Question. Prior to receivership, Peoples Light & Power Corporation lost control of a number of its important subsidiaries, did it not? Answer. Yes, sir.

Question. On December 31, 1932, what subsidiaries were controlled by the receivership corporation?

Answer. Alabama Natural Gas Corporation; Alabama Public Service Co.; Amory Natural Gas Co., Inc.; Appliance Credit Corporation; Burlington Traction Co. (Burlington Rapid Transit Co.); General Power & Light Co.-Arizona Edison Co.-Compania de Servios Publicos de Agua Prieta, S. A., Compania Edison De Sonora, S. A.-Western States Utility Co.; Mississippi Gas Co.; Mississippi Natural Gas Corporation; Mississippi Public Service Co.; Mississippi Service Co.; Peoples California Hydro Electric Corporation (California Public Service Co.); Peoples Iowa City Water Works Corporation (Iowa Water Service Co.); Peoples Minnesota Gas & Electric Corporation (Minnesota Public Utility Co.); Peoples Utilities Kansas Corporation (Kansas Public Service Co.); Peoples Utilities Texas Corporation (Austin Gas Co.) (Texas Public Service Co.); McCamey Sewer Co.; Peoples West Coast Hydro Electric Corporation (West Coast Power Co.).

Question. Those Spanish companies that you mentioned were Mexican companies, with Spanish names?

Answer. Yes.

Question. Did Peoples Light & Power Corporation have any servicing companies?

Answer. No, sir; they did not.

Question. How were those subsidiaries supervised and managed? Answer. From the executive offices located in New York City. Question. When, if at all, were receivers appointed for the property and by what court?

Answer. On November 17, 1931, receivers were appointed by the Federal court at Wilmington, Del.

Question. That was on account of financial difficulties encountered by the company?

Answer. Yes, sir.

Question. Those receivers are still in control of the company? Answer. Yes, sir; they are.

Question. Who was appointed receiver of the company?

Answer. Hugh M. Morris was appointed receiver for Peoples Light & Power Corporation, upon application of the class A stockholders association, and H. S. Schutt, a prominent public utility official, was appointed coreceiver for the corporation.

Question. On page 8 of your report there is a statement of how, prior to the receivership, the company was operated and controlled? Answer. Yes, sir.

Question. Can you summarize that briefly without reading it?

Answer. There was a president responsible for the general conduct of the business, and a vice president in charge of operations and responsible for the general operation of the subsidiary company properties, engineering, construction, purchasing, rates, and public relations, and a secretary-treasurer responsible for financing, accounting, and corporate records.

Question. Was there any legal department?

Answer. No, sir.

Question. Who handled the legal affairs?

Answer. They were principally handled by the law firm of White & Case, of New York City.

Question. What have you to say as to the connection of the G. L. Ohrstrom & Co., Inc., of New York, with the Peoples Light & Power Corporation?

Answer. At the time Foshay began enlarging his activities, Ohrstrom became associated with him as the sales agent for his securities. Question. Who were G. L. Ohrstrom & Co., Inc., of New York? Answer. Investment bankers, with offices in New York City. Question. They became associated with Foshay in financing the needs of the company, did they?

Answer. Yes, sir.

Question. What were those needs that were financed by Foshay? Answer. Funds for the acquisition of properties.

Question. Foshay made numerous proposals to acquire stocks and bonds of various operating utilities, did he not, and then offered them to Peoples Light & Power Corporation?

Answer. Yes, sir.

Question. How many separate groups of properties were thus acquired?

Answer. Principally three groups.

Question. And how are those referred to?

Answer. The first is the August 2, 1926, closing; the next is November 15, 1926, closing, and the other one is January 25, 1927, closing.

Question. And the funds to finance those closings were obtained how?

Answer. Principally through sales of Peoples' securities.

Question. What occurred shortly after the January 25, 1927, closing?

Answer. A disagreement arose between Foshay and Ohrstrom regarding the management and financing of Peoples.

Question. What was determined on that?

Answer. That in the interest of Peoples and its securities holders, either Foshay or Ohrstrom should cease to be connected with Peoples. Question. From what source did you obtain that statement? Answer. From the contract between Ohrstrom and Foshay. Question. What resulted from that disagreement?

Answer. It developed that Foshay was willing to sell to Ohrstrom, and Ohrstrom was willing to buy; and later did take over Peoples.

Question. The terms and conditions on which that acquisition was made are set forth in a contract entered into between the parties, are they?

Answer. Yes, sir.

Question. When was that contract dated?

Answer. March 22, 1927.

Question. And you have a copy of that contract, as an appendix to this report, have you?

Answer. Yes, sir.

Question. What appendix is it?

Answer. Appendix no. 51.

Question. Will you briefly summarize the provisions of that agree

ment?

Answer. After stating the fact of the disagreement, there were 14 provisions designated as "agreements upon the part of Foshay", the principal ones being that Foshay represented, warranted, and guaranteed that the balance sheet attached to said contract as exhibit A was a true and correct consolidated balance sheet of Peoples and its subsidiaries, and that no changes would take place in the accounts represented thereby except in the normal, usual, and proper course of the operation of the properties in that business, pending the transfer of the management from Foshay to Ohrstrom.

The contract further stated that Foshay owned 43,830 shares of class B common stock, representing all of the outstanding class B common stock of Peoples, except 1,170 shares which Foshay agreed to acquire and deliver.

The other principal agreements on the part of Foshay related to the auditing of intercorporate accounts and their settlement, the issuing of additional securities by Peoples, the assignment of certain contracts held by Foshay to Ohrstrom, and so forth.

