Securities Exchange Act of 1934
|Re:||MWH Global, Inc.|
Incoming letter dated April 17, 2002
Based on the facts presented and subject to the terms and conditions set forth in your letter, the Division will not raise any objection if MWH Global, (as successor to Montgomery Watson, Inc.), continues not to comply with the registration requirements of Section 12(g) of the Securities Exchange Act of 1934 with respect to the shares of common stock issued in the manner and subject to the conditions set forth in your letter, until such time as MWH Global otherwise becomes a reporting company under the Exchange Act with respect to a class of its equity securities.
This position is based on the representations made to the Division in your letter. Any different facts or conditions might require the Division to reach a different conclusion. Further, this response only represents the Division's position on enforcement action and does not purport to express any legal conclusion on the question presented.
Lillian K. Cummins
601 South Figueroa Street
Los Angeles, CA
MAIN: (213) 689-0200
Neal H. Brockmeyer
Main (213) 689-0200
Fax (213) 614-1868
April 17, 2002
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
Washington, D.C. 20549
|Re:||MWH Global, Inc. - Request for No-Action Letter in Respect of Section 12(g) of the Securities Exchange Act of 1934, as Amended|
Ladies and Gentlemen:
We are counsel to MWH Global, Inc., a Delaware corporation (the "Company"), which is the successor in a recent merger with Montgomery Watson, Inc., a Delaware corporation ("MWI"), both of which are employee-owned engineering companies. The purpose of this letter is to request the assurance of the Division of Corporation Finance (the "Division") that, based on the facts presented in this letter, it will not raise any objection if the Company does not comply with the registration requirements of Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), but permits the transfer by its stockholders of their stock to the trustee(s) of a private annuity trust or a charitable trust (or similar trust) in anticipation of repurchase of such stock by the Company in the manner and subject to the terms and conditions set forth below.
By way of background, MWI received a No-Action Letter dated November 2, 1995, to the effect that, based on the facts presented, the Division would not raise any objection if MWI did not comply with the registration requirements of Section 12(g) of the Exchange Act with respect to the shares of common stock issued in the manner and subject to the conditions set forth in the request. On June 20, 2001, MWI merged with Harza Engineering Company, Inc., whereby the owners of both companies became stockholders of Harza Engineering Company, Inc. and its name was changed to MWH Global, Inc. In connection with the merger, the certificate of incorporation of the Company was amended to include all of the same provisions relating to capitalization, qualification of stockholders, restrictions on transfer and repurchase of stock as previously contained in MWI's certificate of incorporation. The Company has continued to rely on the earlier No-Action Letter on the basis that the merger involved simply a "change in entity" by analogy to Rule 12g-3 dealing with succession by merger to the obligations of companies with securities registered under Section 12(b) or (g) of the Exchange Act.
The Company now seeks, through an amendment to its certificate of incorporation, to allow its stockholders to transfer their stock to the trustee(s) of a private annuity trust or charitable trust (or similar trust) under limited circumstances.
I. Description of Trust Arrangements
Before describing the manner in which the Company plans to permit the use of these trusts, we will briefly describe private annuity and charitable trusts.
Private Annuity Trusts. In a private annuity trust, an owner transfers property to an irrevocable trust in exchange for a promise to make prescribed payments to the owner for his or her lifetime. The trust then sells the property to a third party, the proceeds of which are invested to provide the payments promised to the owner. On death, the remainder of the trust estate typically passes to the heirs of the property owner. The trustee must be someone other than the property owner.
Charitable Trusts. A charitable trust is somewhat similar to a private annuity trust, except that the owner transfers property to an irrevocable trust of which one or more charitable organizations will be beneficiaries. The type of charitable trust most likely to be used is a charitable remainder trust, in which the owner retains an income interest for his or her lifetime. The property can be sold by the trustee and the proceeds invested to provide the payments to the owner. On death or after a specified term of years, the remainder of the trust estate passes to one or more designated charitable organizations. Unlike a private annuity trust, the trustee can be the property owner.
II. Proposed Charter Amendment and Method of Implementation
To accommodate the use of these trust arrangements by its stockholders, the Company proposes to amend its certificate of incorporation in the following respects (with reference in parentheses to the applicable section of Article Seventh of its certificate of incorporation):
A copy of the Company's certificate of incorporation marked to show these proposed amendments (and other conforming changes) is attached hereto as Exhibit A.
These amendments would permit stockholders to transfer their stock to the trustee(s) of a private annuity trust or a charitable trust (or similar trust). Reference to a "similar trust" has been added in the event that the charitable trust designation is too restrictive or new designations evolve in the future. For example, terms such as "charitable retained income trust," "pooled charitable income trust" and "private charitable trust" have sometimes been used to describe these types of estate planning devices. The requirement that the transfer be approved by the Board of Directors has been added to insure that a trust will not vary in concept from the Company's intent in proposing these amendments.
