realized by registrant on the sale of the 15 securities purchased from the estate through Ben Gunz, less salesmen's commissions, and all of the profits realized by registrant and Alm in transactions in the Johnson Foods, Inc. stock purchased from the estate. After the institution of these proceedings registrant resigned from membership in the National Association of Securities Dealers, Inc. and did not become readmitted until almost a year later. So far as the record shows, neither registrant nor Alm have during the period of about 16 years in which registrant has been registered as a broker-dealer been charged with or involved in any improper conduct other than with respect to the Lottie Arnold estate and trust.

Under all the circumstances we are of the opinion that the imposition of a sanction is necessary and appropriate in the public interest and for the protection of investors, but that revocation of registrant's registration as a broker and dealer is not necessary. We have concluded that registrant should be suspended from membership in the National Association of Securities Dealers, Inc., for a period of nine months from the date of our order herein, and that Alm be found to be a cause of our order of suspension. An appropriate order will issue.

By the Commission (Chairman Demmler and Commissioners Adams, Armstrong and Goodwin), Commissioner Rowen concurring in the result.

IN THE MATTER OF

INLAND GAS CORPORATION

KENTUCKY FUEL GAS CORPORATION

AMERICAN FUEL & POWER COMPANY

Promulgated May 25, 1955.

(Corporate Reorganization)

SUPPLEMENTAL REPORT TO THE SECOND ADVISORY REPORT Since the filing by the Commission in April 1955 of a Supplemental Report to its Second Advisory Report of 1952 concerning two plans of reorganization in this matter, referred to therein as the Trustees' Plan and the Kern Plan, amendments to the Kern Plan and two additional Plans by the Independent Committee for American Noteholders ("American Fuel Committee") have been filed. All are plans of reorganization for Inland Gas Corporation ("Inland"), Kentucky Fuel Gas Corporation ("Kentucky Fuel") and American Fuel & Power Company ("American Fuel").

The two plans filed by the American Fuel Committee are similar in some respects, both being predicated upon a contemplated sale procedure with an upset price of $7,500,000, but differ primarily in that one affords both the American Fuel creditors and the Kentucky Fuel creditors an election to take stock in the reorganized corporation, whereas the other plan contains no such election. The former of these two plans will be referred to as the Committee's "stock election plan" and the latter as the "alternate sale plan". Both are described hereinafter, as are the amendments to the Kern Plan, under Summary of Plans and Amendments. Objections have been filed to these plans.

These two new plans and the Kern plan as amended have been referred to this Commission for an advisory report pursuant to Section 172 of Chapter X.

As discussed more fully below, it is our conclusion that the Kern plan is fair and equitable and feasible and should be approved. It is our further conclusion that the American Fuel Committee plans,

should be disapproved in the light of the rights in equity of the Kentucky Fuel creditors to protect their junior position and protect their equity of redemption. The American Fuel Committee stock election plan would be feasible if amended in accordance with our comments with respect to the terms and limitations of additional borrowings to pay participating creditors who elect to take cash. The American Fuel Committee alternative sale plan appears to lack feasibility since it provides no limitations upon debt financing.

I. SUMMARY OF PLANS AND AMENDMENTS

A. The American Fuel Committee stock election plan provides for the payment in cash of all priority claims of the debtors and administrative liabilities. Public holders of American Fuel notes, Kentucky Fuel bonds and Kentucky Fuel debentures will be given an election to receive stock of the reorganized company or cash equal in amount to what would be distributable to the American Fuel and Kentucky Fuel creditors if the property of the debtors, excluding cash and cash items, but including other net current assets, were sold at a price of $7,500,000. Upon the basis of estimated reorganization expenses of $500,000, estimated net cash receipts up to June 30, 1955 of $825,000, and an assumption that no material changes will occur prior to the effective date of the plan, it is indicated that American Fuel noteholders would receive approximately $2,295 per $1,000 note, Kentucky Fuel bondholders would receive approximately $1,665.07 per $1,000 bond, and Kentucky Fuel debenture holders would receive approximately $597.48 per $1,000 debenture.

The cash for the payment of administrative claims will be provided from cash held by the Trustees of Inland and American Fuel and with the proceeds, to the extent necessary, of a term bank loan not exceeding $2,700,000. It is anticipated that this will leave working capital of more than $350,000 for the reorganized company. Any excess over $350,000 may be used to retire new common stock. The cash to purchase any additional shares of new common stock otherwise issuable to American Fuel and Kentucky Fuel creditors electing to take cash under the plan will be derived from an underwriter, of which Louis A. Green is one of the partners, who will purchase the stock allocable to the security holders at a price equal to the cash participation which would go to these creditors if the property were sold on the basis stated above.

