Section 240.14a-103 Notice of Exempt Solicitation.
Information to be included in statements submitted
by or on behalf of a person pursuant to
Section 240.14a-6(g)
Notice of Exempt Transaction
1. Name of Registrant:
General Motors Corp.
- --------------------------------------------------------------------------------
2. Name of Person relying on exemption:
Stonington Management Corporation
- --------------------------------------------------------------------------------
3. Address of person relying on the exemption:
712 Fifth Avenue, New York, NY 10019
- --------------------------------------------------------------------------------
4. Written materials. Attach written material required to be submitted
pursuant to Rule 14a-6(g)(1). See Exhibit 1 attached hereto and
incorporated herein by reference.
<PAGE>
EXHIBIT 1
STONINGTON MANAGEMENT CORPORATION
712 FIFTH AVENUE
NEW YORK, NEW YORK 10019
--
TEL. (212) 974-6000
FAX: (212) 974-2092
November 26, 1997
TO FELLOW HOLDERS OF GENERAL MOTORS CLASS H STOCK:
We wrote on October 24 to urge that you join us in voting against the
proposed alteration of the rights of GM's Class H stock. As we explained in our
earlier letter, GM's board is attempting to renege by denying you the benefits
of the "120% Provision" in GM's corporate charter. The Board is also seeking to
change for the worse provisions that will govern the Class H shares in the
future. GM cannot accomplish this without the affirmative support of a majority
of the outstanding Class H shares. (Our October 24 letter is available on the
SEC's EDGAR system.)
Since our prior letter, we have spoken with many Class H holders, GM
has commenced its solicitation, and we have attended a GM/Hughes "roadshow". We
are writing to comment on some of GM's statements and to respond to a number of
good questions that have been raised by our fellow shareholders.
GM'S STATEMENTS
At the roadshow held in New York last week, I asked Hughes's senior
executives three questions. These questions and the executives' responses were
as follows:
QUESTION #1: WHEN GM'S BOARD AND FINANCIAL ADVISORS DETERMINED THAT
THE PROPOSED ALLOCATION OF VALUE BETWEEN THE CLASS H SHARES AND GM'S
ORDINARY COMMON SHARES IS FAIR, WHAT VALUE DID THEY ASSIGN TO THE
BENEFITS UNDER THE 120% PROVISION THAT THE CLASS H HOLDERS ARE BEING
ASKED TO FORGO IN THE PRESENT TRANSACTION?
The response I received was a deflection rather than an answer. Hughes
Chairman Michael Smith urged his audience to "take a step back" and recognize
that Class H holders are already receiving a benefit in the form of a premium
value for the defense business and for Delco relative to their standalone
trading values. Therefore, Chairman Smith argued, Class H holders should forgo
the premium guaranteed them under the 120% provision.
The fallacy in this argument is that the 120% Provision by its own
terms is mandatorily applicable in the event of a sale of substantially all of
Hughes Aircraft, and it was always to be expected that such a sale would be at a
premium to standalone trading values. The 120% Provision was thus always
intended to provide the Class H holders with an additional benefit - above and
beyond the sale premium - by allocating to them a share of the disposition
proceeds that was greater than their 25% share of Hughes. GM's Board now wants
to abrogate your right to receive that additional benefit.
In any event, Chairman Smith did not answer the question I posed, which
was: what value did the Board and its financial advisors assign to the rights
they are asking you to give up? That value is nowhere to be found in GM's
lengthy solicitation statement nor in the Schedule 13E-3 statement that GM filed
with the SEC. This omission is particularly noteworthy given that the 13E-3
statement includes the Salomon Brothers and Merrill Lynch fairness opinions and
their written presentations to GM's board, and is required by law to include
"the bases for and methods of arriving at" the fairness opinions. It is telling
that neither the Board nor its financial advisors appear to have assigned any
quantified value to your rights under the
<PAGE>
120% provision. If that is so, it would confirm our belief that the Board and
its advisors have no basis to conclude that the transaction is fair to Class H
holders.
QUESTION #2: SUBSEQUENT TO THE PENDING HUGHES RESTRUCTURING, IF EITHER
50% OR ALL OF WHAT REMAINS OF HUGHES (I.E., HUGHES TELECOM) IS SOLD,
HOW WILL CLASS H HOLDERS PARTICIPATE IN THAT SALE?
Hughes CFO Roxanne Austin responded by stating that Class H holders
would have the following rights to participate in that subsequent sale:
o If the subsequent sale represented more than 80% of the fair value of
Hughes Telecom, the Class H shares would be converted into ordinary GM
common shares in accordance with the 120% Provision, unless GM's board
chose to propose an alternative treatment for shareholder approval.
o According to the Board's policy statement, the Class H holders will
participate in any transfer of Hughes Telecom assets to GM, and the
Class H holders will have the right to vote on any transfer of more
than 33% of Hughes Telecom's assets to GM.