The Board of Directors will only make this available to those stockholders who are nearing an event that would trigger an option to repurchase their shares by the Company, as for example retirement or a request by stockholder that the Company purchase all or a part of the stockholder's stock. However, another triggering event will be added to the certificate of incorporation to insure that, if the anticipated event does not materialize, the Company will always have an option to repurchase the stock transferred to the trustee(s). Once a triggering event occurs, the Company expects to promptly exercise its option or permit the trustee(s) to promptly sell the shares to other qualified stockholders. In this connection, the Company reaffirms its representation that it will exercise all options to repurchase shares of its common stock or make the shares available for purchase by other qualified stockholders in all those situations where the failure to do so would result in someone other than an employee becoming a stockholder of the Company. It is anticipated that the time period between a transfer of stock to a trust and the sale of such stock by the trust could be as brief as several days but should in any event be completed within 90 days, allowing for the full 30-day period before the option might be triggered.
1. III. Reasons for Granting the Requested No-Action Letter
Allowing the transfer of stock by employee-stockholders of the Company to these trusts in anticipation of repurchase by the Company is not inconsistent with the concept of employee ownership underlying the Division's no-action position, or with the public interest or the protection of investors. We believe that relief is appropriate for the following reasons, each of which will be explained in more detail below:
Trustees Are Already Qualified Stockholders. The fact that a trustee could become a stockholder should not affect the Division's current no-action position, because trustees of revocable trusts and employee benefit plans already are permitted to be stockholders in the Company's certificate of incorporation.
There Will Be a Short Period of Time Between a Transfer to a Trust and the Sale by the Trust. Because a transfer to the trust is made in contemplation of a repurchase of the stock by the Company, there will only be a short period of time before any interest in the stock held by any nonemployee trustee, heir or charitable organization is eliminated. This is not unlike the situation that would occur when an employee dies or his or her employment is otherwise terminated (whether voluntarily or involuntarily), either of which events would trigger the Company's option to repurchase shares. Until those shares are repurchased by the Company, the stock would be temporarily held by an estate, in the case of death, or by the former employee, in the case of termination of employment. Similarly, if the shares are held in a revocable trust, the trust would become irrevocable on death of the employee and the shares would continue to be held by the successor trustee until they are repurchased by the Company. Moreover, in the case of private annuity trusts and most charitable trusts, the employee will maintain a substantial continuing economic interest in the stock until it is sold by the trust.
Stock Will Not Be Voted by Any Non-Employees. The Company will require that the employee retain his or her right to vote the stock transferred to the trust, that the trustee(s) vote the stock in accordance with written instructions of the employee or that the trust instrument not allow the stock to be voted by the trustee(s). In no case will any trustee be allowed to independently exercise any voting rights in the Company's stock, unless the trustee is the employee.
Use of the Trust Device Will Be Approved Only in Very Limited Circumstances. Finally, the Company (through the Board of Directors) will permit the transfer of stock to a private annuity trust or a charitable trust (or similar trust) only by those stockholders who are nearing an event that would trigger an option to repurchase their stock by the Company. Any risk that a trustee(s) of such a trust will be able to continue as a stockholder has been eliminated by providing that the Company's option to repurchase the stock will, in the absence of another option arising in the meantime, be triggered 30 days after the transfer to the trustee(s).
2. IV. Conclusion
We respectfully submit that permitting a transfer of stock to the trustee(s) of a private annuity trust or a charitable trust (or similar trust) in anticipation of repurchase by the Company is not inconsistent with the concept of employee ownership. These are simply estate planning devices that would allow employee-stockholders to seek certain tax benefits commonly available to others. Therefore, it is respectfully requested that the Division provide the assurance that, based on the facts presented, it will not raise any objection if the Company does not comply with the registration requirements of Section 12(g) of the Exchange Act, but permits a transfer by its stockholders of their stock to the trustee(s) of a private annuity trust or a charitable trust (or similar trust) to hold the Company's stock for a brief period in anticipation of repurchase of such stock by the Company in the manner and subject to the terms and conditions set forth above.
* * * *
For the Staff's convenience, we enclose seven additional copies of this letter. If there are any questions concerning this request, or if for any reason the Division does not concur with the reasons expressed in this letter for issuing the requested No-Action Letter, we respectfully request the opportunity to discuss the matter with the Division. Please contact the undersigned by telephone at (213) 689-7507, or by facsimile at (213) 614-1868.
Thank you for your courtesy and your consideration of this matter.
Very truly yours,
Neal H. Brockmeyer
cc.: David A. Taggart, Esq.
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