The bonds which declarant proposes to issue and pledge as security for the above-described note are first mortgage and first lien bonds of declarant. Since the mortgage covers the physical assets of declarant and the lien attaches to all the outstanding securities, including first mortgage bonds on the physical properties of three specified subsidiaries of declarant, it would appear that the proposed bonds of declarant qualify under Section 7 (c) (1) (B) (i) and Section 7 (c) (1) (B) (ii).

The declarant has filed an opinion of counsel to the effect that no state securities commission has jurisdiction over the issue and sale of the proposed note and bonds. 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.

Because of the special facts and circumstances of this declaration, more particularly discussed above, including the need for the funds and the apparent unavailability of such funds except through the medium here employed we are of the opinion no reason exists for making adverse findings with regard to Section 7 (d). The conservative policy regarding depreciation reserves and the payment of common stock dividends makes unnecessary during the transitory period prior to the contemplated refunding the consideration as to whether any action should be taken to increase the equity of the common stock. Subject to the terms and conditions hereinafter to be discussed, an appropriate order will be entered approving the declaration.

The applications of Delmarva, Maryland, and Virginia have been filed pursuant to Section 6 (b) of the Act which provides that the Commission shall exempt from the provisions of Section 6 (a)-subject to such terms and conditions as it deems appropriate in the public interest or for the protection of investors or consumers the issuance and sale of any securities

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.

As for Delmarva the net proceeds to be received by it from the sale of its securities described in its pending application are to be issued in part to retire existing debt obligations, the balance being used to assist in the construction of a needed generating plant. This security issue has been expressly approved by the Public Service Commission of Maryland by its order dated September 15, 1939, as amended November 27, 1939, in case number 4330. We accordingly find that the requirements of Section 6 (b) of the Act have been met and subject to the

terms and conditions hereinafter to be discussed, this application for exemption is granted.

As for Maryland the net proceeds to be received by it from the sale of its securities described in its pending application are to be issued in part to retire existing debt obligations, the balance being used to discharge open-account obligations to Delmarva and Delaware. These security issues have been expressly approved by the Public Service Commission of Maryland by its order dated September 13, 1939, as amended November 27, 1939, in case number 4328. We accordingly find that the requirements of Section 6 (b) of the Act have been met and subject to the terms and conditions hereinafter to be discussed, this application for exemption is granted.

As for Virginia the net proceeds to be received by it from the sale of its securities described by its pending application are to be issued in part to retire debt obligations, in part to discharge open-account obligations to Delaware, the balance being used to reimburse Virginia's treasury for physical additions actually made to its property. This security issue has been expressly approved by the Corporation Commission of the Commonwealth of Virginia by its order dated September 13, 1939, as amended December 1, 1939, in case number 6839. We accordingly find that the requirements of Section 6 (b) of the Act have been met and subject to the terms and conditions hereinafter to be discussed, this application for exemption is granted.

Delaware has filed an application pursuant to Section 10 (a) (1) of the Act seeking approval of the acquisition by it of all the securities which Delmarva, Maryland, and Virginia presently propose to issue. Section 10 (b) provides that if the requirements of Section 10 (f) are satisfied, the Commission shall approve the acquisition unless the Commission makes adverse findings with respect to certain specific matters, including consideration, fees, and commissions. The requirements of subsection 10 (f), providing that the Commission shall not approve any acquisition unless it appears that the applicable state laws have been complied with, appear to have been satisfied.

Section 10 (c) provides that notwithstanding the provisions of Section 10 (b) the Commission shall not approve an acquisition which is unlawful under Section 8 or is detrimental to the carrying out of the provisions of Section 11, nor unless it finds that such acquisition will serve the public interest by tending towards the economical and efficient development of an integrated public utility system. Section 8 is inapplicable.

For the reasons set forth above we do not make adverse findings under Section 10 (c) (1). As for Section 10 (c) (2), the testimony of the engineer taken at the public hearing was to the effect that the proposed new generating plant would tend toward the efficient and

economic development of an integrated public utility and we see no basis for questioning this testimony.

FORM OF ORDER

The Commission finds it to be appropriate in the public interest and for the protection of investors and consumers that its order be subject to the following conditions:

(1) That the steps involved in the declaration and various applications shall be carried out and effected respectively as set forth in and for the purposes represented by such declaration and applications as amended.

(2) That the bonds to be pledged as security for declarant's note shall not be sold except at a bona fide sale by or on behalf of the pledgee, or its successors or assigns, to satisfy said note, or by the purchaser at such sale, or by his or its successors or assigns.

(3) That the respective exemptions hereby granted shall immediately terminate without further order of this Commission if at any time the pertinent authorizations, or any of them, of the Public Service Commission of Maryland and/or Corporation Commission for the Commonwealth of Virginia shall be revoked or shall otherwise terminate.

(4) That within 10 days after the issue and sale of such securities and within 10 days after the consummation of the other transactions set forth in the applications the declarant and applicants shall file with this Commission a certificate of notification showing that the issue and sale of such securities and the execution of the other proposed transactions have been effected as set forth in and for the purposes represented by the declaration and applications as amended and in accordance with the terms of this order.

(5) That when all expenses incurred in connection with the issue and sale of the securities and the preparation and prosecution of the declaration and applications concerned with the present transactions shall be actually paid, the declarant and applicants shall file a detailed statement of such expenses showing the names of persons or entities to whom such payments were made, the amounts of such payments, the accounts charged, and a detailed description of the services rendered for which such payments were made.

