butions to the holders of 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. Upon acceptance and consummation of the offer of exchange by holders of 97 percent of the total number of preferred shares of the subsidiary outstanding and the liquidation of the subsidiary and Tennessee Realty whereby the assets of these companies will be acquired by East Tennessee, owners of securities of the company who vote against such action may, pursuant to Section 46, Chapter 156 of the General Laws of Massachusetts as embodied in the Tercentenary Edition, within 30 days after the meeting of the stockholders of the subsidiary authorizing the transfer of its properties to East Tennessee in accordance with the plan, make a written demand upon the subsidiary for payment of their stock. If the subsidiary and the stockholders cannot agree upon the value of the stock at the date of such liquidation, such value shall be ascertained by three disinterested persons, one of whom shall be named by the stockholders, another by the company, and the third by the two thus chosen. The findings of the appraisers shall be final, and if the award is not paid by the company within 30 days after it is made, it can be recovered as in an action on contract by the stockholder from the company. Upon payment by the company to the stockholders of the agreed or awarded price of the stock, the stockholder shall forthwith transfer and assign the stock certificate held by him at, and in accordance with, the request of the company. It must be noted, however, that if more than 3 percent of the holders of both classes of preferred stock of the subsidiary reject the offer of exchange, East Tennessee states the plan will not be consummated and the assets of the subsidiary and Tennessee Realty will not be acquired by East Tennessee. CONCLUSION The Commission has issued an order concurrent with this report which will permit the companies to consummate the proposed plan. However, all stockholders are urged to exercise their respective judgments in voting whether to accept or reject the proposed exchange of stock. The facts set forth herein are intended to assist the investor in making an accurate analysis of this proposal, and for more detailed information your attention is directed to the offering prospectus of the company which accompanies this report. By the Commission: Commissioner Henderson being absent and not participating herein. APPENDIX 1 THE PROPOSED PLAN The companies' proposed plan contains the following steps, each being stated to be an integral part of the plan, without which none shall be consummated: 1. East Tennessee, by amendment to its articles of association, proposes to confer voting rights upon its $6 cumulative preferred no par stock.1 East Tennessee would thereupon offer to issue this stock in exchange for the 6% cumulative preferred and the $7 cumulative preferred stocks of the subsidiary, including the unpaid dividend arrearages thereon to September 30, 1939, of $33.50 per share on the 6% preferred stock and $39.08% on the $7 preferred stock on the following basis: The holder of each of the 6% cumulative preferred stock of the subsidiary is to receive 1.335 shares of $6 cumulative preferred stock of East Tennessee and the holder of each share of $7 cumulative preferred stock of the subsidiary is to receive 1.3908 shares of $6 cumulative preferred stock of East Tennessee. 2. The subsidiary proposes to issue and sell to Power & Light $484,000 principal amount of 5% refunding mortgage bonds due 1958, at 100 and accrued interest, the proceeds thereof to be applied to the payment of the subsidiary's debts to both East Tennessee and Power & Light.2 3. Upon acceptance and consummation of the offer of exchange by holders of at least 97 percent of the total number of both classes of 1 This stock will bear cumulative dividends from September 30, 1939, at the rate of $6 per year payable quarterly; will be entitled to $100 per share on involuntary liquidation and $106 on voluntary liquidation. It will be callable in whole or in part on 60 days' notice upon payment of $106 per share and all accrued and unpaid dividends thereon. Holders of this preferred stock will be entitled to one vote per share and, in addition, whenever four quarterly dividends are in default, they will have the right, voting separately and as a class, to elect two members of the board of directors, and whenever any quarterly preferred dividend has been in default for 3 consecutive years, they will have the right, voting separately and as a class, to elect a majority of the members of the board of directors. Such rights, when accrued, will continue until all defaults are remedied. See the following table: Note payable to Power & Light---- Interest accrued on same--- Account payable to East Tennessee__ Total $16,500 449, 124 7, 120 11, 588 484, 332 preferred shares of the subsidiary, East Tennessee proposes to cause the subsidiary and Tennessee Realty to adopt a plan of liquidation whereby the assets of these companies will be acquired by East Tennessee. 4. East Tennessee proposes to issue to Power & Light $271,000 principal amount of 5% first mortgage and refunding bonds due 1954 at 100 and accrued interest and 9,542 shares of no par common stock of the stated value of $477,100, or $50 per share, which, together with cash received from the subsidiary as payment on its debt to East Tennessee, is to be applied to payment of the indebtedness of East Tennessee and of Tennessee Realty to Power & Light as follows: Cash to be received: First mortgage 5% bonds at par-- Common stock, 9,542 shares with stated value of.. Total cash to be received__ Cash to be paid: Debt of East Tennessee to Power & Light. Total cash to be paid. Excess cash to be received by East Tennessee--6 8. E. C. $271,000 477,100 467,832 1,215,932 1, 115, 206 100,000 1, 215, 206 726 |