APPENDIX B

PENN CENTRAL CO. CAPITAL EXPENDITURES-EQUIPMENT FOR THE PERIOD JAN. 1, 1966, TO AUG. 31,1969

At a Session of the Interstate Commerce Commission, Division 3, held at its office in Washington, D.C., on the 29th day of October 1969.

FINANCE DOCKET No. 25854

PENN CENTRAL TRANSPORTATION COMPANY NOTES

Investigation of the matters and things involved in this proceeding having been made, and said division, on the date hereof, having made and filed a report containing its findings of fact and conclusions thereon, which report is hereby referred to and made a part hereof:

It is ordered, That, subject to the condition prescribed in said report, Penn Central Transportation Company (formerly the Penn Central Company), be, and it is hereby, authorized to issue and sell not exceeding $50 million of its short-term unsecured commercial paper notes, at any one time outstanding, upon the terms and for the purposes stated in the report;

It is further ordered, That, except as herein authorized, said notes shall not be sold, pledged, repledged, or otherwise disposed of by the applicant unless or until so ordered or approved by this Commission;

It is further ordered, That the applicant shall report concerning the matters herein involved in conformity with the order of the Commission, by division 3,

dated May 20, 1964, as amended, respecting applications filed under section 20a of the Interstate Commerce Act (49 CFR 1115.6); and

It is further ordered, That nothing herein shall be construed to imply any guaranty or obligation as to said notes, or interest thereon, on the part of the United States.

Authority granted (1) in Finance Docket No. 25932 to Pennsylvania Company to issue and sell its 9-percent sinking fund debentures due 1994 in principal amount not exceeding $50,000,000, and (2) in Finance Docket No. 25931, to Penn Central Transportation Company to issue its long-term promissory notes in principal amount not exceeding $49,000,000, without competitive bidding. Edward A. Kaier and Edwin K. Taylor for applicants.

REPORT OF THE COMMISSION

BY THE FINANCE BOARD, MEMBERS GRUTZIK, MCCORMICK, AND MATTRAS: By application filed November 10, 1969, as last amended and supplemented December 16, 1969, in Finance Docket No. 25932, the Pennsylvania Company, (Pennsylvania Co.) a Delaware corporation, seeks authority under section 20a of the Interstate Commerce Act to issue and sell not exceeding $50,000,000 principal amount of its 9-percent sinking fund debentures due 1994, and by application filed the same date, as last amended and supplemented December 10, 1969, in Finance Docket No. 25931, Penn Central Transportation Company, (P.C.T .Co.) seeks authority under the same section of the Act to issue its longterm promissory notes in total principal amount not exceeding $50,000,000 to evidence a loan to be made to it by Pennsylvania Co. from the proceeds of sale of the said debentures. No objection to the application has been offered.

Pennsylvania Co. is a non-carrier holding company all of whose stock is owned by P.C.T. Co. It was organized under the laws of the State of Delaware on December 12, 1958, and is a successor to an older Pennsylvania corporation by the same name. In Finance Docket No. 20473, Pennsylvania Company (Delaware)-Control-Railroad Properties of Pennsylvania Company (Pennsylvania), embracing Finance Docket No. 20472, Pennsylvania Company (Delaware) Stock, Etc., decided March 27, 1959 (not printed in full), Pennsylvania Co. was authorized to acquire control or joint control, directly or indirectly, of the carriers of the system theretofore controlled by its predecessor by purchase of the properties of the latter and, pursuant to section 5(3) of the Act, was made subject to the provisions of section 20a (2) to (11), inclusive, and section 20(1) to (10), inclusive, of the Act.

Pursuant to action taken by its board of directors at a meeting held Octo ber 22, 1969, Pennsylvania Co. proposes to issue and sell not exceeding $50,000,000 of its 9-percent sinking fund debentures due December 1, 1994. The debentures will be convertible during the period November 1, 1970 to April 15, 1979, for shares of Norfolk and Western Railway Company (Norfolk and Western) common stock at the rate of 12.2 shares of Norfolk and Western common stock for each $1.000 principal amount of debentures. Interest will accrue on the debentures from December 1, 1969. The debentures will have the benefit of a

1 This report also embraces Finance Docket No. 25931, Penn Central Transportation Company Notes.

mandatory sinking fund by which applicant Pennsylvania Co. will be required to deposit with the trustee at least one day before December 1 in each year from 1979 to 1993, inclusive, money sufficient to redeem at their principal amount plus accrued interest, 64 percent of the principal amount of debentures outstanding on April 15, 1979, or in lieu thereof to deliver to the trustee debentures of like amount for cancellation. The sinking fund will retire 93.75 percent of the debentures prior to their maturity. Optional sinking fund payments may also be made by applicant in any year but such payment may not exceed the amount of the mandatory payment for such year.