Here again, GM's response is more telling for what it sidesteps than
for what it addresses:
o The 120% Provision will be no more reliable in the future than it is
now. If the Class H holders allow the Board to renege on the present
occasion, why would the Board not do so again? Indeed, the very reason
Chairman Smith gave for abrogating the 120% Provision this time around
(see "Question #1" above) will apply equally when and if Hughes
Telecom is sold.
o The Board is always free to modify its policy statement. It is far
easier to do that than to amend the corporate charter, as the Board is
presently seeking to do.
o As explained under "Question #3" below, the Board is presently seeking
your approval to make the 120% Provision far less likely to apply in
the future than it has to date. If you vote in favor of the Board's
present proposal, the Board could sell 79% of Hughes Telecom in the
future without triggering the 120% Provision. If 79% is sold off, what
business will you be tracking?
o Also as explained under "Question #3" below, the Board is providing
itself with a new option to force you to convert into ordinary GM
shares, in accordance with the 120% Provision, when it suits the Board
to do so. It would be exceedingly easy for the Board to divert to the
ordinary shareholders the upside potential of the Telecom business by
invoking this option at a point in the future of its own choosing.
QUESTION #3: IN RESPONSE TO GM'S CLAIM THAT ONE OF THE BENEFITS OF THE
PRESENT PROPOSAL IS "IMPROVED TERMS FOR NEW CLASS H STOCK," WHAT
EXACTLY ARE THOSE IMPROVED TERMS?
Chairman Smith stated that one of the key benefits of the proposed
transaction is the "improved terms for new Class H Stock." In response to my
question, CFO Austin identified two purported improvements:
o The 120% Provision will be modified to make it applicable to a sale of
assets constituting at least 80% of the fair market value of Hughes
Telecom.
o The Class H holders will get five years of protection against the
Board exercising its unilateral right to force a conversion under the
120% Provision.
If this is the good news, we hate to ask what the bad news is. Both of
these modifications unequivocally and materially detract from your present
rights as Class H holders, and it is false for GM to state otherwise.
<PAGE>
o Presently, the 120% Provision applies to a sale of "substantially all"
of Hughes Aircraft, and an impartial court would resolve any dispute
about whether that standard has been met. GM proposes to replace the
"substantially all" standard with the 80% standard, and to provide
that GM's board (whose antipathy to Class H is now amply demonstrated)
will decide whether that test has been met. There is plenty of law in
Delaware to the effect that "substantially all" can mean far less than
80%. If GM gets its way, it will be much harder for the 120% Provision
to be mandatorily applicable in the future.
o Presently, GM's Board has the unilateral option to force Class H to
convert into ordinary shares at any time, but only if Class H has
received a prescribed level of dividends for the preceding five years.
Since GM is about to stop paying dividends on the Class H shares, that
option would be unavailable to the Board until five years after the
resumption of those dividends. For example, even if GM resumed
dividends on the Class H shares as early as five years from now, the
Board would not regain this option until 2007. Recognizing that it was
about to lose a valuable tool for capping your upside, the Board has
proposed to do away with the dividend condition altogether and to
allow the Board to force a conversion as early as 2002. In any
scenario, Class H will be less protected under the Board's proposal
than it currently is.
The scariest part about our exchange with the Hughes executives is that
they actually seem to believe GM's doublespeak. In a fantastic world in which
less is more and upside down is rightside up, it should come as no surprise that
unfair is perfectly fair. But to those of us who reside in a world where legal
documents can be read, logic can be applied, and commitments are expected to be
honored, GM's claim of fairness is a sham.
QUESTIONS FROM CLASS H SHAREHOLDERS
Nearly all of the shareholders who responded to our first letter
expressed agreement with our position. Some of them raised good questions, which
we address below.
HOW CAN EMPLOYEES VOTE THE SHARES THEY OWN THROUGH EMPLOYEE STOCK
PLANS?
About 20% of the Class H shares are owned by Hughes employees through
various stock plans. This is by far the largest single block of Class H shares.
It is important that Hughes's employees, many of whom have been buying company
stock for a long while in reliance upon the 120% Provision, be fully informed of
how to vote their shares.
We understand that the Hughes employees will be receiving a form that
allows them to direct the voting of the Class H shares held for them in a
company plan. A special rule applies to many of these shares: In some cases, THE
PLAN ADMINISTRATORS WILL VOTE THE EMPLOYEES' SHARES IF THE EMPLOYEES DO NOT
SUBMIT VOTING INSTRUCTIONS (see page 271 of GM's solicitation statement). We
assume that plan administrators will vote in favor of the Board's proposal if
employees do not instruct them otherwise. IT IS THEREFORE IMPERATIVE THE
EMPLOYEES INSTRUCT THE PLAN ADMINISTRATORS TO VOTE "NO."
