In re United Gas Corporation

• Decision Date: 20 November 1944
• Docket Number: Civ. A. No. 471.
• Citation: 58 F. Supp. 501
• Parties: In re UNITED GAS CORPORATION et al.
• Court: U.S. District Court — District of Delaware

58 F. Supp. 501

In re UNITED GAS CORPORATION et al.

Civ. A. No. 471.

District Court, D. Delaware.

November 20, 1944.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Morton E. Yohalem, of Philadelphia, Pa., Sidney H. Willner and Emanuel J. Freiberg, both of Philadelphia, Pa., for Securities and Exchange Commission.

C. S. Layton (of Richards, Layton & Finger), all of Wilmington, Del., James L. Boone (of Reid & Priest), all of New York City, and George T. Naff, of Shreveport, La., for United Gas Corporation.

Wallace P. Zachry and Daniel James (of Wright, Gordon, Zachry, Parlin & Cahill), all of New York City, for Electric Power & Light Corporation.

John F. MacLane and Robert H. O'Brien (of Simpson, Thacher & Bartlett), all of New York City, for Electric Bond & Share Co.

Leo B. Mittelman, of New York City, for Jennie Britton, stockholder of Electric Power & Light Corporation.

Samuel Okin, of New York City, pro se.

LEAHY, District Judge.

1. The background of the plan is found at p. 9 of the SEC's opinion. It there states:

"The filing of the present plan marked the culmination of a protracted consolidated proceeding involving filings by the companies and proceedings instituted by the Commission under various sections of the Act.

"Among the filings of the companies included in this consolidated proceeding was a declaration filed by United and certain of its subsidiaries seeking approval for the issuance and sale by United of $75,000,000 principal amount of first mortgage and collateral trust bonds, 3-¼% series due 1958, to 14 insurance companies at a price of 99.34. It was proposed that net proceeds of such sale would be used (1) to retire $28,850,000 principal amount of Public Service 6% debentures due July 1, 1953, assumed by United, $25,000,000 principal amount of which is held by Bond and Share and $3,850,000 principal amount by Houston Gas Securities Company, all of whose capital stock was owned by United; (2) to pay its 6% demand note in the principal amount of $25,925,000 held by Bond and Share; (3) to repay an open account indebtedness of $2,000,000 to Bond and Share; and (4) to purchase $6,000,000 principal amount of First Mortgage and Collateral Trust Bonds, 4% series due 1961, to be issued by Pipe Line.

"The declaration did not propose or contemplate any changes in the security structure of United junior to the debt to be retired except that it stated that United's management was `considering recommending' the use of a substantial portion of the remaining proceeds for payment of the dividend arrearages on the $7 preferred stock of United then amounting to $9,502,490.

"The other filing involved in the consolidated proceeding was a declaration concurrently filed by Bond and Share seeking approval of its use of the approximately $53,365,000 which it would receive from United under the above specified declaration together with some $6,000,000 from its own treasury to reduce its outstanding preferred stock.

"Facts had previously been developed in our 11(b) (2) proceedings with respect to Electric Bond and Share Company system (File No. 59-12) which gave rise to prima facie questions with respect to the role played by Bond and Share in the organization and history of United and its impact upon the status of the debt claims held by Bond and Share in United. Moreover, consideration of the financial condition of United indicated serious prima facie questions as to the existence of an unfair and inequitable distribution of voting power and the need for an extensive revision of its security structure in order to remedy such condition. Accordingly, and in order to deal effectively with these problems our order of May 31, 1941 for hearing on these declarations not only raised these questions as issues to be considered in connection with the filings but also instituted proceedings with respect to Bond and Share, Electric, United and certain subsidiaries of United under Sections 11(b) (2), 12(b), 12(c), 12(f), 18(a) and 18(b) of the Act which were consolidated for hearing with the proceedings on the above described filings. As we previously stated `The purpose of these "cross proceedings" was to ensure a comprehensive investigation of all factors relevant to the recapitalization and refinancing of United including a determination of the respective claims and equities of its various security holders in connection therewith and to give notice of our intention to exercise our full statutory powers to resolve the problems facing the company.'

