936, and

1937 were 73.56, 69.76, 69.69, 70.53, 83.11, 82.04, and $4.33 percent,

respectively. Other operating charges, embracing railway tax accruals,

uncollectible railway revenues, hire of equipment, and jomt-facility

rents, ranged from $6,464,324 in 1925 to $3,231,562 in 1937. Non-

operating income increased from $451,827 in 1923 to $38,778,629 in

1928, declined to $334,684 in 1932, and again declined from $508,339

in 1933 to $153,071 in 1936, but increased to $182,105 in 1937. Other

deductions from income, embracing rentals, miscellaneous tax accruals,

separately operated properties, miscellaneous income charges, and sink-

ing and other reserve funds, ranged trom $766,241 in 1923 to $64,072

in 1937.

Income available for payment of interest increased from $18,339,468

in 1923 to $24,636,429 in 1928, declining to $1,476,347 in 1935, increas-

ing to $5,197,171 in 19386, and declining to $4,911,063 in 19387, — In-

terest on fixed-charge obligations ranged from $10,039,232 in 1923 to

$13,620,863 in 1928, and from $12,500,382 in 1929 to $13,518,941 in

1932, decreasing each year thereafter to $12,841,172 in 1937.5 Net

income ranged from $3,762,859 in 1923 to $10,192,073 in 1929, and

decreased to $5,621,586 in 1980.) From 1931 to 1937, the deficits in

net income were $3,255,763, $10,093,677, $10,261,499, $10,638,308, $11,-

560,016, $7,722,727, and $7,980,109, respectively." The fixed interest

charges were earned from 1,83 times in 1925 to 2.11 times in 1925,

1.44 times in 1930, 0.76 time in 1931, 0.11 time in 1985, and O40

time in 1936.

The average income available for interest during the 10-year period

1923-32 was $18,686,538 a year, and for the 4-year period 1933-36,

$3,107,818 a year. The latter figure would be increased to $3,287,318

by including the canceled taxes of $718,000 as income available for

interest in 1936. As above indicated, the income available for interest

8In addition to the fixed-interest obligations for the years 1923-28, the interest

paid on cumulative adjustment-mortgage bonds averaged $2,228,799 a year, and on

inecome-mortgage bonds it averaged $2,022,290 a year.

9 The 1936 and 1937 deficits include approximately $718,000 and $82,000, respec-

tively, of taxes under the Railroad Retirement Act of 1935 and Federal and State

unemployment acts which were repealed in July 1937 and credited back in December

1937.

OOM te

ORIGINAL REPORT OF COMMISSION 41

in 1935 was less than that in any other year during the 14-year period

and decreases the average. The average for the period 1932-36, omitting

1935, was $3,595,047 a year, not including the canceled taxes, anc

$3,774,547 inclusive of those taxes. These last two averages capitalized

at 5 percent produce $71,900,940 and $75,490,940, respectively.

lf income available for payment of interest, as shown by the books

of account of the debtor and system companies named, were adjusted

so as to correct accounting not in conformity with the Commission’s

accounting regulations, further adjusted to include income items en-

tered in profit and loss account by permission of the Commission, and

to give retroactive effect to current regulations governing accounting

for depreciation of equipment and to tax legislation subsequently en-

acted, the averages for the 5 years 1930 to 1934 would be those set

forth in the following table:

| Fort | : ‘ St.

| Birm. | Worth lets proses Louis,

tiem Debtor | MEhAM) @ Rio | Wane | anne | 5. F &

te Belt | Grande Western! Pacifie Texas

j RR. | sari Ry Ry agg

Ry. ) ; Ry.

1. Interest on funded and wofanded debt $13, 253, 192 | gaz, 382 $708 lesion, 023 ($162, 921 [1 844, 449

. Interest as in item Latter correcting account

ing

3%. Income availible for payment of taterest ?

4 Income as in item 3 efter correcting account-

inv 7, 820, 659

% Income as in item 3 after adjustment to in-

clude items entered in profit: and loss ae-

count 6, 212, O86 | 42, 900 |.........

‘

527 "

42, 960 |! 359,727 | 73,149 | 62,848 |! 470, 87.

