are not so listed, the market values shall be the average, of all pairs of bid and asked prices for those days appearing in the National Daily Quotation Service.

2. It is stated that the purpose of the plan is to distribute as many as, and no more than, an aggregate of 102,162 shares of Duquesne common stock and 170,270 shares of Wisconsin common stock, the respective numbers of such shares required if the offer is accepted by the holders of 100% of the preferred stock. To this end, to the extent that the exchange offer is accepted by the holders of less than 100% of the preferred stock, the cash payment will be reduced and shares of Wisconsin and Duquesne common stocks will be substituted therefor in substantially the same proportions as is proposed in the package offer on the basis of market values computed as stated above. In this connection, no fractional shares of such common stocks will be distributed but in lieu thereof cash will be substituted in an amount equal to the market values (computed as hereinbefore described) of the fractions to which the holders of the preferred stock otherwise would be entitled.

3. If the exchange offer is accepted by the holders of two-thirds or more of the preferred stock, the stock of those stockholders who do not accept will be retired by call in cash after the final date for acceptance of the offer on thirty days' notice at the next subsequent dividend date. Upon the expiration of fourteen years from the date fixed for such redemption, holders of preferred stock who have not surrendered their stock shall cease to be entitled to payment therefor and their certificates shall become void, and all cash set aside by Standard Power for the redemption of those shares shall become the property of Standard Power as a capital contribution thereto.

4. In the event holders of less than two-thirds of the preferred stock accept the exchange offer, the shares tendered for exchange will be retired. The preferred stock not tendered for exchange will be retired at the election of Standard Power by cash at call price or under a compulsory plan by an exchange of portfolio stocks or stocks and cash at the equivalent of call price as soon as such call or compulsory plan proves practicable.16

5. In order to provide the cash payments which may be required to effectuate the exchange offer and, in the event of acceptance by the holders of two-thirds or more of the preferred stock, the proposed subsequent call of the remaining shares, Standard Power proposes to incur a one-year bank loan of up to but not more than $2,500,000.

10 Since there are no definitive proposals before us as to the preferred stock not tendered for exchange if holders of less than two-thirds of the preferred stock accept the exchange offer, we will reserve jurisdiction as to such matter.

The actual amount of the bank loan will be limited to the amount necessary to meet the cash requirements of the plan after application thereto of certain cash on hand.

6. Standard Power proposes to make the exchange offer upon receipt of the Commission's order approving the plan without requesting the Commission to apply for court enforcement thereof. Within ten days of the issuance of the Commission's order approving the plan Standard Power proposes to mail the exchange offer to each holder of preferred stock, which offer will specify that the last date for acceptance thereof will be twenty days from the date of mailing of the offer.

7. Consummation of the plan is conditioned upon the Commission's order containing appropriate tax recitals and the receipt of satisfactory tax rulings. Standard Power reserves the right to withdraw the plan at any time prior to the last date for receiving acceptances, in the event of unusual conditions adversely affecting stock market prices at or prior to that date.

APPLICABLE STATUTORY STANDARDS

In order to approve a plan submitted under Section 11 (e) of the Act, we must find that it is necessary to effectuate the provisions of Section 11(b) of the Act, and "fair and equitable" to all persons affected by it. The persons affected by the plan are Standard Power's preferred and common stockholders. Since some of the preferred stock may not be surrendered for exchange, the plan must be fair to those holders who accept the offer and to those who do not. We must also test the transactions proposed in the plan by the other applicable standards of the Act.

A. Necessity of the Plan

It is settled that a plan is "necessary" under Section 11 (e) of the Act if it provides an appropriate means for achieving the results required by Section 11 (b), although it might not be the only plan capable of effectuating the provisions of the statute and further steps may subsequently be required to achieve full compliance."

As heretofore noted, we determined in 1942 that Section 11 (b) (2) of the Act requires the liquidation and dissolution of Standard Power. As a prerequisite to such action the preferred stock must be retired and the portfolio divested. If the proposed exchange is accepted by the holders of at least two-thirds of the preferred stock, the company

The United Corporation, 30 S. E. C. 398 (1949); Electric Power & Light Corporation, 29 S. E. C. 52 (1949); The Commonwealth & Southern Corporation, 28 S. E. C. 776 (1948); The United Light and Railways Company, 27 S. E. C. 441 (1947). This construction of the Act has been judicially approved. Lahti v. New England Power Association, 160 F. 2d 845 (C. A. 1, 1947).

will call the balance and thus the plan would cause the elimination of all of such stock and would also result in the distribution of most of Standard Power's portfolio holdings of common stocks of Duquesne and Wisconsin. Even if less than the required number accept, in which case Standard Power does not obligate itself to call the balance, it seems reasonable to assume that under existing circumstances some portion of the preferred stock will be retired and some of the Wisconsin and Duquesne common stocks will be divested from the Standard Power holding company system. It is also noted that in the latter event the plan states that the remaining preferred stock will be retired on a compulsory basis as soon as practical.

As indicated previously, it is Standard Power's announced intention to cease to be a holding company and to request modification of our order requiring its dissolution so that it may become an investment company. Nevertheless, it has been and still is a holding company subject to the Act, and we retain full power and responsibility to direct and require compliance with Section 11 (b).18 Any application to have us modify our order requiring dissolution, so as to permit Standard Power to become an investment company, would in any event be based on Standard Power's compliance with the Act in all respects even though the means of effectuating compliance might include the company's ceasing to be a holding company without dissolving. The instant plans to the extent it accomplishes either complete or partial retirement of Standard Power's preferred stock and the reduction of its holdings of securities of subsidiary public utility companies will clearly effectuate major steps which must be taken to meet the mandate of Section 11 (b) (2) and our outstanding order thereunder. Moreover, the plan is also consistent with Standard Power's intention to become an investment company since it proposes steps which are prerequisite to such action so long as it continues to be a holding company."

