consolidated financial statements; management, service, bonus and profit-sharing contracts; contracts between the registrant and any trustee, director, officer, principal underwriter or controlling security holder; outstanding options to purchase securities; material changes in business policies; aggregate remuneration of officers, directors and employees who received more than $20,000 during the year; names of, and amounts paid to, each person receiving more than $30,000 during the year; modifications of the rights of security holders; material modifications in contracts of guarantee; and many other aspects of the business and financial life of the trust and subsidiaries disclosed in reports to us. Furthermore, the balance sheet and profit and loss statement filed with Form 11-K must be certified by independent public accountants, and, in addition, a certified consolidated balance sheet and a consolidated profit and loss statement must be furnished." Norumbega Park Company files annually with the Massachusetts Department of Corporations a certificate of condition composed largely of an uncertified balance sheet.

WORK AND EXPENSE

The treasurer of Suburban, its chief witness, stated that he spends about two weeks on each annual report to the Commission. He works mostly alone, hiring outside help at an expense of from $100 to $150. The record falls far short of convincing us that the work and expense involved in preparing reports to us is seriously considered as a factor in withdrawal.

This application must be appraised for what it does not say as well as for what it says. Suburban's management is proposing action which is of primary interest to the stockholders rather than to the trust as a going business. Withdrawal from the Exchange will have certain effects which should be weighed by investors together with the arguments of the management. Among other things, investors now have recourse to two markets, each with its particular characteristics 10 and benefits. Any investor who now wishes to use the over

The consistent deviations of Suburban from generally accepted accounting standards, detailed later in this opinion, and the security repurchase program of Suburban emphasize the need for independent certification of, and honest disclosure in, the financial reports. The annual report of Middlesex & Boston to the Massachusetts Department of Public Utilities is more detailed than Suburban's filing with the Commonwealth, and as a portrayal of the subsidiary's condition, it is more informative than the material about Middlesex & Boston in our files. However, the report deals mainly with Middlesex & Boston as an operating traction company and its position within the Suburban system is not clarified by consolidated balance sheets and profit and loss statements or similar disclosures.

10 Bid, asked and transaction prices on the Exchange are carried on its ticker service and transmitted by wire to 114 member offices and 524 correspondent offices in and outside of Massachusetts, are printed in a "Daily Sales and Quotation Sheet" published by the Exchange and distributed to its members and their customers, appear thrice daily on the Dow-Jones tape, and are broadcast over a Boston radio station thrice weekly. Transaction volume and prices are published in every Boston newspaper, in the Wall Street Journal

the-counter market as a vehicle for his trading in Suburban may do so. Withdrawal limits investors to the over-the-counter market by depriving them of the Exchange market. The statutory benefits now available to investors under the Exchange Act would no longer exist under the Act if withdrawal were effected. The full disclosures of information, previously commented on, now made under the Act and supervised by the Commission would no longer be required. The Act would not apply to require disclosure of insiders' trading, afford civil relief for short-term trading profits of insiders in shares of the Trust, or prevent short selling of such shares by insiders (Section 16). Persons soliciting proxies would no longer be required to conform to the full disclosure requirements of our rules under Section 14 of the Act.11

We do not undertake to spell out here all the factors which should be considered. Further discussion will be found in Appendix I, a copy of which we shall require to be mailed to stockholders. We comment here on the consequences of delisting only to emphasize that the issue whether to withdraw is a matter of individual interest to each shareholder affecting the liquidity of and type of protection surrounding his investment. The facts already discussed show that this is a clear case for the exercise of our power to require the submission of the issue of withdrawal to stockholders' vote. Shawmut Association v. S. E. C., 146 F. 2d 791 (C. C. A. 1, 1945). The facts we discuss later in this opinion further emphasize the need for exercising this power. Those facts indicate that the management's proposal to withdraw is part of a plan to buy out public investment in the Trust as cheaply as possible so that the insiders will be left with substantial ownership of the Trust purchased at a discount with money of the Trust.

THE TERMS AS TO VOTING

Surburban has stated that it is willing to submit its proposal for withdrawal to a shareholders' vote "upon a proxy statement satisfactory in form to the Commission" and to let the proposal turn on the assent of a "majority in number of the shareholders." We have

and the newspapers of four adjacent towns. Bid and asked quotations appear in the Boston News Bureau and the Herald.