42, 960 [1 345, 389 49, 309 | | 422, 229

» Income asin item 3 after adjustment to give

retroactive effect to current reculations

governing accounting for depreciation of

equipment ae ' 7, 768, 49 48,117

7 Income as in item 3 after adjustment to give yt

retroactive etleet to new legislation... 6, 625, 037 | 37,099 |! $71, 709 -| 35,312 | ' 463, 957

' Deficit.

? As stated on carriers’ books of account ; ;

4 Includes an averae of $445,788 of interest and dividends receivable from the affiliated companies named

in this table, except the Fort Worth & Rio Grande Ry

The income of the Gulf, Texas & Western Railway Company on

and sinee July 1, 1980, has been from rent equal to the interest accru-

ing on its outstanding bonds, and amounting to $100,000. All cur-

rent taxes and maintenance and operating costs of this line are as-

sumed by the lessee. The only income items recorded on the books

of the Jonesboro, Lake City & Eastern Railroad Company, Butler

County Railroad Company, St. Louis, Kennett & Southeastern Rail-

road Company, and the Miami Mineral Belt Railroad Company during

the 5-year period are relatively small amounts generally not in excess

of $12,000, reflecting transactions of the periods prior to the dates

these lines were leased to the debtor.

The debtor’s net railway operating income of $5,880,915 for 1936,

as shown by the books of account, was approximately 2.4 percent of

the figure given above for cost of reproduction less depreciation plus

value of land and rights and the allowance for working capital. The

system’s net railway operating income of $5,116,889 in 1936, as shown

by the books of account, was approximately 2 percent of the figure

given above for corresponding elements of value for the system as a

whole.

ome ar |

OOO EAS

42 ’ ST. LOUIS-S. F. RY. CO. REORGANIZATION

Consolidated income available for payment of interest from 1925

to 1938, as shown by the books of account, and as adjusted to eliminate

the Fort Worth & Rio Grande Railway Company (not now owned

by the debtor), and taxes charged and later credited back, and fur-

ther adjusted as regards the years 1930 to 1934, inclusive, to correct

accounting not in conformity with our accounting regulations, to

include income items entered in profit and loss account by permission

of the Commission, and to give retroactive effect to current regula

tions governing accounting for depreciation of equipment was as

follows :

As shown Books As shown Books

by books | adjusted by books | adjusted

Year 1008..............--- $24, 636, 429 | $24, 648,827 || Year 1934. $2, 552,363 | $2, 698, 485

Year BOGD. ... . 20. woe neenees 22, 692,455 | 22, 869, 738 Year 1935... 1, 476, 348 1, 370, 998

Year 1990... ........------ 18, 405, 651 17, 608, 663 || Year 1936... §, 197, 171 6, 207, 498

Year 1081... .........----- 10, 074, 729 | 10, 288, 49 Year 1937... .... 4, 911, 062 4, 268, 109

Year 1032... .........----- 3, 425, 204 3, 583, G47 || Year 1938... ........-- 1, 241, SSS Lea Shethes

Year 1083... .........----- 3, 205, 389 3. 071, O75

Bh. CONCLUSIONS AS TO NEW CAPITALIZATION AND FIXED CHARGES

The average income available for payment of interest during the

last 7 years stated was $3,201,671 annually. All of this sum was not,

however, and could not have been, paid out in interest, if the property

was to be properly managed, since, among other reasons, capital re-

quirements which had to be financed from earnings rather than bor-

rowing were large. From the appointment of the receivers in November

1932, there was expended for additions and betterments to the prop-

erty to December 31, 1937, about $9,397,000 of cash or its equiva-

lent, or about $1,819,000 a year. To March 1, 1938, interest payments

were only about $5,226,000, or about $1,000,000 a year, although an

average for the 6 years ended with 1938 of about $3,150,000 annually

was apparently available. This requirement, that a part of income

be available for capital purposes, and not all pledged for debt service,

is not peculiar to receivership or bankruptey ; sound financing demands

it at all times. The burden is, however, generally heavier during

receivership and bankruptey than during periods when the company

is not in default, especially if, as in the case of the debtor, receivership

was brought about largely through excessive fixed charges, and the

proportion of revenues spent on maintenance was increased during

the period of default.

