Company Name: Watts Industries, Inc.
Public Availability Date: July 10, 1998
Document Sections:
LETTER OF INQUIRY 1
LETTER OF INQUIRY 2
APPENDIX
LETTER OF INQUIRY 3
LETTER OF INQUIRY 4
LETTER OF INQUIRY 5
LETTER OF INQUIRY 6
APPENDIX
STAFF REPLY LETTER
[LETTER OF INQUIRY 1]
June 11, 1998
Via Federal Express
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, D.C. 20549
Re: Opinion and request for no-action relief re Watts Industries, Inc.
shareholder
proposal
Ladies and Gentlemen:
This firm represents Watts Industries, Inc., a Delaware corporation (the
"Company"), and we are writing on behalf of the Company. The Company has
received the enclosed correspondence dated May 15, 1998 from Frederic B. Horne
(the "Proponent"). The Proponent requests in that correspondence that the
following proposal be presented at the Company's 1998 Annual Meeting of
Stockholders (the "Proposal"):
"RESOLVED: That the Amended and Restated Certificate of Incorporation of this
corporation be amended to delete the provisions that create two classes of
Common Stock so that there is only one class of Common Stock, each with one vote
per share."
It is our opinion that the Proposal may properly be omitted from the Company's
proxy statement for its annual meeting of stockholders scheduled to be held in
October, 1998 (the "Proxy Statement") pursuant to Rule 14a-8(c)(1) because the
matter proposed is an improper subject for stockholder action under the laws of
Delaware and pursuant to Rule 14a-8(c)(3) because both the Proposal and the
statement in support submitted by the Proponent are false and misleading. The
Company accordingly intends to omit the proposal from its Proxy Statement in
accordance with Rules 14a-8(c)(1) and (3) from the upcoming annual meeting of
stockholders to be held in October, 1998. We hereby request on behalf of the
Company that the Division of Corporation Finance of the Securities and Exchange
Commission not recommend any type of enforcement action if the Company omits the
Proposal from the Proxy Statement. The following is our analysis in support of
our opinion.
The Company has two classes of common stock, Class A Common Stock, par value
$.10 per share (the "Class A Shares"), and Class B common stock, par value $.10
per share (the "Class B Shares"). The Company's Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation") provides in relevant part
that the holders of Class A Shares shall have one vote per share and the holders
of Class B Shares shall have ten votes per share. Pursuant to Delaware law and
the Company's Certificate of Incorporation, the only way to effectuate the
Proposal would be to amend the Certificate of Incorporation.
I. The Proposal may be omitted under Rule 14a-8(c)(1) as an improper subject for
stockholder action under Delaware General Corporation Law Section 242(b)(1).
Rule 14a-8(c)(1) allows a corporation to omit a shareholder proposal from its
proxy statement "if the proposal is, under the laws of the registrant's
domicile, not a proper subject for action by security holders." The explanatory
"Note" to Rule 14a-8(c)(1) provides that "whether a proposal is a proper subject
for action by security holders will depend on the applicable state law."
Under Section 242(b)(1) of the Delaware General Corporation Law (the "DGCL"),
before an amendment to a company's certificate of incorporation may be
considered by the stockholders at an annual or special meeting, the company's
"board of directors shall adopt a resolution setting forth the amendment
proposed, declaring its advisability, and either calling a special meeting of
the stockholders entitled to vote in respect thereof for the consideration of
such amendment or directing that the amendment proposed be considered at the
next annual meeting of stockholders."
Effectuation of the Proposal would require that the Company's Certificate of
Incorporation be amended. The Proposal on its face purports to amend the
Certificate of Incorporation upon and by approval of the Proposal by the
stockholders. The Proposal is an invalid proposal which purports to allow the
stockholders of the Company to amend the Certificate of Incorporation by vote of
the stockholders without complying with the requirements of the DGCL. Under
Delaware law, the directors alone, not the stockholders, have the discretionary
authority to initiate amendments to a company's certificate of incorporation.
The Proposal seeks to circumvent the Board's exercise of its fiduciary duties by
attempting to substitute the stockholders' judgment concerning the advisability
of amending the Certificate of Incorporation for that of the Company's
directors. Such an action is not permitted by Delaware law, and the Proposal
therefore may not be considered by the stockholders. The Proposal, therefore, is
not a proper subject for action by the stockholders of the Company and hence may
be omitted. Hechinger Company (SEC no-action letter, March 28, 1997).