11 The management of the Trust has already violated the proxy requirements of the Act in connection with this application. Before filing it the management placed the proposal on the agenda of the 1944 annual meeting. The management attached a blank proxy form to the notice of the meeting sent to shareholders and stated that proxies were not being solicited. However, Rule X-14A-9 says that "the furnishing of a form of proxy to security holders under circumstances reasonably calculated to result in a procurement of proxies" is a solicitation. Such a solicitation must be accompanied by a proxy statement containing the full disclosures required by the rules. None of the information required by our proxy rules was furnished. The proposal was favorably voted on at the meeting. But the vote was procured in violation of law and without the disclosures required for an intelligent decision on how to vote.

the power, notwithstanding such consent, to require a vote as a term in granting the application, Shawmut Association v. S. E. C. (supra) and, as noted, we believe this to be an appropriate case for the exercise of that power. The only open question on the voting terms is whether we should accept applicant's proposal. The Trading and Exchange Division, after its study of this case, has recommended that a class vote be held and that the proposal be favorably voted on by the record holders of two-thirds of the shares in each class and by two-thirds of the record holders in each class. It recomends further that time limits be set within which the proposal is submitted.

We think these recommendations reasonable as applied to this case." The solicitation of proxies for this vote will be subject to our proxy rules, and our staff will be vigilant in seeing that full disclosure is made in the proxy statement. Our order will require further that the proposal be submitted to a vote within thirty days after entry of the order and that Suburban certify to us within sixty days after the submission that the requisite approvals have been obtained. A summary of this opinion and related data (set forth in Appendix I hereto) will be required to be sent to each shareholder together with the proxy statement.

OTHER TERMS

The Trading and Exchange Division has recommended the imposition of terms relating to the manner in which the management carries out its program of reacquiring Suburban's shares. The staff contends that past practices of Suburban's management show that it is necessary for the protection of investors that we take steps to assure that the program will be carried out honestly and on the basis of full disclosure. We review the facts as they bear on the reasonableness of the further terms suggested by the staff.

REPURCHASE PROGRAM

Upon its organization in 1921, Suburban had outstanding $880,000 of 8% 10-year collateral trust notes; 2,076 first preferred shares; 31,203 second preferred shares; and 50,296 common shares. Sub

12 Certain aspects of the present situation have impelled us to conclude that to permit delisting upon the assent of a mere majority of shares or holders would offer inadequate protection to investors. Among them is the relative distribution of shares. On December 31, 1944, management owned 3,780 of the 10,004 preferred shares outstanding and 21,745 of the 50,296 common shares. Family and other affiliations, of which we have no record, may increase this voting strength. When the vote is taken Suburban may have purchased additional preferred and common shares from holders of small blocks. On the other hand, the stockholders who are chiefly affected by withddawal are the ones outside the orbit of management, and to permit their rights to be decided by the people least interested in the continuation of an Exchange market would withdraw the protection required by the Act.

urban's interest charges and the preferred dividend claims of its outstanding shares were $207,668 annually.

By February 1933 all the collateral trust notes had been purchased and cancelled. No dividends had ever been declared on the second preferred shares, so that its arrearages totaled $1,483,078.59, or approximately $47.53 per share. These arrearages had to be eliminated, and current yearly dividends of $137,268 paid on both classes of preferred, before dividends could be distributed to the common shareholders. Unless the arrears were reduced, and, if possible, the annual preferred dividend commitments lowered, the common shareholders could not expect within the foreseeable future a return on their investment.18

Suburban provided no thoroughgoing program to meet that problem. Instead, in 1934 it began repurchasing its first and second preferred shares. By the end of 1935, 1,448 first preferred shares, over two-thirds of the amount originally issued, had been repurchased for $89,074.20. The average cost per share was approximately $61.50, considerably below the par value of $100 and redemption value of $105. On October 1, 1936, the remaining first preferred shares were called and redeemed at $105 per share. The average cost of retiring all the first preferred shares amounted to $153,147.25, about $73.30 per share. With this sum Suburban eliminated about $218,000 of liquidating preferences from its balance sheet and about $12,500 of annual dividend claims prior to the common shares.

