in respect of items inherent in the enterprise at the date as of which such earned surplus was restricted and debited in respect of transfers to capital.

(u) For purposes of determining earned surplus accumulated after the date as of which earned surplus shall have been restricted, there shall be included as charges applicable to the period subsequent to such restriction date the dividends on the outstanding shares of the preferred stock of the Obligor accruing subsequent to said date and the amount, if any, by which the aggregate of the expenditures required to be made by the Obligor subsequent to said date for property additions pursuant to the renewal and replacement fund shall exceed the aggregate for said period of

(1) the provisions made on its books of account in respect of depreciation; and

With Respect to

The Securities and Exchange Commission in acting upon applications under section 6 (b) and declarations under section 7 of the Public Utility Holding Company Act of 1935 filed in respect of issues of preferred stock by public-utility companies has required issuers to include various protective provisions in charters, by-laws or related instruments (hereinafter referred to as "charters").

There has not heretofore been published by the Commission any rule or definitive statement of policy setting forth the standards against which the Commission judges the adequacy of such provisions. The Commission believes that such a statement would be in the public interest and accordingly has formulated the standards set forth herein. The Commission will compare charters submitted by issuers with these standards in considering (1) whether to impose terms and conditions in granting applications filed under section 6 (b) or (2) whether to make adverse findings in respect of declarations pursuant to section 7 (d). The Commission recognizes that deviations from these standards should be permitted in appropriate cases.

In many cases a new series of preferred stock will be issued under existing charter provisions which prescribe the rights, preferences and privileges of the class of stock of which the new series is a part. In such a case, if the existing charter

(2) amounts representing write-off, amortization, or provision for reserves in respect of plant acquisition adjustments, whether accounted for through the income account or through the earned surplus account, to the extent that such amounts pertain to items not inherent in the enterprise prior to the date as of which earned surplus has been restricted.

(v) In appropriate cases, the provisions of the Indenture may be drawn so as to permit the use of consolidated data in complying with the requirements of the Indenture.

Trust Indenture Act Provisions

(w) None of the provisions of the Indenture shall be in contravention of provisions required to be included, pursuant to sections 310 to 317 of the Trust Indenture Act of 1939, in indentures qualified under said Act.

Preferred Stock

provisions do not conform substantially to the standards set forth herein, and if the issuer should decide that it would be unduly inconvenient or impracticable to convene a meeting of its stockholders prior to the issuance of the new series for the purpose of amending its charter to effect compliance with the standards, the Commission would expect to apply the standards by the imposition of a condition to that effect in its order permitting the issuer's declaration to become effective or granting its application for exemption. The condition would be drafted to operate only so long as the issuer's charter was not amended to comply with the standards. The Commission, however, would expect the issuer to present such an amendment to its stockholders for approval on the next date on which a meeting of stockholders was being held for any other purpose.

Preferred Stock Charter Provisions

The charter of the issuer (the Corporation) of the preferred stock (meaning the class under consideration) shall provide that the dividends on such stock shall be cumulative, and that such stock can be called by the Corporation for redemption at any time upon reasonable notice and with reasonable redemption premiums, if any.

The terms and provisions of the preferred stock shall not be less favorable to the holders thereof than the following:

Rights of Holders of the Preferred Stock to

Elect Directors

(a) If and when dividends on any series of the preferred stock shall be in arrears in an amount equal to four full quarter-yearly payments or more per share, the holders of all series of the preferred stock voting together as a class shall be entitled to elect the smallest number of directors necessary to constitute a majority of the full board of directors until such time as all dividend arrears on the preferred stock shall have been paid or declared and set apart for payment.

(b) Whenever the right to elect directors shall have accrued to the holders of the preferred stock, the proper officers of the Corporation shall call a meeting for the election of directors, such meeting to be held not less than 45 days and not more than 90 days after the accrual of such right. Issuance of Securities Representing Unsecured Debt

(c) Without the consent of the holders of at least a majority of the total number of shares of the preferred stock outstanding, the Corporation may not issue or assume any unsecured notes, debentures or other securities representing unsecured debt (other than for the purpose of refunding or renewing outstanding unsecured securities issued or assumed by the Corporation resulting in equal or longer maturities or redeeming or otherwise retiring all outstanding shares of the preferred stock) if immediately after such issue or assumption (1) the total outstanding principal amount of all unsecured notes, debentures or other securities representing unsecured debt of the Corporation will thereby exceed 20% of the aggregate of all existing secured debt of the Corporation and the capital stock, premiums thereon, and surplus of the Corporation, as stated on its books, or (2) the total outstanding principal amount of all unsecured notes, debentures or other securities representing unsecured debt of the Corporation of maturities of less than 10 years will thereby exceed 10% of such aggregate.