The reorganized company will have a capital structure consisting of a 5-year term loan, with interest not to exceed 4% per annum, in the principal amount of $2,700,000, which amount may

be increased if the bidding goes higher to the extent of 50% of such increase, and 750,000 authorized shares of new common stock, $10 par value. Of the authorized stock, it is estimated that 500,000 shares would be outstanding as of the effective date should all participating creditors accept stock. American Fuel noteholders who elect to take stock will receive 137 847/1669 shares of new common stock for each $1,000 principal amount of American Fuel notes and Kentucky Fuel creditors who elect to take stock will receive 99 1276/1669 shares of new common stock for each $1,000 principal amount of Kentucky Fuel bonds and 35 1333/1669 shares of new common stock for each $1,000 principal amount of Kentucky Fuel debentures.

In recognition of the fact that the provision for an election of cash by the American Fuel and Kentucky Fuel creditors is in effect a form of sale, the American Fuel Committee stock election plan is to be implemented by means of a sale procedure after the confirmation of the plan. The upset price for all assets, except cash and cash items, to be fixed for the judicial sale, is to be $7,500,000. Either the debtor, Inland, or a new corporation will be the reorganized company and through the underwriter will make the opening bid at the public sale on behalf of its new stockholders, who will be the American Fuel and Kentucky Fuel creditors who elect to take stock rather than cash, and the underwriter. Any other person may bid at the sale and in the event such person is the successful bidder, all of the Kentucky Fuel creditors will receive cash. The other bidders are required to exceed the opening bid by at least $100,000. Thereafter, succeeding bids must exceed prior bids by at least $25,000. The underwriting firm reserves the right to increase its commitment to any extent that it may determine to exceed any other bid or bids. American Fuel and Kentucky Fuel creditors will have a 30-day period following the sale to make their election as to whether they prefer to take stock in the reorganized corporation or the cash equivalent based upon the actual sale price.

The stock election plan also contains a proviso to the effect that, if the reorganized company has excess cash available for payment to the Trustees for distribution to the American Fuel and Kentucky Fuel creditors not electing to take stock, the reorganized company shall at the request of the underwriter apply such excess cash to the participating creditors electing cash. To the extent, if any, that such funds are so applied, new common stock will not be issued. Any additional shares of new common stock otherwise

issuable to American Fuel and Kentucky Fuel creditors, will be purchased by the underwriter under its commitment.

American Fuel and Kentucky Fuel creditors who elect to take stock are required to deposit their securities with an exchange agent. The exchange agent will issue new stock to each American Fuel and Kentucky Fuel creditor who so elects. Otherwise, the securities will be returned.

It is to be noted that the undertaking of the underwriter is deemed the equivalent of a bid for the property at the upset price, although in fact it is an offer to purchase a maximum of about 64% of the new common stock of the reorganized company otherwise distributable to participating creditors (other than Green).

On the basis of an upset price of $7,500,000 and bearing in mind the term bank loan of $2,700,000, the maximum cash commitment of the underwriter is approximately $3,300,000. Any other person or group submitting a bid for the property at the time of the sale would not have the benefit of this loan or the commitment by Green not to take cash for his claim. Such a bidder would have to make his own financing arrangements and be prepared to put up the entire bid price in cash, or possibly submit a further modification of the reorganization plan which incorporated, with firm commitments and earnest money, his own financing arrangements. The properties to be sold at the upset price include all of the assets of the debtors other than cash and cash items and the stock of The Buckeye Gas Service Company, The Buckeye Fuel Company and Bridge Gas Company.

Allocation of new securities (or cash participations based thereon) as between public holders of Kentucky Fuel bonds and debentures is based upon a compromised division of available new securities of 92% to bonds and 8% to debentures. Should the bid for the property on behalf of the reorganized company result in payment in full of the claims of the Kentucky Fuel public bondholders, additional stock to the extent available would be issued to the public holders of Kentucky Fuel debentures electing to take stock, and to the underwriter.

Since the American Fuel and Kentucky Fuel estates are deemed insufficient to satisfy in full the aggregate claims of creditors entitled to priority, no participation is accorded to the subordinated claim of Columbia, to the general unsecured claims of American Fuel and Kentucky Fuel, or to the publicly held outstanding stock of the debtors.

The initial board of directors shall consist of not less than five