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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.

"The proposal 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.

"Although 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.

Then on 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.


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