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The stipulation also states and we find that Gill and Pope caused registrant to solicit transactions with customers and obtained money and securities from customers on the representation that registrant was able to meet all liabilities in connection with such transactions when in fact registrant was insolvent and its liabilities exceeded its current assets. This conduct, which involved the use of the mails and interstate commerce, constituted a violation of Section 15 (c) (1) of the Act and Rule X-15C1-2 thereunder, and we find that such violation was willful.

In view of the above willful violations of the Act and the regulations thereunder, we find that it is in the public interest to revoke registration and to expel registrant from the NASD. We further find that registrant's partners, Gill and Pope, are each the cause of this revocation and expulsion.

An appropriate order will issue.

By the Commission (Chairman Armstrong, Commissioners Hastings, Patterson and Sargent), Commissioner Orrick absent and not participating.

*Subsequent to the close of the hearing, registrant and Gill and Pope consented to the issuance of an injunction by the Supreme Court of New York prohibiting them from engaging in the securities business in the State of New York. This injunction was not charged as a ground for revocation.

37 S. E. C.

IN THE MATTER OF

THIRD AVENUE TRANSIT CORPORATION
SURFACE TRANSPORTATION CORPORATION OF

NEW YORK
WESTCHESTER STREET TRANSPORTATION COMPANY,

INC. THE WESTCHESTER ELECTRIC RAILROAD COMPANY

WARONTAS PRESS, INC.

Promulgated July 20, 1956

SECOND SUPPLEMENTAL REPORT ON PROPOSED PLAN OF

REORGANIZATION

This is a supplemental advisory report of the Commission on a plan of reorganization for Third Avenue Transit Corporation (“Third Avenue"). Our earlier reports dealt with a plan and modifications proposed by the Trustee. The present report treats with a plan proposed by an Adjustment Bondholders Committee, and which is supported by the Trustee. It is the conclusion of the Commission that this plan is fair and equitable and feasible.

INTRODUCTION

Following the filing of our advisory report of May 8, 1956 and our supplemental report of May 22, 1956, in which we found the Trustee's plan unfair and unfeasible, a proposal was presented by New York City Omnibus Corporation, now called Fifth Avenue Coach Lines, Inc. (“Fifth Avenue"), with the sponsorship of an Adjustment Bondholders Committee, under which Fifth Avenue proposed to acquire certain of the securities of the reorganized company. Further modifications were made to the Trustee's plan designed to meet certain of our views as to fairness and feasibility, and in addition the Fifth Avenue proposal was modified to provide for the acquisition by it of all the stock of the reorganized company in exchange for cash and shares of its own stock. Both plans were referred to the New York 37 S. E. C.-CR

-101

Public Service Commission (“New York Commission") and were approved.

On June 27, 1956 the Trustee announced that as a result of further negotiations Fifth Avenue had agreed to improve its offer; and that, in consequence, the Trustee proposed to abandon his plan and to support the Adjustment Bondholders Plan as so amended. The Court granted the Trustee's request to withdraw his plan, and referred the Joint Plan to the New York Commission and to this Commission for report. On July 17, 1956, the New York Commission approved the Joint Plan.

DESCRIPTION OF FIFTH AVENUE

Fifth Avenue, a privately-owned corporation, operates a bus transportation system comprising 31 routes in New York City, primarily in the Borough of Manhattan, under franchises. Franchises over which approximately 73% of Fifth Avenue's route miles are operated were granted by the City of New York and expire, subject to renewal, on December 26, 1958; the balance of the franchises were granted by the State of New York and are perpetual. Fifth Avenue is under the jurisdiction of the New York Commission, except for fares, which are regulated by the City. In Manhattan, Fifth Avenue's routes are, in general, complementary to those of Third Avenue's major operating subsidiary, Surface Transportation Corporation (“Surface”)—the two systems together providing bus transportation in all of Manhattan except for certain bus routes operated by the New York City Transit Authority and by a small private operator. The bus fare structure is uniform throughout the City of New York.

In size the Fifth Avenue operation is comparable to that of the Third Avenue system. Fifth Avenue operates a fleet of some 1,200 buses; its operating revenues in the year 1955 amounted to approximately $31,000,000. At December 31, 1955, Fifth Avenue's total assets per books, after deducting the reserve for depreciation, amounted to approximately $19,000,000. Attached hereto as Appendix A, are comparative balance sheets of Fifth Avenue (a) as at January 1, 1956, per books, (b) pro forma as at January 1, 1957 giving effect to estimated changes resulting from operations for 1956, and (c) pro forma as at January 1, 1957, giving effect to the proposed acquisition of Third Avenue and related transactions.

