price at which they can afford to purchase will be considered by them in the light of competitive conditions which they must continue to have to fight against, together with the fact that they must face the necessity of continuing to provide working capital for an indefinite period. In considering a sale price it seems desirable to view the National Freight interest separately from the Commerce. In the latter event, whatever that Company may receive (less its share of working cash left in National Carloading) would be the figure that we, as the holder of stock which they would deliver in case of sale, would receive. Pending receipt of an offer, the suggestion of the writer is that the Committee appointed pursuant to action of Pennroad Board on September 14th proceed to a determination of the maximum price that Pennroad should receive for its investment. Attached are General Balance Sheets of The National Freight Company and National Carloading Corporation as of August 31st, 1932, and the Income Account of the latter at the end of August 1932; as well as a memorandum of the values at which the component companies' interests are carried on the books of the Carloading Corporation, and the stock and notes it has issued. EXHIBIT No. 3070 [Copy of original memorandum taken from file No. 217 in the general office of The Pennroad Corporation] OCTOBER 13, 1932. FREIGHT FORWARDING SITUATION The Special Committee met at noon today with Mr. Post presiding. Mr. Post then reported informally at the ensuing Board meeting that the Committe had just received an offer for the freight forwarding enterprise and its reactions in the brief time it had to consider it. He ended by stating to the Board that the Committee would, of course, take the offer under advisement and report as soon as possible their recommendations. The important points are: (1) Whether we are entirely secure if we accept Voting Trust Certificatesthere may be a distinction legally between our undoubted right to receive all cash, er right to receive *[and the acceptance of an offer of] part cash and part Voting Trust Certificates, or all Voting Trust Certificates. (2) Whether on account of Wabash receivership and my agreement with Mr. Williams, and Wabash ownership of the Toledo Central Station Railway Company these things would have any effect on our ability to collect *[from latter] by delivery of stock and notes of Commeree *[Nat. Car.] we hold *[under our option agreement, whatever price] any consideration which may be accepted by the Toledo Central *[may accept] for *[securities it owns in Carloading] stock and notes of which it is the equitable owner and we the holder. (3) Is our Board legally in position to act upon a sale of this asset when only a minority of it is disassociated with P. R. R. I said I would ask Judge Heiserman, but that probably the answer is that the purchaser is the American Contract & Trust Company and there is no similarity of Directors between them and us except as to Mr. County. (4) The sense of the Committee seems to be that we should be entitled to receive a sum equal to the amount of money put into the freight forwarding enterprise since a somewhat indefinite date when in Board meetings, in connection with criticism of the continued loss of money, verbal statements were made that P. R. R. desired to relieve us of our load and would do so *[if it could] legally. As expressed in figures, this enterprise cost about $4,400,000, and $2,400,000 invested in the Freight Company's stock plus $700,000 to $800,000 of advances; in other words, $3,200,000, would indicate the amount invested up to the time the subject of getting out of the business became a live one; at which time we continued to authorize the advance of additional money because of the thought that we would be bailed out in time. (5) The Committee was insistent, and reported to the Board, that in their view it was essential to have independent counsel, who will be Mr. Edwin Baetjer, of Baltimore. Indicates pencil insertion. (6) Mr. Wayne made two interesting comments First, during the Board discussion of Mr. Post's informal report, that perhaps a figure could be decided on which, if invested in Voting Trust Certificates, would give us back at least half of our investment. Second, in a comment to me he remarked, relative to the question of getting us out of this investment, that he remembered there were strong intimations that that step ought to be taken. (7) The offer was not definite enough in that it did not fix any certain amount of Certificates it might be none; it might be a few or it might be a great manyand the Committee's view was that it should be certainly not less than some fixed amount. Mr. Post became a Director in March 1930, when we were still spending the money covered by the sale of stock and advances had just started. Mr. Griscom was elected in March 1931. Both he and Mr. Post have clearly in their minds the criticism and resulting comments from P. R. R. Board members, so that we fix the time of that criticism about the time of Mr. Griscom's entry into the Board. At this time, as evidenced by action April 15th, 1931, when the advances had grown to $950,000, the Board began to authorize *[specific]** additional advances, indicating serious discussions of the subject beginning about that time. The advances to the end of December 1930 had aggregated $700,000, which, added to $2,400,000, would be $3,100,000, thus arriving at some figure on which to base a contention that having sunk our money up to that time in an enterprise which gave no promise of success, we were willing to then give it up if it had not been for the fact that expectation of relief made us continue advances to keep it going. EXHIBIT No. 3071 [Copy of undated pencil memorandum (in Mr. H. H. Lee's handwriting) taken from file No. 217 in the general office of The Pennroad Corporation] 10/13/32(?). A price based on A. H. S. P.'s contention that after he came on Board, discussions brought about statement by W. W. A. that if counsel could find the action legal they desired to relieve Pno of burden; & only on the belief that we shd keep going with that end in view, was the Bd. willing to permit advances. A. H. S. P. elected March 1930. Original stock.. Advances to 12/31/30_-. Total therefor when above questions became active-as evi- Bd. began authorizing same specifically - 2, 400, 000 700, 000 3, 100, 000 250,000 Total advances to 8/31/32 for Nat. Frt., Nat. Car. & Commerce were. 4, 324, 000 Total at end 12/31/30 Difference Add Sept. adv.. 3, 100, 000 1, 224, 000 25, 500 This is about figure A. H. S. P. probably has in mind as selling price.. 