the terms and conditions set forth in the form of revised agreement between Upper Peninsula and such holders.

(4) The issuance and sale by Upper Peninsula, through competitive bidding, of $3,500,000 principal amount of First Mortgage Bonds, percent Series due 1977 and 10,000 shares of Cumulative Preferred Stock, - percent 3 Series, of the par value of $100 each.

4

(5) The payment by Upper Peninsula to Houghton of such amount of cash as may be necessary to redeem at 103 percent of the principal amount thereof (but exclusive of accrued interest) all of Houghton's outstanding $1,149,000 principal amount of First Mortgage Bonds, 334 percent Sinking Fund Series due 1962.

(6) The payment by Upper Peninsula to Copper District of such amount of cash as may be necessary to redeem at 103 percent of the principal amount thereof (but exclusive of accrued interest) all of Copper District's outstanding $1,360,000 principal amount of First Mortgage Bonds, Series A, 42 percent, due June 1, 1956.

(7) The dissolution of Houghton, Iron Range and Copper District and the transfer and conveyance to Upper Peninsula of all of their assets and the assumption by Upper Peninsula of all of their liabilities.

(8) The payment by Upper Peninsula to Consolidated, Middle West, Copper Range and such other holders of the common stock of Copper District as shall sell their shares to Upper Peninsula of securities and cash in exchange for the securities of the predecessor corporations, in accordance with the provisions of the amended agreements mentioned above. Upper Peninsula will issue to Consolidated, Middle West, and Copper Range, respectively, 119,940, 33,980 and 34,780 shares of its common stock and will issue to all other holders of the common stock of Copper District two shares of its common stock in respect of each share of the common stock of Copper District. The proceeds of the sale of the Upper Peninsula bonds and preferred stock, after payment of expenses and providing for redemption of the Houghton and Copper District bonds and redemption of the Copper District preferred stock, will be paid to Consolidated. Certain additional cash will also be paid to Consolidated at the time Upper Peninsula acquires the assets of Copper District. These cash payments to Consolidated are to reflect adjustments from the cash to be received by Middle West and Copper District in redemption of the Copper District preferred stock held by them. In addition Upper

2 The interest rate will be fixed by competitive bidding. The dividend rate will be fixed by competitive bidding.

The Houghton and Copper District bonds will be redeemed in accordance with the terms of their respective indentures.

Peninsula will pay to Consolidated, Middle West, Copper District and the public holders of the common stock of Copper District from the assets acquired from the predecessor corporations certain additional amounts of cash as specified in the amended agreements based on the net current assets of the predecessor corporation as of December 31, 1945, and undistributed earnings after that date.

(9) The application by Consolidated of the cash proceeds of sale of the securities of Houghton and Iron Range to the partial payment of the bank loan notes outstanding under the Loan Agreement dated as of November 15, 1945, between Consolidated and the several banks therein named, and the pledging under said Loan Agreement of 120,000 shares of the Common Stock of Upper Peninsula to be owned by Consolidated.

The proposals as initially filed contemplated that Consolidated and Middle West would dispose of all their respective interests in Houghton, Iron Range and Copper District as partial steps toward compliance with Section 11 (b). The transactions, as now proposed, however, provide that the new common stock of Upper Peninsula will be distributed as hereinabove described, by reason of the fact that the order of the Michigan Public Service Commission approving the issuance of the proposed securities is subject to the condition that no public sale of the common stock will be effected, except upon further order of that Commission. The record discloses, however, that Consolidated and Middle West intend to dispose of the stock of Upper Peninsula proposed to be acquired as soon as practicable after authority for its sale has been granted by the Michigan Commission. We turn now to a consideration of the financial data pertinent to the proposed transactions.

FINANCIAL STATEMENTS

Annexed hereto as Appendix 1 are the condensed balance sheets as at December 31, 1946, of Houghton, Iron Range, and Copper District, and of the three companies combined and, pro forma, of Upper Peninsula giving effect to the proposed transactions.

A. PLANT AND PROPERTY

The following Table I shows, as at December 31, 1946, the corporate plant and property accounts, per books, of Houghton, Iron Range, and Copper District, of the three companies, combined, and pro forma of Upper Peninsula, together with pertinent ratios:

25 S. E. C.

The plant accounts of Houghton and Copper District include $317,396 and $113,454, respectively, of intangibles classified as Plant Acquisition Adjustments. It is proposed that these excesses shall be written off by charges to earned surplus accounts prior to acquisition of the properties by Upper Peninsula. Excesses determined by Iron Range as a result of studies of original cost were written off with approval of the Michigan Public Service Commission in 1940. The effect of these transactions will be that the properties of the three predecessor companies will be carried on the books of Upper Peninsula at original cost as determined by the predecessors, but not finally approved by the Michigan Commission. Houghton has a reserve of $50,000 on its books established by a charge to earned surplus with approval of the Michigan Commission for absorption of possible additional plant adjustments. This reserve will be carried forward to the books of Upper Peninsula.

Other intangibles in the aggregate amount of $24,784 representing organization expenses of the three predecessor companies will be written off against earned surplus of the predecessor companies. The remainder of intangibles carried forward to the books of Upper Peninsula will amount to $7,895, and is represented by cost of franchises.

B. CAPITALIZATIONS

The following Table II shows as at December 31, 1946, the corporate capitalization of Houghton, Iron Range and Copper District; their combined capitalizations; and pro forma, the capitalization of Upper Peninsula, together with pertinent ratios.

C. EARNINGS

Appendix 2, attached, contains corporate income statements of Houghton, Iron Range and Copper District for the year ended December 31, 1946, of the three companies combined, and pro forma of Upper Peninsula.

Table III below is a summary of the combined income of Houghton, Iron Range and Copper District for the years 1942 to 1946, inclusive, together with the five-year average.

• Above table reflects income taxes on a corporate basis.

The combined average gross income, $444,398, was equivalent to 4.23 times the interest requirements, at the assumed rate of 3 percent, on the proposed $3,500,000 funded debt of Upper Peninsula.

Table IV below reflects the condensed income statements of Houghton, Iron Range and Copper District for the year ended December 31, 1946, the combined income statement of these three companies, and the pro forma of Upper Peninsula, together with pertinent ratios.

• Pro forma interest on $3,500,000 bonds assumed to be 3 percent.

• Pro forma dividend rate on $1,000,000 preferred stock assumed to be 434 percent.