(d) For the purposes of paragraph (c) above, the payment due upon the maturity of unsecured debt having an original single maturity in excess of 10 years or the payment due upon the final maturity of any unsecured serial debt which had original maturities in excess of 10 years shall not

be regarded as unsecured debt of a maturity of less than 10 years until such payment shall be required to be made within 3 years.

Limitation on Junior Stock Dividends

(e) The Corporation shall not declare any dividends or make any distributions in respect of outstanding shares of any stock (herein called junior stock) of the Corporation ranking junior to the preferred stock as to dividends or assets, other than dividends in shares of junior stock, or purchase or otherwise acquire for value any outstanding shares of junior stock (each such dividend, distribution, purchase or acquisition being herein called a junior stock dividend) in contravention of the following:

(1) If and so long as the junior stock equity at the end of the calendar month immediately preceding the date on which a dividend on the junior stock is declared is, or as a result of such dividend would become, less than 20% of total capitalization, the Corporation shall not declare such dividends in an amount which, together with all other dividends on the junior stock paid within the year ending with and including the date on which such dividend is payable, exceeds 50% of the net income of the Corporation available for dividends on the junior stock for the 12 full calendar months immediately preceding the calendar month in which such dividends are declared, except in an amount not exceeding the aggregate of dividends on the junior stock which under the restrictions set forth above in this subdivision (1) could have been, and have not been, declared; and

(2) If and so long as the junior stock equity at the end of the calendar month immediately preceding the date on which a dividend on junior stock is declared is, or as a result of such dividend would become, less than 25% but not less than 20% of the total capitalization, the Corporation shall not declare dividends on the junior stock in an amount which, together with all other dividends on the junior stock paid within the year ending with and including the date on which such dividend is payable, exceeds 75% of the net income of the Corporation available for dividends on the junior stock for the 12 full calendar months immediately preceding the calendar month in which such dividends are declared,

except in an amount not exceeding the aggregate of dividends on the junior stock which under the restrictions set forth above in subdivision (1) and in this subdivision (2) could have been, and have not been, declared.

(f) As used herein, "junior stock equity" shall mean the aggregate of the par value of, or stated capital represented by, the outstanding shares of junior stock, all earned surplus, capital or paid-in surplus, and any premiums on the junior stock then carried on the books of the Corporation, less (1) the excess, if any, of the aggregate amount payable on involuntary liquidation of the Corporation upon all outstanding shares of preferred stock of the Corporation of all classes over the sum of (i) the aggregate par or stated value of such shares and (2) any premiums thereon;

(2) any amounts on the books of the Corporation known, or estimated if not known, to represent the excess, if any, of recorded value over original cost of used or useful utility plant; and

(3) any intangible items set forth on the asset side of the balance sheet of the Corporation as the result of accounting convention, such as unamortized debt discount and expense; Provided, however, That no deductions shall be required to be made in respect of items referred to in subdivisions (2) and (3) of this paragraph (f) in cases in which such items are being amortized or are provided for, or are being provided for, by

reserves.

(g) As used herein "total capitalization" shall mean the aggregate of

(1) the principal amount of all outstanding indebtedness of the Corporation maturing more than 12 months after the date of issue thereof; and

(2) the par value or stated capital represented by, and any premiums carried on the books of the Corporation in respect of, the outstanding shares of all classes of the capital stock of the Corporation, earned surplus, and capital or paid-in surplus, less any amounts required to be deducted pursuant to subdivisions (2) and (3) of paragraph (ƒ) above in the determination of junior stock equity.

Merger or Consolidation

(h) Without the consent of the holders of at least a majority of the total number of shares of the preferred stock outstanding, the Corpora

tion shall not merge or consolidate with or into any other corporation or sell or otherwise dispose of all or substantially all of its assets unless such merger, consolidation, sale or other disposition or the issuance or assumption of securities in the effectuation thereof shall have been ordered or approved under the Public Utility Holding Company Act of 1935.

