The cost of second floor extension, about $305,000 would be added to purchase price.

prejudiced since his bid was rejected solely because it was not firm, being conditioned upon Philadelphia's supplying an appraisal by an independent appraiser acceptable to Barnes. This condition, the applicants assert, was not inserted as a result of anything which Christo told or failed to tell Barnes, but to serve Barnes' own purposes, since he was acting as agent for an insurance company and knew that it would require an appraisal in a transaction of this kind. Two other bids in addition to the Barnes bid were rejected because they were not firm as to the proposed purchase price. Apparently, the brokers were never expressly informed that the bids they submitted were to be firm, but were simply advised by Holub to secure the best offers as to price and rent for the Central Building on any basis their principals cared to bid on. In justification of his action in rejecting the bids submitted which were not firm as to purchase price, Fleger testified that it was the clear import of the invitation to submit offers specifying a price and a rent for the Central Building on a competitive basis that such offers should be firm in all respects except for the details of the lease, other than the amount of the rent, which necessarily had to be negotiated." In Fleger's view, it would have been improper from the point of view of maintaining competitive conditions and of being fair to the other bidders, to have considered a conditional bid. We have carefully considered the conflicting contentions that have been advanced with respect to the adequacy of the bidding procedure. In our opinion, the procedure would have been improved had applicants used written bidding specifications which clearly stated that the prime determinant in awarding the contract would be the maximum price to Philadelphia and that bids firm as to purchase price and rent were required.10 We also are of the view that it would have been desirable for the applicants to have reduced the number of variables involved in the bidding by specifying the term of years, and in addition to have either designated a maximum rent or stated that a rent in excess of that charged for comparable space would not

It appears that Christo knew that Barnes intended to condition his bid upon the obtaining of an appraisal but that Christo was unaware that such a condition would bar the Barnes bid from consideration. Barnes contends that Christo was the agent of the companies in this transaction and that the companies must accept responsibility for Christo's statements. Applicants, on the other hand, take the position that Christo had no authority to negotiate on behalf of Philadelphia nor to make any commitments binding on Philadelphia and they point out in this connection that the brokers were informed that the companies reserved the right to reject any and all bids. Under all the circumstances present here, we cannot find that the companies were unwarranted in rejecting bids which were not firm as to purchase price or that their action in this respect resulted in a failure to maintain competitive conditions.

10 In asking the bidders to take into consideration the proposed remodeling of the building at an estimated cost of $305,000, applicants should have requested bids on the basis of both with and without remodeling.

be considered." However, it must be recognized that this apparently is the first instance in which competitive bidding has been used in a sale-lease transaction of this kind and that applicants had no experience to guide them in formulating a bidding procedure. The applicants invited competition in good faith, and while three of the six offers received proved deficient because of a failure to specify a firm purchase price, three acceptable bids were received and the bidding was awarded to the bidder who submitted the best of these offers.12 In addition, as our discussion of the fairness of the plan below will show, there are other criteria, apart from the judgment of the market as expressed in the bidding, which establish that the terms of the Mellon offer are not unreasonable. Under the circumstances, we are satisfied that there was sufficient maintenance of competitive conditions to meet the statutory requirements and to warrant permitting the proposed sale to be effected without subjecting applicants to the risk that they might not receive as satisfactory an offer as Mellon's on a rebidding.13

CONCLUSIONS AS TO FAIRNESS

As we stated earlier, in order to find that the proposed plan is fair and equitable, we must find that the price to be received for the property by Philadelphia and the terms of the lease to be entered into by Duquesne are not unreasonable. Under the plan Philadelphia will receive $3,000,000 from Mellon for the Central Building property. This price compares favorably with the property's appraised value of $2,980,000 and its 100% insured value (excluding foundation) of $2,599,000. In addition, we note that the price to Philadelphia under the Mellon bid was as high as the price to Philadelphia under any of the other bids.14

"It would not be permissible for Philadelphia to secure so high a price for the property that it would result in Duquesne's paying an unreasonable rental. While applicants did not expressly so inform the bidders, Fleger stated that Philadelphia would not have accepted a bid which, although offering the highest purchase price, called for a rental in excess of a reasonable rent for a property of the character of the Central Building. As pointed out below, the rental proposed to be accepted under the Mellon bid does appear to be a favorable one in the light of charges made for space in comparable buildings in the area.

