In re Electric Bond & Share Co.

Decision Date20 December 1946
Citation73 F. Supp. 426
PartiesIn re ELECTRIC BOND & SHARE CO.
CourtU.S. District Court — Southern District of New York

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Harry G. Slater, Chief Counsel, Public Utilities Division, of Philadelphia, Pa. (Jerome M. Alper and Alfred Hill, both of Philadelphia, Pa., of counsel), for Securities and Exchange Commission, petitioner.

Simpson, Thacher & Bartlett, of New York City (John F. MacLane, Richard Jones, and E. N. Asiel, all of New York City, of counsel), for Electric Bond & Share Co.

Charles G. Baker and Franklin S. Wood, both of New York City, for Franklin and Marshall College.

Hawkins, Delafield & Wood, of New York City (Franklin S. Wood and John F. B. Mitchell, Jr., both of New York City, of counsel), for Brundage, Story & Rose.

Samuel Okin, pro se.

LEIBELL, District Judge.

This is a proceeding, under § 11(e) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79k(e), in relation to Plan II-A (as amended) of the Electric Bond and Share Company. A preliminary order of this Court, signed by Judge Knox on September 6, 1946, on a supplemental application of the Securities and Exchange Commission, fixed October 11, 1943, at 10:30 A.M., and Room 506, the motion part of this Court, as the time and place for a hearing to determine whether the plan, dated June 24, 1946, and amended September 6, 1946, filed by Electric Bond and Share Company under § 11 (e) of the Public Utility Holding Company Act of 1935 and approved by the Securities and Exchange Commission by its order dated September 6, 1946, "is fair and equitable and appropriate to effectuate the provisions of Section 11 of the Public Utility Holding Company Act of 1935, and whether the Court should enforce and carry out the terms and provisions of said Plan, as amended."

The Court order of September 6th directed that notice of the hearing be given to the holders of record of the company's outstanding preferred and common stock, by mailing them a notice of hearing, together with a copy of the findings and opinion of the Securities and Exchange Commission and the order of said Commission, dated September 6, 1946, and that notice also be given every other person, or his attorney of record, who had entered an appearance at the hearings before the Commission with respect to said plan, and in addition that "notice be given to all other persons by publication" in certain designated newspapers in a form approved by the Court, and that "such notices be mailed and published respectively on or before the 20th day of September, 1946." Proof of the mailing and publication of the notice, pursuant to the order, was submitted at the hearing of October 11, 1946.

The Court order of September 6th also contained a provision that any person who intended to oppose the application of the Commission and the enforcement and carrying out of the terms and provisions of the Plan, should serve, by mail on the Chief Counsel of the Commission and on the attorney for the Electric Bond and Share Company, and file with the Court, "copies of a written statement of objections and any brief proposed to be filed in support thereof," on or before October 4, 1946. The order also provided that "such statement of objections shall be addressed to the Commission's Supplemental Application herein and to the Commission's Findings and Opinion, issued September 5, 1946, referred to above, and shall state in detail, and in the manner required for pleadings by the Rules of Civil Procedure, the extent to which such statement challenges the allegations and findings therein contained, together with any affirmative defense or objections to said Supplemental Application."

The Court order of September 6th also contained a stay and an injunction against any security holder taking any action which would interfere with these proceedings or with the carrying out of this plan or with compliance with the order of the Commission approving the same, including a stay against any suit at law or in equity in any court, commission or tribunal "other than such proceedings before the Commission or this Court or the Circuit Court of Appeals as may be appropriate under the Act or the Rules and Regulations promulgated thereunder, and such review, if any, in the Circuit Court of Appeals as may be provided by law."

Plan II-A as amended provides for the retirement of the outstanding preferred stock of Electric Bond and Share and the disposition of its holdings of stock of American Gas and Electric Company, Pennsylvania Power and Light Company, Carolina Power and Light Company and Birmingham Electric Company.

Electric Bond and Share Company is a corporation organized under the laws of New York. Since 1938 it has been registered as a holding company under the Public Utility Holding Company Act of 1935. Bond and Share owns debt or stock securities, or both, of five direct subsidiary holding companies: American and Foreign Power Company, American Gas and Electric Company, American Power and Light Company, Electric Power and Light Corporation and National Power and Light Company, which in turn own or control 182 utility and nonutility companies; and also itself owns three public utility operating companies, viz., Pennsylvania Power and Light Company, Carolina Power and Light Company and Birmingham Electric Company.

