Company Name: Nortek Inc.
Public Availability Date: 08-13-1996
[INQUIRY LETTER 1]
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110-2624
TELEPHONE(617) 951-7000 July 11, 1996 Office of Chief Counsel
Division of Corporation Finance
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Nortek Inc. - Omission of Stockholder Proposal Ladies and Gentlemen: Pursuant to Rule 14a-8(d) under the Securities Exchange Act of 1934, on behalf
of the Registrant I am enclosing six copies of the following items: 1. A proposal submitted to the Registrant by Loretta L. Lipman for inclusion in
the Registrant's proxy statement for its 1996 annual meeting (the "Proposal"),
which Proposal contains Miss Lipman's statement in support thereof; and 2. A statement of the reasons why Registrant deems the omission of the Proposal
from the proxy statement to be proper pursuant to Rule 14a-8. As you will note in Registrant's statement of reasons for omission of the
Proposal (which has also been mailed to Miss Lipman by copy of this letter),
Registrant believes that the Proposal may be omitted from its proxy statement
pursuant to Rule 14a-8(c)(3), Rule 14a-8(c)(4), and Rule 14a-8(c)(8). We
respectfully request your confirmation that the Division will not recommend
enforcement action to the Commission if the Registrant omits the Proposal from
its 1996 proxy statement. Please indicate receipt of these materials on the enclosed copy of this letter
and return it to the undersigned in the enclosed stamped envelope. Should you have any question or require additional information, please call me. Sincerely, Jay Althoff JJA/wb
Enclosures cc: Miss Loretta L. Lipman REASONS FOR OMISSION OF STOCKHOLDER PROPOSAL 1. Rule 14a-8(c)(4) Rule 14a-8(c)(4), promulgated by the Commission under the Securities Exchange
Act of 1934 (the "Act"), permits the omission of a proposal from an issuer's
proxy statement if it "relates to the redress of a personal claim or grievance
against the registrant, or any other person." This rule is designed to prevent
security holders from abusing the stockholder proposal process in order to
achieve personal ends. SEC Release No. 34-20091 (August 16, 1983). The
Commission has expressly recognized that the cost and time involved in dealing
with such abuses do a disservice to the interests of the issuer and its security
holders at large. SEC Release No. 34-19135 (October 14, 1982). The Commission
has taken the position that even proposals drafted in broad terms so that they
might be styled as in the common interest of other shareholders may nonetheless
be omitted from the issuer's proxy materials "if it is clear from the facts
presented by the issuer that the proponent is using the proposal as a tactic
designed to redress a personal grievance or further a personal interest." Id. Miss Lipman's Proposal is designed to redress a personal claim and is the result
of her personal grievance with Richard L. Bready, the Registrant's Chairman,
Chief Executive Officer, and a director, as becomes clear from her singling out
of Mr. Bready by mentioning him by name three times and by mentioning Bready
Associates twice without any of the Selling Directors (as defined below), who
were the other partners in Bready Associates and are simply referred to as
directors. Miss Lipman is Mr. Bready's ex-wife. They commenced divorce
proceedings in January 1990, and the final divorce decree became effective on
October 26, 1995. The divorce order is currently on appeal. This divorce
proceeding, according to Mr. Bready's counsel in the case, is one of the longest
running divorce cases in Rhode Island. One of the assets of the marital estate
was shares of the Registrant's stock held by Mr. Bready, and Miss Lipman spent
much time during the divorce proceedings trying to prove that Mr. Bready's
shares should be valued at a premium over market in order to increase the value
to her of the divorce settlement. The final order of the family court attributed
to the shares a value equal to the then-current market value, with no premium. During the divorce proceedings, Miss Lipman argued that the Registrant should be
sold in order to realize value on the sale of Mr. Bready's shares. She also
attempted repeatedly to secure confidential corporate documents from the
Registrant, but was not permitted to do so by the court. She then purchased the
125 shares of the Registrant's stock mentioned in her transmittal letter and
used her status as a shareholder of the Registrant to request and receive
certain corporate documents that were then used by her in the divorce
