As a result of that readjustment, which did not directly affect the stock, the applicant emerged with new bonds, with certain limitations, insisted on by the creditors and written into the mortgage indentures, on the applicant's use of net profits. In addition to providing for the establishment, out of available net income, of a capital investment fund and of sinking funds for the retirement of both first-mortgage and income-mortgage bonds, the plan included a requirement that, "until such time as $25,000,000 of the funded debt of the applicant *** has been purchased, redeemed, or paid, through exchange for stock, or out of the proceeds from the sale of stock, or from earnings," not less than one-third of the remaining available net income should be applied to the retirement of either first-mortgage or income-mortgage bonds, and the remainder either to the retirement of any funded debt or to increase the capital fund, or for other corporate purposes chargeable to investment account. After these provisions should be complied with, any remaining available net income for the preceding calendar year might be applied to other corporate purposes, but no dividends were to be paid on any class of stock of the applicant except out of earnings subsequent to December 31, 1939. The conditions imposed by the terms of the mortgage indentures have been met and dividends may now be declared and paid if funds are available.

Applicant's proposed alterations and modifications.-Under the plan now proposed by the applicant, its outstanding stock would be reclassified into two classes of new stock. This plan contemplates the following alterations or modifications: (a) The aggregate par value of applicant's capital stock will be reduced initially from $104,347,300 to $82,443,178, which will be divided between two classes of $100 par value stock, i. e., $27,529,680 of new 5-percent preferred stock (or 275,296.80 shares) and $54,913,498 of new common stock (or 549,134.98 shares); (b) 481,769.4 additional shares of new common stock will be authorized in order to provide for the conversion of the new preferred stock, if such conversion privilege is exercised; (c) the dividend arrearages on the prior-preference and the first-preferred stock will be canceled; and (d) the 824,431.78 shares of new stock will be distributed to the holders of the present stock on the following basis:

Under the plan of stock modification first presented to the Commission by application filed on August 25, 1948 (and later withdrawn because of widespread opposition from certain stockholder groups), only one class of new common stock would have been issued. That plan has been referred to in this proceeding as the "one-stock" or "single-stock" plan, in contradistinction to the present "two-stock" plan.

Stock held in the applicant's treasury totaling $264,000 par value will be canceled.

Description and characteristics of new securities.-The proposed new preferred stock would be entitled to preferential dividends at the rate of 5 percent per annum, would be redeemable in whole or in part by lot, at any time upon 30 days' notice prior to the date specified for redemption, at the price of $100 per share and accumulated dividends, and would have priority in liquidation to the extent of $100 and accumulated dividends.

The amount available for preferred-stock dividends would be based upon the earnings of the applicant after deduction of fixed and contingent charges, including sinking-fund obligations now or hereafter established with respect to its funded debt.

If earnings are sufficient in any year to provide for the payment of all or any part of the dividends upon the preferred stock, and dividends are not paid with respect to that year, such earnings up to but not exceeding the amount called for by the preferential dividend, shall accumulate in favor of the preferred stock. Upon redemption of the preferred stock, accumulations shall be computed to the end of the fiscal year prior to the year in which the stock is redeemed.

If in any fiscal year, after the fiscal year 1950, the earnings of the applicant (after the deductions mentioned above and after deduction of amounts sufficient to provide for the payment of dividends on the preferred stock) are sufficient therefor, there shall be set aside therefrom, before declaration or payment of dividends on the common stock, an amount equal to one-half of 1 percent of the par value of the authorized preferred stock, which amount shall be applied by the applicant to the purchase or redemption of as many shares of preferred stock as can be purchased, or redeemed, or both, by said moneys. The sinking-fund obligation described in this paragraph shall be cumulative to the extent earned, as previously described. The preferred stock acquired by redemption shall be canceled. The sinking-fund require

ment in any year may be credited with or satisfied by the cancellation of shares of preferred stock to the extent of the cost or the aggregate par value (whichever is less) of the stock so canceled, without regard to the time or method of acquisition of such stock.

No dividends shall be paid upon the new common stock until the preferred-stock dividends and accumulations thereof and until amounts (including accumulations) required to be set aside under the sinkingfund provisions of the preferred stock shall have been paid, or moneys set aside for the payment or satisfaction thereof.

No class of preferred stock shall be authorized or issued which ranks superior to or equal with the preferred stock in respect of dividend or liquidation rights, unless such action shall have been consented to by the holders of two-thirds of the preferred stock outstanding.

The preferred stock shall be entitled to no further preferential benefits than those above described; and, in liquidation, the assets remaining after the payment of $100 per share and accumulated dividends to the preferred stocks are to be distributed equally among all the holders of the common stock in proportion to the number of shares held by each.

