In re Westec Corporation, 66-H-62.

• Decision Date: 01 June 1970
• Docket Number: No. 66-H-62.,66-H-62.
• Citation: 313 F. Supp. 1296
• Parties: In the Matter of WESTEC CORPORATION, Debtor.
• Court: U.S. District Court — Southern District of Texas

313 F. Supp. 1296

In the Matter of WESTEC CORPORATION, Debtor.

No. 66-H-62.

United States District Court, S. D. Texas, Houston Division.

June 1, 1970.

Andrews, Kurth, Campbell & Jones, Seaborn Eastland, Jr., Houston, Tex., for trustee.

Baker, Botts, Shepherd & Coates, James G. Ulmer, Houston, Tex., for debtor.

Breed, Abbott & Morgan, Thomas W. Kelly, New York City, for Eastman Dillon, Union Securities.

Briscoe, Dally & Shaffer, Frank Briscoe, Houston, Tex., for Special Master.

Roth, Carlson, Kwit & Spengler, Robert S. Carlson, New York City, for trustee in New York cases.

Snell & Wilmer, Mark Wilmer, Shimmell, Hill & Bishop, John C. King, Moore, Romley, Kaplan, Robbins & Green, Marvin R. Kaplan, Phoenix, Ariz., for trustee in Arizona cases.

Anderson, Rush, Lowndes & Peirsol, Michael R. Walsh, Orlando, Fla., for trustee in Florida case.

Hutcheson, Taliaferro & Grundy, Thad Grundy and Thad T. Hutcheson, Houston, Tex., for Lloyd H. Smith, Rowles, Winston & Co., Inc. and Greenway Bank & Trust of Houston.

Kramer & Labaton, Edward Labaton and Ira Jay Sands, New York City, for Kramer & Labaton and Ira Jay Sands.

J. Kirk Windle and Joel A. Haber, Securities and Exchange Commission, Chicago, Ill., for the Securities and Exchange Commission.

HANNAY, District Judge.

MEMORANDUM OPINION ON APPLICATION FOR COMPENSATION:

On September 26, 1966, in the United States District Court for the Southern District of Texas, Houston Division, a voluntary petition for reorganization under Chapter X of the Bankruptcy Act was filed in this Court by Westec Corporation ("Westec"). On September 27, 1966, Orville S. Carpenter was appointed as Trustee. On September 29, 1966, the law firm of Andrews, Kurth, Campbell & Jones was retained as counsel for the Trustee.

As of August 31, 1966, Westec stated assets at approximately $55,000,000 and liabilities at $22,000,000 on a consolidated basis. As a result of the Trustee's sale of properties, consisting of some 9 major transactions, the consolidated assets were reduced to $17,000,000 and consolidated liabilities to $8,000,000.

On April 4, 1968, the Trustee filed a plan of reorganization, and later on August 6, 1968, filed an amended plan. On September 16 and 17, 1968, hearings on the amended plan were held. The plan provided that the reorganized Westec would continue in operation and valued the reorganized company at between $14,000,000 and $15,000,000 (of which $2,000,000 represented potential tax savings from the tax loss carry over). Proceeds received from the sale of the major assets were in the amount of $17,300,000. The plan contemplated that the Trustee would turn over to the reorganized company $17,741,000 in assets and retain $7,472,000, from which all claims against the estate would be satisfied. The plan assumed, and the Court so found, that the Debtor was solvent and provision was made for the participation of all common and preferred shareholders not objected to by the Trustee. The plan also contained provisions for the payment of damages to those persons (denominated as Class 6 Creditors) who had suffered a loss as a result of the alleged stock manipulative activities of the Debtor and others associated with the Debtor prior to the reorganization proceedings.

On January 3, 1969, the S.E.C. filed its advisory report and though concluding that the plan as amended was fair and equitable and feasible, certain modifications and clarifications were suggested. On January 27, 1969, a revised plan was filed by the Trustee. Subsequently, on February 4, 1969, the S.E.C. filed a supplemental advisory report which concluded that the revised plan was fair and equitable and feasible. On February 28, 1969, the plan was approved by the Court, and on July 7, 1969, was substantially consummated.

After the reorganized company was readmitted to the American Stock Exchange, it began operating under its own management and board of directors, substantially free from the control of the Court. The Trustee at that time had in his possession assets of $7,124,000, consisting of real estate, mining, and petroleum properties, valued at $4,581,000, approximately $700,000 in cash, and approximately $850,000 in funds due the Trustee, which the Trustee expected to collect shortly thereafter. There were outstanding against Westec contested claims and contingent liabilities of $585,200. The Trustee stated at that time that the cash available to him would be sufficient to pay all costs of administration without the necessity of selling any of the Arizona real estate properties which remained in his hands.