proceedings. This was a clear attempt to utilize her status as a shareholder to
further her own personal interests in the divorce. During the proceedings, Miss
Lipman also tried to add Bready Partnership (a partnership between Mr. Bready
and the Selling Directors (as defined below)) as a defendant in the divorce
proceedings, a motion which was also denied by the court. The connection between the divorce proceedings and the Proposal is further
highlighted by the presence of Gordon H. Hayes, Jr., Miss Lipman's counsel
referred to in her transmittal letter. Mr. Hayes was hired by Miss Lipman in
November 1993 and was originally proffered in the divorce proceedings as an
expert witness by Miss Lipman's divorce counsel. However, Mr. Hayes was
determined by the court to not be an appropriate expert witness and was not
permitted to testify. Later in the trial, Mr. Hayes joined Miss Lipman's lead
counsel as an adviser and participated as such during the proceedings. Later
still, Miss Lipman's lead counsel again tried to call Mr. Hayes as a witness,
and was again prohibited from doing so by the court. The inclusion of Mr. Hayes
in Miss Lipman's letter further demonstrates that the Proposal is related to her
divorce proceedings with Mr. Bready, not her interests as a shareholder of the
Registrant. Miss Lipman is currently trying to reopen the divorce order separate from the
appeal and relies upon April 1996 purchase by the Registrant of shares held by
three then-directors of the Registrant (the "Selling Directors") to again
attempt to establish a premium value for the Registrant shares held by Mr.
Bready. It seems clear that Miss Lipman's motive for submitting the Proposal is
connected to her divorce from Mr. Bready and her desire to embarrass him, and is
a continuation of her efforts to use her status as a shareholder of the
Registrant for her own interests in connection with the divorce proceedings and
not with the aim of promoting interests shared by the Registrant's shareholders
in general. As such, the Registrant believes that the Proposal clearly "relates
to the redress of a personal claim or grievance against" Mr. Bready, and
consequently may be omitted from the Registrant's 1996 proxy statement pursuant
to Rule 14a-8(c)(4). 2. Rule 14a-8(c)(8) Rule 14a-8(c)(8) permits an issuer to exclude a shareholder proposal from its
proxy statement "if the proposal relates to an election to an office." In
paragraph five of Miss Lipman's Proposal she urges each of the Registrant's
shareholders to "withhold your proxy authority on the Board-approved nominees so
that a new slate can be elected at the Annual Meeting." This exhortation by Miss
Lipman is a "solicitation" as defined in Rule 14a-1(1) because it is a "request
... not to execute ... a proxy." As such, the Registrant believes that the
Proposal relates to an election to office and may properly be excluded from its
proxy statement pursuant to Rule 14a-8(c)(8). 3. Rule 14a-8(c)(3) Rule 14a-8(c)(3) permits the omission of a proposal from an issuer's proxy
statement if it contains false or misleading statements. Miss Lipman's Proposal,
in addition to being related to the redress of personal grievances, contains
several statements that are false, misleading, or both. First, Miss Lipman in
the third paragraph of the Proposal in an artfully crafted statement implies
that the purchase by the Registrant of the 1,189,909 shares of the Registrant's
common stock owned by the Selling Directors constituted a violation of their
fiduciary duties by the Selling Directors. This implication is clearly false and
misleading (and possibly libelous). As disclosed by the Registrant in a Form 8-K
filed on April 29, 1996 (the "Form 8-K"),pursuant to Delaware Corporation Law
§144, the transaction in question was approved by the board of directors and by
a majority of the disinterested directors of the Registrant. The action was
taken after receiving investment advice from independent financial advisers, and
was part of a repurchase program commenced on November 16, 1995 that resulted in
the acquisition by the Registrant 2,276,009 of its shares. The disinterested
directors (and the board as a whole) determined that the repurchase at the price
actually paid to the Selling Directors was in the best interests of the
Registrant and of its stockholders as a whole. As was noted in the Form 8-K, if
the shares purchased from the Selling Directors had been purchased as of January
1, 1995, earnings per share would have been $1.36 versus $1.19 as previously
