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June 18, 1956


The opinion of the court was delivered by: John E. Miller, District Judge.

Findings of Fact


Plaintiff, Arkansas Louisiana Gas Company, is a corporation under the laws of the State of Delaware and is domiciled in and a citizen and inhabitant of that State. Defendant, W.R. Stephens Investment Co., Inc., is a corporation under the laws of the State of Arkansas and is domiciled in and a citizen and inhabitant of the State of Arkansas, with its principal office at Little Rock, in the Eastern District of Arkansas. Both plaintiff and defendant are now, and have been since December 14, 1954, engaged in business in the El Dorado Division of the Western District of Arkansas and elsewhere in the State of Arkansas, respectively as a gas utility and as an investment dealer and broker.


On and prior to December 14, 1954, the outstanding stock of which plaintiff was issuer was of one class, namely, common stock, and consisted of 3,801,609 shares of common stock which was then registered on the American Stock Exchange, a national securities exchange. On December 23, 1955, there was issued, as a stock dividend, to plaintiff's stockholders of record December 2, 1955, one share of plaintiff's common stock for each ten shares held by each such stockholder on the record date, and the shares comprising the stock dividend were likewise registered on the American Stock Exchange. No change in the status of the outstanding stock of which plaintiff is issuer, and its registration, has occurred since December 14, 1954, except the issuance and registration of the stock dividend on December 23, 1955.


Since 1933, up to and including the present, defendant's business has been that of a bond broker, dealing primarily in Arkansas municipal bonds, and as a broker of other securities and bonds. During this time it has acted as trusted investment counselor for many people in Arkansas, a number of whom give defendant full discretion and authority to make investments for them. Many of its customers will not make investments or purchase stocks and bonds except through defendant. Defendant is interested as a stockholder or otherwise connected with several Arkansas banks and makes investments for these banks and persons connected with them.


Defendant became interested in the natural gas industry in 1945 when it purchased the Fort Smith Gas Company from a holding company under an order of the Securities and Exchange Commission (hereinafter referred to as S.E.C.) requiring the holding company to dispose of its interest in the Fort Smith Gas Company.

Prior to 1954, the S.E.C. had ordered Cities Service Company (hereinafter referred to as Cities) to dispose of its interest in plaintiff in compliance with Section 11(b) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79k (b). Defendant learned of this, made a study of plaintiff corporation and bought some of its stock early in 1954 because it appeared to be a good investment and defendant wished to feel out the desire of people in that part of Arkansas served by plaintiff to invest in such a utility. Defendant met with success in brokering this stock to its friends and customers, and after several months of efforts to make financial arrangements, worked out a plan with Mississippi River Fuel Corporation (hereinafter referred to as Mississippi) to finance the purchase of Cities' holdings in plaintiff. In October, 1954, defendant reached an agreement with Cities to purchase from it 1,958,189 shares which it owned out of plaintiff's total outstanding common stock of 3,801,609 shares. Defendant agreed to pay $12.50 per share, plus $2,682.45 per day from October 1, 1954, to closing date, subject to approval of the sale by the S.E.C. and exemption of defendant as a holding company. Applications for such approval and exemption were made to the S.E.C., which on December 14, 1954, entered an order approving the sale by Cities to defendant of its shares in plaintiff corporation, comprising approximately 51 1/2 percent of its total outstanding common stock, and granting defendant exemption from the Public Utility Holding Company Act of 1935 on the ground it was acquiring this stock for purposes of distribution.


Prior to December 14, 1954, defendant had acquired approximately 50,000 to 60,000 shares of plaintiff corporation, and on that date sold these to Vance Thompson, of McCrory, Arkansas, in order to raise funds for the Cities' purchase, and thereafter as a part of the transaction disposed of the stock for Thompson, as his agent on a commission basis. Thereafter, at 11:30 p.m. on December 14, 1954, defendant purchased said 1,958,189 shares of plaintiff's common stock from Cities for a total purchase price of $24,675,863.80, pursuant to agreement, and concurrently pledged the same to the National City Bank of New York as security for approximately $19,700,000 used by defendant to pay Cities. The pledge included these shares and all dividends therefrom, in stock or otherwise.


None of the shares purchased from Cities has been sold, except that on January 17, 1956, approximately 45 percent thereof was sold to Union Securities of New York at defendant's cost. This sale was made pursuant to a prior commitment to dispose of the stock as Mississippi directed, and as a further step toward final distribution of the stock. This sale resulted from a decision that the original spin-off of production properties was not practical. Otherwise, the Cities' stock belonging to and purchased by defendant still remains under pledge and none has ever been sold.


Subsequent to December 14, 1954, defendant received many requests from numerous customers, and from friends, neighbors and relatives of defendant's officers and employees, and from many of plaintiff's employees, for defendant to obtain for them stock in plaintiff corporation. Defendant would undertake to fill their orders therefor, and as a result took and filled a number of such orders in accordance with such requests. A great majority of these requests came from persons for whom defendant had previously handled investments. Many of these persons were unfamiliar with stock exchanges and stock brokers and would buy securities only from defendant. Also, these persons knew of defendant's interest in plaintiff corporation and looked to defendant for information about buying plaintiff's stock. Defendant was willing to perform, and did perform, this service without expectation of or intent to profit, in order to interest Arkansas people in the stock. ...

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