subsidiary, American Gas and Electric Service Corporation, it furnishes these companies with management and supervisory services.2 According to the figures recorded on applicant's books, the consolidated assets of the American Gas holding company system as of December 31, 1939, were $538,732,568 and the total operating revenues of the subsidiary companies for the calendar year 1939 were $77,757,387.

As of March 30, 1940, applicant's capitalization was as follows: 44% cumulative preferred stock (par $100) – Common stock (par $10)‒‒‒

355, 623 shares 4, 482, 737 shares

Applicant also has outstanding $8,000,000 of 23⁄44% debentures due 1950, $10,000,000 of 32% debentures due 1960, and $12,000,000 of 334% debentures due 1970.

Both common and preferred stockholders of the applicant are entitled to one vote per share. Bond and Share owns 846,985 shares of the common stock. This constitutes 17.51 percent of applicant's outstanding voting securities. Thus, the applicant is a subsidiary company of Bond and Share within the meaning of clause (A) of Section 2 (a) (8). The applicant claims, however, that it satisfies the conditions, prescribed by the last paragraph of Section 2 (a) (8), for an order declaring that it is not a subsidiary company of Bond and Share. Consequently, the question before us is whether the applicant has demonstrated that (a) it is not controlled, directly or indirectly, by Bond and Share by any means or device whatsoever; (b) it is not an intermediary company through which control of another company is exercised; and (c) its management and policies are not subject to a controlling influence, directly or indirectly, by Bond and Share so as to make it necessary or appropriate in the public interest or for the

Prior to 1938, the applicant itself furnished management and supervisory services to its subsidiary companies. On January 1, 1938, the entire personnel which was engaged in performing such services was transferred to the newly organized American Gas and Electric Service Corporation. American Gas and Electric Service Corporation has been conditionally approved under Section 13 of the Act, which deals with the requirements for service companies. See American Gas and Electric Service Corporation, 4 S. E. C. 923 (1939).

In the event that preferred stock dividends are in arrears a full year, two additional directors may be elected exclusively by the preferred stockholders. If arrearages accumulate for 3 years, the preferred stockholders have the right to elect a majority of the board of directors. There has been no default in payment of dividends on the preferred stock and common stock dividends have been paid every year since 1912.

The remaining shares are widely distributed and no single stockholder, other than Bond and Share, owns more than 5 percent of the common or the preferred.

5 Bond and Share also owns 20.7, 42.4, 46.6 and 47 percent, respectively, of the outstanding voting securities of American Power and Light Company, American and Foreign Power Company, Inc., National Power and Light Company, and Electric Power and Light Corporation, all of them registered holding companies. By reason of such holdings, all of these companies are subsidiaries of Bond and Share under clause (A) of Section 2 (a) (8) and none of them has filed an application under the last paragraph of Section 2 (a) (8). These companies are sometimes referred to herein as acknowledged subsidiaries of Bond and Share and as American Power, American and Foreign Power, National Power, and Electric Power, respectively. Utility companies in the Bond and Share system operate in 27 states and 13 foreign countries.

protection of investors or consumers that it be subject to the obligations, duties, and liabilities imposed by the Act upon subsidiary companies of holding companies.

Whether a company is controlled by another, or whether its management or policies are subject to controlling influences are matters which cannot always be determined merely by a tally of votes and an examination of presently existing affiliations. Experience has demonstrated that historical ties and associations often serve as a substitute for, or a potent auxiliary of, the more obvious modes of control. American Gas and Electric Company was admittedly organized by Bond and Share in 1906; it would be impossible to comprehend clearly the present relation of the two companies without examining the relationships that have existed between them in the intervening years. Accordingly, we must first consider the relevant historical facts.

Organization of the Applicant.-In July 1906, the Electric Company of America, being in financial difficulties, offered Bond and Share an option to acquire, for delivery to a new corporation to be organized by Bond and Share, all of the Electric Company's assets, consisting principally of securities of utility companies which were controlled by the Electric Company and which served communities in Illinois, Indiana, New Jersey, New York, Ohio, Pennsylvania, and West Virginia. The matter was referred by Bond and Share's board of directors to a special committee consisting of two officers and a director of Bond and Share (Marsden J. Perry, Sidney Z. Mitchell, and R. T. Paine).

On November 23, 1906, after an investigation made under Mitchell's direction, including a study of the properties by Bond and Share's engineer, the special committee recommended to Bond and Share's

The original American Gas and Electric Company, predecessor of the company now bearIng the same name, was consolidated in 1925 with Appalachian Securities Corporation to form the present American Gas and Electric Company. For convenience, the latter and its predecessor are treated herein as one company, being referred to as the applicant or American Gas. Similarly, the original Electric Bond and Share Company was consolidated in 1929 with Electric Bond and Share Securities Corporation to form the present company; the two are treated herein as one company, referred to as Bond and Share.

Bond and Share was organized in 1905 by the General Electric Company which retained control of Bond and Share through ownership of all its common stock until 1925, when the Bond and Share stock held by General Electric Company was distributed to the General Electric Company shareholders.