6 S. E. C.

[No. 974]

IN THE MATTER OF

THE DAYTON POWER AND LIGHT COMPANY

File No. 32-193. Promulgated February 7, 1940

EXEMPTION OF SECURITY ISSUE OF REGISTERED HOLDING COMPANY OR SUBSIDIARY.

Issue Solely for Purpose of Financing Business of Subsidiary.

Application, having been filed by a subsidiary of a registered holding company pursuant to Section 6 (b) of the Public Utility Holding Company Act of 1935, for exemption from the provisions of Section 6 (a) of the issue and sale of $25,000,000 principal amount of first mortgage bonds, 3% series due 1970, to underwriters at a price of 1024 and accrued interest for resale to the public at a price of 104, the proceeds from the sale to be used for the redemption of first and refunding mortgage bonds, 31⁄2% series due 1960, the construction of property additions and for additional working capital, exemption granted, subject to certain conditions, the Commission finding that the issue and sale are solely for the purpose of financing the business of the applicant and have been expressly approved by the state commission of the state in which the applicant is organized and doing business.

Condition-Underwriter's Fees.

Where Commission issued an order to show cause why it should not find that the underwriting syndicate manager stands in such relation to the applicant that there is liable to be, or to have been, an absence of arm's length bargaining in connection with the issue and sale of securities, the proceeding in regard to such matter not having been completed, the Commission issued its order exempting from the provisions of Section 6 (a) of the Act of the issue and sale of bonds, subject to the condition, among others, that pending the final determination of the issues raised by the order to show cause issued pursuant to Rule U-12F-2, no underwriting fees, commissions, or other compensation deriving from the issuance and sale of the bonds shall be paid directly or indirectly to, or retained by the underwriting syndicate manager.

APPEARANCES:

John W. Houser and Maurice C. Kaplan, of the Public Utilities Division of the Commission.

Cravath, de Gersdorff, Swaine and Wood, by Edward S. Pinney and Charles P. Pfarrer, for the Dayton Power and Light Company.

Davis, Polk, Wardwell, Gardiner and Reed, by George A. Brownell, for Morgan Stanley & Co., Incorporated.

FINDINGS AND OPINION OF THE COMMISSION

The Dayton Power and Light Company, a subsidiary of Columbia Gas & Electric Corporation, a registered holding company and a subsidiary of The United Corporation, a registered holding company, has filed an application and amendments thereto under Section 6 (b) of the Public Utility Holding Company Act of 1935 for exemption from the provisions of Section 6 (a) of that Act with respect to the issue and sale of $25,000,000 principal amount of first mortgage bonds, 3% series due 1970, to underwriters for resale to the public.

The Dayton Power and Light Company proposes to sell to Morgan Stanley & Co., Incorporated, in excess of 5 percent of the total contemplated issue. In addition it is proposed that Morgan Stanley & Co., Incorporated, will receive certain underwriting fees as the managing underwriter for the entire issue.

The Commission has heretofore ordered pursuant to Rule U-12F-2 of the General Rules and Regulations promulgated under the Public Utility Holding Company Act of 1935 that The Dayton Power and Light Company and Morgan Stanley & Co., Incorporated, and each of them show cause why the Commission should not find that Morgan Stanley & Co., Incorporated, stands in such relation to The Dayton Power and Light Company that there is liable to be or to have been an absence of arm's length bargaining with respect to such transaction. The proceedings pursuant to said order to show cause are now pending before the Commission and the record in that matter has

1 Rule U-12F-2 provides

(a) In connection with an issue, sale, or acquisition of any security with respect to which an application or declaration is required by Sections 6, 7, 9, 10, or 12 (d), (f), or (g) of the Act, no underwriter's or finder's fee shall be paid to

(1) Any company in the same holding company system as the applicant or declarant, or (2) Any affiliate of the applicant or declarant, or of a company of which the applicant or declarant is a subsidiary, or

(3) Any person who the Commission finds stands in such relation to the declarant or applicant, or to the person by whom the fee is to be paid, that there is liable to be or to have been an absence of arm's length bargaining with respect to the transaction. The Commission shall not make such finding unless it has issued an order to show cause why such finding should not be made, which order to show cause shall be returnable on the date and at the place fixed for hearing upon the application or declaration to which it is ancillary, unless the Commission otherwise orders. Proceedings on the order to show cause and on the application or declaration shall be consolidated, unless the Commission shall otherwise order. In appropriate cases, the Commission upon application may make a finding or render an opinion for purposes of this paragraph in advance of any issue, sale, or acquisition of any security. Except for purposes of this rule, a finding by the Commission under this paragraph shall not constitute a finding for purposes of Section 2 (a) (11) (D) of the Act.

(b) Paragraph (a) of this rule shall not apply in respect of any underwriter's fee if it appears to the Commission that

(1) Appropriate and diligent effort was made to obtain competitive bids for the securities which are the subject of the application or declaration, by publication or otherwise, and the affiliate's bid was not less favorable than that of any other bidders'; or (2) Such effort was not practicable and (a) the fee to be paid does not exceed customary fees for similar services where the parties are dealing at arm's length, (b) the 6 S. E. C. (Footnote 1 continued on p. 789)