12 Barnes contends that the undisclosed elements considered by Fleger in selecting the successful bid were injected only to reject Barnes' bid, and reflect favoritism to Mellon. The record shows that Fleger and P. H. McCance, president and a director of Duquesne, are members of the advisory committee of Mellon, and as such may attend meetings of Mellon's board of directors but have no vote, and that John Mayer, vice-president of Mellon, is a member of the board of directors of Duquesne. We find no evidence that any favoritism was shown to Mellon.

13 Cf. Delaware Coach Company, 32 S. E. C. 290 (1951).

14 While under the Barnes bid a total price of $3,300,000 would have been paid, only $3,000,000 would have been payable to Philadelphia and the balance of $300,000 represented a payment to Duquesne for the purpose of remodeling the second floor of the Central Building. During the course of the proceedings Barnes submitted a firm offer to pay Philadelphia $3,300,000 without any remodeling, but since this bid was submitted after the bidding period had ended it could not of course be considered.

The rental under the Mellon declining rent lease is lower than the rental under any of the other bids of $3,000,000, and compares favorably with charges for comparable space in neighboring buildings. In this connection we note that the rent under the Mellon lease is lower than the rent payable by the Bell Telephone Company for space in the Central Building under a lease recently negotiated by Philadelphia with that company and is also lower than the rent which Duquesne and Philadelphia's other subsidiaries have been paying for space in the Central Building. It also appears that the rent payable by Duquesne under the Mellon lease is substantially lower than the rent charged in some 20 office buildings in downtown Pittsburgh. With respect to the 35-year term specified in the Mellon lease we note that it approximates that proposed in the other bids as well as in recent sale-lease transactions in Pittsburgh and that it appears to be consistent with the probable life of the building, which was built between 1902 and 1910, with additions in 1924 and 1927.

Under the circumstances we find that the terms of the proposed purchase price and rent are not unreasonable, and that the plan is fair and equitable to the security holders of both Philadelphia and Duquesne.

IV. OTHER MATTERS CONSIDERED

The plan requests that we make the necessary findings and recitals in accordance with Supplement R and Section 1808 (f) of the Internal Revenue Code as amended. Our order of approval will contain such recitals.

The plan also provides that such fees and expenses incurred in connection with the transactions covered by the plan, or the proceedings with respect thereto, as the Commission may award, allow or allocate shall be paid by Philadelphia except that all fees and expenses incurred in connection with the lease of the Central Building property shall be paid by Duquesne. Since the record is incomplete with respect to fees and expenses, we shall make no determination thereof at this time, and our order herein will reserve jurisdiction over their payment.

An appropriate order will issue.

By the Commission (Chairman Cook, Commissioners McEntire, Rowen and Adams participating).

IN THE MATTER OF

CHARLES E. BAILEY & COMPANY

and

CHARLES E. BAILEY

GORDON W. KIRK

MARION J. STANKO

LEE D. WALKER

MAX W. BOLHOVER

HERBERT L. WALLER

Promulgated March 25, 1953.

(Securities Exchange Act of 1934-Sections 15 (b), 15A and 19 (a) (3)).

BROKER-DEALER REGISTRATION

Grounds for Revocation of Registration

Violations of Securities Act and Securities Exchange Act

False and Misleading Statements

Where registered broker-dealer in connection with underwriting and sale of securities makes false or misleading material statements concerning, among other things, issuer's orders, production, financial prospects and dividends, and fails to exercise reasonable care in determining accuracy of such statements, held, willful violations of Section 17 (a) of the Securities Act of 1933 and Sections 10 (b) and 15 (c) (1) of the Securities Exchange Act of 1934 and rules thereunder, requiring, in the public interest, denial of request for withdrawal from registration, and revocation of broker-dealer's registration.

Sale of Unregistered Securities

Where, in connection with public offering of securities under Regulation A promulgated under Section 3 (b) of the Securities Act of 1933, registered brokerdealer failed to file copies of solicitation literature and failed to publish required legend thereon, held, securities sold in willful violation of registration provisions of Securities Act of 1933.

APPEARANCES:

Edward H. Rakow, of the Cleveland Regional Office, for the Division of Trading and Exchanges.

Joseph J. Marshall, of Armstrong, Essery, Helm & Marshall, for respondent Charles E. Bailey & Company, and individual respondents

35 S. E. C.-34-4806