It may be appropriate to note, however, that except with respect to the materiality of the alleged deficiencies discussed in footnote 25 supra, the exceptions now sought to be taken by registrant, if considered, would, in the light of our findings, be without merit.

2. Registrant's claim that issues raised are res adjudicata.—As part of its motion to dismiss the proceedings filed June 8, 1938, registrant has asserted that all information with respect to the deficiencies alleged in these proceedings was before the Commission on January 26, 1937, when the Commission issued its order under Section 8 (a) of the Act accelerating the effective date of the pre-effective amendments dated January 8 and January 22, 1937. In the accompanying affidavit, however, this claim is related solely to the alleged deficiencies insofar as they concern the Cousins appraisal of 1933 and the appraisal of the American Appraisal Company as of September 30, 1936. It is not related to the deficiencies alleged with respect to the representations as to the costs of intangibles acquired from the three predecessor companies of the registrant in 1926. Therefore, the contention would in no event preclude the Commission in now finding that the registration statement was materially deficient with respect to these matters. Furthermore, as has been seen, our findings in this case are based primarily on evidence developed at the hearing, which did not appear in the registration statement. And in any case the Commission's order of January 26, 1937, involved simply the performance of an administrative function. It did not purport to be, and under the provisions of the Act could not be, a quasi-judicial determination that the registration statement was free from deficiencies. This is made clear by the provisions of Section 23 of the Act, which were quoted in the order of acceleration, and which state:

Neither the fact that a registration statement for a security has been filed or is in effect nor the fact that a stop order is not in effect with respect thereto shall be deemed a finding by the Commission that the registration statement is true and accurate on its face or that it does not contain an untrue statement of fact or omit to state a material fact...

Registrant's motion to dismiss, based on the claim of res adjudicata, is denied.29

Footnote 28 continued:

to press their objections to this proceeding and any part thereof and to assert the same at any time and before any tribunal." Our rules of practice would be rendered futile if they could be circumvented by the mere formality of a self serving reservation of rights. Registrant's further argument that the present proceedings can serve no useful purpose in view of the fact that the entire issue of 100,000 shares offered under the registration statement has been completely sold and paid for, and that no shares are presently being offered, are contemplated to be offered, or can be now or hereafter offered without the filing of a new prospectus, is without merit a fortiori for the reasons set forth in our opinion in In the matter of Oklahoma-Texas Trust, 2 S. E. C. 764 (1937) (appeal pending). In that case we held that a stop order could properly be issued even though all the securities covered by the registration statement had been distributed. In the instant case. 101,000 of the aggregate of 201,000 shares covered by the registration statement, remain unsold.

3. Registrant's request to re-open the hearing for further testimony and evidence.-Rule XI (d) of the Commission's Rules of Practice, effective prior to July 1, 1938, provided:

If anybody shall apply to the Commission for leave to adduce additional evidence, and shall show to the satisfaction of the Commission that such additional information is material and that there were reasonable grounds for failure to adduce such evidence at the hearing before the Commission or the trial examiner, the Commission may hear such additional evidence or may refer the proceeding to the trial examiner for the taking of such additional evidence.

Registrant's motion does not show what additional evidence is sought to be introduced, and, therefore, necessarily has failed to show that any such additional evidence is material. In the second place, there is no showing that there were reasonable grounds for failure to adduce such evidence at the hearing before the Commission or the trial examiner. Indeed, in view of the action of registrant's officers and counsel in deliberately absenting themselves from the hearing before the trial examiner, any inference to be drawn is to the contrary. Accordingly, the motion is denied.

4. Registrant's request for oral argument.-Registrant has requested oral argument on its exceptions and its motions of June 8, 1938. Registrant argued this case on the merits before the Commission. Its motion of June 8, 1938 is supported by an affidavit signed by J. J. Mascuch, its president, in the nature of an argument in support of the motion. The registrant has had ample opportunity to be heard in this case, and the Commission's attention has not been directed to any further information which would be useful to it in the determination of this case, and which could be obtained through further oral argument. To grant registrant's request would serve only to delay our disposition of the matter. The request is denied.

We also deny the request of the American Appraisal Company for oral argument. It did not request an opportunity for oral argument prior to or at the time the argument was held before the Commission. Its position appears to be fully covered in the brief which it has since filed.

