Ocean Capital Exposes Latest Entrenchment Tactics Being Utilized by UBS Puerto Rico Bond Funds' Boards of Directors
Ocean Capital LLC, a significant shareholder of numerous Puerto Rico closed-end bond funds managed or co-managed by an affiliate of UBS Financial Services Incorporated of Puerto Rico, today issued the following letter to shareholders of the funds.
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January 19, 2023
Fellow Shareholders,
As many of you are aware, Ocean Capital LLC (collectively with its affiliates, "Ocean Capital" or "we") is a significant shareholder of numerous Puerto Rico closed-end bond funds that are managed or co-managed by an affiliate of UBS Financial Services Incorporated of Puerto Rico ("UBS"). We have nominated independent director candidates to the Boards of Directors (collectively, the "Boards") at several funds within the UBS family of Puerto Rico closed-end bond funds (the "Funds") because shareholders have been forced to endure poor corporate governance and financial losses for far too long.1
Today, we are writing to make you aware of what we believe to be the latest ? and perhaps most concerning ? entrenchment tactics being utilized by the Boards in response to our efforts to facilitate boardroom change over the last 18 months:
- Filing a motion to expand their federal lawsuit to include TFF I as a new (ninth) plaintiff Fund and filing that motion the day before the latest adjournments of the TFF I and PRITF VI annual meetings, in what we believe is an effort to avoid yet another shareholder vote that would likely see Ocean Capital's nominees elected to the Boards of the two Funds.
- Attempting to coerce certain shareholders to vote in favor of the incumbent directors at the Funds' upcoming annual meetings in exchange for a dismissal of the Funds' seemingly meritless lawsuit against these shareholders for expressing their view that the Board of one Fund should consider an alternative value-enhancing strategy after years of financial underperformance.
WE BELIEVE THE BOARDS HAVE REPEATEDLY USED LEGAL ACTION TO PREVENT OR DELAY FAIR AND LAWFUL SHAREHOLDER VOTES FOR OCEAN CAPITAL'S DIRECTOR CANDIDATES
On December 14, 2022 ? the day before the Funds were to hold their respective annual meetings after dozens of adjournments for lack of quorum ? the Funds filed a motion to amend their lawsuit against Ocean Capital to include TFF I as a new plaintiff Fund.2 This was no coincidence.
In the days leading up to the reconvening of their 2022 and 2021 annual meetings, respectively, on December 15, 2022, TFF I and PRITF VI were very close to reaching quorum for their meetings, according to preliminary vote tallies made available to both sides by Broadridge. Reaching quorum would have allowed the Funds' shareholders to elect Ocean Capital's nominees. In fact, PRITF VI did reach quorum when its 2021 annual meeting was reconvened on December 15, 2022, and Ocean Capital's nominees each appear to have won by more than five million votes, or a 7-2 margin, based on the Broadridge-issued preliminary vote tally. It was only after preliminary vote totals suggested that TFF I and PRITF VI might achieve quorum and finally hold an actual vote for directors that the Funds filed their motion to amend their federal lawsuit.
This is not the first time the Funds have employed this type of entrenchment tactic to preserve the incumbent directors in the face of shareholder-driven change. When this lawsuit was first filed in February 2022, the Funds were in much the same situation. As PRITF I approached quorum for its 2021 annual meeting, which had been adjourned three times already, eight of the Funds, including PRITF I, suddenly sued Ocean Capital and numerous shareholders on the basis of what we view as baseless allegations related to our proxy materials dating back to July 2021.
Given the last-minute nature of the Funds' latest filing and the fact that we were set to (and did) reach quorum for PRITF I, we believe the litigation represents another desperate attempt by the Funds to delay the inevitable and to obstruct shareholder rights. In fact, according to preliminary vote tallies provided by Broadridge, our nominees each received the affirmative votes of more than 3 million PRITF I shares ? three times the votes for either of the UBS-backed incumbents. Yet, Ocean Capital's nominees have still not been seated as directors at PRITF I over 10 months after shareholders voted for our candidates.
WE BELIEVE THE BOARDS HAVE USED APPARENT INTIMIDATION TACTICS TO COERCE CERTAIN SHAREHOLDERS INTO VOTING FOR INCUMBENT DIRECTORS
Ocean Capital has also recently been made aware of an apparent "settlement offer" extended to a pair of shareholders and co-defendants who were sued by the Funds in their lawsuit ? ostensibly because these shareholders had signed a May 2021 letter (the "Shareholder Letter"), which asked the board of directors of PRITF IV to merely consider an alternative value-creation investment strategy after years of financial underperformance. PRITF IV's incumbent directors refused and, together with seven (and now eight) other Funds managed or co-managed by UBS, sued the signatories to the Shareholder Letter simply because these investors had the audacity to suggest a different strategic path.