19

In the light of the foregoing, subject to our finding that the plan is fair and equitable, we find that it is necessary to effectuate the provisions of Section 11 (b) of the Act.

B. Fairness of the Plan

The fair and equitable standard to be applied in Section 11(e) reorganizations requires that each security holder, in the order of his priority, receive from that which is available for the satisfaction of his claim, the equitable equivalent of the rights surrendered. Reorganizations under Section 11 (e) do not invoke charter provisions

18 The United Corporation, 28 S. E. C. 347 (1948).

19 Electric Bond and Share Company, 34 S. E. C. 536 (1953).

as to either liquidation preferences or redemption. Under the fair and equitable standard of Section 11(e) the measure of a security holder's claim is the investment value of his security appraised as though in a going concern, with appropriate weight accorded to all its rights and limitations.20 Primary weight must be given to immediately operative rights, normally rights with respect to earnings and dividends. However, the call price of a preferred stock ordinarily sets a ceiling on its value for reorganization purposes.21 Consideration must also be given to changes which would have occurred independently of the impact of the integration and simplification requirements of the Act, that is, as a matter of business judgment in no way attributable to the necessity of complying with Section 11 of the Act, and appropriate weight accorded the charter provisions which fix the respective rights of stockholders under such circumstances.

The appraisal of a plan in the light of these principles, which apply whether, as in the instant case, the plan involves a voluntary exchange offer or whether it proposes the compulsory retirement of a class of securities, requires a comparison of the present claims and prospects of affected security holders with the treatment proposed to be accorded them under the plan. We turn now to an analysis, on a going concern basis, of the financial attributes of Standard Power's preferred stock, including a consideration of whether, absent the requirements of Section 11 of the Act, Standard Power would as a matter of business judgment liquidate and dissolve or redeem its preferred stock. We shall then consider whether the portfolio stocks and/or cash proposed to be offered the preferred stockholders are the equitable equivalent of their present rights and prospects.

As indicated on the balance sheet of Standard Power as of December 31, 1952, attached hereto as Appendix A, its total investments were carried on its books at $138,080,106 whereas the market values of such investments at that date aggregated only $32,074,152. It is clear, therefore, that asset coverages of the preferred stock and capitalization ratios in terms of the book values of the investments are not of material significance in this case. The net assets of Standard Power, based on the market values of its investments at December 31, 1952, and after deduction of net current liabilities of $23,248, amounted to $32,050,904, or 4.65 times the aggregate liquidating value, including

20 S. E. C. v. Central-Illinois Securities Corp., 338 U. S. 96 (1949); Otis & Co. v. S. E. C., 323 U. S. 624 (1945); In re Pennsylvania Edison Co., 176 F. 2d 764 (C. A. 3, 1949); Lahti v. New England Power Association, 160 F. 2d 845 (C. A. 1, 1947); Philadelphia Company, 33 S. E. C. 190 (1952), enforced, Civil Action No. 10,781 (U. S. D. C. D. W. Pa., October 7, 1952).

21 Engineers Public Service Company, Holding Company Act Release No. 7041, (December 5, 1946), affirmed, S. E. C. v. Central-Illinois Securities Corp., 338 U. S. 96 (1949).

arrearages, of the preferred stock in the amount of $6,889,465 and 4.43 times the aggregate redemption price of $7,230,005.

Attached hereto as Appendix B is a comparative income statement of Standard Power for the years 1943 through 1952. The data contained therein are summarized in the following tabulation:

It will be noted from the tabulation above that Standard Power's net income was insufficient to meet the annual dividend requirement on its preferred stock, amounting to $238,378, during all this period except for the years 1949 and 1950. In fact, expenses and taxes exceeded income in the years 1946 and 1947. Standard Power's principal assets during this period were its holdings of debt obligations of Standard Gas,22 40,843 shares of Standard Gas Prior Preference Stock and 1,160,000 shares of Standard Gas common stock. Standard Power realized no income on the investment in the common stock of Standard Gas during any of this period. Further, it received no income on its investment in the Prior Preference Stock of Standard Gas until the last quarter of 1948. Income from this source amounted to $285,901 for each of the years 1949 through 1951. Shortly after the resumption of dividends on the Prior Preference Stock of Standard Gas, Standard Power resumed regular dividends on its preferred stock, the first such dividend since 1934 being paid on May 2, 1949.

As a result of the retirement of the Prior Preference Stock of Standard Gas on December 1, 1952 and the simultaneous cancellation of its note due Standard Power in the principal amount of $983,930, Standard Power received public utility common stocks which, at current dividend rates, yield Standard Power annual income aggregating

23 Until 1946 Standard Power received annual interest of $58,380 on $973,000 principal amount of 6% notes and debentures of Standard Gas. These obligations were replaced in 1948 by a 4% note in the principal amount of $983,930 in connection with the redemption by Standard Gas of all its notes and debentures. After the issuance of such note Standard Power received annual interest of $39,357 until the note was retired in the latter part of 1952. Standard Gas and Electric Company, 34 S. E. C. 80 (1952).