[Federal Register Volume 60, Number 132 (Tuesday, July 11, 1995)]
[Notices]
[Pages 35777-35778]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16929]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 21177; 812-9510]
Paine Webber Group Inc., et al.; Notice of Application
June 30, 1995.
AGENCY: Securities and Exchange Commission (the ``SEC'').
ACTION: Notice of Application for an Order under section 2(a)(9) of the
Investment Company Act of 1940 (the ``Act'').
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APPLICANTS: Paine Webber Group Inc. (``PWG''), PaineWebber Incorporated
(``PWI''), Mitchell Hutchins Asset Management Inc. (``MHAM''), and
Mitchell Hutchins Institutional Investors Inc. (``MHII'')
(collectively, the ``Painewebber Companies'').
RELEVANT ACT SECTION: Declaratory order requested under section
2(a)(9).
SUMMARY OF APPLICATION: General Electric Company (``GE'') acquired
securities of Paine Webber Group Inc. (``PWG'') that, upon conversion
of certain of such securities into common stock, would result in GE
owning more than 25% of PWG's outstanding voting securities. The PWG
securities owned by GE are subject to certain restrictions,
obligations, and prohibitions as described in a stockholders agreement.
Applicants request an order declaring that the presumption of control
by a greater than 25% shareholder under section 2(a)(9) of the Act has
been rebutted. The order would be effective for so long as the
stockholders agreement remains in full force and effect without any
amendment that would materially reduce the restrictions, obligations,
and prohibitions with respect to GE's ownership of PWG's securities.
FILLING DATES: The application was filed on March 3, 1995 and amended
on June 12, 1995.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on July 26, 1995,
and should be accompanied by proof of service on applicants, in the
form of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request such notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, c/o Mitchell Hutchins Asset Management Inc., 1285
Avenue of the Americas, New York, New York 10019.
FOR FURTHER INFORMATION CONTACT:
Marc Duffy, Senior Attorney, at (202) 942-0565, or C. David Messman,
Branch Chief, at (202) 942-0564 (Division of Investment Management,
Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee from
the SEC's Public Reference Branch.
Applicant's Representations
1. PWG is a publicly held financial services holding company. PWI,
a wholly owned subsidiary of PWG, is a broker-dealer registered under
the Securities Exchange Act of 1934 (``1934 Act'') and an investment
adviser registered under the Investment Advisers Act of 1940
(``Advisers Act''). MHAM, a wholly owned subsidiary of PWI, is a
broker-dealer registered under the 1934 Act and an investment adviser
registered under the Advisers Act. As of October 31, 1994, MHAM served
as investment adviser or sub-adviser to thirty investment companies
with fifty-six separate portfolios and aggregate assets of over $23.3
billion. MHII, a wholly owned subsidiary of MHAM, is an investment
adviser registered under the Advisers Act. As of October 31, 1994, MHII
served as investment sub-adviser to eight separate portfolios of seven
investment companies with aggregate assets of over $1.1 billion.
2. On October 17, 1994, PWG entered into an asset purchase
agreement with General Electric Company (``GE'') and Kidder, Peabody
Group Inc. (``Kidder'') (the ``Asset Purchase Agreement''). Under the
Asset Purchase Agreement, PWG agreed to purchase certain assets from
Kidder, a wholly owned subsidiary of GE. As part of the consideration
for the purchase of those assets, on December 16, 1994 (the
``Closing''), PWG issued to GE shares of PWG Common Stock, Redeemable
Preferred Stock, and Convertible Preferred Stock (collectively, the
``Equity Securities'').
3. At the Closing, GE received shares representing approximately
21.6% of the shares of Common Stock outstanding as of February 28,
1995. The Common Stock is the only class of securities of PWG
outstanding that are generally entitled to vote for the election of
directors.\1\ GE does not hold for its
[[Page 35778]]
own account any shares of Common Stock other than through its interest
in the Equity Securities.
\1\ As a holder of Redeemable Preferred Stock and Convertible
Preferred Stock, GE could, under certain limited circumstances,
elect two additional directors to the Board of Directors of PWG. See
footnote 2.
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4. GE also received at the Closing 2,500,000 shares of Redeemable
Preferred Stock, which stock does not have voting rights generally and
is not convertible into shares of Common Stock. As of February 28,
1995, PWG has no other shares of Redeemable Preferred Stock
outstanding.
5. GE also received at the Closing 1,000,000 shares of Convertible
Preferred Stock. Such stock does not generally have the right to vote
for the election of directors, but may be converted into shares of
Common Stock. As of February 28, 1995, PWG has no other shares of
Convertible Preferred Stock outstanding. Assuming that the Convertible
Preferred Stock was converted into shares of Common Stock, GE would
hold in the aggregate approximately 25.8% of the outstanding shares of
Common Stock as of February 28, 1995.\2\
\2\ In a letter dated June 30, 1995, counsel for applicants
stated that, as of the date of amendment 1 to the application, GE
held in excess of 25% of PWG's outstanding voting securities on a
fully diluted basis.
