FILE NO. 70-______
APRIL 12, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
APPLICATION FOR AN EXEMPTIVE ORDER UNDER SECTION 2(A)(7)
OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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HIGHFIELDS CAPITAL MANAGEMENT LP HIGHFIELDS CAPITAL LTD.
HIGHFIELDS ASSOCIATES LLC GOLDMAN SACHS (CAYMAN) TRUST, LIMITED
HIGHFIELDS CAPITAL I, LP HARBOUR CENTRE, NORTH CHURCH STREET
HIGHFIELDS CAPITAL II, LP P.O. BOX 896
200 CLARENDON STREET, 51ST FLOOR GEORGE TOWN, GRAND CAYMAN
BOSTON, MA 02117 CAYMAN ISLANDS, BRITISH WEST INDIES
(NAME OF COMPANIES FILING THIS STATEMENT
AND ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
------------------------
KENNETH H. COLBURN
CHIEF OPERATING OFFICER
HIGHFIELDS CAPITAL MANAGEMENT LP
200 CLARENDON STREET, 51ST FLOOR
BOSTON, MA 02117
(617) 850-7570
(NUMBER, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
CLIFFORD M. NAEVE, ESQ. LOUIS A. GOODMAN, ESQ.
JENNIFER K. WALTER, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP ONE BEACON STREET
1440 NEW YORK AVENUE, N.W. BOSTON, MA 02108
WASHINGTON, D.C. 20005
Application For Exemptive Order Under
Section 2(a)(7) of the
Public Utility Holding Company Act of 1935
Highfields Capital Management L.P. ("Highfields Management"),
Highfields Associates L.L.C. ("Highfields Associates"), Highfields Capital I
L.P., Highfields Capital II, L.P., and Highfields Capital Ltd. (collectively
"the Highfields Entities") hereby submit this application to the Securities and
Exchange Commission (the "Commission") for an order under Section 2(a)(7) of the
Public Utility Holding Company Act of 1935 (the "Act") declaring that, under the
circumstances described herein, the Highfields Entities will not be holding
companies under Section 2(a)(7) of the Act with respect to El Paso Electric
Company, ("El Paso") a Texas corporation, even though collectively they will own
more than ten percent of El Paso's common stock. Under the Ownership Limitations
described below, the Highfields Entities will not be able to exercise the
additional control associated with their increase in relative ownership rights
associated with potential stock repurchases by El Paso. The Highfields Entities
request that the Commission declaration be effective for a limited three-year
period.
I. Background
A. Information Concerning El Paso
The information contained in this application concerning El
Paso was obtained from public sources and the Highfields Entities have not
independently verified such information.
El Paso, a Texas company, is a public utility company which
generates and distributes electricity in an area of approximately 10,000
square miles in western Texas and southern New Mexico. El Paso also sells
electricity to wholesale customers in Texas, New Mexico, California, and
Mexico. For the year ended December 31, 1998, El Paso had revenues of
$602,221,000 and net income of $45,709,000.
As of March 16, 1998, there were 60,405,083 shares of common
stock outstanding. However, El Paso is generating significant cash from
operations and transactions. One possible use of such cash is a program to
repurchase shares of its common stock ("Buyback") -- an option that
Highfields understands that El Paso may be considering. Highfields
estimates that El Paso could buy back as much as 25% of its common stock
and commence as early as April 1999.
B. Information Concerning Highfields
Highfields, a Delaware partnership, is principally engaged in
the business of investment management, acting as an investment manager for
Highfields Capital I L.P., Highfields Capital II L.P., and Highfields
Capital Ltd-- each of which is an investment fund ("Highfields Investment
Funds"). Highfields Capital I L.P. and Highfields Capital II L.P. are
Delaware partnerships. Highfields Associates, a Delaware limited liability
company, is the general partner for Highfields Capital I L.P. and
Highfields Capital II L.P. Highfields Capital Ltd., another Highfields
Investment Fund, is a Cayman Islands registered corporation. As of March
31, 1999, Highfields had assets under management of approximately $1.9
billion.
