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to become effective subject, however, to the conditions hereinafter enumerated.

As has already been stated General Public Utilities, Inc., proposes to acquire both first mortgage 44% serial bonds and 4% unsecured notes, due April 1, 1960. Under the circumstances as set forth above and in view of the record generally, the Commission observes no basis. for making adverse findings under Section 10 (b) with regard to either of such securities. Furthermore, the Commission is of the opinion that neither the acquisition of the first mortgage 44% serial bonds or the 4% unsecured notes of Dakota is unlawful under the provisions of Section 8 or will be detrimental to the carrying out of the provisions of Section 11. As the acquisition of bonds and notes is a part of the entire transaction whereby Dakota will refund its bonds upon a materially lower interest rate, the Commission is of the opinion that the acquisition of these securities will tend toward the economical and efficient development of an integrated public utility system.

General Public Utilities, Inc., has furnished an opinion of its counsel to the effect that no state public utility commission or securities commission has jurisdiction over this acquisition and that all applicable state laws have been complied with. The Commission is, therefore, of the opinion that the requirements of Section 10 (f) are satisfied. An appropriate order will, therefore, issue subject to certain conditions hereinafter set forth.

The Commission, in view of the facts as set forth above, finds that the application of General Public Utilities, Inc., pursuant to Rule U-12D-1, with regard to the sale by it of the 7% first mortgage bonds and unsecured 4% notes of Dakota to the issuer is, with respect to the consideration to be received for such sale, maintenance of competitive conditions, fees and commissions, accounts, disclosure of interest, and similar matters, not detrimental to the public interest or to 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. Such application will, therefore, be approved.

The Commission is further of the opinion that the acquisition by Dakota of $337,000 of its own 4% unsecured notes and $266,500 of its own first mortgage 7% bonds, due September 1, 1943, pursuant to the application filed under Rule U-12C-1, will not adversely affect the financial integrity or the working capital of the applicant. We therefore approve such application.

The declaration pursuant to Section 7 and the applications pursuant to Section 10, Rule U-12D-1, and Rule U-12C-1, will be approved subject to the following conditions:

(1) That 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) That within 10 days after such issue, sales, and acquisitions, the declarant and applicant 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 was absent at the time of the Commission's consideration of this case and did not participate therein.

5 S. E. C.

[No. 822]

IN THE MATTER OF

UTILITIES POWER & LIGHT CORPORATION

File Nos. 34-8, 52–3, 52–5, 52–9, and 52-10. Promulgated July 26, 1939
UTILITIES POWER & LIGHT CORPORATION AND
CHARLES TRUE ADAMS

File No. 59-1. Promulgated July 26, 1939

SIMPLIFICATION OF HOLDING COMPANY SYSTEM.

Reorganization Plan Under Bankruptcy Act-Approval.

Application having been filed, pursuant to Section 11 (f) of the Public Utility Holding Company Act of 1935, for approval of plan of reorganization, approval granted, subject to certain conditions, the Commission finding its terms and provisions to be such that the standards of Section 7 do not require withholding of approval of the plan and with respect to Section 10, the provisions of the plan, calling for eventual conversion of the new company into an investment company and for the filing of a plan under Section 11 (e) will tend to eliminate the system's existing repugnancy to the integration provisions of the Holding Company Act, and may result in properties not now integrated becoming integrated as a result of the acquisition by others of properties or companies now held or controlled by the estate of the debtor.

FAIRNESS OF REORGANIZATION PLAN.

In forming a judgment on the fairness of a reorganization plan the Commission must determine whether the treatment accorded to various classes of creditors and stockholders adequately recognizes their respective rights and priorities in the light of the assets and earnings available for such purposes.

Plan of reorganization, whereby general creditors are to receive new debentures in principal amount equal to 40 percent of the principal amount of their claims, and, under a right of election can obtain, if they so desire, new preferred stock for the balance of the principal of their claims and for all accrued interest, found to be fair in these respects.

Plan of reorganization, whereby the holders of old preferred stock will receive five shares of new common stock for each share of old preferred stock held by them and are the only ones entitled to participate other than the general creditors, found to be fair, the preferred stockholders receiving as a class all of the equity remaining after provision for holders of claims senior in rank.

Where certain classes of stock have no equity in the assets or earnings of the debtor, they are not entitled to receive anything of value under a reorganization plan, and acceptances of a plan need not be obtained from classes of stockholders having no equity and no reasonable expectation of ever having any equity in the assets or earnings of the debtor.

Where subscription rights proposed to be given to holders of new preferred stock and new common stock are worthless and illusory, they are clearly repug

5 S. E. C.-35-1655

483

nant to the standards contained in Sections 7 (d) (1), 7 (d) (2),7 (d) (3), and 7 (d) (6) of the Act.

Standards of Section 7 Applicable to Plan.

In passing upon a plan of reorganization pursuant to Section 11 (f) of the Public Utility Holding Company Act of 1935 it is necessary for the Commission to apply the standards of Section 7, for otherwise, if the plan were approved, it would be subsequently necessary for the Commission to do so when the new company sought to obtain permission to issue the new securities pursuant to Section 7 (d). The applicable standards of the Public Utility Holding Company Act of 1935 are in addition to the requirements of the Bankruptcy Act. VALUATION OF ASSETS.

For purposes of reorganization earning power is the proper criterion of value; thus such considerations as book values, original or historical costs, and reproduction cost new less depreciation, in determining the value of productive property, are generally of evidentiary significance only insofar as they bear upon the question of earning power.