5. Registrant's proposed post-effective amendments.-Registrant's proposed post-effective amendments have been filed with the appar ent view of curing the deficiencies alleged to exist in the registration statement and the prospectus as the statement became effective. Under these circumstances we find no objection to its request to withdraw the amendments filed prior to the amendment of June 22, 1938, and that request is hereby granted. In the light of our findings herein, however, the amendment of June 22, 1938, cannot be

declared effective since it does not appear "upon its face. . . not to be incomplete or inaccurate in any material respect" under the provisions of Section 8 (c) of the Act. This is likewise true of the more recently proposed amendment filed July 21, 1938. In particular, the facts and circumstances pertaining to the acquisition of assets from the predecessor companies, and their "cost", have not been fully and accurately explained. Furthermore, while notes 1 and 1 (a) to the balance sheet are amended to state in substance that, as a result of this stop order proceeding, the board of directors passed a resolution on April 6, 1938, ordering a write-down of registrant's patents, patent applications, and trademarks to $434,246.29, as of September 30, 1936 (thereby eliminating the appreciation resulting in 1933 from the Cousins "appraisal"), it does not clearly reveal the impropriety of the original inclusion of this appreciation in the balance sheet. On the contrary, the notes imply that the appreciation was properly included in the balance sheets: the write-up of registrant's intangibles is described as an "appreciation resulting from appraisal at June 30, 1933"; the excerpt from the letter of the American Appraisal Company, quoted above, is again set forth as a summary of "the result of its appraisal"; and while reference is made to the trial examiner's findings, it is stated that they are denied by the board of directors. Under these circumstances, neither prospective purchasers of the registered securities nor those who have purchased them in the past are apprised of the true facts of the case. Accordingly, registrant's proposed amendments of June 22 and July 21, 1938, will not be declared effective.

A stop order will issue pursuant to this opinion.

3 S. E. C.

APPENDIX A

EXHIBIT C TO REPORT OF AMERICAN APPRAISAL CO. DATED DECEMBER 19, 1936

BREEZE CORPORATIONS, INC.

Recorded sales by product classification

[No. 543]

IN THE MATTER OF

JOHN A. DAWSON, CLAYTON J. HOWEL, GEORGE F. MANZELMAN, and AVERY BRUNDAGE, Acting as Protective Committee for the Holders of 6% First Mortgage Gold Bonds of UTILITIES ELKHORN COAL COMPANY

SOLICITATION.

File No. 34-13. Promulgated August 5, 1938

Deposit Agreement-Power in Deposit Agreement Held Unfair and Inequitable.

Where pursuant to proposed deposit agreement the protective committee would be allowed to assent to or dissent from any plan of reorganization or to amend any plan after its adoption, the Commission held that in no event may such blanket authority be given to protective committee and that such provision is repugnant to Section 11 (g) of Public Utility Holding Company Act of 1935.

Where pursuant to proposed deposit agreement the protective committee need not report to depositing bondholders nor furnish them with an accounting statement until the end of its activities, the Commission held the committee sought unfair and inequitable powers over deposited securities without assuming concomitant responsibilities in this undertaking in its fiduciary capacity.

Where pursuant to proposed deposit agreement the protective committee could buy and sell certificates of deposits and securities of company and to participate in any underwriting incident to reorganization plan and at same time the depository and committee members are exonerated from all liability except for gross negligence or willful default, the Commission held the committee sought unfair and inequitable powers over deposited securities without assuming concomitant responsibilities in this undertaking in its fiduciary capacity.

Where pursuant to proposed deposit agreement the bondholders may withdraw their bonds from deposits only under limited circumstances and such withdrawal is conditioned on payment of their pro-rata expenses of committee as determined by the committee, the Commission held such provision to violate its Rule U-12E-3 (a).

Deposit of Securities, Solicitation by Protective Committee.

Declaration filed by proposed protective committee under Rule U-12E-3 (e), issued pursuant to Sections 12 (e) and 11 (g) of Public Utility Holding Company Act of 1935 for permission to solicit the deposit of the only outstanding bonds of company, now in voluntary reorganization under Section 77B of Bankruptcy Act, in order to maintain the rights of bondholders under the contract with parent of declarant, denied because declarants failed to establish that deposit of securities is necessary for the broad purposes indicated by committee's deposit agreement.

3 S. E. C.