II. The Proposal may be omitted under Rule 14a-8(c)(3) because both it and its
Supporting Statement are false and misleading and thereby violative of Rule
14a-9.
The Proposal may be omitted under Rule 14a-8(c)(3) for several independent
reasons, each of which is sufficient grounds for omission.
The Proposal may be omitted under Rule 14a-8(c)(3) because it is false and
misleading on its face, and hence violates Rule 14a-9. The Proposal falsely
purports to effectuate, by stockholder vote, an amendment to the Company's
Certificate of Incorporation. As discussed above, Delaware law does not permit
the stockholders of the Company to consider or vote upon an amendment to the
Certificate of Incorporation unless the board of directors of the Company has
first adopted a resolution setting forth the amendment proposed, declaring its
advisability, and directing that the amendment be considered at the next annual
meeting of stockholders or at a special meeting of stockholders called by the
board of directors for the purpose of considering such amendment. DGCL
242(b)(1). As the Company's board of directors has not taken such actions, the
Proposal may not be considered by the stockholders under Delaware law and the
proposal would have no effect even if "approved" by a vote of the stockholders.
Including the Proposal in the Company's Proxy Statement would falsely and
misleadingly imply to the stockholders that the Proposal was properly before
them under Delaware law and that they had the power to effectuate the amendment
set forth in the proposal by voting for it. Both such implications would be
false and would mislead the stockholders.
The Proposal also may be omitted under Rule 14a-8(c)(3) because it is false and
misleading by reason of being inherently vague and indefinite. The Proposal only
states that unspecified provisions of the Certificate of Incorporation creating
two classes of common stock be deleted "so that there is only one class of
common stock, each with one vote per share." Yet the proposal does not explain
how that would be effectuated, nor does it explain the impact on current
stockholders. Under the Proponent's Proposal stockholders will be uncertain as
to what actions the Company will have to take under the Proposal, what rights
their shares would have if such a proposal could be effected and whether the
value of their shares under such a proposal would be positively or negatively
affected.
The Proposal also may be omitted under Rule 14a-8(c)(3) because the supporting
statement falsely and misleadingly asserts unsupported opinions as purported
facts, and hence violates Rule 14a-9, which prohibits false or misleading
statements in proxy soliciting material. The Proponent's supporting statement
purports to set forth certain "facts" concerning the current impact of the super
voting provisions and certain "facts" concerning the future impact of the
Proposal. Yet the supporting statement does not disclose whether the proponent
has any factual support for such assertions. For example:
(a) the supporting statement asserts that "the combination of super voting and
the Horne family voting trusts create the perception among certain investors of
limited available outstanding shares and reduced board independence;"
(b) the supporting statement asserts that the Class B voting provisions may
"represent an impediment to enhanced share valuation and appreciation by
limiting the potential stockholder base primarily to value oriented (investor)
funds, causing lower trading volume and fewer potential buyers;" and
(c) the supporting statement purports to assert as fact that adoption of the
Proposal will "benefit" the Company's stockholders in various ways.
The Proponent's statements are without factual support and represent his
unsupported opinions. In the absence of any factual support, the inclusion of
such assertions in the supporting statement is false and misleading. The
Proponent also fails to describe the potential disadvantages that could result
from a request that the Class B holders relinquish their voting control of the
Company.
The Proposal may also be omitted under Rule 14a-8(c)(3) because it fails to
disclose that the Proponent served as a trustee of the Horne Family Voting
Trust, which holds most of the Class B common stock, through 1997.
For the foregoing reasons, the Company has stated its intention to omit the
Proposal and requests that the Staff of the Division of Corporation Finance
confirm that it will not recommend any type of enforcement action if the Company
excludes the proposal from the Proxy Statement If the Staff has any questions
concerning the above opinion of counsel or the Company's conclusion or would
like any additional information with respect to this request, please contact the
undersigned at 617-570-1886.
Thank you very much for your consideration of this matter.
Very truly yours,
Stephen D. Poss, P.C.
