(o) Seventy-four percent of the common stock of the Connecting Railway Company.
(p) Thirty-five percent of the common stock of the Philadelphia, Baltimore & Washington Railroad Company (the Debtor owns the remaining common stock).
(q) Twenty-eight percent of the common stock of West Jersey & Seashore Railroad Company (the Debtor owns 57% of the common stock of WJS).
(r) Through Pennco's wholly-owned subsidiary Clearfield, 40% of the common stock of the Cambria & Indiana Railroad Company, 30% of the common stock and 2% of the preferred stock of the Fort Wayne & Jackson Railroad Company and slightly less than 1% of the stock of the Mahoning Coal Railroad Company (a majority of the outstanding stock of which is owned by the Debtor).
(s) In addition to the above stock interests in railroad companies, Pennco has debt obligation of railroads as follows:
(i) A $20,305,000 principal amount open account indebtedness plus interest against American Contract Company;
(ii) A substantial number of bonds of the Lehigh Valley Railroad Company in unpaid principal amount of $3,166,000;
(iii) A $2,225,000 principal amount open account indebtedness plus accrued interest against the Detroit, Toledo & Ironton Railroad Company.
Obligations of the Debtor or its Subsidiaries to Pennco
(t) A $49 million principal amount 9 1/4% promissory note of the Debtor to Pennco.
(u) A $33,176,893 principal amount open account indebtedness owed by PB&W to Pennco.
(v) General mortgage bonds of the Pennsylvania Railroad Company in principal amount of $11,637,000.
(w) $3,194,000 in principal amount of 5% general mortgage bonds, Series D, due August 1, 1975, of the Pittsburgh, Cincinnati, Chicago & St. Louis Railroad Company.
11. Upon ratification of their appointments by the Interstate Commerce Commission on July 28, 1970, the Trustees were required to direct immediate attention to the financial condition of Pennco and its subsidiaries. In particular, GSC was in need of a substantial cash infusion within the near future. Moreover, effort was expended to secure new management personnel for Pennco and its subsidiaries to replace the Debtor's personnel that had provided the major management component for Pennco and its subsidiaries prior to the filing of the reorganization petition.
12. The Trustees have succeeded, in large measure, in eliminating or at least reducing the intensity of the financial and management problems of Pennco and its subsidiaries.
13. Within the first few months of their appointment, the Trustees determined that as a general policy it would be in the best interest of the estate to divest nonrailroad assets, if appropriate terms and methods were available.
14. Within this early period the Trustees' financial advisor, Mr. John Guest of Kuhn, Loeb & Co., proceeding on the premise that the value of Pennco was less than the $300 million debt which the Pennco stock secured, undertook to explore the possibility of the sale or transfer of the Debtor's Pennco stock to the lending banks. In March of 1971, a formal meeting was held between the agent bank and the Trustees. As a result of this meeting, a negotiating team was appointed by the Trustees. Prior to the March meeting and thereafter, the Trustees were advised by their financial advisor and staff that the value of Pennco, and therefore the Pennco stock, was substantially less than the $300 million debt owed to the lending banks.
15. A number of studies compiled by the staff of Pennco, its subsidiaries, or retained advisors, were in existence during the period mentioned in Finding 14. These studies were relevant on the question of the value of Pennco. These reports were not specifically relied upon by the Trustees in formulating their decision to enter into negotiations with the lending banks.
16. On May 25, 1971, a summary of points of agreement was executed (Document No. 1590) by almost all of the banks and the Trustees subject to the necessity of drafting a more formal agreement satisfactory to the parties and the eventual approval of this Court. A formal agreement was executed on March 14, 1972. Since that time amendments to the original agreement have been executed. It is this agreement, as amended, which the Trustees seek authority to implement.
17. Prior to execution of the settlement agreement, the Trustees authorized Kuhn, Loeb & Company to perform a formal appraisal study of Pennco to determine the value of the Pennco Stock. The final written report was rendered on July 17, 1972.
18. Kuhn, Loeb's appraisal of Pennco is summarized below:
Investments in companies
other than PCTC and its
leased lines $ 360,764,000
Investments in PCTC and
its leased lines 28,292,000
Pennco assets other than
Total assets and investments $389,813,000
Pennco liabilities and
preferred stock 166,688,000
Net value of Pennco stock $223,125,000
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