below. The table also shows the amount of net income available per share of common stock for the same period: Similar information, in condensed form, for the 12 months ending December 31, 1936, December 31, 1937, and December 31, 1938, is as follows: It will be noted from the foregoing that the coverages will be slightly reduced as a result of the proposed financing, but they still appear to be adequate. The annual interest charges will be increased by $2,700, and the annual charge for amortization of debt discount and expense will be increased by approximately $45, making a total increase in fixed charges of $2,745, with a corresponding decrease in net income. 6 It is estimated that the total fees and expenses to be incurred in connection with the proposed financing will amount to $985 for the bonds, and $395 for the stock, or a total of $1,380, which figure is 1.16 percent of the net proceeds ($118,620) to be received by the company. SERIES B BONDS The bonds will be issued under a supplemental indenture, to be dated as of April 1, 1939, supplementing the indenture, dated as of October 1, 1936, between the company and The Pennsylvania Company for Insurance on Lives and Granting Annuities, as trustee, and C. Stevenson Newhall, as co-trustee, and will, in the opinion of counsel for the company, be secured by a first lien on physical property of the company. The supplemental indenture provides, in effect, that the bonds will bear interest at the rate of 42 percent per annum; will be dated as of October 1, 1936; and will be payable on October 1, 1961; that the company will pay to the trustee annually, as and for a sinking fund, commencing September 1, 1940, and to and including September 1, 1942, an amount of cash sufficient to redeem $2,000 principal amount of bonds per annum, and commencing September 1, 1943, and thereafter, an amount of cash sufficient to redeem $1,000 principal amount of bonds per annum; that the bonds may be redeemed at any time to and including October 1, 1942, at 104 percent of the principal thereof, with the redemption price decreasing thereafter in accordance with the schedule set forth in the supplemental indenture; that the company will annually expend for maintenance and reserve for depreciation a total sum amounting in the aggregate to not less than 15 percent of the operating revenues of the company during each calendar year, provided that the company may be credited in any calendar year with any amounts expended or reserved by it, in any calendar year of the 7 The amount of such annual charge for amortization of debt discount and expense is determined by spreading the cost of issuing the proposed series B bonds, estimated at $985, over the life of the bonds of 22 years 2 months, from August 1, 1939, to October 1, 1961. The series A bonds sinking fund provides for annual payments of an amount of cash sufficient to redeem $35,000 principal amount of bonds per annum, commencing September 1, 1937, and to and including September 1, 1942, and $15,000 principal amount of bonds per annum thereafter. Through the operation of the respective sinking funds, there will have been retired by maturity 47.47 percent of series A bonds and 41.67 percent of series B bonus. next preceding 3 calendar years in excess of the sum required to be so expended or reserved by it and not previously credited against a deficiency in some year subsequent to that in which said excess was expended or reserved; that the company will not (a) pay any dividends on its capital stock, except out of net earnings, after proper reserve for depreciation, accruing after December 31, 1935, (b) pay any management fees of any nature or description, and (c) pay any salaries to officers or employees in excess of amounts allowed as expenses by the Michigan Public Service Commission in the fixing or regulation of rates charged by the company. The indenture also provides, in effect, that the company may issue additional bonds for an aggregate principal amount not exceeding 75 percent of the cash cost, or of the fair value to the company should such fair value be less than such cash cost, of any permanent improvements, extensions, or additions to its property or of any new or additional property constructed or acquired subsequent to September 30, 1936, provided that the net earnings available for interest, reserves other than for depreciation, and dividends, calculated as therein provided, have been in the aggregate equal to at least twice annual interest charges on all bonds then outstanding, those applied for, and all bonds owned by parties other than the company secured by a lien upon the properties of the company prior to the lien of the indenture. CONCLUSIONS Section 6 (b) of the Act provides that the Commission shall exempt from the provisions of Section 6 (a) thereof "subject to such terms and conditions as it deems appropriate in the public interest or for the protection of investors or consumers" the issue or sale of any security by any subsidiary company of a registered holding company, if the issue and sale of such security are