In re Associated Gas & Electric Co.

• Decision Date: 30 July 1943
• Citation: 53 F. Supp. 107
• Parties: In re ASSOCIATED GAS & ELECTRIC CO.
• Court: U.S. District Court — Southern District of New York

53 F. Supp. 107

In re ASSOCIATED GAS & ELECTRIC CO.

District Court, S. D. New York.

July 30, 1943.

Stanley Clarke, of New York City (Samuel J. Silverman, William T. Holmes, and James R. Flynn, all of New York City, of counsel), for trustee of debtor.

Allen E. Throop and O. John Rogge, both of New York City (William W. Golub, of New York City, of counsel), for Trustees of Associated Gas & Electric Corporation.

Jack Lewis Kraus, II, of New York City (Harry B. Kurzrok, of New York City, of counsel), for General Protective Committee.

Kelsey, Waldrop & Spalding, of New York City (H. Boardman Spalding, of New York City, of counsel), for Colonial Trust Co., etc.

Davies, Auerbach, Cornell & Hardy, of New York City (H. C. McCollom and H. A. Heerwagen, both of New York City, of counsel), for Jacob Committee for unsurrendered CDCs.

Joseph Nemerov and Leo B. Mittelman, both of New York City, for the Baker Committee.

Abraham Mitnovetz, of New York City, for Elias Committee for Holders of Convertible Obligations due 2002.

Nathan D. Shapiro, of Brooklyn, N. Y., for Kelby Committee.

Boehm & Fischman, of New York City, for Scrip Holders Protective Committee.

Geist & Netter, of New York City, for Scrip Holders.

Thomas M. Losie, of Elmira, N. Y., for Greven Claimants.

LEIBELL, District Judge.

On October 22, 1942, I signed an order appointing Hon. Frederick E. Crane as Special Master to pass upon certain classes of claims (see Appendix A), to which objections had been filed. These claims were based upon different types of convertible debenture certificates, convertible obligations, and interest and non-interest bearing certificates of the Debtor (Ageco). The Debtor also had outstanding fixed interest bonds (not included in these claims). The main issue submitted to the Special Master was whether the claims filed were subordinate to the fixed interest bonds of the Debtor.

On March 30, 1943, the Master made his report herein together with Findings of Fact and Conclusions of Law. Some of the claimants, as well as those objecting to the claims, filed objections to certain findings of fact and conclusions of law. The Master divided his findings and conclusions into three separate parts. There were grouped in one part fifty-eight findings of fact and eight conclusions of law dealing with the "Classification of the Claims of Convertible Debenture Certificates, Convertible Debenture Obligations, Convertible Certificates, Convertible Obligations Without Fixed Maturity, Convertible Obligations Series A and B, Due 2002, Interest and Non-Interest Bearing Scrip due 1941, 1942, 1944 and 1947 and Others." The second group of findings and conclusions (thirteen findings of fact and two conclusions of law) dealt with "Claims of Convertible Debenture Certificates Convertible into Class A Stock, due November 1, 1999, and Others". The third group disposed of "Claims of $8 Interest Bearing Allotment Certificates and $1.60 Interest Bearing Allotment Certificates, and others" on which the Master made twenty-nine findings of fact and four conclusions of law. There were no objections filed to these last two sets of findings and conclusions and no one appeared to oppose them orally at the Court hearing held on April 14th. I feel, however, that I should state briefly the factual basis for the claims considered and determined in these two sets of findings of fact and conclusions of law.

Convertible Debenture Certificates Convertible Into Class A Stock Due November 1, 1999.

These certificates (known as the ODC's of 1999) were a security whereby Ageco promised to pay a fixed principal sum on November 1, 1999, and to pay quarterly interest thereon. They contained an option or right on the part of Ageco to convert them into Class A stock. The right was absolute and unconditional and it was exercised by Ageco in 1932. Claims were filed by the holders of certain of these certificates, who had not surrendered them for exchange. The trustee and a committee filed objections thereto. No one appeared before the Master in support of the claims.

There is evidence to support the Master's findings of fact (Nos. 1 to 13); they are not clearly erroneous, and I therefore accept and adopt them. Rule 53(e) (2), F.R.C.P., 28 U.S.C.A. following section 723c. His two conclusions of law, based on the findings, are as follows:

"1. By exercise of Ageco's option to convert, all CDC's of 1999 were validly converted into Class A Stock of Ageco, and such conversion cannot be set aside.

"2. Holders of the CDC's of 1999 and holders of Class A Stock obtained in exchange for said CDC's of 1999 should be classified as Class A stockholders, and not as creditors."

A decree should be entered accordingly, as to this set of claims.