$ The opportunity to purchase the assets of Electric Company of America was brought to the attention of Bond and Share by R. E. Breed, a resident of Indiana who had been a part owner of certain Indiana properties prior to their purchase by Electric Company. When, in 1906, Breed learned that Electric Company was in poor financial condition and that its assets could be purchased, he went to New York, apparently for the purpose of interesting persons capable of financing the acquisition of the Electric Company's assets. The record is not explicit as to Breed's precise purpose or status (i. e., whether he was acting independently or as agent for Electric Company), but it shows that after he had discussed the matter with his brother-in-law, Harrison Williams, he was introduced to Williams' close friend, Anson W. Burchard, then assistant to the president of the General Electric Company. Burchard, in turn, sent Breed to Sidney Z. Mitchell, at that time vice president, treasurer, director, and member of the executive committee of Bond and Share.

9

executive committee that the offer of the Electric Company of America should be accepted,

the purchase to be carried out by organizing a New Company to be called the "American Gas & Electric Company," with an authorized issue of $6,282,000 Ninety-Nine Year 5% Collateral Trust Bonds, and an authorized issue of Preferred stock of $3,500,000 and an authorized issue of Common Stock of $3,500,000; paying for the said properties by delivery and sale of the aforesaid $6,282,000 collateral trust bonds secured as aforesaid; and paying such commissions and selling such participations as may be necessary to carry through the transaction on a basis to net this Company at least $200,000 par value of the Common Stock of the proposed American Gas & Electric Company, and to insure to it the repayment of all expenses and a Bankers' Commission of $30,000 cash: it being understood that of the securities of the proposed American Gas & Electric Company, the $6,282,000 collateral trust bonds and $2,500,000 of Common Stock and $1,200,000 of Preferred Stock are to be issued forthwith, and used at the discretion of the Officers of this Company in carrying out the transaction. It being also understood that, in connection with carrying through this transaction, $1,200,000 cash will be required and that it is to be raised by selling participations on the basis of $1,000 in Preferred Stock and $1,000 in Common Stock for $1,000 cash, with an additional 25% Common Stock Commission to Bankers for assisting in the placing of such participations.10

The executive committee thereupon directed the officers of Bond and Share to carry out the transaction on the basis recommended by the special committee.

On December 20, 1906, Bond and Share caused American Gas to be incorporated, and 1 day later the first meeting of applicant's board of directors was held at Bond and Share's offices, 62 Cedar Street, New York. The legal details of applicant's incorporation and organization were handled for Bond and Share by Simpson, Thacher and Bartlett, then, and until 1940, Bond and Share's general counsel.11 Eleven of the 15 original directors were either associated with Simpson, Thacher and Bartlett or were affiliated with Bond and Share, and all of the officers who were elected at applicant's first meeting were Simpson, Thacher and Bartlett associates.

At the first meeting of American Gas' board of directors, M. F. Millikan, who was apparently the nominal holder of the option to purchase the Electric Company's assets,12 offered to cause to be transferred to American Gas, on or before January 16, 1907, substantially all of the properties owned by the Electric Company of America, and

Present at the meeting were Bond and Share executive committee members Charles A. Coffin (who was also chairman of the board and president of General Electric Company), Mitchell, and Perry, the latter two constituting the special committee.

10 From the minutes of the Bond and Share executive committee, November 23, 1906. The record indicates that in 1940 Messrs. Reid and Priest either took the place of Simpson, Thacher and Bartlett as Bond and Share's general counsel, or were retained as co-counsel. The precise relationship of Simpson, Thacher and Bartlett to Bond and Share, since 1940, is not clear.

12 In 1906, Millikan, who became "house counsel" to American Gas in 1914, was a young attorney associated with Simpson, Thacher and Bartlett.

to provide American Gas with $1,000,000 when and as required. The consideration asked was (a) $6,282,000 of American Gas' 99-year, 5% bonds, secured by the pledge with The Standard Trust Company of New York of securities to be obtained from Electric Company of America, (b) 24,000 shares of 6% cumulative preferred and 49,980 shares of common stock, (c) the payment of $1,000,000 to The Standard Trust Company of New York in form subsequently to be agreed upon, and (d) an option until January 1, 1912, running to Millikan or his assigns, to purchase at par any of the $1,000,000 of common stock authorized by American Gas at the time of its organization, but unissued.13 Millikan's offer was immediately accepted. The agreement between Millikan, as vendor, and American Gas, as vendee, was signed by M. C. Humstone, also associated with Simpson, Thacher and Bartlett, as president of American Gas.

In due course, applicant acquired the assets of the Electric Company of America, paying therefor by delivery to Electric Company of $6,282,000 of applicant's 99-year, 5% collateral trust bonds. Applicant also issued $2,500,000 (at par) of common and $1,200,000 (at par) of preferred stock.14 Bond and Share retained for itself 9.7 percent of applicant's outstanding voting securities.15 Bond and Share's holdings of applicant's voting securities remained substantially constant at about 9.7 percent for 22 years. In 1929 and 1930 they rose to 17.51 percent,16 and have remained at that figure during the past 10 years.