<PAGE>
SHOULD I VOTE "NO" OR SIMPLY WITHHOLD MY VOTE?
For stockholders other than Hughes employees, withholding your vote has
the same effect as voting no. However, we believe that voting no will send the
strongest and earliest message to GM's Board that there is serious opposition to
its misguided proposal.
IF I VOTE "NO" NOW, CAN I CHANGE MY MIND LATER?
Yes. You can change your vote at any time during the 60-day
solicitation period. IN FACT, CLASS H STOCKHOLDERS FACE NO DOWNSIDE BY
SUBMITTING A "NO" VOTE AT THE EARLIEST OPPORTUNITY. By doing so, you will
maximize the likelihood of a timely enhancement of the deal by GM's Board, and
you will retain complete flexibility to revisit your position as events unfold.
I BELIEVE THE PACKAGE THAT THE BOARD IS OFFERING IS WORTH MORE THAN I
COULD GET UNDER THE 120% PROVISIONS. WHY SHOULD I VOTE AGAINST THE
PROPOSAL?
Some people believe that the package proposed by the Board is worth $75
- - $80 per share. As a large holder of Class H shares, we pray that these
optimists are right, but the market disagrees. People would not be selling their
shares today at $64.50 if they thought $75 came close to a realistic valuation.
In any event, if the Class H shares are really worth as much as the
120% Provision entitles them to receive, we have no cause for complaint. That is
why we have consistently told GM that all we seek is a contingent value right
that would provide the Class H holders additional consideration in the event
that the post-closing trading value of what they receive in the pending
transaction is less than that to which they would have been entitled under the
120% Provision. It is hard to believe that GM's Board would so strenuously
resist this reasonable request if the Board shared the optimists' view that the
Class H shares are worth $75 - $80.
IF I VOTE AGAINST THE BOARD'S PROPOSAL, WILL I END UP GETTING AUTO
COMPANY STOCK?
You can look forward to a pure-play Hughes Telecom and still insist on
getting the benefit of your bargain with GM. GM's principal motivation for
trying to abrogate your rights is to avoid issuing more auto company stock.
Accordingly, once GM's Board realizes that it must improve its treatment of
Class H holders, it will surely do so without issuing auto company stock or
interfering with the pure-play nature of Hughes Telecom. For example, Class H
holders could receive additional value in the form of a larger allocation of the
Raytheon shares or a larger tracking interest in Hughes Telecom.
Further, as noted above, GM is also proposing to make it easier for the
Board to force you to convert into auto company shares at a time of its own
choosing in the future. It would be the ultimate irony if you left value on the
table today in order to get a pure play telecommunications stock, only to find
that GM forces you into auto company stock down the road in order to cap your
upside.
IF WE VOTE DOWN THE BOARD'S PROPOSAL, WON'T THAT SUBSTANTIALLY DELAY
THE TRANSACTION?
GM could fix its misguided proposal with minimal delay. For example, it
should be relatively easy to modify the existing solicitation materials to
increase your share of either the stock Raytheon is issuing or the tracking
interest in Hughes. Wouldn't a 15% - 20% value enhancement be worth an extra
couple of months?
IF WE VOTE DOWN THE BOARD'S PROPOSAL, WON'T WE BE JEOPARDIZING THE
TAX-FREE NATURE OF THE TRANSACTION?
No. Neither a delay in consummating the Raytheon transaction, nor an
increased allocation of value to the Class H holders, will affect the tax-free
status of the transaction.
Far from being a reason to vote for the Board's proposal, the
"grandfathering" that allows the defense sale to occur on a tax-free basis
provides a compelling reason to vote against the proposal. The value of the
tax-free treatment is so huge that GM's Board cannot possibly walk away from the
Raytheon deal, as it has threatened to do. Disarmed of that threat, the Board
can provide no reason why you should vote for its proposed abrogation of your
rights.
* * *
We have listened thoughtfully to what GM, its financial advisors, and
our fellow shareholders have to say. WE HAVE YET TO HEAR A SINGLE RATIONAL
REASON WHY CLASS H SHAREHOLDERS SHOULD VOTE FOR GM'S PROPOSAL. Even shareholders
who have mixed feelings can vote "no" now and retain complete flexibility to
reconsider their decision later in the 60-day solicitation period.
<PAGE>
WE URGE YOU TO VOTE AGAINST THE MISGUIDED AND INEQUITABLE PROPOSAL OF
GM'S BOARD. THE SOONER THE BOARD KNOWS OF YOUR OPPOSITION, THE SOONER IT WILL
RECOGNIZE THE NEED TO IMPROVE THE TREATMENT OF CLASS H HOLDERS.
Very truly yours,
/s/ Mark D. Brodsky
-------------------
Mark D. Brodsky
Portfolio Manager