UBS and the Funds have now "offered" to dismiss their lawsuit against these investors in exchange for (a) voting in favor of the incumbent directors at the upcoming annual meetings of the Funds in which they are invested, (b) assisting the Funds in prosecuting their lawsuit against Ocean Capital and other shareholders, and (c) extending to the Funds, their directors and affiliates broad releases from any and all liabilities. To make matters worse for the investors, the offered dismissal of the lawsuit is "without-prejudice," meaning that the Funds can return to court and sue these investors again should the Funds, for example, feel dissatisfied with the shareholders' assistance.
We find it extremely troubling from a corporate governance perspective that the settlement terms require these shareholders, who in our view were unjustly dragged into litigation to begin with, to vote in favor of the incumbent directors at upcoming annual meetings in exchange for a dismissal of the meritless lawsuit filed by the Funds. It has also come to our attention that the Funds' coercive settlement offer would require these shareholders to provide details about any private interactions they have had with Ocean Capital.
We are appalled that UBS and the Boards continue to trample shareholders' rights and waste significant sums of investors' capital on these repeated entrenchment tactics. In our view, the Funds' latest litigation tactics and terms of the supposed "settlement offer" underscore what we have known all along: the self-interested incumbents need to be replaced with highly qualified, independent and ethical directors who are not beholden to UBS. Ocean Capital remains committed to faciliating change at the Funds on behalf of all shareholders, no matter how long it takes and how much it costs.
Sincerely,
W. Heath Hawk
Ocean Capital LLC
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VOTE "FOR" OCEAN CAPITAL'S HIGHLY QUALIFIED DIRECTOR CANDIDATES ON THE BLUE PROXY CARD TODAY.
IF YOU ARE A FUND ADVISOR WITH CLIENTS WHO WISH TO EXERCISE THEIR RIGHT FOR CHANGE BY VOTING THE BLUE PROXY CARD, PLEASE CONTACT OUR PROXY SOLICITOR, MORROW SODALI, AT (203) 658-9400 OR (800) 662-5200, OR VIA E-MAIL AT [email protected].
SIGN UP FOR UPDATES RELATED TO OUR CAMPAIGNS AT THE UBS-MANAGED FUNDS AT WWW.IMPROVEUBSPRFUNDS.COM.
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Certain Information Concerning the Participants
To the Shareholders of Each of the Funds:
Ocean Capital and the other participants in its solicitation (collectively, the "Participants") have filed with the Securities and Exchange Commission (the "SEC") a definitive proxy statement and accompanying form of BLUE proxy card to be used in connection with the solicitation of proxies from the shareholders of each of the Funds for its upcoming annual meeting of shareholders. All shareholders of each Fund are advised to read the applicable definitive proxy statement, any amendments or supplements thereto and other documents related to the solicitation of proxies by the Participants, as they contain important information, including additional information relating to the Participants and their direct or indirect interests, by security holdings or otherwise. The definitive proxy statement and accompanying BLUE proxy card for each Fund, any amendments or supplements thereto, and other relevant documents filed by the Participants with the SEC are available at no charge on the SEC's website at http://www.sec.gov.
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1 Specifically, the Funds with respect to which Ocean Capital has made nominations so far include Tax-Free Fixed Income Fund for Puerto Rico Residents, Inc., Tax-Free Fixed Income Fund II for Puerto Rico Residents, Inc., Tax-Free Fixed Income Fund III for Puerto Rico Residents, Inc., Tax-Free Fixed Income Fund IV for Puerto Rico Residents, Inc., Tax-Free Fixed Income Fund V for Puerto Rico Residents, Inc., Puerto Rico Residents Tax-Free Fund, Inc. ("PRITF I"), Puerto Rico Residents Tax-Free Fund IV, Inc. ("PRITF IV"), Puerto Rico Residents Tax-Free Fund VI, Inc. ("PRITF VI"), and Tax Free Fund for Puerto Rico Residents, Inc. ("TFF I").
2 Tax-Free Fixed Income Fund for Puerto Rico Residents, Inc. et al. v. Ocean Capital LLC et al., No. 22-cv-01101 (D.P.R.)
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