[Congressional Record Volume 141, Number 16 (Thursday, January 26, 1995)]
[Extensions of Remarks]
[Pages E188-E189]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                        INTRODUCTION OF H.R. 693

                                 ______


                           HON. RALPH M. HALL

                                of texas

                    in the house of representatives

                       Thursday, January 26, 1995
  Mr. HALL of Texas. Mr. Speaker, I rise today to explain a bill I am 
introducing for the fourth time. During the 103d session it was H.R. 
3033. This session it is H.R. 693, and it deals with a very important 
issue, an issue that is so worthy of our attention that some Members of 
this body may find it odd that in 6 years no hearings have been held 
and no debate conducted on it. Some Members may even think it is futile 
to again bring this bill before the House. But that is not the case. 
This matter is too important; the case behind this bill is too just; 
the damage done to ordinary citizens is too egregious to leave this 
matter alone.
  To assist the Members of this body in understanding the background of 
this bill, I would like to offer a brief explanation of the events 
which led up to its introduction.
  In 1931, an Italian immigrant, Joe Zeppa, founded Delta Drilling Co. 
In doing so he was simply following the American dream. Joe was able to 
take part in the oil boom of the 1930's that helped bring east Texas 
out of the Great Depression and make the American dream a reality for 
many people like him. Organized as a closed corporation, Delta Drilling 
was modestly profitable until the early 1970's, when the energy crisis 
dramatically increased the company earnings. Increased profitability 
made the prospect of going public a very attractive option--and 
inspired Joe with a method of rewarding his many longtime, loyal 
employees.
  Considering the possibilities of the company going public, Delta 
founder Joe Zeppa worried about the fate of employees should a takeover 
occur. In order to protect these ordinary, hard-working men and women 
and to reward them for their loyalty over the years, he initiated 
employee participation plans under which each employee--executives, 
managers, secretaries, and laborers alike--with at least 15 years of 
service with Delta was allocated participation units based on his or 
her annual compensation and years of service in excess of 15. Each 
participation unit was to be valued at the price of one share of Delta 
stock when the company went public. The plans were implemented in 1974 
with 88 employees participating. In 1975, Joe Zeppa passed away and was 
succeeded by his son, Keating Zeppa. With revenues jumping from $38 
million in 1974 to $161 million by 1980, Delta decided to go public.
  On March 17, 1981, Delta Drilling Co. publicly offered 2,000,000 
shares of common stock at $17.50 per share. The public offering 
triggered the participation plans and the exchange of participation 
units. Under the agreement with the underwriters for the public 
offering, however, the employees at Delta could not sell or transfer 
shares issued to them under these terms for a 120-day period after the 
commencement of the offering. Immediately prior to the public offering 
of stock the employees agreed to exchange their participation units for 
a combination of stock and cash. As a result, they received Delta stock 
equal to 70 percent of the value of their units and cash representing 
the remaining 30 percent. All told, 2,128,665 shares and $5,321,667 
were distributed to the 87 remaining participating employees. An 
additional $10,643,333 representing 20 percent of the total value of 
their participation units was withheld for taxes.
  Although Delta stock sold in the initial public offering at $17.50 
per share, at the end of the 120-day transfer restriction period, the 
over-the-counter market price had plummeted to only $13.50. In January 
of 1982, the price fell below $9.00 and dropped to $6.625 per share by 
April 6, 1982. Due to circumstances completely out of the hands of 
Delta Drilling employees, the stock eventually became entirely 
worthless.
  This wouldn't seem that bad, Mr. Speaker, because it was just a gift 
that they had not had before. Right? Wrong! Enter the IRS.
  On April 15, 1982, the employees who received this gift of stock 
found themselves subject to an enormous tax burden. Under the IRS Code, 
the shares received under the plan were taxed as ordinary income at the 
rate of 50 percent and were valued at the initial public offering price 
of $17.50--regardless of when the employees disposed of their stock. 
Consequently the average tax burden for each employee was a staggering 
$300,000. In order
 to help the former plan participants, Delta provided them with an 
option to exchange each share of stock they received under the plan for 
one 5-year convertible bond valued at the then per-share market price 
of Delta stock, $6.625, which could then be used as collateral for 
loans to pay their taxes. Only 30 of the 87 employees who had received 
stock under the plans accepted the offer.

  Delta, as a group, also sought relief directly from the Internal 
Revenue Service, and--after extended negotiations--several individuals 
were offered the opportunity to report receipt of each stock at $15.50 
per share. Clearly, however, in no event could any employee have 
received more than $13.50 per share for their stock received under the 
plan--even if they had sold it on the very first day after the 
expiration of the 120-day transfer restriction period. Indeed, if all 
the employees had managed to sell their stock, the resulting flood of 
shares would have had a precipitous impact on the market. Further, as I 
said earlier these are ordinary people--the majority of the employees 
had little formal education, no training in finance, and few had been 
to college. Most had never previously owned stock and many did not even 
know how to go about selling it.
  So you see, hard-working employees--many of whom had spent years with 
this company--were given a gift by their employer. He certainly had no 
malicious intent in setting up this program. In fact, it is one of the 
most generous gifts I have ever heard of an employer giving his 
employees. And the employees certainly stood to gain from his 
generosity. But instead, they were forced to pay income taxes on an 
income that they never received--and that is wrong.
  The end result of this is that you have ordinary people--as I said 
earlier this includes janitors, secretaries, roughnecks, everyone--who 
have to pay more in taxes than they make working. It would have been a 
typical scenario for an employee of this company who made $25,000 a 
year to be told by the IRS that he or she owed $300,000 or more. In 
fact, many employees had to sell their homes and other possessions to 
pay taxes on a benefit they never had a legal right to enjoy.
  This body is often referred to as the people's House. There has been 
a great deal of talk in this chamber about the forgotten middle class. 
With this legislation, we have the opportunity to assist ordinary 
people and correct an extraordinary wrong. The employees of Delta 
Drilling who were affected by this financial burden are not just the 
top managers and executives. Do not think this bill is some sort of 
loophole or tax break for a bunch of rich oilmen down in Texas. That is 
simply not the case. This bill changes a policy that has hit a small 
group of ordinary people in a bad way. That's what we are supposed to 
do here in the people's House--establish good laws that help good 
people and change bad laws that hurt good people. We must pass this 
good bill to help these good people and other people all across our 
Nation who have faced or may face this devastating situation.
  I look forward to working with the new chairman of the Ways and Means 
Committee, my friend from Texas, Mr. Archer, and my other 
[[Page E189]] friends and colleagues on the committee to see this bill 
through the legislative process. I think it is important that we hold a 
hearing on this matter. When the Members of this body are able to hear 
firsthand the stories of these ordinary, hard-working people from east 
Texas, I know they will understand the injustice of what has happened 
to them. I urge my colleagues to take a look at this matter, read the 
bill, talk to me, talk to the people involved, and you will see that we 
must pass this bill.


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