Question. What were the provisions numbered 15 to 18, inclusive? Answer. They were designated "agreements upon the part of Ohrstrom ", and stated that in reliance upon the representations, warranties, guarantees, statements, and agreements of Foshay, as set forth in said contract, that Ohrstrom, or its nominee, would purchase and in a specific manner pay for certain securities enumerated previously in the contract as owned or to be acquired by Foshay.

Ohrstrom agreed to execute or cause to be executed assumption agreements, notes, instruments, and such other documents as might be necessary for carrying out said agreement and release Foshay from certain specific obligations previously incurred by him.

Provision no. 18 related to reimbursement to Foshay of a fair portion of the salaries of employees of Foshay who thereafter devoted time to the affairs of Peoples and a proper charge for the office space in the Foshay Building in Minneapolis, Minn., and the office facilities in said building occupied by Peoples.

Further provision was made in said contract for arbitration in the event of differences of opinion between the contracting parties, the method of selecting the arbitrators, and how they should function in the event of their selection being made.

Question. In carrying out the provisions of that contract a controversy arose, did it not?

Answer. It did.

Question. How was that settled?

Answer. By arbitration.

Question. And what was the result of that arbitration?

Answer. There was a decrease in the accounts payable due Foshay in the amount of $26,606.28.

Question. And that is reflected by a like credit to Peoples' surplus, is it not?

Answer. Yes, sir.

Question. And that is mentioned in chapter VI of this report, dealing with surplus additions?

Answer. Yes, sir.

Question. Then control of Peoples thus passed to Ohrstrom, where it remained until November 17, 1931, when it passed to the receivers? Answer. Yes, sir.

Question. There was no engineering company owned or controlled by Peoples, was there?

Answer. No, sir.

Question. How was its major engineering and construction work handled?

Answer. By the Trojan Engineering Corporation, a subsidiary of Ohrstrom.

Question. That is discussed in chapter no. VII of your report on servicing, is it not?

Answer. Yes, sir.

Question. You have already discussed the charter powers of the corporation in general; have you any additional comments to make on that?

Answer. Under the terms of its perpetual charter, Peoples obtained very broad powers. It was authorized to produce, buy, or in any manner acquire, operate, and dispose of, electricity, gas, water, steam, heat, ice, refrigeration, or the plants or stations for producing any of such items; to build, acquire, or operate radio and broadcasting stations, street railways; to produce, mine, buy, sell, store, or market coal and minerals of all kinds; to issue or acquire its own or other securities of all kinds. Briefly, it was authorized to do anything which might be necessary or convenient for the transaction of its business and to effectually carry on its operations.

Question. What was the growth of capital assets of Peoples during the period of your examination?

Answer. The assets of Peoples increased from $2,111,712.40 in June 1926, the date of its opening entry, when it issued its common and preferred stock in the acquisition of stocks, bonds, and so forth to $30,313,997.09, as at December 31, 1932, the end of the period covered by this examination.

Question. What items constituted the principal increase in the above-mentioned assets?

Answer. Investments; advances to affiliated companies; treasury securities; notes and accounts receivable; and unamortized debt, discount, and expense.

Question. In what were the principal investments made?

Answer. In securities of operating companies obtained from Foshay.

Question. And in those three closings that you have already referred to?

Answer. Yes, sir.

Question. And a list of the securities received and disposed of is set forth in schedule A of exhibit no. 1, is it not?

Answer. Yes, sir.

Question. In that report?

Answer. Yes, sir.

Question. Is it possible to segregate values for particular utilities or for particular securities received in groups such as those mentioned above; that is, in your report?

102777-34-PT 69-2

Answer. No, sir; it is not.

Question. For what reason?

Answer. For the reason that they were acquired in basket transactions where a number of securities would be given as a consideration for a number of other securities.

Question. What difficulty is there in getting at the difference of Peoples value and the recorded values of the securities received therefor?

Answer. Values assigned to Peoples and the stocks acquired?
Question. What values were those?

Answer. They are shown in this

Question (interposing). The difference between the par value of Peoples preferred stocks issued in the exchanges and the recorded values of the securities received therefor represented the amount assigned to Peoples common stock and was styled "Paid in value of common stock class A and B was it not?

Answer. Yes; it did.

Question. And there are further details concerning issues of common stocks in chapter III of your report, are there not, the chapter entitled "Growth of capital liabilities "?

Answer. Yes, sir.

Question. How about Peoples investment control account from June 1926 to December 31, 1928?

Answer. It was not supported by subsidiary records.

Question. And what did that necessitate?

Answer. The breaking down of the control accounts into individual accounts.

Question. In its control account, Peoples carried its investments in subsidiary companies' common stock at what value?

Answer. At par value.

Question. Plus what?

Answer. Plus surplus at date of acquisition.

Question. That is recorded on the books of the individual subsidiary companies, is it?

Answer. Yes, sir.

Question. During the period from August 2, 1926, to December 31, 1928, were any adjustments made by the subsidiary companies, which affected the surplus of the company making the same?

Answer. Yes, sir; numerous adjustments were made.

Question. And were the amounts of those adjustments in turn reflected by Peoples as adjustments to the investments of the particular subsidiaries?

Answer. Yes, sir.

Question. Can you instance that?

Answer. For example, if, after the date when Peoples acquired control, a subsidiary company paid a bill for a period prior to the acquisition of its common stock by Peoples, or made an adjustment to surplus as the result of an appraisal, these would necessitate same being reflected in the investment account carried by Peoples.

Question. Is it practicable to endeavor to determine a definite profit on the separate transactions wherein Peoples disposed of individual securities so acquired?

Answer. No, sir; it is not.