We went to the circuit court of appeals where we won and under the decision of the circuit court of appeals, the trustee will have to go back to the Interstate Commerce Commission.

Now, right there, we have a very important reason why this road should not be returned to the control of the Erie. Those contracts were saddled on the Susqueharna by the Erie, for what purpose we do not know, but we are quite certain that there must be and was some undisclosed agreement or understanding between the Erie and the Susquehanna because in this litigation, the Erie has actively supported the New York Central, and if we are successful in the litigation, the position of all the security holders of Susquehanna will be considerably improved.

If the road is returned to the control of the Erie, they will be in control of the returns, and in view of the fact that they have already taken an attitude adverse to the interests of the Susquehanna, we may assume that they will do the same in the future.

Now, Mr. Norton, I think, will testify as to what has been done so far as the operation of the road since he has been trustee in the interest of the public, but I would like to call your attention to a minor incident which, however, indicates clearer, I think, than anything else, as to what the trustee of the Susquehanna has done.

The trustee has installed probably the finest passenger commuter service anywhere in the metropolitan district and adjacent surroundings from Paterson, N. J., to Susquehanna Transfer and thence by bus to New York. It has been very successful and very enthusiastically received by all the public who use that service.

There was nothing like it when the Erie was in control, and the people who live along the line of the Susquehanna know that. Senator REED. The road is not very long.

Mr. O'CONNELL. No, it is very short. The heart of the road is from Little Ferry to Edgewater.

But we do have a certain amount of passenger traffic, and this passenger service from Paterson, N. J., is of great importance to the citizens of Paterson.

When the citizens of Paterson learned that H. R. 3237 would apply to the Susquehanna, they literally rose up in arms, because of the fact that under the bill as drawn, control of the Susquehanna would be returned to the Erie.

There was a front-page editorial on the matter in one of the Paterson papers, and one of the Representatives in Congress from that district, made a speech on the floor.

The trustee endeavored to straighten out the misunderstanding, and we took the position that we did not oppose the bill but should merely strive to have the bill amended so as not to include the Susquehanna within its provisions.

That was the position I took at the hearings on H. R. 3237.

Senator REED. Did you submit this same suggestion to the House committee?

Mr. O'CONNELL. I submitted exactly the same suggested amendment to the House committee which appears on the last page of my statement.

I might say also that the Erie has appeared by counsel in the reorganization proceedings. They originally filed a plan of reorganization under which it would have received about 42 or 43 percent of the

common capital stock of the reorganized company, and would have obtained control.

By virtue of various legal proceedings, we were able to knock that whole situation out, and the plan as finally prepared and approved, held that the common and preferred stock of the Susquehanna was valueless, and allocated no new securities to the Erie as the common and preferred stockholder.

Now, the Erie has not filed any objection to the plan and its time to do so has long since expired, so they have accepted the findings of the Commission that the preferred and common stock of this road has no value.

Senator REED. I believe the Erie said it did not want the road back did it not?

Mr. O'CONNELL. I do not know if they did not want it back or not. Senator REED. Anyway, we realize that there are some roads in process of reorganization under section 77, where for one reason or another in different cases, they should not be disturbed.

What we are asking everybody to do who is in that situation, who does not want to be included in the bill, is to suggest an amendment that would exclude them.

I do not think it would be possible to write one amendment to cover them all. We have got to deal with these separate cases. Thank you, Mr. O'Connell.

We will hear you next, Mr. La Roe.

STATEMENT OF WILBUR LA ROE, COUNSEL, SEATRAIN LINES, INC., WASHINGTON, D. C.

Mr. LA ROE. I am counsel for Seatrain Lines, Inc., a steamship line which runs between the Gulf and New York and Cuba.

I do not need to tell the distinguished chairman of this committee of the importance of a terminal railroad which makes connections with quite a number of trunk lines.

Take the Terminal Railroad of St. Louis. If you have got a factory on tha tline, you are on practically every railroad that serves

St. Louis.

Now, to take the Susquehanna in New York Harbor. If our steamship line can dock at the Susquehanna, and if that is an inde pendent terminal road, we are automatically on every trunk line serving New York harbor, just as if we were on a belt line.

If this road is sewed up to the Erie, we are practically confined to Erie's service, and we do not want our services tied up in that manner. So that if there is anything this honorable committee can do to leave the Susquehanna independent so that it will have the status of a belt line, the service that we can render to the public will be very much more valuable, and elastic.

That is about all I have to say, Mr. Chairman.

Senator REED. I can appreciate that, Mr. La Roe.

Mr. LA ROE. Thank you very much.

Senator REED. Mr. Norton, just for my information, what were your gross operating revenues last year?

STATEMENT OF HENRY K. NORTON, TRUSTEE, NEW YORK, SUSQUEHANNA & WESTERN RAILROAD CO., NEW YORK, N. Y.

Mr. NORTON. Between $4,000,000 and $5,000,000, Senator. Mr. Chairman, my name is Henry K. Norton. My office is at 140 Cedar Street, New York, N. Y. I am, and since May of 1942, have been, the sole trustee in charge of the property of the New York, Susquehanna & Western Railroad Co.

Mr. Chairman, I have written this out, and made it as brief as I can, and I believe it would save time if I read it rather than paraphrase it.

I would be glad to have you interrupt for any questions which may occur to you.

Representatives of the holders of junior bonds have requested that the New York, Susquehanna & Western Railroad Co., now in reorganization under section 77 of the Bankruptcy Act, be exempted from the provisions of the Senate bill 249. In this connection, these bondholders have asked me to make a statement outlining some aspects of the history of this reorganization.