reported, a benefit to all of the Registrant's shareholders. Second, in the fourth paragraph of the Proposal Miss Lipman alleges that there
has been a series of "unusual transactions, i.e., a "series of investments in an
entity controlled by the same three individual directors." In fact, there has
been only one transaction, the investment of Ecological Engineering Associates
Limited Partnership ("EEA"). Contrary to the implication of questionable
dealings raised by Miss Lipman's comment on these transactions, this transaction
was approved by vote of the board and by vote of directors of the Registrant not
interested in such transactions in accordance with Delaware Corporation Law
§144. The EEA transaction was disclosed in the Registrant's 1995 proxy statement
under the heading "Certain Relationships and Related Transactions." Miss
Lipman's Proposal is misleading in that it implies a course of dealings in
breach of fiduciary duty, where in fact only one transaction occurred and it was
approved by the board and the disinterested directors in accordance with
Delaware corporation law. The third false statement is Miss Lipman's complaint in the fifth paragraph of
the Proposal that the By-Law provision she desires to remove was amended by
"this very same board." Section 3.4 was adopted by the Registrants' board on
August 1982, at which time not one of the Selling Directors was a director. Her
statement is also misleading in that it suggests that Section 3.4 was adopted by
the board without authorization for such action from the shareholders. The
Registrant's April 15, 1982 proxy statement requested that the shareholders
approve an amendment of its Articles of Incorporation authorizing the board of
directors to adopt a By-Law like By-Law Section 3.4. At the 1982 annual meeting,
the amendment of the Articles of Incorporation authorizing the adoption of a
By-Law like Section 3.4 by the board was approved by the Registrant's
shareholders. At that time the Registrant was a Rhode Island corporation.
Subsequently, in 1987, the Registrant reincorporated in Delaware via merger, at
which time the stockholders approved the merger, thereby again (albeit
indirectly) approving the Registrant's Certificate of Incorporation and By-Laws
(including Section 3.4), both of which were included as exhibits to the proxy
statement requesting shareholder approval of the reincorporation merger. Finally, Miss Lipman's statement in the fifth paragraph of the Proposal that it
is a "virtual impossibility" to get 100 shareholders in a public company to act
together for the purpose of nominating a slate of directors is patently false;
as the Commission is well aware, such provisions are common with public
companies and have not put an end to proxy fights for control of public
corporations. The Registrant believes that these false and misleading statements in the
Proposal are such that it may omit the Proposal from its 1996 proxy statement
pursuant to Rule 14a-8(c)(3).
[INQUIRY LETTER 2]
LORETTA L. LIPMAN
57 VALLEY BROOK DRIVE
EAST GREENWICH, RHODE ISLAND 02818
TELEPHONE(999) 999-9999 June 12, 1996 BY CERTIFIED MAIL Kevin W. Donnelly, Secretary
Nortek, Inc.
50 Kennedy Plaza
Providence, RI 02903-2360 Dear Mr. Donnelly: Enclosed please find the proposal which I intend to present at the upcoming
Annual Meeting of Stockholders. In accordance with Rule 14a-8 under the Security Exchange Act of 1934, the
proposal and an accompanying statement in support of the proposal are being
submitted for inclusion in Nortek's Proxy Statement for the upcoming Annual
Meeting. I intend to continue the ownership of my shares through the date of the
Annual Meeting. In connection with the submission of my proposal and supporting statement, I
also furnish you with the following information: I presently hold 125 shares of
Nortek Common Stock, which I have held continuously since December 6, 1993. If you should require any additional information, you may contact me through my
attorney, Gordon H. Hayes, Jr. at 617-248-7000. Sincerely, Loretta L. Lipman In April 1996, our Company paid over $20.2 million to three directors in
exchange for Nortek shares they owned. Each of the three individuals was also at
the time a partner with a fourth director - Nortek's Chairman, Richard Bready -
in a partnership called Bready Associates. To use $20.2 million in cash to repurchase stock - from directors - is an
unusual use of funds. The price of $17 per share paid to the three directors
represented a 10% premium over the then market price. All told, Nortek paid the
three directors a premium that amounted to more than $1.78 million above market.
