NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Company or any of its affiliates) under Section 11(e) of said Act calling for reclassification of the present
preferred stocks and the common stock of Virginia Public Service Company into a single class of common,
95% of which is proposed to be allocated to the present holders of the preferred stocks, and S% to General
Gas & Electric Corporation, sole holder of the present common stock. Northeastern Water and Electric
Corporation, another major subsidiary holding company of Associated Gas and Electric Corporation, owns
beneficially and of record 2,602 shares of 7% preferred stock out of a total of 40,440 shares outstanding and
17,842 shares of 6% preferred stock out of a total of 53,764 shares outstanding of Virginia Public Service
Company. The staff of the Commission has, in addition, raised the issue that the sum of $1,165,166.67,
representing the proceeds of $1,200,000 principal amount of First and Refunding Bonds of Virginia Public
Service Company formerly held by General Gas & Electric Corporation, is required to be subordinated to the
interests of the holders of the present preferred stocks of Virginia Public Service Company. Both the proposed
allocation of new common stock and the subordination Issue are being contested by General Gas & Electric
C^orporation and the Trustees of Associated Gas and Electric Corporation. Northeastern Water and Electric
Corporation, through Independent counsel, is challenging the jurisdiction of the Commission In this proceeding,
is opposing the plan on various grounds, and is taking the further position that the present common stock
is not entitled to participate in any reorganization of Virginia Public Service Company. Pending the con¬
clusion of the proceedings before the Commission, and possibly of appeals from the Commission's decisions
made therein, the effect thereof upon the accounts of the Corporation cannot be determined.

(17)   Assets held by Associated Trustees:

Pursuant to the agreement, dated as of August 4, 1941, referred to in Note 15(a), the persons named in
such note as the Associated Trustees hold certain assets received from the Hopson Interests (after the pay¬
ment, referred to in such note, of $1,187,897.53 on account of Federal taxes), on their own behalf and on
behalf of certain corporations and associations, including Associated Gas and Electric Corporation and
its affiliated and subsidiary companies, which assets amounted to $2,411,241.79 at December 31, 1941 based
on estimated values at May 31, 1941, as set forth in said agreement. Questions pertaining to the division
of such assets after providing for expenses have not yet been determined. Such questions are reserved
by order dated August 25, 1941 for future determination by agreement, judicial proceeding, arbitration or
other method, subject to the approval of the United States District Court for the Southern District of New
York and such regulatory bodies as have jurisdiction.

The major portion ($1,605,426.34) of the $2,411,241.79 referred to above represents obligations of Associated
Gas and Electric Corporation and/or its subsidiary companies and preference stocks of latter for which
provisions aggregating $6,186,264.76 have been made in the consolidated statement of assets, liabilities
and reserves. Of such provisions, $50,000 is for an unsecured note (paid since December 31, 1941) of Long;
Island Water Corporation. Particulars as to the remainder are set forth in the statements appearing
on Pages 39 to 48.

(18)   Unavailability to Corporation of major portion of consolidated net income:

Because of the deficiencies In earned surpluses of certain subsidiaries, and the restrictions under specific
orders of regulatory bodies having jurisdiction, as set forth in the statements appearing on Pages 52
to 56, the major portion of consolidated net income, before expenses, taxes and interest of the Corpora¬
tion, for  1941, could not have been made available to the Corporation at December 31, 1941.
 

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