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As security for the first mortgage note Stonewall proposes to execute and deliver to the REA a first mortgage on the distribution lines to be constructed and also proposes to pledge the agreement and lease entered into with Trinidad.

It is calculated that the rentals to be paid to Stonewall under the lease of the distribution lines to be constructed will be sufficient to permit Stonewall to meet the interest and amortization payments required under the first mortgage note and all of its operating expenses. Since the proceeds of the note are to be used to finance the business of the declarant, the issue and sale meet the requirements of Section 7 (c) (2).

No state commission or state securities commission having jurisdiction over the issue or sale of these notes has informed this Commission that state laws applicable thereto have not been complied with. Accordingly, the provisions of Section 7 (g) of the Act are satisfied.

No fees, commissions, or other remuneration are to be paid in connection with the issue and sale other than legal fees and miscellaneous expenses estimated by declarant not to exceed $800.

Section 7 (d) provides that if the requirements of subsections (c) and (g) are satisfied, the Commission shall permit a declaration regarding the issue of a security to become effective unless the Commission makes adverse findings with respect to certain matters therein set forth. The record discloses an urgent need for additional construction to serve territory not now receiving electric service. Further, the note is not to be presently offered to the public and whether any public offering will be made in the future will be subject to determination of the REA. In view of the foregoing facts, the Commission does not make any adverse findings with respect to the matters specified in Section 7 (d).

THE APPLICATION PURSUANT TO RULE U-12F-1

Rule U-12F-1 provides in part:

The Commission, after opportunity for hearing, shall approve such application if it finds that the terms and conditions of such sale with respect to reports, accounts, costs, maintenance of competitive conditions, disclosure of interest, duration of contracts, and similar matters, are not detrimental to the public interest or the interest of investors or consumers, and will not tend to circumvent the provisions of the Act or any rules, regulations, or orders of the Commission thereunder.

With respect to competitive bids it was stated by the applicant that the rural distribution facilities to be constructed will be in territory of the lessee's operations and connected with its transmission lines and the proposed lease was not offered to others since competitive bidding would not have been feasible.

The lease will be for a term of 20 years providing that if at the end of such term, or any renewal thereof, any part of the principal of or interest on the government note shall remain unpaid, the term shall be automatically renewed for an additional term of 10 years.

The companies estimate that the rental under the lease will provide Stonewall with sufficient funds to discharge the principal and interest payments on its first mortgage note and its other corporate expenses. The rental provided for is a sum payable monthly equal to % of 1 percent of the total amount which Stonewall shall have expended for construction of that part of the leased property which shall have been energized up to and including the first day of the calendar month in which such payment shall become due. In any event Trinidad agrees to pay Stonewall each calendar month an amount which shall be sufficient to enable Stonewall to pay the principal of and interest on the REA loan which shall become due and payable during the following calendar month. In addition Trinidad agrees to pay all expenses of operation of the leased lines, including taxes, premiums for workman's compensation and public liability insurance, and all maintenance expenses.

Trinidad estimates that the first year of operations of the proposed distribution lines will produce approximately $5,500 gross revenues and approximately $300 net revenues after operating expenses including taxes and rental payments under the proposed lease.

At the termination of the loan contract and the lease Stonewall would own the distribution lines, the money for the construction of which would have all been derived from Trinidad. However, Stonewall has stated in the record that it will grant Trinidad an option to acquire the distribution lines for a purchase price which shall be a sum equal to the actual legitimate cost of the properties constructed as a part of said rural electrification project, including interest paid on the government loan, less any payments made as rentals, title not to pass, however, until the government loan has been paid in full. Applicants also asked that the execution and acquisition of such option agreement be considered as a part of the present application.

Under these circumstances the Commission concludes that the terms and conditions of the lease and option agreement are not detrimental to the public interest or the interest of investors or consumers and will not tend to circumvent the provision of the Act or any rules, regulations, or order of the Commission thereunder.

• Although it is not anticipated that Stonewall will make any consequential profits it has been agreed that no dividends will be declared on its capital stock in excess of 5% per annum.

THE APPLICATION PURSUANT TO SECTION 10

With respect to the acquisition of the option agreement and lease by Trinidad, in view of the foregoing, we make no adverse findings with respect to the matters specified in Section 10 (b) of the Act.

With respect to Section 10 (c) we find that such acquisition is not unlawful under the provisions of Section 8 of the Act; nor is it detrimental to the carrying out of the provisions of Section 11; and that such acquisition by Trinidad will serve the public interest by tending towards the economical and efficient development of an integrated public utility system. It appears that such state laws have been complied with as may apply in respect of such acquisition and the requirements of subsection (f) are satisfied.