The purpose of the Highfields Investment Funds is to invest in
securities and other financial instruments for current return and capital
appreciation. None of the Highfields Entities is presently a "public
utility company" or a "holding company" as such terms are defined in the
Act. The Highfields Entities have not, and do not intend to, participate in
the management or operations of El Paso.
As of March 31, 1999, the Highfields Investment Funds owned a
total of 5,753,600 shares of common stock or approximately 9.525% of the
outstanding voting shares of El Paso. The following shows the ownership
interests of the individual Highfields Investment Funds:
Percentage Percentage
Ownership of Ownership of
Common Stock Common Stock
Name Shares Owned Before Buyback After Buyback(1)
---- ----------- -------------- ----------------
Highfields Capital 593,408 .982% 1.310%
Highfields Capital II L.P. 1,111,745 1.840 2.454
Highfields Capital Ltd. 4,048,447 6.702 8.936
--------- ----- ------
Total 5,753,600 9.525 12.700
There are not, and never have been, any contractual
arrangements between any of the Highfields Entities and El Paso. The
Highfields Entities do not have any veto rights with respect to El Paso. No
employee, officer, trustee, or director of any of the Highfields Entities
is, or has been, an employee, officer, trustee, or director of El Paso. Nor
is Highfields aware of any investor that is, or has been, an employee,
officer, trustee, or director of El Paso. In other words, the only
relationship the Highfields Entities have with El Paso is that of a
stockholder.
II. Statutory Authority
If the Buyback results in the Highfields Entities owning 10% or
more of the outstanding Common Stock, the Commission is authorized by
Section 2(a)(7) of the Act ("Section 2(a)(7)") to declare that the
Highfields Entities are not holding companies if the Commission finds that
(1) the Highfields Entities do not directly or indirectly own, control or
hold with power to vote "10 per centum or more of the outstanding voting
securities of a public-utility company or of a company which is a holding
company" (Section 2(a)(7)(A)); or (2) the Highfields Entities:
(i) Do not, either alone or pursuant to an arrangement or
understanding with one or more other persons, directly or indirectly
control El Paso either through one or more intermediary persons or by
any means or device whatsoever;
- ---------------------
1 The Highfields Entities have assumed that El Paso will buy back 25%
of its common stock for purposes of this calculation.
(ii) are not intermediary companies through which such control is
exercised, and
(iii) do not, directly or indirectly, exercise (either alone or
pursuant to an arrangement or understanding with one or more other
persons) such a controlling influence over the management or policies
of El Paso as to make it necessary or appropriate in the public
interest or for the protection of investors or consumers that
Highfields be subject to the obligations, duties, and liabilities
imposed by the Act upon holding companies.
Section 2(a)(7)(B).
The Highfields Entities submit that they should not be deemed
holding companies under either standard.
III. Discussion
A. The Highfields Entities Will Agree To the Proposed Ownership
Limitations If the Commission Determines That They Will
Not Be Holding Companies.
The Highfields Entities will limit their ownership rights in El
Paso in the following manners if the Commission provides the exemptive
order requested in this Application:
1. In all matters submitted to the shareholders of El Paso for a
vote, the Highfields Entities will vote no more than 9.9% of
the outstanding shares in their sole discretion and either (i)
will refrain from voting the remaining shares or (ii) vote the
remaining shares in the same proportion as the other shares
(except shares voted by the Highfields Entities in their
discretion) are voted. Notwithstanding the foregoing, if the
Highfields Entities oppose any action as to which dissenting
shareholders would be entitled to appraisal rights under
applicable law, the Highfields Entities would be free to vote
all of their shares against the approval of such action or
otherwise take any action that may be required to perfect
appraisal rights under applicable law.
2. No officer, director or employee of the Highfields Entities
will serve as a director of El Paso.
3. The Highfields Entities will not enter into any transaction
with El Paso (other than those related solely to the Highfields
Entities' interest as a stockholder of El Paso) without first
obtaining the written consent of the Commission Staff.
4. The Highfields Entities will not solicit proxies with respect
to any voting securities of El Paso without first obtaining the
written consent of the Commission Staff.
5. The Highfields Entities will not obtain any additional shares
of common stock or securities without the written consent of
the Staff except acquisitions pursuant to stock dividends or
splits that do not result in any material (i.e. greater than
one percent) increase in the Highfields Entities' ownership
percentage of El Paso's common stock.