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6. The Equity Securities issued by PWG to GE are subject to the
terms of a stockholders agreement, dated as of the date of Closing,
that creates material restrictions, obligations, and prohibitions with
respect to GE's ownership of the Equity Securities (the ``Stockholders
Agreement''). Under the Stockholders Agreement, GE is prohibited from
acquiring additional voting securities of PWG, except in certain
limited circumstances, and is prohibited from seeking to control or
influence the management, business, operations, or affairs of PWG,
other than through its single representative on the Board of Directors
of PWG (the ``Board of Directors''). GE may not seek, submit, or give
to any third party any proxy or consent for any matter subject to
shareholder action, not may it propose any matter to be considered or
voted upon by PWG's shareholders, nor may it seek to call a shareholder
meeting for any purpose. GE may not propose any designee of GE to be
elected to the Board of Directors of PWG other than the single
representative (out of a total of 15 directors) contemplated by the
Stockholders Agreement.\3\
\3\ If PWG does not pay in full six quarterly dividends (whether
or not consecutive) or fails to make a mandatory redemption payment
with respect to the Redeemable Preferred Stock or the Convertible
Preferred Stock, the Board of Directors would be increased by two
and GE would have the right to elect the two additional directors
for so long as such arrearage continues and for a one-year period
thereafter. In such event, GE nevertheless would continue to have
minority representation on the Board of Directors.
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7. Under the Stockholders Agreement, GE also may not propose any
business combination with PWG. GE may not deposit its voting securities
in any voting trust and must present all of its shares at each
shareholder meeting either in person or by proxy, for purposes of
establishing a quorum. GE must vote all its shares for or against any
matter as directed by the Board of Directors or, in certain limited
circumstances, if requested by the Board of Directors, as all other
shares of Common Stock are voted. GE may sell its Common Stock only
pursuant to an underwritten offering, or pursuant to certain
registration rights, or pursuant to a tender offer that is not opposed
by the Board of Directors. Subject to these restrictions, all shares of
Common Stock and Convertible Preferred Stock proposed to be transferred
by GE to a third party are subject to a right of first refusal in favor
of PWG. GE's shares of Common Stock and Convertible Preferred Stock
also are subject to a right of repurchase in favor of PWG that may be
exercised at any time at the discretion of PWG.
8. The Stockholders Agreement has a scheduled term of 15 years. The
Stockholders Agreement may be terminated earlier upon the written
agreement of PWG, Kidder, and GE; upon the third anniversary of the
date upon which GE and its affiliates no longer beneficially own any
voting securities of PWG; or in the event that the obligations of PWG
under the Stockholders Agreement (relating to nominating and electing a
member to the Board of Directors) are not observed and performed.
Applicants' Legal Analysis
1. Section 2(a)(9) of the Act provides, in relevant part, that any
person who owns beneficially more than 25% of the voting securities of
a company shall be presumed to control such company. Applicants request
an order declaring that the presumption of control by a greater than
25% shareholder under section 2(a)(9) has been rebutted by evidence
presented in the application.
2. Section 2(a)(4) defines an ``assignment'' to include any
transfer of a controlling block of the assignor's outstanding voting
securities by a security holder of the assignor. Section 15(a)(4)
provides that a registered investment company's investment advisory
contracts automatically terminate in the event of their assignment. If
GE's acquisition of the Equity Securities is deemed to result in a
change of control of PWG, then all of the existing investment advisory
contracts to which MHAM or PWI is a party automatically would be
terminated. If such contracts are terminated, new investment advisory
contracts must be approved by the funds' Board of Directors and
shareholders in accordance with section 15(a).
3. For the reasons set forth below, applicants believe that the
evidence presented in the application rebuts the presumption under
section 2(a)(9) that GE controls PWG as a result of its acquisition of
the Equity Securities. There is not currently, nor has there ever been,
any historical or traditional relationship between PWG and GE that
would indicate any prospective intention or latent ability of GE, in
fact, to control PWG. GE is entitled to a single representative to
serve on the Board of Directors of 15 people, and only for so long as
it owns 10% of the outstanding voting securities of PWG. Other than its
single representative to the Board of Directors, GE is expressly
prohibited from influencing or seeking any third party to influence any
of the business, operations, management, or policies of PWG. In
addition, GE has no right, privilege, or power to be consulted with
respect to any material corporate actions by PWG and has no veto power
over any extraordinary corporate action.
4. Applicants believe that the beneficial ownership by GE of
approximately 25.8% of PWG Common Stock would not result in a change of
control of PWG because there would be no transfer of actual control to
GE. The Stockholders Agreement reflects the business agreement between
the parties that PWG maintain its independence and that GE's ownership
interest be a passive investment.
5. The order would remain in effect for so long as the Stockholders
Agreement remains in full force and effect, without any amendment that
would materially reduce the restrictions, obligations, and prohibitions
with respect to GE's ownership, communication, voting, and transfer
rights with respect to the Equity Securities contained therein.
For the SEC, by the Division of Investment Management, under
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-16929 Filed 7-10-95; 8:45 am]
BILLING CODE 8010-01-M