The annual interest on the undisturbed equipment-trust obligations

as of June 30, 1937, and the annual fixed interest on the outstanding

Birmingham bonds total $704,000, The annual fixed interest on the

new first-mortgage bonds proposed in the debtor’s plan totals $3,252.-

000, and the contingent interest on the new income bonds each year

totals $2,452,400. Thus the annual fixed interest charges under the

debtor’s plan total $3,956,000. The dividends on the new prior:

preferred stock, if paid in full at the rate proposed in the plan, would

total $2,524,400, and on the new preferred stock $1,474,700. Sinkine

fund and provision for capital fund would require about $806,548

annually. The total of these items is $11,214,048,

ORIGINAL REPORT OF COMMISSION 43

The annual fixed charges under the committees’ plan would be

$207,664 on equipment obligations, $260,247 on first-mortgage bonds,

series A, and $2,868,585 on first-mortgage bonds, series B, a total of

$3,336,496. Contingent intercst on the income bonds amounts to

$2,271,706. Capital-fund charges would be $1,000,000, when total

operating revenues were $50,000,000, and would exceed $1,000,000 with

any further increase in total operating revenues. Income-mortgage

sinking fund initial requirement would be $252,412 (0.5 percent of

greatest principal amount of income bonds outstanding). Preferred-

stock dividends would be $3,865,386. The total requirements for in-

terest, preferred dividends, capital fund, and sinking fund would thus

be $10,726,000.

Both plans of reorganization proposed by the parties give direct and

definite consideration to the question of financing capital requirements

from earnings in determining the charges which may or must precede

the payment of contingent interest; but the same consideration does

not appear to have been given the same question in determining the

amount of appropriate fixed charges, although a part of such expendi-

tures, at least, can no more be avoided than can operating expenses.

With income available for interest averaging only $3,201,671 during

the last 7 years, the fixed interest charges proposed for the reorganized

company by the three bondholders’ committees and by the debtor both

appear excessive, even though, as is the fact, maintenance expenditures

have been in excess of normal. Reducing by 10 percent the fixed-

interest debt proposed by the bondholders’ committees would reduce

the fixed-interest requirements to $3,000,117 on a 4-percent basis for

the new bonds. This appears a reasonable amount for the reorganized

debtor to assume, and is approved.

The plan of reorganization proposed by the committees is based on

a total of present capital liability and other liabilities proposed to be

funded in the plan of $491,309,628 as of January 1, 1940" This re-

fleets $1,457,000 decrease in the equipment obligations in, and an in-

crease of $17,748,608 in the interest over, the debtor's figures as of

August 31, 1938. As noted above, the new capitalization proposed by

the debtor, including no-par-value securities at the stated values, would

total $387,055,170 as of August 31, 1938, and that proposed by the %

bondholders’ committees would comprise $211,884,861 of funded debt

and preferred stock having a par value, 1,100,181 shares of class A com-

mon stock without par value, and 614,938 shares of class B common

stock without par value, the class A common stock being preferred as

to dividends over the class B common stock to the extent of $5 a share

a year. Since the class A common stock would be exchanged at the

rate of $100 a share for claims having priority over those for which

the class B common stock would be issued, and in view of the amount

of the dividend preference, an asset and prospective earnings value of

$100 a share for the class A common stock appears to be called for.

Thus a capitalization substantially in exeess of $321,902,961 must be

justified if any of the class B stock is to be issued. If the latter be

taken at $50 a share, the capitalization proposed by the committees is

in effect over $350,000,000, a sum equaling the eapitalizatien at 5 per-

10 Does not take into account payments of interest amounting to $2,785,118 made

after the filing of the plan.

parle? -

a ee

44 ST. LOUIS-S. F. RY. CO. REORGANIZATION

cent of annual earnings of $17,500,000. In the 8-year period 1931 to

1938 the debtor’s consolidated net railway operating income has never

approached that figure, and has averaged only $3,739,507 annually.

The latter sum, capitalized at 5 percent, amounts to only $74,790,140.

Exclusive of the Fort Worth & Rio Grande Railway Company, sub-

sequently sold, the value as of December 31, 1936, on a reprodwection-

less-depreciation basis of roadway structures and equipment plus pres-

ent value of lands, working capital, and investments in nonsystem

companies, was approximately $260,000,000.

