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security for the Chase note.16 Furthermore, by the terms of a collateral agreement between General and International, the parent company has the right to pay the note to Chase and acquire, as pledgee, the securities now hypothecated with Chase.

In order to determine whether or not the obligation to be issued by General to International meets the standards of Section 7 (c) (1) (B) (iii), it is necessary to determine, first, that it is a bond, second, that it is secured by assets, and, third, that the assets are of such character as not to be detrimental to the public or to the interest of investors.

A difficult problem of interpretation arises as to the effect of the collateral provision in the note to be received by International. It may be that this collateral provision has the effect of giving International a second lien on the securities which are to be pledged with Chase. If such second lien exists, then it will serve as present security, subject to the Chase lien, for the note to be held by International. On the other hand, the language of the collateral provision may merely give International a contract right to security in the future subject to certain stated conditions. If this is true, then the note to be held by International has as its present security only a contract right to receive collateral which is in the nature of an "equitable lien." We are, however, of the opinion that it makes no difference, as to the qualification of the note under Section 7 (c) (1) (B) (iii), which of these interpretations is adopted. In either case International is receiving a note that is presently secured either by a second lien or by a contract to give security, either of which is an asset within the contemplation of the statute. Having determined, then, that the proposed obligation is secured by an "asset," it remains to be determined whether the obligation is a bond and whether the assets securing the obligation are of such a type and character as to be appropriate in the public interest and for the protection of investors.

We are of the opinion that the obligation of General here under consideration meets the requirements of the term "bond" as used in Section 7 (c), notwithstanding the fact that the instrument is denominated a "note." This instrument is, as we have already indicated, a secured obligation. Furthermore, the note in question fulfills the requirements of the broad judicial definitions of a bond.1

16 "Whenever said Principal Note [Note to The Chase National Bank] has been fully paid and satisfied (to the prior payment of which in full, both principal and interest, this Note is subordinated), the holder of this Note shall thereupon be subrogated to the reversionary rights of the Company in whatever collateral security for said Principal Note shall then be in the possession of the then holder of said Principal Note and be entitled to receive from such holder such securities remaining as shall comprise such collateral, ..."

17 The definitions as to what constitute a bond have been extremely broad, "it is therefore apparent that a corporate bond, in its simplest form, is in terms and effect merely the promissory note of the maker, obligating such maker to pay a sum of money in the future." Jones, Bonds and Bond Securities (1935), Section 601.

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As has been previously stated, International Utilities Corporation owns approximately 75 percent of the common stock of General and International will thus benefit from whatever profits accrue to General as a result of this acquisition. The note, furthermore, contains no provisions for breaking it up into smaller denominations for public distribution. If the note contained provisions which would enable the note to be sold to the public an entirely different problem would be here involved.

In determining whether or not the note is secured by assets of such character as are appropriate in the public interest and for the protection of investors, we are of the opinion that we should take into consideration the fact that the only investor here concerned is the parent of the issuing company which has full knowledge of the situation and the risk to be assumed. Furthermore, we are of the opinion that we should take into consideration the fact that the value of the collateral pledged with The Chase National Bank exceeds by a wide margin the face amount of the loan to be made by International. In view of these facts, we are of the opinion that the assets pledged are of such a type and character as to be appropriate in the public interest and for the interest of investors. We find therefore that the note to be issued by General to International meets the qualifications of Section 7 (c) (1) (B) (iii).

The declarant has filed an opinion of counsel to the effect that no state commission or state securities commission has jurisdiction over the issue and sale of the proposed notes. Furthermore, no state commission or state securities commission has informed the Commission that any applicable laws have not been complied with. The provisions of Section 7 (g) are, therefore, satisfied.

With regard to Section 7 (d), we are of the opinion that upon the basis of the facts as hereinbefore set out no basis exists for making any adverse findings. An appropriate order will therefore be entered subject to the following conditions:

(1) That such issue and sale shall be effected in accordance with the terms and conditions of and for the purposes represented by said declaration; and

Footnote 17 continued:

"The distinguishing feature of a bond is that it is an obligation to pay a fixed sum of money, at a definite time, with a stated interest, and it makes no difference whether a bond is designated by that name or by some other, if it possesses the characteristics of a bond. There is no distinction between bonds and certificates of indebtedness which conform to all the characteristics of bonds." Quindry, Bonds and Bondholders (1934), Section 2.

"A bond... is a written instrument which includes within its terms the promise by the maker to pay to bearer, or to a person named or designated therein, or his order, a named sum of money usually with interest at a named rate, at a fixed or determinable future time. It may or may not be secured by a lien upon specific real or personal property. It therefore contains the elements of an ordinary promissory note." First State Bank of Kansas City v. Bone, 252 Pac. 250, 254 (1927).

(2) That within 10 days after such issue and sale the declarant file with this Commission a certificate of notification indicating that such issue and sale have been effected in accordance with the terms and conditions of, and for the purposes represented by, said declaration.

