with the organization of American, transactions by Bond and Share in the turnover of securities or assets to American or companies in the American system, transactions by Bond and Share in securities of American or companies in the American system, and service fees or profits resulting from service fees received by Bond and Share and its wholly owned service company subsidiaries from American and its subsidiaries. The facts giving rise to the claims were developed by this Commission in the proceedings instituted in May 1940 which culminated in our order of August 22, 1942, under Section 11 (b) (2) of the Act, directing that American be dissolved. Certain of the claims were made the subject of various stockholders derivative actions, brought subsequent to our Section 11 (b) (2) proceedings, now pending in the State and Federal Courts.81 Counsel for the respective plaintiffs in these suits have agreed that such actions will be dismissed upon consummation of the settlement proposed in the Plan.

The record indicates that the proposed settlement was arrived at as a result of negotiations between American and Bond and Share conducted from time to time beginning in June 1944, and between counsel for Bond and Share and American and the plaintiffs in stockholders' derivative actions who were seeking recovery on service fees collected by service company subsidiaries of Bond and Share between December 1, 1935 and March 31, 1938.

The general factual pattern to be found in this case follows the pattern described by us in passing on claims settlements in four other cases involving different companies in the Bond and Share system, viz., United Gas Corporation,82 National Power & Light Company, American & Foreign Power Company, Inc., and

84

Date commenced

United Gas Corporation, et al., 16 S. E. C. 531 (1944), enforced In Re United Gas Corporation 58 F. Supp. 501 (D. C. Del. 1944), aff'd 162 F. (2d) 409 (C. C. A., 3, 1947).

National Power & Light Company, 22 S. E. C. 866 (1946). Enforced without opinion S. D. N. Y., June 1946.

"American & Foreign Power Company, Inc., supra.

Electric.85 In each of those cases we found that although some of the asserted claims had merit, countervailing considerations and defenses offered by Bond and Share were entitled to substantial weight and, under the circumstances before us, we approved the settlements of such claims proffered to us by the parties.8 Before indicating our conclusions here as to the fairness of the settlement proposed, we briefly describe the claims presented in this case.

Transactions by Bond and Share in the Organization of American.

86

The transactions at the organization of American in 1909 are described in our Findings and Opinion which accompanied our order of August 22, 1942 directing the dissolution of American. We shall repeat here as much as is necessary for a discussion of the fairness of the proposed settlement.

Bond and Share caused American to be incorporated in September, 1909 to acquire a group of securities representing a controlling interest in five utility enterprises, four of which operated in Kansas and one in Oregon. All of the securities involved, with one minor exception, had been owned by Bond and Share for not more than four months and represented an investment by Bond and Share of approximately $1,700,000.

As a first step in the organization and financing of American, a so-called "syndicate" was organized with Bond and Share as syndicate manager. The function of the syndicate was to acquire from Bond and Share the securities of the five utility companies and to underwrite the raising of $2,500,000 cash by sale to the public of American's securities.87 Bond and Share itself participated in the syndicate for a 60% interest ($1,500,000) and the investment banking house of William P. Bonbright & Company was granted the remaining 40% ($1,000,000) with the understanding that Bonbright & Company would give to

85 Electric Power & Light Corporation, supra.

86 The United Gas Corporation, National Power & Light Company, American & Foreign Power Company, Inc. and Electric cases and as we conclude, here, the instant case, are clearly distinguishable from the Deep Rock case (Taylor v. Standard Gas and Electric Company, 306 U. S. 97 (1938)), where the public holders of preferred stock were faced with the prospect of being frozen out entirely from participation in the reorganization of their insolvent corporation and where the insolvency of the corporation and the dissipation of the substantial public investment were due primarily to the acts of mismanagement of the parent company. Under those circumstances and in view of the impossibility of fixing damages actually attributable to the wrongful acts of the parent, the Supreme Court held that fairness required that the parent should not be permitted to participate in the reorganization unless and until the public security holders were made whole.

87 It was estimated that $2,000,000 would be needed to acquire from Bond and Share the securities of the five companies and to reimburse the syndicate for expenses, and that the remaining $500,000 would be utilized in making a cash payment to American.

employees of Bond and Share and to such other persons or banks as the officers of Bond and Share deemed it desirable to interest in the project a "reasonable proportion" of Bonbright & Company's allotment. Bonbright & Company was permitted to retain only $100,000 of the allotment, and the remaining $900,000 was divided among Bond and Share's officers and associates.

The "syndicate" transferred to the newly formed American through an intermediary the securities of the aforementioned five utilities 88 plus $500,000 in cash. In return, American issued to the syndicate's intermediary its capital stock consisting of $2,500,000 par value of 6% preferred stock 89 and $5,500,000 par value common stock,90 or a total of $8,000,000 par value of securities, all of which were delivered to Bond and Share as syndicate manager. The securities received by American were entered in the investment account at $7,500,000.