I might call your attention, in passing, to the fact that Mr. Burke also represents a substantial group of the junior bondholders for whom Mr. O'Connell has spoken, and Mr. Burke asked me to testify. He hoped to be here, but he has sent his statement to the committee. Senator REED. Mr. Norton, so far as you know, or Mr. O'Connell knows, is there any objection or is there going to be any objection from any source to leaving you out?

Mr. O'Connell. No, sir.

Mr. NORTON. There was none last time, and we know of none this time.

Senator REED. Of course, you were automatically exempted last year under the $50,000,000 clause.

Mr. NORTON. Yes. There was also another section that took us completely out. That was only brought up on the elimination of that $50,000,000 limitation.

The Susquehanna commenced operation in 1871 and continued as an independent railroad until 1897, when it was leased to the Erie Railroad. The Erie at once arranged for the exchange of its stock for Susquehanna stock. This was completed to the extent of 99 and a fraction percent of both common stock and preferred stock during the following year and, from then until 1937, the road was operated by personnel as a part of the Erie system.

During this 40-year period, the operations of the Susquehanna were naturally conducted for the benefit of the parent company, only incidental, if any, consideration being given to the interests of the Susquehanna as such. Provision was made each year for the payment of interest on the Susquehanna bonds, but, by January 1, 1937, when the first and refunding bonds of the Susquehanna matured, the property had been so depleted that it was impossible to refinance the issue. In view of this situation, the Susquehanna Corp., in effect, the Erie Corp., filed a petition for reorganization under section 77 on June 1, 1937.

The trustees were appointed: Hudson F. Bordwell, a former Erie officer, and Walter Kidde, who had had no previous railroad connection. Mr. Bordwell died in November 1937, and Mr. Kidde was continued as sole trustee until his death in February 1943. Thereafter the present trustee was appointed.

The obvious purpose of the Erie in placing the Susquehanna in reorganization was to free the road from as many of its obligations as possible and thereafter to resume its operation as a part of the Erie system. In April of 1938, the Susquehanna Corp., still the alter ego of the Erie, filed a plan of reorganization. This plan was based upon several assumptions that events proved to be wholly unjustified. It assumed, for example, that the Erie's claim against the Susquehanna amounting to some $9,000,000, $450,000 of which it was asserted to be a prior claim, would be approved in full. It assumed that the earnings of the road after reorganization would amount to $305,900 a year. On these and other assumptions it provided for the extension of the terminal mortgage of $2,000,000 for 30 years, a new issue of first mortgage bonds of $2,000,000 and an issue of income bonds of $2,000,000 with the remainder of the road's valuation represented by $9,000,000 of common stock. The distribution of these new securities to the holders of bonds other than terminal bonds, and to other claimants is shown in exhibit A attached hereto, which is a copy of exhibit G as attached to the aforesaid plan. (Exhibit A referred to is as follows:)

EXHIBIT A.-Treatment of existing obligations without providing for interest

Mr. NORTON. It will be noted from the figures shown in exhibit A that the bondholders, excepting the terminal bondholders, who held $10,500,500 of the road's securities were to have their bonded securities reduced to $3,121,000, plus 58 percent of the common stock, while the Erie was to receive $866,000 in income bonds and 42 percent of the common stock. This would have achieved a reduction in fixed interest charges from approximately $620,000 a year to $160,000 a year and a stock ownership by the Erie quite adquate to secure continuing control and operation of the Susquehanna. As the Susquehanna had never paid a dividend in 25 years and probably not for the whole period of Erie control, the plan would have repreesnted a complete fulfillment of the desire to cut down the Susquehanna obligations to a minimum and yet continue the operation of the road for the benefit of the Erie system.

Mr. Kidde, then sole trustee of the Susquehanna, soon came to the conclusion that this was wholly inadequate treatment for the Susquehanna bondholders. He felt very strongly that there were much more substantial values in the property, to which the bondholders were entitled to a prior claim. He determined to demonstrate those values and to make the bondholdings whole to the extent that such values could be demonstrated.

Thie decision led to a series of negotiations and litigations between the Susquehanna trustee and the trustees of the Erie, while that road was undergoing reorganization, and later with the Erie itself. The Erie claim was examined and a counterclaim was made in approximately the same amount as the Erie claim itself. The history of a transaction affecting the valuable property at Edgewater was studied and suit was filed for its recovery. As this is one of the most important earning properties of the Susquehanna the principal facts should be stated.

In 1893, the Susquehanna had completed a tunnel through the Palisades and established its terminal on the Hudson River at Edgewater opposite 110th Street in New York City. Thereafter, through a wholly-owned subsidiary, the Edgewater & Fort Lee Railroad, the Susquehanna constructed tracks extending north and south of its terminal yard at Edgewater to serve the already rapidly growing industrial area. While both the Susquehanna and its subsidiary, the Edgewater & Fort Lee Railroad, were under complete control of the Erie, an agreement was made with the New York Central, which agreement was implemented by a contract between the Edgewater & Fort Lee and a New York Central subsidiary by which the New York Central was given trackage rights over the Edgewater & Fort Lee rails. The consideration on the face of this contract was wholly inadequate to warrant its execution by the Susquehanna. What consideration moved the Erie to have it so executed, is unknown to the trustee.

Immediately, on the same day, after the execution of the contract, the Edgewater & Fort Lee was merged with a wholly owned subsidiary of the Erie known as Erie Terminals Railroad Co. The investment of the Susquehanna in the Edgewater & Fort Lee amounted at that time to between $300,000 and $400,000. The Erie's investment in Erie Terminals Railroad was some $60,000 in the form of a deposit with the treasury of the State of New Jersey, as required by law. In spite of this disparity in investment, the Erie received 89 percent of the