"In accordance with the Notice and Order for Hearing described above, public hearings were held with respect to the many issues involved in the consolidated proceedings from June 16, 1941 until January 29, 1942. By reason of the unsettled state of the money markets after Pearl Harbor it was thought advisable by the staff of the Commission and the companies involved to attempt to devise a program under which United could carry out its contract to sell the bonds without prejudice to the future determination by the Commission of the issues involved in the proceedings instituted by it. Accordingly, the hearings were continued while discussions were had with this end in view.

"After a long series of negotiations which culminated in the formulation of a program, the management of Bond and Share decided that it could not acquiesce therein without stockholders' approval and that it would be impractical to obtain such approval. The program was therefore abandoned. Thereafter, hearings were resumed with respect to all phases of the proceeding until September, 1943 when they were completed and concluded with respect to all matters except the accounts and structures of certain of the subsidiary companies of United.

"Following the close of the record on the major problems in the proceedings, discussions were had looking to the development of a voluntary program for the settlement of the issues in the consolidated proceeding which resulted finally in the formulation and filing of the present Section 11(e) plan. A summary of these facts concerning the organization and history of United with special reference to the origin of its present securities as developed in the more than 9,000 pages of testimony and approximately 1,000 exhibits making up the record in the previously consolidated proceeding which formed the background for the formulation of the present plan, is annexed hereto as Appendix A."⁵

This background shows that the Commission, commencing in June, 1941, made an independent investigation and analysis of United's debt to Bond and Share, as well as all interest and service charges paid. The scope of the entire hearings is indicated by the 11,000 pages of testimony and the 1,500 odd exhibits, which are now before this court, all of which cover the period up to September 21, 1943, when the hearings were closed. In the early part of 1942 it became apparent that grave questions lurked behind the conflicting claims. United's original proposal for re-financing was held in abeyance. By the end of 1943 it became apparent that, unless the interparty claims could be adjusted as elements of a plan, it was highly unlikely that further progress would be made, for the reason that Bond and Share was adamant that its debt was valid from its inception and that all of its transactions with United met all legal and equitable standards as United's controlling stockholder. The Commission's view was that United's debt to Bond and Share could not fairly and equitably be paid in full and that the claim should take a definite form of subordination. A resulting compromise was worked out which met with the approval of the Commission and the companies involved, resulting in the plan now before the court. The plan has a definite purpose. Simplification of capital structure, with a basis of a par value $10 common stock and debt, is desired, by the elimination of United's entire existing debt, preferred and second preferred stocks, with accumulated dividend arrearages, with a consequential saving on fixed dividend charges, and the cancellation of all outstanding option warrants. There will result a simplification of Electric's holding-company system, consistent with that company's individual plan filed with the Commission under Sec. 11(b); a compromise and discharge of numerous claims and counterclaims among the three companies and their security holders and a fair and equitable distribution of voting power among such security holders, the SEC found, will result.

In particular, Bond and Share relinquishes its claims and ownership in United —represented by $25,000,000 principal amount of 6% debentures of United Gas Public Service Company (due 7-1-53) assumed by United, United's 6% demand note for $25,925,000, 6% open account of $2,000,000, 17,310 shares of $7 preferred stock, 752,666 shares of common stock, 151,005 option warrants, and $440,000 principal amount of 5% Collateral Trust Gold Bonds of Houston Gas Securities Company (due 3-1-52) assumed by United—all for the sum of $44,000,000 in cash. Electric gives up the $7 second preferred stock issue with the heavy accumulated dividend arrearage, and both its holdings of common stock and option warrants for 10,108,101 shares (94.9%) of the new $10 par common stock. The publicly owned common stock in the amount of 3,271,207 shares (41.83%) which has a par value of $3,271,207 gets 545,201.2 (5.1%) of the new common which is to have a par of $5,452,012. The 432,512 shares of $7 preferred publicly held will be redeemed at $110 plus all unpaid accumulated dividends. Without compensation, all option warrants are to be abolished.

The plan goes into action by a dozen steps: (1) by United selling $100,000,000 of its First Mortgage and Collateral Trust Bonds to the public which will be a first lien on all of United's physical assets, said bonds to be further secured by a pledge of all United's holdings in its direct...