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in order to prevent a reduction of the common stock equity below an amount equal to the involuntary liquidating value of the preferred stock then outstanding.

On the basis of the foregoing we find no occasion to make adverse findings with respect to any of the matters specified in Section 7 (e).

This assumption of debt and the proposal to vest voting rights in the East Tennessee $6 cumulative preferred stock have been ap proved by the state commissions of the three states in which the company operates. Hence the requirements of Section 7 (g) are satisfied.

ACQUISITION BY EAST TENNESSEE AND POWER & LIGHT

Looking to the statutory requirements in respect of the acquisitions and exchanges of securities by East Tennessee and Power & Light involved in these transactions it appears that there is no necessity for adverse findings under Section 10 and that all other require ments of such section and the requirements of Rule U-12D-1 have been complied with.

An appropriate order will issue subject, however, to the following conditions:

(1) That nothing herein contained shall be construed as an order or expression of approval of any accounting entries as presently, or as hereafter may appear on the books of Cities Service Power & Light Company with respect to the securities of East Tennessee or the subsidiary which it owns.

(2) That the exchanges, issues, sales, and acquisitions be made in accordance with, and for the purposes represented by, said applica tions and declarations.

(3) That after all expenses incurred in connection with the transactions shall have been paid, applicant shall file a statement of such expenses showing the amount thereof, to whom paid and the services

rendered.

(4) That within 10 days after completion of the exchanges, issues. sales, and acquisitions, the applicants and declarants shall file a certificate of notification that such exchanges, issues, sales, and acquisitions, each respectively, have been made in accordance with, and for the purposes represented by, said applications and declarations.

(5) That such exemptions and approvals herein made which are based upon the approval of the State Corporation Commission of the Commonwealth of Virginia, the Railroad and Public Utilities Commission of the State of Tennessee and the Public Utilities Commission of the State of North Carolina shall immediately terminate with

out further order of this Commission, if at any time the authorization of any issue, sale, or acquisition by any or all of said state commissions shall be revoked or otherwise terminated.

(6) Until further order of the Commission, so long as any shares of the $6 preferred stock are outstanding, the company shall not pay dividends on or make any other distributions to the holders of shares of its common stock (other than dividends payable solely in shares of its common stock) if, after giving effect to such payment or distribution, the capital of the company represented by its common stock, together with its surplus, as then stated on its books of account, shall in the aggregate be less than the involuntary liquidating value of its then outstanding preferred stock. This condition shall cease to be of any force or effect if the Commission shall at any time hereafter adopt or enter a rule, regulation or order under Section 12 (c) of the Act or otherwise (other than Rule U-12C-2 as now in effect), which shall be applicable to the company, limiting the right of companies to pay dividends on their common stock with reference to maintaining an equity junior to outstanding preferred or preference stocks. The Commission reserves jurisdiction to revoke or modify this condition at any time on application of the company.

(7) Except as this Commission may by order or orders, from time to time permit, so long as any of the Tennessee Eastern Electric Company 5% refunding mortgage bonds due December 1, 1958, are outstanding under the trust indenture, dated December 1, 1938, from said company to The First National Bank of Boston as trustee, East Tennessee Light & Power Company shall not, nor shall any successor or successors of said company, declare or pay any dividends or make any other distribution on any shares of its common stock (other than dividends payable solely in shares of its common stock) nor shall any shares of such common stock be purchased, retired, or otherwise acquired by said company (or any successor or successors thereof), unless the amount expended by the company (or any such successor or successors) for maintenance and repairs plus provisions for depreciation during the period from September 30, 1939, to the date of the proposed payment of such dividend or making of such distribution or acquisition, plus the earned surplus of the company accumulated since September 30, 1939, remaining after payment of such dividend or the making of such distribution or acquisition, shall equal 15 percent of the gross operating revenues (as defined in said trust indenture) of the company (or any such successor or successors) during such period, after the deduction from such gross operating revenues of an amount equal to the cost to the company of electric energy and gas purchased, and rentals paid for electric

or gas generating, transmission or distributing properties leased by the company and payments by the company for the use of similar properties operated and maintained by others during such period.

The provisions contained in the foregoing paragraph (7) shall be subject to review, modification, and revocation by this Commission at any time, and from time to time, upon its own motion or upon application by the company.

An appropriate order will issue.

By the Commission: Commissioner Henderson not participating.

6 S. E. C.

[No. 993]

IN THE MATTER OF

The Application of

EAST TENNESSEE LIGHT & POWER COMPANY

and

TENNESSEE EASTERN ELECTRIC COMPANY

File No. 54-8. Promulgated March 4, 1940

REPORT OF THE COMMISSION ON A PLAN OF REORGANIZATION PURSUANT TO SECTION 11 (g)

To the preferred stockholders of Tennessee Eastern Electrio Company:

East Tennessee Light & Power Company, which is a registered holding company under the Public Utility Holding Company Act of 1935, proposes to offer its $6 cumulative dividend, no par voting preferred stock in exchange for the 6% cumulative preferred capital stock of $100 par value, and the $7 cumulative dividend, no par, nonvoting preferred stock of Tennessee Eastern Electric Company and in payment of dividend arrearages on such stocks.

Such offer is a part of a reorganization plan pursuant to which East Tennessee Light & Power Company proposes to acquire all the assets, subject to existing liabilities, of its two subsidiaries, Tennessee Eastern Electric Company and Tennessee Realty Company.

The provisions of the Public Utility Holding Company Act of 1935 require that before the company may make any solicitations with respect to such reorganization and exchange of securities there shall be a report of this Commission thereon, copies of which shall accompany or precede such solicitations. The company has requested such a report. Upon the basis of evidence introduced at a public hearing which was held after appropriate notice, the Commission submits this report to accompany any solicitations.

PRESENT INTERCORPORATE RELATIONSHIPS

The plan involves a subsidiary of Cities Service Power & Light Company, namely, East Tennessee Light & Power Company and its

subsidiaries Tennessee Eastern Electric Company and Tennessee Realty Company. A description of intercorporate relationships now existing is necessary to an understanding of the proposed offer of exchange.

In the interest of clarity, Cities Service Power & Light Company will be sometimes referred to as "Power & Light," East Tennessee Light & Power as "East Tennessee," Tennessee Eastern Electric Company as "the subsidiary," and Tennessee Realty Company as "Tennessee Realty."

The outstanding securities of the three companies, the ownership thereof and intercompany debts as of September 30, 1939, are shown in the following table:

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EFFECT OF THE PLAN ON PRESENT HOLDERS OF PREFERRED STOCK OF TENNESSEE EASTERN ELECTRIC COMPANY (THE SUBSIDIARY) As heretofore stated, upon consummation of the plan the three companies will be consolidated into one company. The holders of the preferred stock of Tennessee Eastern Electric Company will receive, as proposed by the plan,1 1,335 shares of preferred stock of the consolidated company for each share of the $6 preferred stock now held and 1.3908 shares of the preferred stock of the consolidated company for each share of the $7 preferred stock now held. East Tennessee and its two subsidiaries will become one single operating company.

1 Details of the plan are set forth in Appendix 1.

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