Ill. PLAN APPROVED

A. CAPITALIZATION ; FIXED CHARGES

Considering the entire record and taking into account the repro-

duction value of the property remaining in service after the aban

donments and the favorable past earnings, as well as the unfavorable

recent earnings, it would appear that the total capitalization after

reorganization should be about $240,000,000. Of the total capitali-

zation proposed, rather less than half should be in the form of debt

and rather more than half in the form of stock, of which the amount

of no-par common stock, taken at $50 a share, should somewhat exceed

the preferred stock. This result may be attained by reducing the

fixed-interest debt proposed by the three committees by 10 percent,

the contingent-interest debt by 20 percent, and the preferred stock

by 20 percent, producing approximately the following capitalization :

Fixed-interest debt, 4 percent.......ccccccececseserseeeeeeeeeenneenersenees $ 75,685,314

Contingent-interest debt, 444 Percent........cecececererereerseererereees 40,385,884

Preferred stock, 5 percent.......ccccccscsseseeseeseserseeseseesneneesnenereenees 61,846,170

Common stock, no-par value stated at $50 a share............ 62,082,632

I i iia ceases annie leieevicninthnnmnnnnbinenveannans 240,000,000

Fixed interest charges for 1940 under such capitalization would

amount to $3,000,117 and, as shown below, there should be provided

for additions and betterments each year out of income approximately

$1,125,000, and for unconditional sinking funds on fixed-interest |

bonds to be outstanding $32,531. Contingent interest charges would

be $1,817,365, and for contingent-interest debt there should be pro- |

vided, as shown below, sinking-fund payments of $201,929 a year,

or a maximum requirement of approximately $6,176,992 before ap-

propriation for dividends on the preferred stock. The preferred |

dividends would amount to $3,092,309, making the maximum re-

quirements for interest, special funds, and preferred dividends, ap-

proximately $9,269,251 before any income would be available for

payment of dividends on common stock. Should income available

for interest, other requirements, and dividends equal that of 181,

viz, $10,288,049, which is reasonably possible, there would be ap-

proximately $1,018,748 for payment of dividends on the common.

stock, or enough to pay dividends thereon at the rate of about $0.82.

a share.

The capitalization proposed would give the reorganized company

a well-balanced financial structure, should afford adequate means

ey RTE a

ORIGINAL REPORT OF COMMISSION 45

for such future financing as may be necessary, should enable the

carrier to maintain its properties adequately, and should not lead to

further need of judicial reorganization. It includes only such

securities as would give the holders thereof some prospect of interest

or dividends, and would otherwise be compatible with the public

interest. Fixed charges, including fixed interest on funded debt,

interest on unfunded debt, amortization of discount on funded debt,

and rent for leased road would be of such amount that, after due

consideration of the probable prospective earnings of the property

in the light of its earnings experience and all other relevant facts,

there would be adequate coverage of such fixed charges by the

probable prospective earnings available for the payment thereof.

(Superseded matter is here omitted)

C. PARTICIPATION IN REORGANIZATION

The road is in good physical condition. No new securities are

needed to finance any rehabilitation work. All securities issued in

accordance with the reduced capitalization proposed herein will be

available for distribution to present security holders.

1. Rights of creditors —(a) Liens.—Equipment-trust certificates,

other than those not presented for payment at maturity, outstand-

ing on August 31, 1938, were of three series. Series BB, issued

February 15, 1926, amounting to $1,558,000 as of August 31, 1938,

covers equipment which originally cost $10,462,128. Series CC,

issued May 15, 1928, amounting to $2,000,000 as of August 31, 1938,

covers equipment which originally cost $8,236,272. Series DD, issued

April 1, 1930, amounting to $3,773,000 as of August 31, 1938, covers

equipment which originally cost $10,849,959. The book value and

the depreciated book value of this equipment on August 31, 1938, ’

were $30,043,250 and $18,536,320, respectively. The car-hire net

receipts for 1937 were 4.23 percent of the equipment obligations

outstanding on August 31, 1938.

The Birmingham general-mortgage bonds and income bonds as of

December 1936, were secured by first and second liens, respectively, on

290.72 miles of the debtor’s road extending between Birmingham,

-Ala., and Memphis, Tenn., and on certain equipment. Exclusive of

lands and rights, the original cost of this property was $14,225,806

and the cost of reproduction less depreciation as of December 31, 1936,

was $15,225,806. The value of lands and rights was $1,408,754.