6. The Highfields Entities will reduce their aggregate holdings in
El Paso common stock to less than ten percent within three
years of the date of the Commission's order granting this
application, unless they obtain an extension of the exemptive
order in writing from the Commission.
(These limitations are referred to collectively as "the Ownership
Limitations"). The Highfields Entities will abide by these conditions until
such time as they no longer collectively own directly or indirectly 10% or
more of the voting securities of El Paso.
B. The Highfields Entities Will Not Hold Ten Percent of El Paso's
Voting Securities If They Comply With the Proposed Ownership
Limitations.
Although the Highfields Entities may hold ten percent or more
of El Paso's common stock for investment purposes as a result of the
Buyback, they will not hold that level of voting securities if they comply
with the proposed Ownership Limitations. The proposed Ownership Limitations
effectively will transform the Highfields Entities' stock ownership above
9.9% into a passive investment. See Pinnacle West Capital Corp. (April 23,
1990) ("The two salient features of the definition of a 'voting security'
are (i) that it provides the owner or holder with a present right to vote;
and (ii) that such present right to vote may be exercised in the
direction or management of the affairs of a company."). In fact, compliance
with the proposed Ownership Limitations actually will diminish the
Highfields Entities' abilities to influence the management of El Paso
because they will be foregoing not only the exercise of rights associated
with the ownership of stock in excess of 9.9% but also the exercise of some
rights associated with their 9.9% stock ownership (rights to solicit
proxies and have a related individual serve on the board).
A finding that the Highfields Entities will not own more than
9.9% of voting securities is consistent with Commission precedent.
Ownership of stock with latent voting rights is not ownership of voting
securities. Pinnacle West Capital Corp., SEC No-Action Letter (Feb. 7,
1990). A series of no-action letters by the Commission Staff supports the
finding that an entity owning more than a 9.9% interest in a public
utility, but no discretion in voting the interest in excess of 9.9%, is not
a holding company under Section 2(a)(7)(A) of the Act. See Cabot Corp.
(June 8, 1994) (company agreeing to similar limitations not considered a
holding company under Section 2(a)(7)); Western Resources, Inc. (Nov. 24,
1997) (company holding a total equity interest of 40% with all but 9.9%
nonvoting convertible preferred stock not considered a holding company).
In addition to the Cabot no-action letter, there are numerous
no-action letters involving general or limited partnership interests where
the investor had substantially greater equity interests than the Highfields
Entities but voting rights similar to those of the Highfields Entities
proposed in this case. See Ocean State Power (Feb. 16, 1988) (general
partner with 40% equity interest and board representation, but less than
10% voting rights not a holding company); Torchmark Corp. (Jan. 19, 1996)
(limited partners with more than 40% ownership interests but without
management rights not holding companies even though the limited partners
had decision-making rights concerning thirteen categories of management
decisions, including disposition of 25% or more of company assets, certain
indebtedness and entering into material contracts); Commonwealth Atlantic
Limited Partnership (Oct. 30, 1991) (stating the Staff would not recommend
that the Commission consider limited partners owning greater than 10%
interest in utility partnership to be holding company); Nevada Sun Peak
Limited Partnership (May 14, 1991); Dominion Resources, Inc. (Jan. 21,
1988) (limited partners without management rights not considered holding
companies even though they had rights to approve, inter alia, the
disposition of company assets, certain indebtedness, admission of other
limited partners); Colstrip Energy Limited Partnership (June 30, 1988)
(same).
C. With the Proposed Ownership Limitations, the Highfields
Entities Will Not Be Able to Exercise a Controlling Influence
Over El Paso After the Buyback.
The Highfields Entities meet the criteria of Section 2(a)(7)
(B) so that they should not be considered "holding companies". That
section permits the Commission to determine that a company is not a holding
company if it does not and can not exercise a controlling influence over a
utility. Even without the Ownership Limitations, the Highfields Entities
(which would own less than 13% of the common stock after the Buyback) could
be considered not to "control" El Paso. In the Matter of Lehigh Coal and
Navigation Co., 1 SEC 1489 (1936) (company owning 12.8% of voting stock not
a holding company).