The declaration pursuant to Section 7 will be allowed to become effective and the applications pursuant to Sections 12 and 10 will be approved, subject to the conditions that—

(1) The issue, sales, and acquisitions shall be effected in accordance with the terms and conditions of, and for the purposes represented by, said declaration and applications, and

(2) Within 10 days after such issue, sales, and acquisitions, the declarant and applicants shall file with this Commission a certificate of notification showing that such issue, sales, and acquisitions have been effected in accordance with the terms and conditions of, and for the purposes represented by, said declaration and applications.

By the Commission: Commissioner Healy not participating.

5 S. E. C.

IN THE MATTER OF

ALLIED CHEMICAL & DYE CORPORATION

File No. 31-335. Promulgated June 22, 1939

DECLARATION OF STATUS.

Company Declared Not to be a Holding Company.

Application, having been filed by a company for an order declaring it not to be a holding company pursuant to Section 2 (a) (7) of the Public Utility Holding Company Act of 1935, where the applicant owned slightly more than 10 percent of the outstanding voting securities of a registered holding company and more than one-third of the preferred stock, which amounted to a veto power over certain corporate action of the registered holding company, but voting control was held by another registered holding company, the Commission, in view of unusual circumstances surrounding the application, granted an order, subject to certain conditions, declaring the applicant not to be a holding company within the meaning of Section 2 (a) (7) (A) of the Act.

FINDINGS AND OPINION OF THE COMMISSION

Allied Chemical & Dye Corporation (hereinafter sometimes referred to as the "applicant"), a New York corporation, filed an application on November 30, 1935, for an order declaring it not to be a holding company pursuant to Section 2 (a) (7) of the Public Utility Holding Company Act of 1935. Thereafter applicant filed two amended applications, and finally on May 3, 1939, filed an amendment to its last amended application. A hearing on the application as amended was held after appropriate public notice. No member of the public appeared or requested an opportunity to be heard at the hearing. A trial examiner's report and the submission of requested findings of fact by counsel for the parties were waived as were also oral argument and the filing of briefs. The Commission, having considered the record, makes the findings contained herein:

Allied Chemical & Dye Corporation is the beneficial owner of 234,912 shares of preferred stock and 119,200 shares of common stock of American Light and Traction Company (hereinafter sometimes referred to as "American"), a registered holding company, as set forth in the following tabulation:

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Both the common and preferred stock of American have equal voting rights. Supplementary to such rights, however, the corporation laws of New Jersey, under which American is organized, provide that

such stock shall vote by class under certain circumstances. Reference to such circumstances will be made later in this opinion.

Applicant does not, directly or indirectly, own, control, or hold with power to vote 10 percent or more of the voting securities of any other public utility or holding company.

By reason of the fact that the applicant owns slightly over 10 percent of the outstanding voting securities of American, the applicant is prima facie a holding company. However, the Commission is authorized by Section 2 (a) (7) to declare the applicant not to be a holding company if it finds that it

(i) Does not, either alone or pursuant to an arrangement or understanding with one or more other persons, directly or indirectly control a public utility or holding company either through one or more intermediary persons or by any means or device whatsoever,

(ii) Is not an intermediary company through which such control is exercised, and

(iii) Does not, directly or indirectly, exercise (either alone or pursuant to an arrangement or understanding with one or more other persons) such a controlling influence over the management or policies of any public utility or holding company as to make it necessary or appropriate in the public interest or for the protection of investors or consumers that the applicant be subject to the obligations, duties, and liabilities imposed in this title upon holding companies.

More than 51 percent of the voting securities of American are directly or indirectly owned by United Light & Power Company (sometimes hereinafter referred to as "United"), which is also a registered holding company. The charter of American does not provide for cumulative voting and no officer, director, nominee, or appointee of applicant is now or ever has been on the board of directors or otherwise connected with the management of American, United, or any subsidiary of said companies. Nine of the 17 directors of American are also directors and members of the executive committee of United. The president and many other officers of American hold the same or similar positions in United.

Because applicant owns more than one-third of the preferred stock of American, it has what amounts to a veto power over certain corporate action of American. Also, the subsidiaries of applicant have had contractual relations with the subsidiaries of American of such a nature as to warrant some discussion of their effect on the question of control by applicant over American.

1

The corporation laws of the State of New Jersey 1 provide for an affirmative vote of two-thirds of each class of stock having voting

1 Section 27 of the New Jersey General Corporation Act provides as follows: "Amendments and changes after organization; procedure; resolution; meeting; certificate:

Aling.

"Every corporation organized under this Act, including every corporation organized under 'An Act concerning corporations' (Revision), approved April seventh, one thousand eight

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