ACQUISITION BY INTERNATIONAL

International has also filed an application for the approval of the acquisition by it of the 6% note of General of not to exceed $1,100,000 face amount. 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 the acquisition by International of such note. Furthermore, we are of the opinion that the acquisition of such note is not unlawful under the provisions of Section 8 or detrimental to the carrying out of the provisions of Section 11. As the acquisition of this note is a part of the entire transaction whereby the International system will be enabled to employ its funds which are now idle, the Commission is of the opinion that the acquisition of this note will tend toward the economical and efficient development of an integrated public utility system.

International has furnished an opinion of its counsel to the effect that no state utility commission or state security commission has jurisdiction over this acquisition and that all applicable state laws have been complied with. The Commission, therefore, is of the opinion that the requirements of Section 10 (f) are satisfied.

We are, however, of the opinion that because of the nature of the assets securing the note sold to International, we should retain jurisdiction to approve any sale of this note or any part thereof by International. An appropriate order will, therefore, issue subject to the following conditions:

(1) That in event of the sale in whole or in part of the note now being acquired by International, the Commission shall have jurisdiction to approve or deny such sale, and that prior to any such sale, an application shall be filed with this Commission;

(2) That the acquisition shall be effected in accordance with the terms and conditions of and for the purposes represented by said application; and

(3) That within 10 days after such acquisition the applicant shall file with this Commission a certificate of notification showing that such acquisition has been effected in accordance with the terms of said application.

By the Commission: Commissioner Healy was absent at the time of the Commission's consideration of this case and did not participate therein.

[No. 858]

IN THE MATTER OF

MONONGAHELA WEST PENN PUBLIC SERVICE COMPANY

File No. 31-226. Promulgated August 24, 1939

EXEMPTION OF HOLDING COMPANY OR SUBSIDIARY.

Holding Company Predominantly a Public Utility Company.

A holding company having applied for exemption from the provisions of the Public Utility Holding Company Act of 1935 pursuant to Section 3 (a) (2) of the Act, exemption granted from all provisions of the Act, that would require its registration thereunder because of its control over its subsidiary public utility companies, the Commission finding that the applicant is predominantly a public utility company whose operations as a public utility company do not extend beyond the state in which it is organized and states contiguous thereto, the applicant and its subsidiary companies remaining subject to any obligations imposed on them in any other capacity, such as that of an "affiliate" or a "person" as defined in the Act.

FINDINGS AND OPINION OF THE COMMISSION

Monongahela West Penn Public Service Company has filed an application for exemption from the provisions of the Public Utility Holding Company Act of 1935 under Section 3 (a) (2) of that Act. After appropriate public notice a hearing was held on this application at which no member of the public requested to be heard. Having considered the record in this matter, the Commission makes the findings contained herein:

Section 3 (a) (2) of the Public Utility Holding Company Act (hereinafter sometimes referred to as the "Act") provides as follows:

The Commission, by rules and regulations upon its own motion, or by order upon applications, shall exempt any holding company, and every subsidiary company thereof as such, from any provision or provisions of this title, unless and except insofar as it finds the exemption detrimental to the public interest or the interest of investors or consumers, if—

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(2) such holding company is predominantly a public utility company whose operations as such do not extend beyond the state in which it is organized and states contiguous thereto.

Monongahela West Penn Public Service Company (hereinafter sometimes referred to as the "applicant") is a West Virginia cor

5 S. E. C.- -35-1706

poration with its principal place of business in Fairmont, W. Va. It is a subsidiary of The West Penn Electric Company, a registered holding company and indirectly of American Water Works and Electric Company, Incorporated, a registered holding company. The applicant is a holding company as defined by Section 2 (a) (7) of the Act because it owns more than 10 percent, in fact all, of the outstanding voting securities of the following public utility companies, namely:

The Marietta Electric Company,

State Line Gas Company,

The West Maryland Power Company,
Monterey Utilities Corporation.

As an operating utility company the applicant renders electric light, heat, and power service to approximately 101,000 customers in a territory embracing substantially all of the northern half of West Virginia with the exception of Ohio and Marshall Counties, and a portion of the Eastern Panhandle of West Virginia. It is also engaged in the production, purchase, and distribution of natural gas in four counties in West Virginia. The applicant also operates an electric railway system in the upper Monongahela Valley, water works in Brownsville, Webster Springs, and Spencer, W. Va., and an ice plant in the latter town. All of its properties are physically interconnected.

All of the capital stock of the above-named subsidiaries is owned by the applicant, the only securities in the hands of the public being $25,000 principal amount of bonds of The West Maryland Power Company.

The Marietta Electric Company, an Ohio corporation, renders electric light, heat, and power service in Marietta, Ohio, and adjacent territory.

The State Line Gas Company, a Pennsylvania corporation, produces and purchases natural gas which it distributes in Fayette and Greene Counties, Pa., and also supplies natural gas to the applicant.

The West Maryland Power Company, a Maryland Corporation, renders electric light, heat, and power service in the southern part of Garrett County, Md.

Monterey Utilities Corporation, a Virginia corporation, renders electric light, heat, and power service in Monterey, Va., and adjacent territory.

The applicant's public utility properties are located in the State of West Virginia and its operations are confined to that state. The

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