The Fort Scott refunding-mortgage bonds, subject to claims for

prior equities against the pledged bonds, were secured by a direct

‘first lien on 823.66 miles of the debtor's road in Kansas, Missouri,

_ Arkansas, Oklahoma, and Tennessee, and 347 units of equipment, and a

junior lien on the property securing the Birmingham general-mortgage

bonds and income bonds. In addition $399,500 of the income bonds

were pledged under the Fort Scott mortgage. Exclusive of lands

and rights, the original cost of direct first-lien property was $60,331,393

_and the cost of reproduction less depreciation as of December 31, 1936,

was $32,662,151. The value of lands and rights was $5,828,495.

The collateral-trust mortgage of 1887 has been released, and there

were $4,000 of such bonds outstanding secured by deposit of $6,000 of

United States Government bonds. |

_ us ” - a * 4

OT bi tN 5 tilt DEPN DRONE Gt ELDAR ScD AAI JLRS A ES CR Bee OTP OR MPA 60>

Ie Re

wae

SEC Sat SN 2

46 ST. LOUIS-S. F. RY. CO. REORGANIZATION

Subject to claims for prior equities hereinafter discussed, the prior-

lien bonds, series A, B, and E, were secured by a direct first lien on

3,660.76 miles of the debtor’s road and 9,767 units of equipment, a

second lien on the equipment subject to equipment trusts, and a junior

lien on the property subject to the Fort Scott refunding-mortgage

and the Birmingham general-mortgage bonds and income bonds, the

last mentioned being subject to an intermediate lien of the consolidated

mortgage for $3,548,732. Exclusive of lands and rights, the original

cost of direct-first-lien property was $169,677,183 and the cost of re-

production less depreciation as of December 31, 1936, was $136,317,241.

The value of lands and rights was $14,793,611. Except as otherwise

noted, the prior-lien bonds were additionally secured by pledges of

all the bonds and stocks of the wholly owned system companies men-

tioned above.

The consolidated-mortgage bonds, series A and B, were seeured by

a direct lien on all property of the debtor, subject to liens of equipment

obligations and prior existing mortgages diseussed above, additionally

secured by pledges of securities totaling $87,428,650 in principal

amount and comprising $1,293,250 of prior-lien series-A 4-percent

bonds, $46,606,300 of prior-lien series-B 5-pereent bonds, $17,851,100

of prior-lien series-E 6-pereent bonds, and $21,678,000 of Fort Scott

refunding-mortgage 4-percent bonds, and further secured by the inter-

mediate lien for $3,548,732 on the Fort Scott properties prior to the

lien of the prior-lien mortgage.

The loans from the Mereantile-Commerce Bank & Trust Company

of St. Louis, First National Bank of St. Louis, Bankers Trust Com-

pany, and the Central Hanover Bank & Trust Company were each

collaterally secured by pledge of $625,000 of consolidated series-B

6-percent bonds. The loans from the Guaranty Trust Company

and the Chase National Bank were secured by pledges of $1,562,500

and $4,183,500 of consolidated series-B 6-percent bonds, respectively.

The loans from the Railroad Credit Corporation, amounting to

$3,307,432 in principal amount, were collaterally secured by pledge

of the debtor’s distributive share under the marshaling and distribut-

ing fund in the book amount of $195,055 as of October 1, 1938, and

by the debtor’s equity in all collateral deposited with the Finance

Corporation. The loans of $5,190,000 in principal amount from the

latter corporation were collaterally secured by pledge of securities

issued by the debtor totaling $7,500,000, comprising $218,000 of prior-

lien series-A 4-percent bonds, $28,000 of prior-lien series-B 5-percent

bonds, $1,561,000 of consolidated series-A 414-percent bonds, and

$5,693,000 of consolidated series-B 6-percent bonds. The two credi-

tors last named contend that they are additionally secured by special

equities.

In the determination of the proper distribution of the new securi-

ties, there are no disputed questions of lien to be decided, except those

raised by the Reconstruction Finance Corporation and the Railroad

Credit Corporation. These two institutions claim, in fact and effect.

equitable liens superior to the mortgages on most of the system

property, at least as against those holders of prior-lien and consoli-

dated-mortgage bonds who assented to the plan of readjustment of

1932, subsequently abandoned. They further contend that the bank

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ORIGINAL REPORT OF COMMISSION 47

loans are subordinated to their claims. These claims ar

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