The debentures will be redeemable at the option of Pennsylvania Co. in whole or in part at any time on and after December 1, 1974, at redemption prices (plus accrued and unpaid interest) beginning at 110 percent of the principal amount of the debentures, reducing to 106 percent of the principal amount of the debentures on December 1, 1979, and thereafter reducing 2 of 1 percent per annum until December 1, 1991, when the redemption price will be 100 percent of the principal amount of the debentures.

The proposed debentures will be issued under and pursuant to the terms of an indenture to be dated as of December 1, 1969, between Pennsylvania Co. and Bankers Trust Company, as trustee, will be limited in aggregate principal amount to $50,000,000, will be issuable in registered form only, in denominations of $1,000 and multiples thereof, each debenture to be dated the date of its authentication, will bear interest at the rate of 9 percent per annum, payable semiannually on each June 1 and December 1, commencing June 1, 1970, and will mature as to principal on December 1, 1994.

In order to have available the necessary shares of Norfolk and Western common stock to effect conversion of the proposed debentures, Pennsylvania Co. has entered into an escrow agreement with Bankers Trust Company dated as of December 1, 1969, and pursuant thereto will deposit 540,584 shares of no par common stock of Wabash Railroad Company (Wabash) with the trustee which are to be exchanged on October 15, 1970, for 610,000 shares of common stock of Norfolk and Western, an amount sufficient to effect the conversion of all of said debentures. By agreement between Pennsylvania Co. and Norfolk and Western dated March 1, 1961, amended October 1, 1964, Pennsylvania Co. will on October 15, 1970 exchange 595,255 shares of common stock of Wabash for 671,691 shares of common stock of Norfolk and Western. The latter transaction was authorized by the Commission in the Norfolk and Western Merger case. Immediately upon the effectuation of the exchange the Norfolk and Western common stock will be held pursuant to the divestiture conditions of our orders dated June 24, and October 9, 1964, in the Norfolk and Western merger proceeding and the voting rights will be subject to the three voting trust agreements established pursuant to said orders. By the Commission's supplemental report and order dated December 10, 1969, in Finance Docket No. 21510, the period of divestiture has been extended from October 15, 1974, to October 15, 1979, in respect of 1,071,692 shares of common stock of Norfolk and Western.

The debentures will be sold to a group of underwriters headed by The First Boston Corporation and Glore Forgan, Wm. R. Staats, Inc., at 98 percent of par, and will be offered to the public at 100 percent of par. The proceeds to Pennsylvania Company will amount to $49,000,000.

Pennsylvania Co.'s capitalizable assets as of June 30, 1969, were sufficient to support the proposed increase in its capitalization. Pennsylvania Co.'s net income after fixed charges and other deductions for the six month period ended June 30, 1969, amounted to $24,804,924. In recent prior years, Pennsylvania Co.'s net earnings and fixed interest coverage have been:

2 Finance Docket No. 21510, Norfolk & Western Ry. Co. and New York C. & St. L. R. Co. Merger, Etc., 324 I.C.C. 1.

Pennsylvania Co. estimates the cost of issuance of the proposed debentures. exclusive of underwriters' discount, will be as follows:

P.C.T. Co. was incorporated under the laws of the Commonwealth of Pennsylvania by special act dated April 13, 1846, and acts supplemental thereto as The Pennsylvania Railroad Company. On February 1, 1968, its charter was amended pursuant to agreement of merger dated January 12, 1962, with The New York Central Railroad Company. On October 1, 1969, its name was changed to Penn Central Transportation Company pursuant to a plan of merger and reorganization dated May 15, 1969. The plan of merger and reorganization was filed in Finance Docket No. 25854, Penn Central Transportation Company Notes, 336 I.C.C. 1.

As mentioned above, P.C.T. Co. proposes to borrow from the Pennsylvania Co., all of the proceeds of the said debentures received by the Pennsylvania Company, which comes to $49,000,000 or $1,000,000 less than the authority requested in the application filed in Finance Docket No. 25931. The purpose of the borrowing is to provide P.C.T. Co. with cash to reimburse its treasury for prior capital expenditures and payment of debt maturities which were not refinanced and to replenish its working cash. P.C.T. Co.'s capital expenditures, maturities and financing for the years 1966, 1967, 1968 and the first nine months of 1969 are shown in detail in the Appendix hereto, which statement indicates that over the three year and nine month period its expenditures for such purposes exceeded its financing by $222,885,000.