* The Adjustment Bondholders Plan, as so amended, will hereinafter be referred to as the "Jolat Plan."

*The New York Commission did not undertake to pass upon the proposed acquisition by Fifth Avenue or upon the proposed issuance of Fifth Avenue's securities in connection therewith. These matters are the subject of a separate application now pending before that Commission.

New York City Omnibus Corporation, successor to New York Railways Corporation, commenced the operation of bus routes in 1936.3 In all but one year since that time, its operations have been profitable. The following table shows the net income of Fifth Avenue reflected in its income statements for the years 1951 through 1955, and for the four-month period ended April 30, 1956, together with earnings per share and dividends paid.

TABLE I

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Fifth Avenue has advised the Court that it will elect to its Board of Directors, now consisting of 13 members, 2 additional directors appointed by the Court from nominees of Adjustment Bondholders acceptable to Fifth Avenue. In addition Fifth Avenue has undertaken to recommend an amendment of its charter at its next annual stockholders meeting or earlier which would grant to stockholders, in addition to preemptive rights granted by New York law, preemptive rights in treasury shares. It has also agreed to make a number of By-Law amendments designed generally to accord stockholders a greater voice in certain corporate affairs.

Fifth Avenue's common stock is listed on the New York Stock Exchange.*

THE JOINT PLAN A, GENERAL

Surface will be merged into Third Avenue. The merged company, to be named Surface Transit, Inc. (“Surface Transit"), will hold all the capital stock of The Westchester Electric Railroad Company (“Westchester Electric”), into which will be merged Westchester Street Transportation Company, Inc. ("Westchester Street”), and the capital stocks of Warontas Press, Inc. and other minor subsidiaries.

* Fifth Avenue Coach Company, which was merged with New York City Omnlbus Cor. poration in 1954, commenced the operation of motor buses in 1907.

The high and low prices in 1956, to July 17th, were $30.50 and $26.12, respectively; the closing price on July 17th was $28. The price range in 1955 was $33.50—$23.26.

Surface Transit will issue $8,528,000 principal amount of new 6% 15-year First Mortgage Bonds (“New Bonds”) and 1,161,637 shares of new $1 par value common stock. Outstanding equipment obligations of Surface and Westchester Electric (estimated at $2,020,000 at October 31, 1956) will be assumed and paid in the ordinary course by Surface Transit and Westchester Electric. B. ACQUISITION BY FIFTH AVENUE

Fifth Avenue will acquire all of Surface Transit's 1,161,637 shares of new common stock. In consideration, Fifth Avenue will deliver to the Trustee 336,088 shares of its own common stock, par value $10 per share, and $4,881,090 cash. The obligations of Fifth Avenue are subject to certain conditions, including: the entry on or before August 1, 1956 of an order by the Court approving the Joint Plan; a delivery date for the aforesaid cash and shares of Fifth Avenue common stock no later than March 15, 1957; approval by the New York Commission, within 60 days after the entry by the Court of its order approving the Joint Plan, of the proposed acquisition by Fifth Avenue and of the issue by Fifth Avenue of its own securities in connection therewith; the requisite vote of the stockholders of Fifth Avenue to increase its authorized and unissued common stock to an amount necessary for the issuance of its common stock under the Joint Plan; 5 and the maintenance of consolidated operating income of the Third Avenue system, as defined, at an annual rate of not less than $1,200,000 between January 1, 1956 and the end of the last calendar month preceding the date of the Court's order approving the Joint Plan. C. DISTRIBUTIONS UNDER THE PLAN

(1) Refunding Bondholders Holders of the present $14,830,550 face amount of Third Avenue's 4% First Refunding Mortgage Bonds (“Refunding Bonds”) will receive all of Surface Transit's New Bonds and $6,287,422 cash, in the ratio of $575 principal amount of New Bonds and $424 cash in respect of each $1,000 face amount of Refunding Bonds held (including unpaid interest accrued thereon). The necessary cash will come from

Fifth Avenue has called a special meeting of its stockholders for July 27, 1956 to Tote on the proposed increase in shares and acquisition of Third Avenue.

. For the five-month period ended May 31, 1956, combined gross Income of Surface, Third Avenue and the Westchester subsidiaries amounted to somewhat over $1,200,000.

* This distribution is exclusive of the aggregate payments of 35% heretofore made by the Trustee to the Refunding Bondholders.

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