In determining value of assets for purpose of reorganization, consideration must frequently be given to historical or original cost and reproduction cost new less depreciation, not because they are direct standards of value for reorganization purposes, but because they may have bearing on future earnings; particularly in instances in which earnings are regulated by rate making bodies.

FINDINGS AND OPINION OF THE COMMISSION

NATURE AND HISTORY OF PROCEEDINGS AND PARTIES THERETO

Four applications have been filed, pursuant to Section 11 (f) of the Public Utility Holding Company Act of 1935, for our approval of plans of reorganization for Utilities Power & Light Corporation, a registered holding company, hereinafter referred to

"debtor."

The proceedings with respect to these applications and certain related matters were consolidated for purposes of hearing by order

More specifically, such applications and related matters were those mentioned in this footnote. (See In the matter of Utilities Power & Light Corporation, 3 S. E. C. 1096

(1938).)

File No. 52-3.-On October 14, 1937, the trustees of Public Utilities Securities Corporation and the trustee of Webster Securities Corporation, parent holding companies of the debtor, filed an application pursuant to Section 11 (f) for approval of a plan dated July 6, 1937. This plan was later superseded by a plan dated August 23, 1938, filed by said trustees and trustee. The terms of the plan dated July 6, 1937, and the plan dated August 23, 1938, are summarized in Holding Company Act Releases Nos. 852 and 1218, respectively.

File No. 34-8.-On October 15, 1937, the trustees of Public Utilities Securities Corporation and the trustee of Webster Securities Corporation filed an application pursuant to Section 11 (g) for a report on the plan dated July 6, 1937, and a declaration pursuant to Rule U-12E-5 with respect to the solicitation of assents thereto. By amendment filed August 24, 1938, such application and declaration were amended to relate to the plan dated August 23, 1938.

File No. 52-5.-On October 26, 1937, Atlas Corporation and a protective committee representing holders of preferred stock of the debtor filed an application for approval of a plan dated October 23, 1937, offered in substitution for and in lieu of the plan dated July 6, 1937, filed by the trustees of Public Utilities Securities Corporation and the trustee

of the Commission entered on August 29, 1938.

Proceedings for the reorganization of the debtor are pending in the United States District Court for the Northern District of Illinois, Eastern Division, hereinafter referred to as the "court." Since August 14, 1937, the assets of the debtor have been in control and possession of a trustee appointed by the court. The court designated a special master to hold hearings and in the interest of saving time and expense and avoiding duplication of hearings, the court and the Commission entered orders permitting testimony to be taken before

of Webster Securities Corporation. The terms of this plan dated October 23, 1937, are summarized in Holding Company Act Release No. 861.

File No. 52-9.-On July 15, 1938, Atlas Corporation filed an application pursuant to Section 11 (f) for approval of a plan dated July 15, 1938, proposed in amendment of and as a substitute for the plan dated October 23, 1937. On August 24, 1938, this application was amended to include an application for a report on the plan pursuant to Section 11 (g) and a declaration with respect to solicitation of assents pursuant to Rule U-12E-5. Thereafter these applications and declaration were amended to relate to a plan dated February 1, 1939, as amended on June 30 and July 10, 1939. The terms of the plan dated July 15, 1938, and of the plan dated February 1, 1939, as originally filed are summarized in Holding Company Act Releases Nos. 1165 and 1437, respectively. The more important changes made in the plan dated February 1, 1939, by the amendment of June 30, 1939, are summarized in Holding Company Act Release No. 1609; and the only substantial change made by the amendment of July 10, 1939, is referred to in this opinion. File No. 52-10.-On July 21, 1938, Associated Investing Corporation and Associated Utilities Corporation filed an application for approval of a plan dated February 21, 1938. By amendments filed August 27, 1938, this application was amended so as to amend the plan and so as to include an application pursuant to Section 11 (g) for a report on the plan dated February 21, 1938, as so amended and a declaration pursuant to Rule U-12E-5 with respect to the solicitation of assents thereto. The terms of the plan as filed and as amended are summarized in Holding Company Act Releases Nos. 1168 and 1222, respectively.

File No. 59-1.-The proceeding having this file number was instituted by the Commission under Section 11 (b) to determine the manner and extent to which the properties and business of the debtor's holding company system shall be confined to those necessary or appropriate to the operation of an integrated public utility system and to determine the action which the debtor, its trustee, and their successors, and each subsidiary thereof, shall be required to take to limit the operations of the system to a single integrated public utility system, and to such other businesses as are reasonably incidental, or economically necessary or appropriate to the operation of such public utility system.

A voluntary petition was filed by the debtor on January 4, 1937, in a proceeding originally instituted on September 24, 1936, by four creditors of the debtor who filed an involuntary petition under Section 77B of the Bankruptcy Act in the United States District Court for the Northern District of Illinois, Western Division, Cause No. 3042. On November 9, 1936, this matter was transferred to the United States District Court for the Northern District of Illinois, Eastern Division, Cause No. 64605.

At the commencement of the reorganization proceedings the debtor was continued in possession and an investigator was appointed to consider and report on certain charges of mismanagement. The investigator's report was filed with the court on July 30, 1937, and on August 1, 1937, the Commission was notified that on the following day, a hearing would be held for the purpose of considering whether the debtor should be kept in possession or whether an independent trustee should be appointed. The Commission took the view that the circumstances of the case required an independent trustee to represent and protect the interests of investors and consumers, and appeared by its counsel at the hearing, as amicus curiae, and moved for the discharge of the debtor. After extensive argument and despite opposition, the court accepted the view of the Commission and entered an order removing the debtor from possession and appointing Willoughby G. Walling trustee of the estate. The present trustee, Charles True Adams, was appointed on March 16, 1938, Mr. Walling having died in the interim.

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