Cases where the Commission has denied applications for
exemptive orders under Section 2(a)(7) have involved situations where
investors have significant business, personal, or financial interests with
the utility. See, e.g., Kopper United Co. v. SEC, 138 F.2d 577 (D.C. Cir.
1943) (denying Section 2(a)(7) order when subsidiary bought all the key
raw materials from holding company, sold all surplus product to holding
company and holding company had voting board representation). The
Highfields Entities will have no such interests and thus no controlling
influence on El Paso.
The Highfields Entities have no interest in managing or
controlling El Paso; they simply want to hold investment interests in the
company and are willing to place severe restrictions on their ownership
rights in order to maintain their investments. That these investments may
exceed 10% of the voting securities of El Paso is not the result of any
action taken by them to increase their ability to influence El Paso's
management. Rather, it is the result of El Paso's own actions in initiating
the Buyback. See Fidelity Management & Research Company, Release No. 35-
26448, 1996 SEC LEXIS 109 (1996) (investor granted a temporary exemption
under Section 3(a)(4) when a proposed bankruptcy reorganization would
increase the investor's ownership in El Paso's voting securities). In this
case, the Highfields Entities have no rights to stop El Paso's management
from going forward with the Buyback while the Fidelity applicant had rights
to vote on the reorganization. In addition, the Fidelity applicant lent
funds to El Paso after its bankruptcy filing, thus placing Fidelity in
position to acquire additional shares of voting securities. In contrast,
the Highfields Entities have taken no actions to increase the number of
voting shares they will own in El Paso.
The proposed Ownership Limitations would reduce the Highfields
Entities' voting rights to those of an investor holding only 9.9% of El
Paso's stock. The Highfields Entities also have agreed to additional
restrictions such as voting board representation and solicitation of
proxies. In these circumstances, where the Highfields Entities have no
other relationship with El Paso, the Highfields Entities would have even
less ability to effect the management of El Paso than if they sold El Paso
stock so that they held less than 10%. As described in the previous
section, there is substantial Commission precedent for the action requested
herein.
IV. Conclusion
For the above-stated reasons, the Highfields Entities request
that the Commission find that they are not holding companies within the
meaning of Section 2(a)(7) of the Act.
HIGHFIELDS CAPITAL
MANAGEMENT LP
By: /s/ Kenneth H. Colburn
------------------------
Kenneth H. Colburn
Authorized Signatory of
Highfields GP, LLC
HIGHFIELDS ASSOCIATES LLC HIGHFIELDS CAPITAL I, LP
By: /s/ Kenneth H. Colburn By: /s/ Kenneth H. Colburn
------------------------- -------------------------
Kenneth H. Colburn Kenneth H. Colburn
Authorized Signatory Authorized Signatory of
Highfields Associates, LLC
General Partner
HIGHFIELDS CAPITAL II, LP HIGHFIELDS CAPITAL LTD
By: /s/ Kenneth H. Colburn By: /s/ Kenneth H. Colburn
------------------------- -------------------------
Kenneth H. Colburn Kenneth H. Colburn
Authorized Signatory of Authorized Signatory of
Highfields Associates LLC Highfields GP, LLC,
General Partner General Partner of
Highfields Capital
Management LP, Investment
Manager
DANIEL C. CLAFFEY
Notary Public
My Commission Expires
February 17, 2006
4/12/99 /s/ Daniel C. Claffey
---------------------
<PAGE>
RESOLUTION OF THE MANAGING MEMBERS
AUTHORIZATION TO SIGN
REGULATORY REPORTS
The undersigned, being the Managing Members of Highfields
Associates LLC and Highfields GP LLC, the general partner of Highfields
Capital Management LP, each a Delaware limited liability company (the
"Companies"), recognizing the need for the prompt preparation and execution
of reports required by various regulatory authorities, do hereby adopt the
following resolution and consent to the actions to be taken thereby:
RESOLVED, that Kenneth H. Colburn ("Colburn") is authorized to
sign on behalf of the Companies all reports, applications, filings and
correspondence in connection with reporting requirements ("Regulatory
Reports") of any and all federal regulatory authorities, including the
Commodity Futures Trading Commission, the Securities and Exchange
Commission and the Interstate Commerce Commission, and of any and all
foreign, state, United States territorial and local regulatory authorities.
