Recently Elected Directors Publish Letter Sent to the Board of Puerto Rico Residents Tax-Free Fund, Inc.
Ocean Capital LLC (collectively with its affiliates, "Ocean Capital" or "we") is a significant stockholder of numerous Puerto Rico closed-end bond funds (the "Funds"), which are managed or co-managed by an affiliate of UBS Financial Services Incorporated of Puerto Rico ("UBS"). Stockholders recently elected Ocean Capital candidates Ethan A. Danial and Mojdeh L. Khaghan to the Board of Directors (the "Board") of Puerto Rico Residents Tax-Free Fund, Inc. ("PRITF I") at the 2022 Annual Meeting of Stockholders (the "Annual Meeting"), which was held on June 1, 2023 after two adjournments. The Ocean Capital candidates won the election by a 10:1 margin over the incumbent directors.
Today, in their capacity as elected directors of PRITF I, Mr. Danial and Ms. Khaghan made public a letter they sent recently to their fellow Board members asserting their rights as duly-elected directors to Board materials and proper onboarding procedures. Rather than respecting the will of stockholders, the Board is refusing to answer Mr. Danial or Ms. Khaghan and is instead relying on external counsel to make the dubious claim that neither has been elected as a director, citing what we view as baseless pending litigation filed by the Funds. Even when Mr. Danial visited PRITF I's offices, as he stated he would, he was met with continued stonewalling and was provided no materials as requested.
W. Heath Hawk, managing member of Ocean Capital, commented:
"PRITF I has yet again demonstrated that its chief concern is protecting its entrenched, over-tenured Board than it is with upholding stockholder democracy and reversing years of poor performance. This is the very same fund that has refused, and refuses to this day, to seat Ocean Capital's directors also elected at the 2021 Annual Meeting, despite the fact that these individuals defeated the incumbents by overwhelming margins at both meetings. This is also the fourth election in which yet another UBS-managed fund has refused to seat Ocean Capital's elected directors when a quorum of stockholders voted them in.1
We believe the Board should reassess PRITF I's investment advisory contract with UBS in light of the significant losses the Fund has incurred and will continue vigorously defending our rights, the rights of our elected nominees and our fellow stockholders in the federal district court in Puerto Rico. The incumbents who have lost their positions should immediately cease all director activities and facilitate an orderly transition, as stockholders have made it abundantly clear that these individuals no longer have their confidence and new leaders are urgently needed in the boardroom."
1 As a reminder, the full list of Funds that Ocean Capital's nominees have been elected at thus far include: Puerto Rico Residents Tax-Free Fund VI, Inc., Tax Free Fund for Puerto Rico Residents, Inc. and PRITF I.
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The full text of Mr. Danial's and Ms. Khaghan's letter to the PRITF I Board follows:
June 15, 2023
Puerto Rico Residents Tax-Free Fund, Inc.
Banco Popular Center
209 Muńoz Rivera Avenue, Suite 1031
San Juan, Puerto Rico 00918
Attn: Board of Directors
Re: 2022 Annual Meeting of Stockholders
To the Board of Directors of Puerto Rico Residents Tax-Free Fund, Inc. (the "Fund"):
We write as duly elected members of the Fund's Board of Directors (the "Board"). At the Fund's 2022 Annual Meeting of Stockholders (the "Annual Meeting"), which was last reconvened on June 1, 2023, a quorum was present and we each received nearly ten times as many "For" votes as the Fund's two candidates. As of today, however, we have not received any information from the Fund regarding the onboarding process, our role as new directors, or the dates of upcoming meetings of the Board or its committees. It is as if the election at the Annual Meeting had never occurred. Frustratingly, the Fund has given Ocean Capital LLC's two candidates for the Fund's 2021 Annual Meeting of Stockholders the same silent treatment.
Given the election's outcome, and the absence of any court order or other process blocking its immediate and full implementation, we are duty bound to assert our rights as duly elected directors of the Fund, and indirectly the rights of Fund stockholders to have their votes honored. Based on the rights and powers under Puerto Rico law and the Fund's bylaws, we hereby demand the following:
- The Fund promptly publicize the results of the Annual Meeting, including the final vote tally on each proposal;
- The Fund's two candidates who lost the election at the Annual Meeting?Messrs. Enrique Vila del Corral and Gabriel Pagán Pedrero?immediately cease any and all activities as directors of the Fund;
- The Fund provide us, as promptly as possible, an electronic copy of the complete and accurate schedule of all upcoming Board and Board committee meetings and information on how to attend these meetings;1
- The Fund provide us with access to Board-level materials, including without limitation Board packets, management reports, financial statements, and draft and final minutes for all Board and Board committee meetings that have taken place since July 1, 2021;2 and
- The Fund provide us with copies of its directors and officers insurance policies.
Please be advised that any delay in responding to these demands or in onboarding us will serve to underscore, and constitute a further example of, the Fund's disregard for the votes of its shareholders at the Annual Meeting and of shareholder democracy more generally. Mr. Danial will visit the Fund's office located at the above address on Wednesday, June 21, 2023 at 11:00 a.m. Atlantic Standard Time to review the documents requested above and to meet with management to further discuss onboarding procedures. We reserve all rights with respect to the matters addressed in this letter, including without limitation our ability to seek enforcement of those rights through appropriate judicial process. If you have any questions or wish to discuss, please contact us at the emails below.
Regards,
Ethan A. Danial |
Mojdeh L. Khaghan |
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1 PR ST T. 14 § 3561(h) and (f).
2 PR ST T. 14 § 3650(d).
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