14

At the same time Suburban was buying its second preferred stock. At the end of 1934, 13,838 shares had been acquired for $138,981. The average price of about $10 per share compared with dividend accumulations of over $50 per share and a liquidating claim of $100 per share. Since then, purchases of second preferred shares have continued steadily.

The record shows that by the end of 1944 Suburban spent $541,059 to buy back 21,198 shares of second preferred stock at an average cost of $25.15 per share. As a result of these acquisitions dividend arrearages have been reduced from $1,586,048 to $636,858, and $2,119,800 in liquidating preferences have been eliminated. Those who do not sell are the beneficiaries of these purchases; the prospects of the remaining preferred holders' receiving the full dividend arrears in the near future are improved, as are the earnings prospects and asset position of the common holders. Thus it is significant that, while the public holders of second preferred shares of Suburban have sold

13 From 1921 to 1933, Suburban never paid more than interest on the trust notes of $70,400 and dividends on the first preferred of $12,456, a total of $86,856, yearly.

14 As will be noted 115 shares of first preferred stock held by the president of the Trust were not bought, but redeemed at $105 per share. (See footnote 15.)

two-thirds of their stock to the Trust, the officers and trustees have, by and large, retained their holdings. On December 31, 1934, the management owned 4,101 shares of second preferred and on June 1, 1945, it still held 3,780 shares.15 On the other hand, the public held 13,264 shares on December 31, 1934, and its holdings went down to 6,224 shares by June 1, 1945. James L. Richards, president of Suburban, has 1,300 second preferred shares and 3,400 common shares.16 The management, as a whole, owns 21,745 " of the 50,296 common shares. By maintaining its holdings, the management has enhanced its securities position in the Trust through Suburban's repurchases of the second preferred stock. It must be borne in mind throughout our discussion that the people who dominate the repurchase program are in a position to benefit financially by buying the shares cheaply.

17

The domination which the trustees exercise over the repurchase program is both immediate and indirect. With a personal financial interest in the program they decide when and at what prices to buy individual shares; and they determine the business policies (including dividend policies) that necessarily affect the market prices of the shares.

Between 1934 and 1944 Suburban paid $447,170 in dividends on its second preferred stock and spent $541,059 in buying back its second preferred. In this period Suburban's aggregate corporate net income was, according to its own accounting methods, $620,584.18 In addition, it received a total of $657,500 in cash repayments of loans to subsidiaries. At the end of 1944 Suburban reported (according to its own accounting methods) an earned surplus of $461,085. Thus, according to Suburban's own statements it was in a position to pay out over $460,000 in dividends which it chose, rather, to retain. Whether deliberately adopted or not, the policy of withholding dividends over a period of years was undoubtedly reflected in the re

16 306 of these shares are in two trusts for a number of beneficiaries, including two trustees of Suburban. 400 shares are owned by the Pinegate Trust, one of whose three trustees and beneficiaries is Robert Winsor, who ceased to be a trustee of Suburban in 1944. 399 shares held of record by a trustee of Suburban for various beneficiaries have not been included among management holdings.

16 James L. Richards also had owned 115 first preferred shares which had been redeemed at $105 per share in 1936. He held almost 20 percent of all first preferred shares redeemed. 17 12,745 of these shares belong to the Pinegate Trust, one of whose trustees and beneficiaries served as a trustee of Suburban until 1944.

18 Aggregate consolidated net income for Suburban's system for the years 1935 through 1944 (adjusted in accordance with the changed accounting practices reflected in amended filings with us) amounted to $1,763,976. Yearly consolidated net income figures have been markedly improved during war years. However, yearly consolidated net income was never less than $127,450. This should be compared with the maximum current dividend requirement of the second preferred (assuming the entire issue to be outstanding) of $124,812. In fact, in 1944, the consolidated net income amounted to $281,911, as compared with current dividend requirements of $40,016 on 10,004 shares outstanding at year end. As of this date aggregate arrears on outstanding preferred amounted to $636,858 or $63.67 per share.