Regulatory reports do not include any documents specifically required to be
signed by one or both of the Managing Members or a chief executive officer
of the Companies, or agreements, consents or authorizations to act on
behalf of the Companies. However, Colburn is authorized to sign any
resolution or consent appearing on any Regulatory Report with respect to
appointing the signatory thereof.
/s/ Jonathon S. Jacobson
------------------------------
Jonathon S. Jacobson
Managing Member
/s/ Richard L. Grubman
------------------------------
Richard L. Grubman
Managing Member
Date: MARCH 19, 1999
--------------
<PAGE>
COUNTY OF Suffolk
-------------------
STATE OF MA
-------------------
VERIFICATION
Before me, a notary public, on this day personally appeared Kenneth H.
Colburn, known to me to be the person whose name is subscribed to in the
foregoing document, being by me first duly sworn, declared, under oath, that he
is familiar with such document and that, to the best of his knowledge,
information and belief, the information contained therein is true.
Given under my hand and seal of office this 12th day of April, 1999.
----
/s/ Daniel C. Claffey
-------------------------------
Notary Public, State of
My Commission Expires: DANIEL C. CLAFFEY
Notary Public
My Commission Expires
February 17, 2006
-----------------------
[Seal]
EXHIBIT 1
UNITED STATES OF AMERICA
BEFORE THE
SECURITIES AND EXCHANGE COMMISSION
HIGHFIELDS CAPITAL MANAGEMENT LP )
HIGHFIELDS ASSOCIATES LLC )
HIGHFIELDS CAPITAL I, LP )
HIGHFIELDS CAPITAL II, LP ) NOTICE OF PUBLIC FILING
200 Clarendon Street, 51st Floor )
Boston, MA 02117 )
)
HIGHFIELDS CAPITAL LTD. )
Goldman Sachs (Cayman) Trust, Limited ) Date: _____________, 1999
Harbour Centre, North Church Street )
P.O. Box 896 )
George Town, Grand Cayman )
Cayman Islands, British West Indies )
)
File No. _______ )
)
Public Utility Holding )
Company Act of 1935 )
Notice is hereby given that the following filing has been made
with the Commission pursuant to the provisions of the Act and rules
promulgated thereunder. All interested persons are referred to the
application for complete statements of the proposed transaction summarized
below. The application and any amendments thereto are available for public
inspection through the Commission's Office of Public Reference.
Interested persons wishing to comment or request a hearing on
the application should submit their views in writing by ____________, 1999,
to the Secretary, Securities and Exchange Commission, Washington, D.C.
20549, and serve a copy on the relevant applicants at the address specified
below. Proof of service (by affidavit, or in the case of an attorney at
law, by certificate) should be filed with the request. Any request for
hearing shall identify specifically the issues of fact or law that are in
dispute. A person who so requests will be notified of any hearing, if
ordered, and will receive a copy of any notice or order issued on the
matter. After said date, the application, as filed or as amended, may be
granted and/or may be permitted to become effective.
Highfields Capital Management L.P. ("Highfields Management"),
Highfields Associates L.L.C. ("Highfields Associates"), Highfields Capital I
L.P., Highfields Capital II, L.P., and Highfields Capital Ltd. ( collectively
"the Highfields Entities") have filed an application for an order under Section
2(a)(7) of the Public Utility Holding Company Act of 1935 (the "Act") declaring
that, under the circumstances described therein, the Highfields Entities will
not be holding companies under Section 2(a)(7) of the Act with respect to El
Paso Electric Company, ("El Paso") a Texas corporation, even though collectively
they will own more than ten percent of El Paso's common stock.
El Paso, a Texas company, is a public utility company which
generates and distributes electricity in an area of approximately 10,000
square miles in western Texas and southern New Mexico. El Paso also sells
electricity to wholesale customers in Texas, New Mexico, California, and
Mexico. For the year ended December 31, 1998, El Paso had revenues of
$602,221,000 and net income of $45,709,000.