INDIVIDUAL APPLICATIONS

Orville S. Carpenter, Trustee

On September 27, 1966, this Court appointed Orville S. Carpenter as Trustee for Westec Corporation in the reorganization proceeding under Chapter X of the Bankruptcy Act. The Trustee is a highly qualified executive, an expert accountant and a licensed attorney.

Immediately after his appointment, it was vitally necessary for him to arrange bank loans for several millions of dollars within a short time because the Debtor's state of affairs was dismal and chaotic. Had he not been able to make such loan arrangements, Westec in all probability would have immediately gone into ordinary bankruptcy which would have resulted in a complete loss to stockholders and a considerable loss to creditors. The Trustee immediately began a thorough investigation of the Debtor's operations and effected many procedures to increase productivity while reducing costs. He has demonstrated great ability in making sales of properties and, together with his financial advisor, has made many advantageous dispositions of assets. Soon after his appointment an attempt was made by a local attorney to form a committee allegedly for the protection of the stockholders, but the Trustee, uninvited, attended a meeting organized by the prospective promoter and persuaded him as well as those who were attending the meeting to discontinue their efforts in this regard, thereby saving stockholders large sums of money.

The Trustee showed unusual and extraordinary acumen in his decisions concerning which companies to dispose of and which to retain. This was particularly noticeable in his handling of the sale of Engineers & Fabricators, Inc., hereinafter called EFCO. When it became apparent that a serious loss would occur to the company because of management problems, the Trustee, after first receiving a bid of $3,500,000 for the sale of EFCO, which he declined, was later able to sell the company for $5,500,000. He was especially clever in the handling of the sale of Seacat. In conjunction with his financial advisor, he performed an outstanding service in handling dispositions of companies and assets no longer being developed, but whose monthly cost of maintenance remained extremely expensive. Among these were the "Orphan Mine" and the alleged mining properties in Colombia, South America. He also had many problems and decisions to make with regard to the retention of employees and with executory contracts. In fact, he was a one man board of directors and chief executive, and one on whom the Court could and did rely in perfect confidence, fully cognizant of his absolute integrity, remarkable ability and undivided loyalty.

Prior to his appointment in this case, the Trustee had for ten years been the President of Texas Eastern Gas Transmission Company.

The Trustee has been paid the amount of $5,000 per month for the 33 months from the time of his appointment until the time Westec was turned back to the stockholders. He makes no claim in a specific amount for additional compensation, leaving that matter entirely to the Court. The amount of compensation that he received during the Chapter X proceedings was $145,000. The S.E.C. has recommended a total fee of $250,000.

The Court is of the opinion that the Trustee should be regarded as performing the functions of a corporate executive and should thus be compensated on a scale which bears some reasonable relationship to the amount of compensation paid by similar corporate enterprises to their chief executives. That is to say, the compensation in such a case should not exceed the market value of similar executive services; yet, it may be trimmed down or reduced to take into account the ultimate losses sustained by creditors or stockholders.

For a solvent private corporation, the compensation paid for the services of the chief executive officer in the Court's considered opinion would be in the neighborhood of $200,000 per year. But, considering the fact that Westec was a sick company and unable to pay such going rate, the Court is of the opinion that the proper total compensation for the Trustee for the 33 month period that he served should be $400,000, (approximately $145,000 per year.) Since he has already been paid $145,000, the additional amount of Trustee's compensation for such 33 months should be and is hereby allowed in the sum of $255,000. The total fee recommended by the S.E.C. was $250,000, but everything considered, particularly the great benefits accruing to the creditors and the stockholders as a result of the Trustee's endeavors, the Court believes that a total fee of $400,000 is both fair and reasonable.

In short, the Court's considered opinion is that a better Trustee could not have been chosen.

Eastman Dillon Union Securities, Financial Advisor

On March 9, 1967, Eastman Dillon Union Securities, an investment banking firm, was, with the approval of the Court, engaged by the Trustee to act as his financial advisor. The Applicant served in that capacity for about 27 months. F. O'Neil Griffin was the partner in charge. He did not become a general partner until about March of 1968. Griffin and William A. Anderson of Eastman Dillon devoted almost all of their time to the service of Westec from the date of the appointment of Eastman Dillon by the Court through the remainder of the formal reorganization of the Debtor and until Westec...