[LETTER OF INQUIRY 2]
June 12, 1998
Via Federal Express
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, D.C. 20549
Re: Intention to Omit Watts Industries, Inc. Shareholder Proposal
Gentlemen and Ladies:
Watts Industries, Inc., a Delaware corporation (the "Company"), has received the
attached correspondence dated May 15, 1998, from Frederic B. Horne (the
"Proponent"). Mr. Horne requests in that correspondence that the following
proposal (the "Proposal") be presented at the Company's 1998 Annual Meeting of
Stockholders:
"RESOLVED: That the Amended and Restated Certificate of Incorporation of this
corporation be amended to delete the provisions that create two classes of
Common Stock so that there is only one class of Common Stock, each with one vote
per share."
The Company believes, based on the attached opinion of counsel, the proposal may
properly be omitted from its proxy statement for its annual meeting of
stockholders scheduled to be held in October, 1998 (the "Proxy Statement")
pursuant to Rule 14a-8(c)(1) because the matter proposed is an improper subject
for stockholder action under the laws of Delaware and pursuant to Rule
14a-8(c)(3) because both the Proposal and statement in support submitted by the
Proponent are false and misleading.
The Proposal is not a proper subject for action by stockholders and may be
omitted under Rule 14a-8(c)(1) because the Proposal purports to amend the
Company's Certificate of Incorporation. Such an amendment can only be initiated
by the Company's board of directors pursuant to Section 242(b)(1) of the
Delaware General Corporation Law, and the board has not done so. Hence the
stockholders may not vote to amend the Certificate of Incorporation as provided
in the Proposal.
The Proposal is false and misleading and may be omitted under Rule 14a-8(c)(3)
because the Proposal and the supporting statement submitted by the Proponent (i)
falsely purport to effectuate an amendment to the Company's Certificate of
Incorporation which cannot be effected by the stockholders under Delaware Law;
(ii) are vague and indefinite as to how a single class of stock would be
created, and as to the impact of the Proposal on current stockholders; (iii)
assert unsupported opinions as facts; and (iv) omit information about the
Proponent.
The Company accordingly intends to omit the proposal and requests no-action
relief. As required by Rule 14a-8(d), attached are six copies of the following
items:
(i) the Proposal;
(ii) the statement in support of the Proposal received from the Proponent;
(iii) this letter setting forth the reasons why the omission of the Proposal
from the Company's proxy statement is proper in this particular case; and
(iv) a supporting opinion of counsel and request for no-action relief.
A copy of this letter and the attachments thereto is being sent simultaneously
to the Proponent and his counsel.
Please do not hesitate to contact the undersigned if further information is
requested.
Very truly yours,
Thomas J. White
TJW:ean
cc: Mr. Frederic B. Horne
Mr. Roger D. Feldman, Esq.
[APPENDIX]
May 15, 1998
Watts Industries, Inc.
815 Chestnut Street
North Andover, MA 01845
Gentlemen:
Pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations issued thereunder, particularly Rule 14a-8, the undersigned hereby
notifies Watts Industries, Inc. ("Watts") of his intention to present a proposal
for action at the forthcoming annual meeting of stockholders ("Annual Meeting").
The following information is submitted to you in satisfaction of Rule 14a-8:
I am a record and beneficial owner of greater than both 1% of securities
entitled to be voted and $1,000 in market value of securities entitled to be
voted on the proposal at the Annual Meeting and I have held these securities for
at least one year. I intend to continue to own that amount of these securities
through the date on which the Annual Meeting is held. I enclose herewith a copy
of my amended Schedule 13D filed with the Securities and Exchange Commission on
May 1, 1998.
My name and address appear at the head of this letter. The number of my voting
securities held of record or beneficially is included in the amended Schedule
13D referred to above. I acquired such securities at various times before the
Watts Common Stock was registered under Section 12 of the Securities Exchange
Act of 1934, as amended. Please refer to the Schedule 13D, as amended, and Forms
3 and 4 prepared by Watts if there are any questions.
This proposal is submitted to you prior to May 19, 1998, the date specified in
the Watts proxy statement dated October 21, 1997.
I hereby submit one proposal and an accompanying supporting statement for
inclusion in the Watts proxy materials to be used in connection with the Annual
Meeting. The proposal and the supporting statement in the aggregate do not
exceed 500 words.