El Paso is generating significant cash from operations and
transactions. One possible use of such cash is a program to repurchase
shares of its common stock ("Buyback") -- an option that Highfields
understands that El Paso may be considering. Highfields estimates that El
Paso could buy back as much as 25% of its common stock and commence as
early as April 1999.
Highfields, a Delaware partnership, is principally engaged in
the business of investment management, acting as an investment manager for
Highfields Capital I L.P., Highfields Capital II L.P., and Highfields
Capital Ltd-- each of which is an investment fund ("Highfields Investment
Funds"). Highfields Capital I L.P. and Highfields Capital II L.P. are
Delaware partnerships. Highfields Associates, a Delaware limited liability
company, is the general partner for Highfields Capital I L.P. and
Highfields Capital II L.P. Highfields Capital Ltd., another Highfields
Investment Fund, is a Cayman Islands registered corporation.
The purpose of the Highfields Investment Funds is to invest in
securities and other financial instruments for current return and capital
appreciation. None of the Highfields Entities is presently a "public
utility company" or a "holding company" as such terms are defined in the
Act. The Highfields Entities have not, and do not intend to, participate in
the management or operations of El Paso.
As of March 31, 1999, the Highfields Investment Funds
collectively owned a total of 5,753,600 shares of common stock or
approximately 9.525% of the outstanding voting shares of El Paso. If El
Paso repurchases 25% of its shares of common stock, the Highfields
Investment Funds collectively would own 12.7% of El Paso's common stock.
The Highfields Entities state that they will limit their
ownership rights in El Paso in the following manners if the Commission
provides the exemptive order requested in the Application:
1. In all matters submitted to the shareholders of El Paso for a
vote, the Highfields Entities will vote no more than 9.9% of
the outstanding shares in their sole discretion and either (i)
will refrain from voting the remaining shares or (ii) vote the
remaining shares in the same proportion as the other shares
(except shares voted by the Highfields Entities in their
discretion) are voted. Notwithstanding the foregoing, if the
Highfields Entities oppose any action as to which dissenting
shareholders would be entitled to appraisal rights under
applicable law, the Highfields Entities would be free to vote
all of their shares against the approval of such action or
otherwise take any action that may be required to perfect
appraisal rights under applicable law.
2. No officer, director or employee of the Highfields Entities
will serve as a director of El Paso.
3. The Highfields Entities will not enter into any transaction
with El Paso (other than those related solely to the Highfields
Entities' interest as a stockholder of El Paso) without first
obtaining the written consent of the Commission Staff.
4. The Highfields Entities will not solicit proxies with respect
to any voting securities of El Paso without first obtaining the
written consent of the Commission Staff.
5. The Highfields Entities will not obtain any additional shares
of common stock or securities without the written consent of
the Staff except acquisitions pursuant to stock dividends or
splits that do not result in any material (i.e. greater than
one percent) increase in the Highfields Entities' ownership
percentage of El Paso's common stock.
6. The Highfields Entities will reduce their aggregate holdings in
El Paso common stock to less than ten percent within three
years of the date of the Commission's order granting this
application, unless they obtain an extension of the exemptive
order in writing from the Commission.
(These limitations are referred to collectively as "the Ownership
Limitations"). The Highfields Entities state that they will abide by these
conditions until such time as they no longer collectively own directly or
indirectly 10% or more of the voting securities of El Paso.
Although the Highfields Entities may hold ten percent or more
of El Paso's common stock for investment purposes as a result of the
Buyback, they claim that they will not hold that level of voting securities
if they comply with the proposed Ownership Limitations. The proposed
Ownership Limitations effectively will transform the Highfields Entities'
stock ownership above 9.9% into a passive investment. In fact, compliance
with the proposed Ownership Limitations actually will diminish the
Highfields Entities' abilities to influence the management of El Paso
because they will be foregoing not only the exercise of rights associated
with the ownership of stock in excess of 9.9% but also the exercise of some
rights associated with their 9.9% stock ownership (rights to solicit
proxies and have a related individual serve on the board).
The Highfields Entities also claim they meet the criteria of
Section 2(a)(7)(B) so that they should not be considered "holding
companies". That section permits the Commission to determine that a company
is not a holding company if it does not and can not exercise a controlling
influence over a utility.