Alteration of Preferred Stock Provisions

(i) Without the consent of holders of at least two-thirds of the total number of shares of the preferred stock at the time outstanding, the Corporation shall not amend, alter, or repeal any of the rights, preferences or powers of the holders of the preferred stock so as to affect adversely any such rights, preferences or powers; Provided, however, That if such amendment, alteration or repeal affects adversely the rights, preferences or powers of one or more, but not all, series of preferred stock at the time outstanding, only the consent of the holders of at least two-thirds of the total number of outstanding shares of all series so affected shall be required; and Provided, further, That an amendment to increase or decrease the authorized amount of preferred stock or to create or authorize, or increase or decrease the amount of, any class of stock ranking on a parity with the outstanding shares of the preferred stock as to dividends or assets shall not be deemed to affect adversely the rights, preferences or powers of the holders of the preferred stock or any series thereof.

Issuance of Additional Preferred Stock

(j) (1) Without the consent of the holders of at least two-thirds of the total number of shares of the preferred stock outstanding, the Corporation shall not create or authorize any shares of any class of stock ranking prior to the preferred stock as to dividends or assets or issue any shares of any such prior ranking stock more than 12 months after the date as of which the Corporation was empowered to create or authorize such prior ranking stock.

(2) Without the consent of the holders of at least a majority of the total number of shares of the preferred stock outstanding, the Corporation shall not issue any additional shares, or reissue any reacquired shares, of preferred stock or of any other class of stock ranking on a parity with

the outstanding shares of the preferred stock as to dividends or assets for any purpose other than to refinance an equal par amount or stated value of preferred stock or of stock ranking prior to or on a parity with the preferred stock as to dividends or assets at the time outstanding, unless

(i) the gross income of the Corporation (after all taxes including taxes based on income) for 12 consecutive calendar months within a period of 15 calendar months immediately preceding the calendar month of such issuance is equal to at least 11⁄2 times the aggregate of the annual interest charges on indebtedness of the Corporation (excluding interest charges on indebtedness to be retired by the application of the proceeds from the issuance of such shares) and the annual dividend requirements on all preferred stock (including dividend requirements on any class of stock ranking prior to or on a parity with the shares to be issued, as to dividends or assets), which will be outstanding immediately after the issuance of such shares; and

(ii) the aggregate of the junior stock equity is at least equal to the aggregate amount payable in connection with an involuntary liquidation of the Corporation with respect to all shares of the preferred stock and all shares of stock, if any, ranking prior thereto or on a parity therewith as to dividends or assets, which will be outstanding immediately after the issuance of such shares of preferred stock or stock ranking on a parity therewith.

(k) If for the purposes of meeting the requirements of clause (ii) of subdivision (2) of paragraph (j) above, it shall have been necessary to take into consideration any earned surplus of the Corporation, the Corporation shall not thereafter pay any dividends on or make any distributions in respect of, or purchase or otherwise acquire for value, junior stock which would result in reducing the junior stock equity to an amount less than the amount payable on involuntary liquidation of the

Corporation with respect to all shares of the preferred stock and all shares ranking prior to or on a parity with the preferred stock as to dividends or assets, at the time outstanding.

(7) If, during the period as of which gross income is to be determined for the purpose set forth in paragraph (j) above, the amount, if any, required to be expended by the Corporation for property additions pursuant to a renewal and replacement fund or similar fund established under its mortgage indenture shall exceed the amount deducted in the determination of such gross income on account of depreciation and amortization of electric or gas plant acquisition adjustments, such excess shall also be deducted in determining such gross income.

Acquisition or Redemption of Preferred Stock

(m) Should the Corporation be in arrears with respect to dividends on the preferred stock it shall not acquire any shares of the preferred stock (except by redemption of all shares of the preferred stock) unless approval is obtained under the Public Utility Holding Company Act of 1935. Voluntary Liquidation Preference

(n) The amount payable upon voluntary liquidation of the Corporation to the holder of each share of the preferred stock shall be equal to the then current redemption price of such share.

Miscellaneous

(0) In appropriate cases, the provisions of the charter may be so drawn as to permit the use of consolidated data in complying with the requirements of the charter.

(p) No share of preferred stock shall be "outstanding" within the meaning of paragraphs (c), (h), (i) and (j) hereof if, at or prior to the time when the consent therein referred to would otherwise be required, provision shall be made for its redemption.