The $2,500,000 cash "underwritten" by the syndicate was procured through the sale to public by Bonbright & Company of the stock of American in blocks consisting of $1,000 par value of preferred and $800 par value common, for the aggregate sum of $1,000 per block. 25,000 such blocks were sold, leaving a balance of $3,500,000 par value of common, out of which $798,100 par value common was paid over to brokers and dealers as commissions. The syndicate thus remained with $2,701,900 par value of common as its profit. Of this amount, $1,621,100 par value of common was paid over to Bond and Share for its 60% participation, and $1,080,800 par value was distributed among the other syndicate participants. Bond and Share also received $50,000 cash from the members of the syndicate.

As a result of the financing of American, Bond and Share was reimbursed for all costs and expenses in connection with the securities transferred to American and the operations of the syndicate; in addition it realized cash profits of approximately $120,000 on securities most of which had been owned only a few months, and it also held 16,211 shares of common stock of American (equivalent to 162,110 shares of American's present common stock) at no cost. These shares constituted 29.47% of the total amount of common stock then outstanding and 20.26% of the

The properties represented by these securities were later transferred by American to Kansas and Pacific at the organization of those companies in 1909 and 1910.

The 6% preferred stock consisted of 25,000 shares, $100 par value per share, which were changed in 1924 to $6 preferred stock, no par value.

"The common stock consisted of 55,000 shares, $100 par value per share, which were changed in 1924 to no par value and split ten shares for one.

es Bond and Share thus, achieved working

Share in the Turnover of Securities or Assets to games in the American System.

Savely participated in the acquisition by American's organization, of its interest artes A description of Bond and Share's se acquisitions relevant to the claims here

Share undertook to assist American in the es of Portland Gas Company which were Fortland. In this connection, Bond and stares of voting trust certificates of Portsc & cost of $112,118 and transferred such Bond and Share's cost. In connection properties transferred to Portland, Ameriand Share $25,000 for expenses of the Voting and an additional $25,000 for services in re acquisition of properties of Portland Gas

racsactions by Bond and Share in the organiza- Texas Power and of Southwestern Utilities western"), a holding company, and the con...s and securities to such companies, Bond and set of 5,000 shares of common stock of South

par value of $500,000, at no cost.92 In 1914, chased from the public 2,085 shares of Southock for $30 a share, or a total of $62,550. 7085 shares of Southwestern common stock › Sond and Share with American for 3,5421⁄2 Cat's common stock with a total par value of

to $5,425 shares of American's present cometal cost to Bond and Share of such common

purchased from Bond and Share for $2,485,

and Share was made chairman of the board of directors of aleven members were associated with Bond and Share or its so made chairman of the six-man executive committee, of which with Bond and Share. All other employees and officers of porees of Bond and Share.

hat this stock was retained by it for its "risks and services" in soul of Southwestern and for the furnishing of subscriptions to -1 ove moves of which $3,45,000 was subscribed by American and

000 cash certain securities and properties of companies in Texas, consisting principally of the common stock of Ft. Worth Power & Light Company which American later transferred to Southwestern. Bond and Share's investment in these securities and properties was $2,361,000, so that Bond and Share realized a cash profit of $124,000 from this transaction.

In 1917, Bond and Share organized Nebraska Power Company ("Nebraska") and transferred to it in exchange for securities of Nebraska, properties of Omaha Electric Light & Power Company, the securities of which had been acquired by Bond and Share between 1905 and 1917. Bond and Share in 1917 transferred to American the securities of Nebraska in exchange for securities of American. As a result of these transactions and disposition of the senior securities received from American, Bond and Share's profit from the organization of Nebraska and the transfer of its securities to American amounted to $748,000 in cash and 5,000 shares of the $100 par value common stock of American, equivalent to 50,000 shares of American's present common stock.

American entered in its investment account the securities of Nebraska received from Bond and Share at the principal amount and par value of its own securities issued to Bond and Share in exchange therefor. American thereafter received, through redemptions and sales, cash for the senior securities of Nebraska received from Bond and Share, leaving American with substantially all of the common stock of Nebraska at a book cost of $800,586 which was subsequently increased by a relatively small amount through additional acquisitions. From 1917 to 1944, inclusive, American received an aggregate of approximately $22,000,000 of dividends on the common stock of Nebraska. December 1944, American sold the common stock of Nebraska for approximately $14,421,000 and realized a profit of approximately $13,537,000.

In

As the result of various acquisitions, sales and exchanges by Bond and Share of bonds and common stocks of Montana and certain of its predecessor companies in the years 1912, 1927 and 1928, Bond and Share in 1928 held 25,920 shares of the common stock of Montana, representing approximately 5% of the then outstanding common stock of Montana, at a cost to Bond and Share of $691,763.93 On April 30, 1928, the 25,920 shares of Montana common stock were exchanged by Bond and Share for

03 This figure is apart from consideration of a net cash profit of approximately $378,000 over the average cost of 4,800 shares of Montana common stock previously sold by Bond and Share in 1927 and 1928.