Except as otherwise provided, and except that the holders of the preferred stock shall not vote upon the question of redeeming that stock, each holder of the new stock of the applicant shall have one vote for each share of stock, whether preterred or common, held by him; provided, however, that when dividends shall be in default to the amount of $7.50 per share on the preferred stock, holders of such stock shall have the power to elect, by separate class vote at the next annual meeting, two directors of the applicant until all current and accumulated dividends be paid; and the remaining directors shall be elected by vote of the holders of both preferred and common stock. Except as otherwise specifically provided by law or by the terms of the applicant's charter, all questions submitted to the stockholders shall be determined by vote of the whole number of stockholders of both classes without regard to the votes of either class.

Each share of preferred stock shall be convertible at any time (but without adjustment for dividends accumulated but unpaid) into one and three-fourths shares of fully paid nonassessable common stock, except that this privilege may not be exercised if the share is called for redemption and the corporation has not received notice of the shareholder's intention to exercise the privilege on or before the tenth day prior to the redemption date specified in the redemption notice. In the event the conversion privilege is exercised, any fractional shares resulting will be represented by fractional scrip which may within 6.

years after its date of issue be combined with other scrip, the limitation period of which is unexpired, and exchanged for integral shares of common stock, or for integral shares of common stock and fractional scrip, as the case may be.

Assurances of assent and method of obtaining assents.-Representation is made in the application that assurances of assent to the applicant's proposed plan of modification were given by holders of the various classes of affected securities in the following percentages of shares, based on stock listings of record on December 31, 1948: Prior preference, 76.46; first preferred, 43.68; noncumulative preferred, 68.77; and common, 56.30. The validity of these percentages is challenged by certain interveners principally on the ground that not all alleged assurances of assents were actually given but were predicated in part on hearsay, mere oral statements, or assumptions; and, at least by implication, the propriety of the methods by which some of the assurances were obtained or assumed as obtained by the applicant is questioned. It is the position of the applicant that all such assurances of assent were given voluntarily. Witnesses for the applicant testified that no one was "solicited," but that if stockholders with whom the management had been in communication voluntarily indicated their interest, whether orally or in writing, or-in the case of directors-by failure to disapprove when their responsibility was such as to require active steps to register disapproval, they were considered as giving assurances of assent but that at no time was it felt necessary, or proper, to go beyond that point in view of the solicitation provisions of the statute, and never have such assurances been deemed binding.

If permitted by the Commission, the applicant proposes to solicit assents by mail, telephone, or published advertisements. Solicitation will be conducted, so far as possible, by the applicant's employees. Assents will be indicated on letter forms addressed to a depositary in Boston and will be revocable at any time up to the time of declaration of irrevocability; but until notice of revocation is received by the depositary the assents will bind the holder of the stock assenting to the plan, his heirs, successors, and assigns. Upon receipt by the depositary of letters of assent from the holders of 75 percent of the number of shares of each class of stock outstanding, the depositary will immediately advise the applicant, and the applicant's president may thereupon declare that the letters of assent shall be irrevocable, and notice to that effect shall be published in newspapers of general circulation in Boston and New York City.

The question of the number of classes of stock and the problem of assents, preliminary to the Commission's approval of the applicant's

plan of modification, will be further discussed in a later section of this report.

8

Interveners and other parties; general contentions.-Two committees of stockholders and five owners or representatives of owners of applicant's stock intervened and expressed their opposition to the proposed plan of modification. Another intervening stockholder during the course of the hearing withdrew his opposition and urged approval of the plan. Two representatives of stockholders appeared at the hearing as observers and stated that they were opposed to the plan. A committee of stockholders, composed of Mabel Benson Sakis, Byron J. Harrill, and Robert W. Hart, hereinafter referred to as the Sakis committee, holding proxies of some 700 stockholders owning over 75,000 shares of the applicant's stock of. various classes and being also shareholders in their own right, but interested primarily in the first preferred stock, opposes the proposed plan of modification on the grounds that it is not fair and equitable to all classes of stock affected thereby and is not in the public interest nor in the best interest of the applicant. This committee did not offer an alternative or amended plan, but participated actively in the hearing, submitted a brief setting forth at considerable length the reasons for its position, filed extensive exceptions to the proposed report, and argued orally. These and other interveners' views will be discussed hereinafter more fully in connection with the proposed modifications.

Another committee of stockholders, composed of William F. Brunner, Ira Dickson, and Arnold R. Perpall, hereinafter referred to as the Brunner committee, representing holders of approximately 2,000 shares of the applicant's first-preferred (lettered) stock, urges that the proposed plan of modification be rejected on the grounds that it is not in the public interest, that it is not in the best interests of the holders of first-preferred stock, that the contractual rights of these stockholders would be impaired, constituting a taking of property without due process of law, that the plan violates the doctrine of the absolute priority rule, and that it is not in accord with the fundamental requirements and the spirit and intent of the statute. This committee did not offer an alternative or amended plan, but participated throughout the proceeding.

George P. Sakis, owner of 15 shares and an undivided half interest in 2,620 or more shares of the applicant's stock, opposes the proposed

In its petition for intervention and at the hearing, the committee's representation was stated by counsel as being 533 stockholders owning 58,676 shares; the larger figures, later stated in the committee's letter to stockholders, were subsequently claimed in the committee's exceptions to the proposed report and on oral argument.