P.C.T. Co.'s board of directors at a meeting held October 22, 1969, authorized the proposed borrowing of up to $50,000,000 from Pennsylvania Co. and the issuance of the proposed long-term promissory notes to evidence such debt. The notes will be issued to the Pennsylvania Co. in individual principal amounts not less than $1,000,000 each, and in total aggregate principal amount not exceeding $49,000,000 will be dated the date of their issuance, will bear interest at the rate of 94 percent per annum, payable semiannually on each May 31 and November 30, commencing May 31, 1970, be unsecured and will be payable in annual installments equal to 64 percent of the original principal amount of each note commencing November 30, 1979, and continuing until maturity. Such installments will amortize the notes in equal installments of principal and will provide Pennsylvania Co. with cash approximately equal to the sinking fund payments on its proposed issue of debentures.

P.C.T. Co.'s investment in road and equipment, less amortization and depreciation reserves, as of June 30, 1969, alone, amounting to $2,697,964,372 exceeds its capitalization amounting to $2,042,189,682, consisting of long-term debt due within 1-year $75,165,330, long-term debt due after 1-year $1,638,516,414, capital stock $241,092,700, and premiums and assessments on capital stock $87,415,238, by $655,774,690. The issuance of the proposed notes will not materially change this excess of capitalizable assets.

P.C.T. Co. requests that we authorize it to issue its notes without competitive bidding under exception (7) stated on page 164 of Ex Parte 158, In Re Competitive Bidding in Sale of Securities, 257 I.C.C. 129, because due to the nature of the transaction it is not feasible to issue the notes at competitive bidding, and it would be to applicant's interest to issue long term notes to its subsidiary as proposed herein. In view of the relationship of P.C.T. Co to Pennsylvania Co. we see no reason to require competitive bidding in this instance. Considering the purpose of the issue and all other circumstances, we conclude that exemption from the requirement of competitive bidding is warranted.

P.C.T. Co. states that there will be no discounts, commissions, or expenses of issue other than the costs and expenses of the preparation of the application herein.

Upon consideration of all the facts recited and the circumstances involved, we are of the opinion that the authority requested with respect to the issuance of the proposed debentures by Pennsylvania Co., and the proposed issuance of notes by P.C.T. Co. without competitive bidding, in the principal amount not exceeding $49,000,000, should be granted.

We find, in Finance Docket No. 25932, that the proposed issue and sale by

Pennsylvania Company of its 9-percent sinking fund debentures due December 1, 1994, in total principal amount not exceeding $50,000,000, as aforesaid, is consistent with the proper performance of service to the public by each carrier which is under its control, that it will not impair the ability of any such carrier to perform such service, and that it is otherwise consistent with the public interest. We further find, in Finance Docket No. 25931, that the proposed issue by the Penn Central Transportation Company of its long-term promissory notes in total principal amount not exceeding $49,000,000, as aforesaid, (a) is for lawful objects within its corporate purposes and compatible with the public interest, which are necessary and appropriate for and consistent with the proper performance by it of service to the public as a common carrier, and which will not impair its ability to perform that service, and (b) is reasonably necessary and appropriate for such purposes.

We further find, in Finance Docket No. 25931, that competitive bidding should not be required with respect to the issue by Penn Central Transportation Company of the proposed $49,000,000 of long-term promissory notes.

Note: Does not include authority granted by the Interstate Commerce Commission under Finance Docket No. 25854 to issue an additional $50,000,000, of commercial paper notes.

ORDER

At a Session of the Interstate Commerce Commission, the Finance Board, held at its office in Washington, D.C., on the 18th day of December, 1969.

FINANCE DOCKET NO. 25932

PENNSYLVANIA COMPANY DEBENTURES

FINANCE DOCKET No. 25931

PENN CENTRAL TRANSPORTATION COMPANY NOTES

Investigation of the matters and things involved in these proceedings having been made, and said Board, on the date hereof, having made and filed a report containing its findings of fact and conclusions thereon, which report is hereby referred to and made a part hereof:

It is ordered, That (1) in Finance Docket No. 25932, Pennsylvania Company be, and it is hereby, authorized to issue not exceeding $50,000,000 principal amount of its 9-percent sinking fund debentures due December 1, 1994, upon the terms and for the purposes stated in said report, and (2) in Finance Docket No. 25931, Penn Central Transportation Company be, and it is hereby, authorized to issue without competitive bidding not exceeding $49,000,000 principal amount of its Inog-term promissory notes, upon the terms and for the purposes set forth in said report;