July 09, 2002
Connecticut Fights to Keep Stanley Works from Disappearing to Bermuda
by William Baue
Officials from Connecticut contend that Stanley Works continues to mislead shareowners about the
effects of reincorporating in Bermuda.
Legend has it that boats and planes mysteriously disappear in the so-called "Bermuda Triangle."
More and more U.S. companies are choosing to go missing in the U.S. by relocating to Bermuda.
Incorporating in Bermuda allows companies to avoid U.S. taxes, resulting in savings sometimes in
the tens of millions of dollars.
At its May 9 annual meeting, The Stanley Works (ticker: SWK), a
New Britain, Connecticut-based tool manufacturer, apparently won a shareowner vote to reincorporate
in Bermuda. However, Connecticut State
Treasurer Denise L. Nappier and State Attorney General Richard Blumenthal filed a lawsuit the
next day to block the move due to "voting irregularities." Last week, Treasurer Nappier and
Attorney General Blumenthal sent a letter to U.S. Securities and Exchange Commission (SEC) Chair
Harvey Pitt alleging that Stanley misrepresented how the move to Bermuda could affect shareowners.
After the annual meeting, Stanley announced that shareowners "overwhelmingly" approved
reincorporation in Bermuda, which required a two-thirds approval to pass.
passed by a vote of 57.3 million (79% of those voting) 'for' the proposal to 14.9 million
'against,' 1.0 million abstaining and 12 million shares not voted," a Stanley press release stated.
When supporting votes are compared to the total number of shares, however, the percentage
drops to 67 percent. That is less than one percentage point more than the minimum needed.
"The shareholder vote was more than slipshod and incompetent. Stanley purposely created
confusion and deliberately misled shareholders--including its own employees, working men and women
whose legal right to vote and life savings were at stake," said Attorney General Blumenthal on May
10. "Stanley Works is trying to sell a hammer with two heads."
Treasurer Nappier and
Attorney General Blumenthal outlined the alleged deception in their July 3 letter to SEC Chair
Pitt. The proxy statement that Stanley filed with the SEC stated that the failure to vote by proxy
"will have the same effect as voting against the approval of the merger agreement." An April 4,
2002 letter to 401(k) shareowners concurred. However, a second, undated letter told 401(k)
shareowners that if they chose not to vote, their plan administrator would cast their votes.
"If they had not been misled in this fashion, it seems that a substantial number of 401(k)
participants would have voted against the proposal to reincorporate," Treasurer Nappier and
Attorney General Blumenthal stated in their letter to the SEC. Treasurer Nappier serves as the
principal fiduciary of the $20 billion Connecticut Retirement Plans and Trust Funds, which owns
16,600 shares of Stanley.
On May 10, Stanley agreed to a revote.
the company believes that the shareowner vote was fair and appropriate, it acknowledges concerns
raised at yesterday's shareowners meeting that some people may have been confused about 401K plan
voting procedures," the company stated. "Even the appearance of impropriety is unacceptable,"
added Stanley CEO John Trani.
However, the new proxy statement, filed by Stanley with the
SEC in preparation for the revote, further misled shareowners, according to Treasurer Nappier and
Attorney General Blumenthal. They cite specific contradictions within the statement regarding how
the reincorporation will affect shareowners.
"[D]espite the differences, the corporate
legal system [in Bermuda], based on English law, is such that your rights as a Stanley Bermuda
shareholder will be, in our view, substantially unchanged from your rights as a shareholder in
Stanley Connecticut," declares Stanley's revised proxy statement on page five.
page 21, the revised proxy statement says, "[B]ecause of differences in Bermuda law and Connecticut
law and differences governing documents of Stanley Bermuda and Stanley Connecticut, your rights as
shareholders may be adversely changed if the reorganization is completed."
"In light of
the serious misrepresentations made by Stanley . . . , we request that the Commission immediately
undertake a comprehensive investigation and delay any further shareholder vote until such
investigation is completed," states the letter from Treasurer Nappier and Attorney General
Blumenthal to the SEC.
The SEC has yet to respond to the State of Connecticut regarding
whether it will act on the matter.