solely for the purpose of financing the business of such subsidiary company and have been expressly authorized by the state commission of the state in which such subsidiary company is organized and doing business. The Michigan Public Service Commission, by its order dated June 9, 1939, has authorized the issue and sale of the bonds and stock of the company. As this is such an authorization by a state commission as is contemplated by Section 6 (b), and as the issue and sale of the bonds and stock are solely for the purpose of financing the business of the company, we conclude that the company is entitled to an order exempting the transaction from the provisions of Section 6 (a) of the Act. The Michigan Public Service Commission, by the aforesaid order, has also authorized the company to increase the stated value of 20,000 shares of its common capital stock now outstanding from a stated value of $22 per share to a stated value of $25 per share, and to charge the increase in stated value, namely $60,000, to earned surplus account. To the extent that this transaction may be deemed "the exercise of a privilege or right to alter the priorities, preferences, voting power, or other rights of the holders of an outstanding security" of the company, we find that it will not result in an unfair or inequitable distribution of voting power among holders of the securities of the company or is otherwise detrimental to the public interest or the interest of investors or consumers. Accordingly, the requirements of Sections 7 (e) and (g) of the Act are satisfied. An appropriate order will issue, subject, however, to the following terms and conditions which are imposed upon the company: (1) That the issue and sale of the bonds and stock shall be accomplished in accordance with the terms and conditions of, and for the purposes represented by, the application or declaration, as amended; (2) That the exemption granted herein of the issue and sale of the bonds and stock shall terminate without further order of this Commission in the event that the authorization of the Michigan Public Service Commission shall be revoked or otherwise terminated; (3) That within 10 days after the issue and sale of the bonds and stock, the company shall file with this Commission a certificate of notification showing that such issue and sale have been effected in accordance with the terms and conditions of, and for the purposes represented by, the application or declaration, as amended. By the Commission: Chairman Frank not participating. 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. 857] IN THE MATTER OF INTERNATIONAL UTILITIES CORPORATION File No. 43-227. Promulgated August 24, 1939 ACQUISITION OF SECURITIES BY REGISTERED HOLDING COMPANY OR SUBSIDIARY. Approval. Application, having been filed by a registered holding company, pursuant to Section 10 of the Public Utility Holding Company Act of 1935, regarding the acquisition of all the issued and outstanding common stock of a water corporation from a registered holding company, for a cash consideration of $3,202,000, applicant to raise the funds necessary to consummate the proposed acquisition by the issue and sale of a 3% note in the face amount of $1,200,000, by the issue and sale of a 6% note not to exceed $1,100,000 face amount and the balance to be supplied by applicant from its own treasury, approved subject to certain conditions, the Commission finding that the applicable standards of Section 10 of the Act had been met and that such acquisition is not detrimental to the carrying cut of the provision of Section 11 of the Act. ISSUE AND SALE OF SECURITIES OF REGISTERED HOLDING COMPANY OR Obligation Secured by Assets of Such Character as are Appropriate in the Declaration, having been filed by a registered holding company pursuant to Section 7 of the Public Utility Holding Company Act of 1935, with regard to the issue and sale of a 3% secured serial promissory note in the face amount of $1,200,000 and a 6% promissory note in the maximum face amount of $1,100,000, the proceeds from the notes, together with certain funds to be furnished by declarant, to be used for the purchase of all the issued and outstanding common stock of a water corporation, permitted to become effective, subject to certain conditions, the Commission finding that the obligation although designated "notes," meets the requirements of the term "bonds" as used in Section 7 (c) and are secured by assets of such character as are appropriate in the public interest and for the protection of investors. Declaration pursuant to Section 7 of the Act regarding the issue and sale of a 3% secured serial promissory note, permitted to become effective, subject to certain conditions, the Commission finding that although the 3% note does not meet the standards of either Section 7 (c) (1) (B) (i) or Section 7 (c) (1) (B) (ii) as the note is not secured by a first lien on the physical property of the declarant in view of the fact that the note is to be held by a single investor well qualified to judge the merits of the risk assumed, and because |