No other stockholders were offered the opportunity to sell their shares to the
Company for a premium. The Stock Purchase Agreement between Nortek, the three directors, Bready and
their affiliates contained interesting provisions: the three individual
directors were to hold on to their offices as directors until their resignation
immediately following the stock purchase. Nortek was required to provide a
general release to each of the three individual directors, which included a
release in connection with the performance of their duties as directors; Nortek
was required to pay the legal expenses of the three directors in connection with
the premium buy-out of their stock; Nortek was required to make a detailed
representation as to status of discussions with potential acquirers; and perhaps
most disturbingly, Nortek agreed to indemnify the three individuals, in their
capacities as directors and otherwise, for any losses they might incur in
connection with the purchase transactions. Thus, if one contemplated whether the
three individuals violated their fiduciary duties to the Company, in any event,
the three would have a contractual claim to be indemnified for the very acts in
question. This stock buy-back was the most recent unusual transaction between Nortek and
this group, but Nortek has made a series of investments in an entity controlled
by the same three individual directors. Also, in 1991, the Board amended
Nortek's "poison pill" rights plan to exempt Richard Bready and Bready
Associates from the trigger threshold, enabling them, and no other shareholders
of Nortek, to increase their percentage ownership of Nortek without triggering
the poison pill. These matters demonstrate the need for a strong and independent Board of
Directors. Yet the By-laws, as amended by this very same Board, contain a very
cumbersome mechanism for shareholder nominations of directors - one that appears
designed to vest nominating power solely in the self-perpetuating Board itself.
To nominate a candidate other than a Board-endorsed nominee, currently 100
individual shareholders are required to act together - a virtual impossibility
with a public company. If the By-law amendment proposal is approved, it will be
possible for shareholders to nominate and elect candidates on the floor of the
Annual Meeting. I urge you to send Nortek management a message - vote for the
following and withhold your proxy authority on the Board-approved nominees so
that a new slate can be elected at the Annual Meeting: RESOLVED: The By-laws of Nortek was amended by striking Section 3.4.
[INQUIRY LETTER 3]
TESTA, HURWITZ & THIBEAULT, LLP
HIGH STREET TOWER, 125 HIGH STREET
BOSTON, MASSACHUSETTS 02110
TELEPHONE(617) 248-7000 July 19, 1996 Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549 Re: Nortek, Inc. - Omission of Stockholder Proposal Dear Ladies and Gentlemen: Reference is made to the letter addressed to your attention dated July 11, 1996,
from Jay Althoff, Esq. of the law firm of Ropes & Gray, seeking permission for
the omission of a stockholder proposal from the 1996 Proxy Statement of Nortek,
Inc. ("Nortek" or the "Company"). The undersigned represents the stockholder proponent, Loretta L. Lipman. We
believe the reasons proffered by Nortek's counsel in favor of omitting Ms.
Lipman's proposal are distorted, inaccurate and otherwise fail to form a
reasonable basis for Nortek to omit Ms. Lipman's proposal under applicable
rules. Nortek's counsel attempts to obscure what in the best light might be considered
a highly unusual transaction between insiders of a Fortune 500 company -- one
resulting in unarguable and significant personal benefit conferred on then
directors -- by arguing that Ms. Lipman is solely seeking to redress a personal
grievance. Nortek's counsel fail to point out that the largest single asset of
her marital estate was and is her ex-husband's significant stock ownership of
Nortek in which she has a very direct economic interest. If transactions occur
which result in the market downgrading the value of Nortek shares, Ms. Lipman
could be directly adversely impacted. She has in interest in the Company -- and
the proper management of the Company -- that goes well beyond the shares she
currently owns in her own name. This interest in a company that is run without
recurring insider self-dealing is shared by all other Nortek security-holders at
large. A careful reading of her proposal confirms that she does not single out her
ex-husband in any way. She does not name the other directors who received the
premium price for the shares which Nortek repurchased from them because these
individuals are no longer on the Board of Directors. Moreover, Ms. Lipman would
be willing to amend her proposal if desired by the staff to substitute all
references to Richard Bready in favor of references to the Company's Chairman.