Bond and Share has outstanding capital stock of a total par value of $99,281,388.33, of which $26,251,788.33 is represented by 5,250,357 shares of common stock at $5 par and the balance is represented by preferred stock as follows: 203,012 shares of $5 preferred (now $3.50) at a stated value of $70 totalling $14,210,841; and 840,268 shares of $6 preferred (now $4.20) at a stated value of $70 totalling $58,818,760.1

On February 28, 1940, the Securities and Exchange Commission initiated a proceeding under § 11 (b) (1) of the Public Utility Holding Company Act, 15 U.S.C.A. § 79k (b) (1),2 against Electric Bond and Share Company and certain of its holding company subsidiaries, "for the purpose among other things of limiting the operations of each of the registered holding companies in the Electric Bond and Share Company system (other than Foreign Power) to a single integrated public utility system." The Commission's opinion herein states that no hearings have been devoted specifically to consideration of the issues raised in the § 11 (b) (1) proceeding.

Subsequently on May 9, 1940, the Securities and Exchange Commission initiated a proceeding against Electric Bond and Share Company and its subsidiary holding companies under § 11 (b) (2) of the Public Utility Holding Company Act, 15 U.S.C.A. § 79k (b) (2).3 Hearings were held in that proceeding and the Securities and Exchange Commission issued various orders in connection therewith to effectuate the purposes of the Act. Pursuant to those orders Bond and Share and its subsidiaries have taken steps to accomplish certain aspects of the reorganization and simplification contemplated by the Act. American Gas and Electric Company is in the process of disposing of certain assets pursuant to an order of the Commission. By an order dated August 23, 1941, the Commission, pursuant to § 11 (b) (2) of the Act, directed that National Power and Light Company be dissolved. Pursuant to that order a plan for dissolution was filed with the Commission on October 13, 1941, and the company is in the process of liquidation and dissolution thereunder. American and Foreign Power Company filed a voluntary plan of reorganization under § 11 (e) of the Act and is presently in the process of reorganization before the Commission. The corporate existence of American Power and Light Company and Electric Power and Light Company was ordered terminated by the Commission on August 22, 1942. These orders were affirmed by the Circuit Court of Appeals, American Power & Light Company v. S. E. C., 1 Cir., 1944, 143 F.2d 250, and also affirmed by the United States Supreme Court, November 25, 1946.

During the period of January 1, 1942, to June 30, 1946, Electric Bond and Share Company declared dividends on its two classes of preferred stock, in an amount which exceeded the company's net income for that period by the sum of $9,520,257. This was a drain on surplus which the Company attempted to remedy by the purchase of its own preferred stock in the open market, with the approval of the Commission, and it thus reduced between September 1941 and June 1945 the stated value of its outstanding preferred stock from $145,565,500 to $104,328,000. The $30 a share payment under Plan I lowered this total to $73,029,600. The brief submitted herein on behalf of Electric Bond and Share Company states:

"In September, 1944 the Commission indicated in its Findings and Opinion relating to an application by Bond and Share to purchase shares of its preferred stocks on the open market that Bond and Share must proceed with a comprehensive program to retire its preferred stocks (Holding Company Release No. 5271 * * *).

"In the light of the foregoing circumstances, Bond and Share filed with the Commission in July 1945, three plans setting forth its general program of compliance with the Act. The proceedings in connection with such Plans were consolidated by the Commission with the aforesaid Section 11 (b) (1) and 11 (b) (2) proceedings."

These three related plans, designated as Plans I, II and III, sought to effect the elimination of Electric Bond and Share Company's preferred stocks, the settlement of intra-system claims, and the divestment by Bond and Share of its interest in public utility holding companies whose operating subsidiaries are located in the United States, and of its interest in public utility companies which operate in the United States.

Plan I provided for an immediate payment of $30.00 per share on both classes of the preferred stocks of Electric Bond and Share Company, as a partial capital distribution, and for a proportionate...

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