Management of the Applicant.-From the outset the applicant's board of directors generally has consisted of 15 members, although

The following conditions, among others, to be performed by American Gas, were attached to the offer: (1) the assumption of stated liabilities of Electric Company of America, (2) the making of advances to subsidiary companies of Electric Company of America to an amount not exceeding $200,000, of which a sum not exceeding $157,028.20 might be immediately paid as dividends to Electric Company of America, and (3) payment to Electric Company of America for a period of 5 years, or until its dissolution prior to the end of such period, of a sum not exceeding $10,000 per annum for the expenses of maintaining its corporate organization.

14 $1,300,000 of the common stock was used for promotion profits and expenses, Bond and Share retaining $235,000 thereof at no cost to it. The remaining $1,200,000 common and $1,200,000 preferred stock was sold by Bond and Share for $1,200,000 cash. Of the $1,200,000 so provided, $1,000,000 was paid for improvements to the properties acquired from Electric Company of America. The remaining $200,000 was paid: $30,000 to Bond and Share as a banker's fee; $153,433.57 for expenses of the transaction and for purchasing certain securities for the benefit of American Gas; and the difference, $16,566.43, was retained for the account of American Gas.

The transaction yielded Bond and Share a net profit of $30,000 in cash and 4,700 shares of American Gas common stock having a par value of $235,000. Having acquired an additional 156 shares, Bond and Share held a total of 4,856 shares of applicant's common stock, which constituted 9.7 percent of applicant's outstanding voting securities. An option was also given running to Millikan, as nominee, to purchase $1,000,000 par value authorized but unissued common stock at par, good until January 1, 1912.

10 The bulk of the increase came as the result of two series of transactions: the absorp tion by Bond and Share in September 1929 of Electric Investors, Inc., which held a si stantial block of American Gas common; and open market purchases of American Gua common subsequent to the October 1929 break in the stock market.

since 1914 the number has fluctuated between 14 and 16. The original board, installed on December 21, 1906, which was composed largely of men in the office of Simpson, Thacher and Bartlett, remained intact only until January 15, 1907, when a majority was replaced by eight new directors. The members of the new board were G. Breed, R. Breed, Burchard, J. Catherwood, Dean, Doherty, Hamilton, Hitchcock, S. Z. Mitchell, Mortimer, Paige, Paine, Snowden, Williams, and Young.17

17

Mitchell and Young were directors and members of the executive committee of Bond and Share. Paine was a director, Mortimer an officer, and Dean an employee of Bond and Share. Burchard was the assistant to the president of General Electric Company, which controlled Bond and Share until 1925.18 Harrison Williams, a close friend of Burchard, had referred R. Breed to him when Breed came to New York in 1906 to find a purchaser for the properties of Electric Company of America.19 G. Breed participated in the Electric Company transaction and interested his brother, R. Breed, in negotiating for the formation of American Gas. Hitchcock, a friend of R. Breed, was president of a local bank in Muncie, Ind., where one of the underlying properties acquired by American Gas was located.20 Snowden had been president of the Electric Company of America. J. Catherwood, a participant in the initial financing of American Gas, represented the interests of the Catherwood family of Philadelphia who appear to have held a substantial block of securities of the Electric Company of America. Henry L. Doherty was an engineer and a prominent public utility operator who later became prominent in Cities Service Company. No one in the present management of applicant could identify Hamilton or Paige, although the record indicates that Hamilton was associated either with Bond and Share or Simpson, Thacher and Bartlett.

On January 15, 1907, Mitchell, Bond and Share's vice president and the man assigned by Bond and Share to supervise the Electric Com

17 G. Breed, J. Catherwood, Dean, Hitchcock, S. Z. Mitchell, Paige, Paine, and Snowden were the newly elected directors. Six of the eight whom they replaced (Curtis, Halsted, Humstone, Mackey, Pitkin, and Robertson) were associated with Simpson, Thacher and Bartlett, who, as Bond and Share's general counsel, had organized American Gas, and two (McClelland and Smith) were connected with Bond and Share.

18 Burchard was a director of American Gas until his death in 1927. For a period of approximately 17 years up to 1927, he was also a director and, for 14 years, a member of the executive committee of American Power and Light Company, a registered holding company which, organized by Bond and Share in 1909, is one of its acknowledged subsidiaries. He was also a director and member of the cxecutive committee of Bond and Share from 1923 to 1925 and, from 1925 to 1927, a director and member of the executive committee of Electric Power and Light Corporation, another registered holding company which is an acknowledged subsidiary of Bond and Share, having been organized by it in 1925.

19 Williams has been a director and a member of the executive committee of American Gas from its formation to the present. However, his primary interest has been the North American Company.

20 Hitchcock, who remained on applicant's board of directors for approximately 25 years until May 1932, very seldom attended meetings of the board.