The subject matter of her proposal, given not only the most recent insider
transaction but others mentioned in the letter -- is too important for it to be
swept away by this spurious claim. Counsel next seeks to argue that the proposal may be omitted because it relates
to an "election to office". Ms. Lipman expressly does not seek to be elected to
the Board, nor does she propose any other nominees. Moreover, if the staff so
requested, Ms. Lipman would amend her supporting statement to delete the last
sentence before the "Resolved" clause which deletion would in no way impair the
thrust of her proposal. Finally, Nortek counsel argues that Ms. Lipman's supporting statement contains
several statements that are false, misleading, or both. Without addressing each
of the inaccuracies contained in Mr. Althoff's letter to you, we will simply
address each of the alleged false or misleading statements in the order set
forth in his letter: 1. Counsel for Nortek implies that the transaction between the Corporation and
the three selling directors could not be found to constitute a violation of
their fiduciary duty to the Company in apparent reliance on Delaware Corporation
Law §144; this statute merely provides that a transaction between a corporation
and its insiders is not ipso facto void or voidable solely on account of the
relationship of the parties. It is notable in this regard that the contract
between Nortek and the selling directors contained provisions for Nortek to
indemnify the directors in their capacities as directors for losses they might
incur in connection with the repurchase. 2. Mr. Althoff's letter claims that there has not been a series of "unusual"
transactions, and then omits any discussion or defense of Richard Bready and
Bready Associates' individualized treatment under Nortek's poison pill.
Moreover, on information and believe, there were different financing commitments
made to Ecological Engineering Associates Limited Partnership at different
points in time so there were in fact a series of investments in such entity, not
a single, one-time investment. If this is not the case, Ms. Lipman would made
proper amendment. 3. It was the Board of Directors and not the shareholders who initially
implemented Section 3.4. of the By-laws. To remove any unintended implication
that the Board that initially approved the By-law provision is the same as the
currently constituted Board, Ms. Lipman would be amenable to deleting the phrase
"this very same board". 5. We submit on behalf of Ms. Lipman that the shareholders of Nortek can decide
whether the requirement to coordinate 100 stockholders in order to nominate any
director candidates other than those approved by incumbent management is an
excessive By-law restriction that impedes appropriate stockholder involvement.
Management should reserve its substantive case against the proposed By-law
amendment for inclusion in the Company's proxy statement. Should you have any questions regarding the foregoing, please call the
undersigned. Very truly yours, Gordon H. Hayes, Jr. GHH:dd
[STAFF REPLY LETTER]
August 13, 1996 RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE Re: Nortek Inc. (the "Company")
Incoming letter dated July 11, 1996 The proposal requests rescission of a by-law restricting shareholder nominations
for the board of directors. There appears to be some basis for the view that portions of the supporting
statement are potentially false and misleading in contravention of rule 14a-9 or
otherwise contrary to the Commission's proxy rules. The staff's views on this
matter are as follows: the phrase "this very same board" should be deleted from
the second sentence in the fifth paragraph; and the statement urging
shareholders to "withhold your proxy authority on the Board-approved nominees so
that a new slate can be elected at the Annual Meeting" should be deleted from
the fifth sentence in the fifth paragraph. Accordingly, if the proponent does
not provide the Company with a supporting statement revised in the manner
indicated within seven calendar days of the receipt of this letter, the staff
believes that the Company may rely on rule 14a-8(c)(3) as a basis for deleting
only the above-referenced statements. The staff does not believe that the
remainder of the proposal and supporting statement may be omitted from the
Company's proxy materials in reliance on rule 14a-8(c)(3). The staff is unable to concur in your view that the proposal may be omitted
pursuant to rule 14a-8(c)(8). The Division is of the view that the proposal
relates to the procedures for the election of directors. Accordingly, the staff
does not believe that the Company may rely on rule 14a-8(c)(8) as a basis for
omitting the proposal from its proxy materials. The staff is unable to concur in your view that the proposal may be omitted
pursuant to rule 14a-8(c)(4). Accordingly, the staff does not believe that the
Company may rely on rule 14a-8(c)(4) as a basis for omitting the proposal from
its proxy materials. Sincerely, Frank G. Zarb, Jr.
Special Counsel
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