Claims of the $8 Interest Bearing Allotment Certificates and the $1.60 Interest Bearing Allotment Certificates.

These certificates (referred to as $8 IBAC's and $1.60 IBAC's) had no principal amount, no maturity and no promise to pay any sum except interest. By their terms Ageco had the option or right to exchange them into common stock of General Gas and Electric Corporation (Gengas) and preferred stock and optional stock purchase warrants of Ageco. In 1932 Ageco exercised that option and also gave the holders of the IBAC's certain additional options. Many IBAC holders surrendered their certificates and received either the equivalent securities specified in the exchange provisions of the IBAC's, or the securities specified in Ageco's optional exchange offer. In November 1935, in order to provide for those IBAC holders who had not surrendered their certificates (9,015 of the $8 IBAC's and 7,070 of the $1.60 IBAC's) Ageco deposited with Transfer and Coupon Paying Agency (Traco) as escrow agent, under an irrevocable escrow agreement, the equivalent securities to which those IBAC holders were entitled under the option exercised by Ageco. The securities remaining with the agent under the escrow agreement have been turned over to the Ageco trustee and he is ready and able, upon an order of this Court, to deliver to the registered holders of the IBAC's (Finding No. 29) their respective shares of the escrowed securities.

As to this set of claims, the Master has made twenty-nine findings of fact, all of which I accept and adopt under the rule. He also made the following conclusions of law, which are a natural consequence of the findings:

"1. By the exercise of the Debtor's right to exchange, all $8 IBAC's and $1.60 IBAC's were validly converted into the following securities on the following bases:

"For each $8 IBAC:

"5 shares of Common Stock, Class A, of Gengas,

"1/2 share of $5 Dividend Series Preferred Stock, and 5 Optional Stock Purchase Warrants of the Debtor.

"For each $1.60 IBAC:

"1 share of Common Stock, Class A, of Gengas,

"1/10 shares of $5 Dividend Series Preferred Stock, and 1 Optional Stock Purchase Warrant of the Debtor.

"2. The holders of the $8 IBAC's and $1.60 IBAC's are entitled to receive, out of the securities deposited under the Escrow Agreement of November 27, 1935, the shares of Common, Class A, stock of Gengas on the bases set forth in Conclusion of Law 1 hereof.

"3. Said holders of the $8 IBAC's and $1.60 IBAC's should be classified as holders of $5 Dividend Series Preferred Stock of the debtor on the bases set forth in Conclusion of Law 1 and have the same, but no greater, right as the holders of such $5 dividend Series Preferred Stock have to participation in any reorganization or liquidation of the Debtor.

"4. Holders of other securities of the Debtor which they obtained in exchange for $8 IBAC's or $1.60 IBAC's in accordance with the optional exchange offers referred to in Findings 7 and 16 hereof should be classified as the holders of such other securities and such exchanges may not be set aside."

A decree in accordance with these conclusions should be entered in respect to this set of claims.

Claims of Convertible Debenture Certificates, Convertible Debenture Obligations, Convertible Certificates, Convertible Obligations Without Fixed Maturity, Convertible Obligations Series A and B, Due 2002, Interest and Non-Interest Bearing Scrip Due 1941, 1942, 1944 and 1947, and Others.

Going back now to the first set of findings of fact and conclusions of law, relating to this group of claims, the trustees moved to confirm the Special Master's report, only insofar as his findings of fact and conclusions of law concerned the rights of claimants, determined by Conclusions of Law 5 and 6, which read as follows:

"5. Persons who do not hold COAB's or stock, issued to such persons in exchange for CDC's, CC's or Old CO's, have no right of rescission of such exchange, whether or not their transferor or any other person may have had such rights.

"6. The subordination provisions contained in the certificates for CC's, Old CO's, COAB's, IB and NIB Scrip are valid and enforceable agreements subordinating such securities, both as to principal and interest, to the unsubordinated senior obligations of Ageco, being the unsubordinated indebtedness of Ageco except obligations convertible at Ageco's option into stock. The holders of CC's, Old CO's, COAB's, IB and NIB Scrip are therefore not entitled to participate in the reorganization or liquidation of Ageco until and unless such senior obligations have been paid in full."

The abbreviated designations of the various types of securities follow the first letters of their descriptive names in the above heading.

The claimants covered by conclusions of law 5 and 6 do not participate in the corporate assets under a proposed settlement of certain litigation, known as the Recap litigation, of which more will be said later. The rights of the other claimants in this first set were determined by the Special Master's conclusions of law 1, 2, 3, 4, 7, 8a and 8b (see Appendix B) but they are not now considered for reasons which will soon appear.

It was urged by the trustee at the Court hearing...