1, 249, 500 In margin: [Griscom elected March 1931.] Indicates pencil insertion and notation. Therefore we are now entitled to a figure equal to the cash invested since we found the investment with out attraction. [Copy of original undated memorandum taken from File No. 217 in the general office of The Pennroad Corporation] Pencil notation: "See these in connection with memo of Oct. 13, 1932, re Spl. Comm. Meeting.." EXHIBIT No. 3072 [Copy of memorandum taken from File # 217, in the general office of The Pennroad Corporation] 10/28/32. The Committee appointed by resolution of the Board of Directors September 'th, 1932, to consider the proposed sale of the stock of The National Freight ompany met at the Corporation's office on October 28th, 1932. After full conder tion of the subject and consideration of the offer of the American Contract & Company, dated October 13th, 1932, the Committee determined to recomnend to the Board that the offer be declined. ru EXHIBIT No. 3073 Copy of original memorandum taken from File No. 217 in the general office of The Pennroad Corporation] OCTOBER 31, 1932. Pursuant to the understanding with the special committee on the forwarding enterprise, after its meeting on Friday last, I to-day advised A. J. C. verbally of the action taken by the committee (he was not here Friday afternoon or Saturday). I also told him, likewise in accordance with my understanding, also with the Committee's sanction, that counsel for the committee, while very sure of the practical desirablity of securing Voting Trust Certificates in payment for the National Freight, is not at all certain that the step is one which cannot be legally contested; and, speaking for the committee, he is desirous that no step be taken which (unless it) is not so legally sound that it cannot be used as a basis for suit. That, if our stated or par value were reduced to *[a] dollar per share, there is no doubt of our ability to take or buy certificates legally. In the discussion following the committee meeting, Judge Heiserman had stated that he was not convinced that counsel's view was a correct one, and proposed to consider the question further. Also, that the view of counsel for the Corporation and counsel for the committee was that, regardless of the pending suit, the matter should be pressed to a conclusion, and that it was not desirable to wait for action reducing our stated or par value, even if that subject were revived and received affirmative action. I also stated to A. J. C. my own understanding of some other points arising in the discussion, after the committee meeting. Following my conversation with A. J. C., I advised Judge Heiserman pursuant to his request. The principal points at issue are: 1. The price at which the business should be sold; and 2. Whether payment therefor could be received in Voting Trust Certificates in whole or in part. A determination of the latter question has a bearing on the first. *Indicates pencil insertions. Personally, I think the committee feels that the price should be not less than the amount of advances that have been made since a statement to the Board after Mr. Post joined it; that if counsel could find a legal way to do it, P. R. R. interests were desirous of taking the business out of our hands. A. J. C. expressed himself as feeling that a better method *[minute] than the one the committee has adopted would be for it to either recommend declining the offer and stating what they felt would be a proper sale price; or, if they did not want to take the responsibility, to pass the responsibility to the Board for action by a brief statement that they had considered the question with statements of the Company's operations before them, and could find no commercial basis for deciding the value of a Company losing money every month and likely to continue to lose money, so that the Board could decide whether to accept or reject the offers so far made or make a counter offer. The committee is dissatisfied with the price and uncertain of the legality of accepting Voting Trust Certificates in payment of this or any other price. Their action raises these questions: 1. Is it desirous of forcing a better bid in the expectation that P. R. R. interests will realize what might develop from their position in this business if the suit now pending comes to trial? Ĉ. B. H. desires to talk to General Atterbury, and possibly Mr. County, and endeavor to impress this view on them. It would look, therefore, as if the committee's action on the advice of its counsel was to put the situation in a place where a revised offer can be made prior to the next Board meeting. This seems the most logical reason for the committee's action. *[Yes.] 2. Is it desirous of placing the responsibility on the Board and protecting itself? This does not seem likely, as most boards customarily confirm the actions of their committees. *[Yes.] 3. Is the committee taking a course where, if no better price is offered, it will either go on with the business or bring about a receivership, the latter with the hope of reparation from P. R. R. through the pending suit? *[Yes.] If the Judge is not successful in bringing about a better offer, would it not be best to suggest to the committee before the next Board meeting that their report to the Board should be that they are not satisfied with the price and that it should be not less than some amount, which they may now have in mind, but that there seems to be no commercial basis for determining the value of a business which is not earning money; and therefore they are presenting their conclusions to the Board for approval or disapproval of the existing offer and a counter eff proposition by action of the whole Board. EXHIBIT No. 3074 [Copy of memorandum taken from File #217, Vol. 2, in the General Office of the Pennroad Corporation] NOVEMBER 10, 1932. NATIONAL CARLOADING CORPORATION In the conversation between A. J. C., W. G. Bernet and myself the following facts developed: 1. Counsel rules that Pennroad must not sell to P. R. R. nor P. R. R. buy an asset of Pennroad while the Bill of Complaint lately filed against Pennroad is pending. On the other hand, we can sell to the Vans, provided we get a satisfactory price; i. e., a price that benefits us. NOTE: The Bill of Complaint asks that we be enjoined against any sale which is not of benefit to us, so why does it matter which group we sell to if the result is beneficial to us, and any sale would be so far as we can see. 2. The Vans have repeated that they do not desire to sell. 3. Therefore, the situation expressed by A. J. C. was: (a) Are the Vans willing to buy and will they make an offer based on P. R. R.'s agreeing not to go into the business itself, but to continue to use National's facilities? Indicates pencil insertions. W. G. Bernet referred to a memo of sell or buy figures handed his father by A. J. C. I remarked that this was a P. R. R. figure based on what they felt they would sell or buy for, and was not mine, and that such a price was not satisfactory to our Board. Both A. J. C. and I stressed that better performance, as well as the benefit that the business would be to the purchaser, and any agreement by P. R. R. to stay out of the business, meant that unless an offer was at a substantially higher figure than those previously mentioned it would not be interesting. Bernet remarked that, personally, he did not care whether P. R. R. went into business or not if his interests purchased National Carloading. He intimated that any price that they could afford to pay would represent only what the additional business they would get was worth; that is, they had already paid for a certain percentage and would not be willing to pay for it twice. Further, he stated that they would not be interested in Class C stock unless they could get 100%. Also, that if they did buy they would not need an audit of the figures as they get them and know the company's situation; provided a price was asked which would include in the purchase whatever Carloading has in its possession that was due the seller. It was finally agreed that within a week Bernet would try to bring us an offer, but Mr. Denney is in the hospital and he has to be consulted, and Bernet does not know how soon that will be accomplished. (b) In what ways can interested carriers aid National Carloading Corporation; and what is necessary to enable it to operate with greatest economy in its own interests solely, and make a profit? Bernet remarked that he felt P. R. R. should get more business and expressed the belief that routings could be changed so that traffic could be transferred, from Wabash to Pere Marquette for instance, and a corresponding amount of Erie traffic released to P. R. R., so that the agreement with respect to percentage of traffic could be approximated. He stated that Elisha Lee and Denney had expressed the belief that the business could be operated profitably with the three interests involved; that, in his own opinion, however, it could not be operated profitably, but that with one noncompetitive interest only involved it could be. He believes that if E. L. could be convinced of this that he could change Denney's idea. It should be remembered that in speaking of one interest we mean one non-competitive interest. There are other interests that get a good deal of traffic from the business, such as the Wabash, New Haven, and also lines West of the Mississippi, but the main trouble is that duplication of facilities in various centers, necessary to give some certain proportions of traffic to P. R. R. on the one hand, and the Van lines on the other, prevents thoroughly economical operation, in that the rental of facilities costs some money and the switching item is a substantial one. The effect on personnel of uncertainty of the future of the company was also discussed. I agreed that I would talk to Moyer and Bugliari to set out what could be done to improve the situation so that the Corporation could be put on a paying basis; that is, I would find out if paying operations could be established by asking them to view the matter entirely regardless of any railroad interest and as if they owned the business themselves. Following the above conference to-day I discussed with Messrs. Moyer and Bugliari those points above mentioned which I agreed to take up with them. An understanding was reached that I would prepare a memorandum on the subject which would be elaborated on by them. EXHIBIT No. 3075 [Copy of original memorandum taken from file No. 217 in the general office of The Pennroad Corporation] MAY 10, 1932. NATIONAL CARLOADING CORPORATION Memorandum of conference. Present: Messrs. C. B. Heiserman, A. Ward, S. H. Ogden, H. H. Lee. CONCLUSIONS Van Sweringen interests should be eliminated from National Carloading. Bankruptcy or receivership proceedings are undesirable, whether undertaken in an effort to force the Vans out or for any other reason, because receivership |