This proposal is, under the laws of Delaware, a proper subject for action by
security holders and is otherwise an appropriate proposal under Rule 14a-8(c).
Please note that the undersigned is aware of the provisions of Article I,
Section 2 of the Watts Amended and Restated By-laws, which are inconsistent with
the provisions of Rule 14a-8. Nevertheless, if you require, the undersigned will
provide you with the somewhat duplicative notice required under that section of
the by-laws not earlier than June 23, 1998, nor later than August 7, 1998.
If you have any questions regarding this matter, please contact Roger D.
Feldman, Esq. at Bingham Dana LLP. 150 Federal Street, Boston, MA 02110,
telephone (617) 951-8414, fax (617) 951-8736.
Very truly yours,
Frederic B. Horne
cc: Roger D. Feldman, Esq.
RESOLVED: That the Amended and Restated Certificate of Incorporation of this
corporation be amended to delete the provisions that create two classes of
Common Stock. so that there is only one class of Common Stock, each with one
vote per share.
Supporting Statement.
The Amended and Restated Certificate of Incorporation provides that each Class B
share (which are limited by the charter to the Horne family, descendants or
trusts for their benefit, and are mostly controlled by voting trusts disclosed
in this proxy statement) is entitled to ten votes, while each Class A share is
only entitled to one vote.
Eliminating the super voting provisions of Class B shares benefits stockholders
by:
equalizing elective power for the board of directors, thereby supporting board
independence,
encouraging fair value for the price of Class A shares, and
improving use of the company's equity as a source of capital to continue
growth by acquisition and otherwise.
The super voting provisions and continuity of control have provided stability of
leadership and ownership. However, the combination of super voting and the Horne
family voting trusts create the perception among certain investors of limited
available outstanding shares and reduced board independence. By granting Class A
holders the voting majority, effective control will continue to remain with the
Horne family, but the Class A gain the opportunity to have more influence with
the board.
Please see the Performance Graph in this Proxy Statement. The Class B super
voting provisions may represent an impediment to enhanced share valuation and
appreciation by limiting the potential stockholder base primarily to value
oriented (investor) funds. causing lower trading volume and fewer potential
buyers. This proposal endeavors to broaden the stockholder base and confirm
management's focus on maximizing value for all stockholders.
Although the super voting provisions existed prior to Watts public offerings,
and each Class A stockholder bought them with knowledge of the super voting
provisions, this proposal would expand the stockholder base by encouraging other
investors (who may have policies against owning a class of securities that does
not control the issuer) to invest. A larger base of potential purchasers would
create greater trading volume and greater demand. Expanding the stockholder base
ultimately enures to the benefit of stockholders.
By enhancing the company's market capitalization, additional advantages accrue
to Watts by improving its flexibility and opportunity to use Watts equity for
future acquisitions and other corporate purposes.
The elimination of the Class B shares would enhance stockholder value for all
stockholders. If you AGREE, please mark your proxy FOR this proposal.
[LETTER OF INQUIRY 3]
June 16, 1998
VIA FEDERAL EXPRESS
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, DC 20549
RE: Watts Industries, Inc.
Gentlemen and Ladies:
You have recently received correspondence from Watts Industries, Inc., a
Delaware corporation (the "Company"), with respect to its intention to omit a
shareholder proposal. This firm represents Frederic B. Horne, the proponent of
the shareholder proposal at issue. We intend to respond to the Company's
correspondence and hereby request that you take no action with respect to its
request until you have received our submission. We will endeavor to provide you
with that submission as early as possible.
Very truly yours,
Roger D. Feldman
RDF:djp92702
cc: John R. LeClaire
[LETTER OF INQUIRY 4]
June 18, 1998
VIA FEDERAL EXPRESS
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, DC 20549
RE: Watts Industries, Inc. Stockholder Proposal
Gentlemen and Ladies:
This firm represents Frederic B. Horne, a stockholder of Watts Industries, Inc.,
a Delaware corporation (the "Company"). Mr. Horne has submitted a proposal (the
"Proposal") to the Company to be included in the Company's proxy statement with
respect to its 1998 Annual Meeting of Stockholders. By letter dated June 12,
1998, the Company has notified the Staff of its intent to omit the Proposal and
has asked the Commission to take no action with respect thereto.
The Company has submitted a copy of Mr. Horne's letter dated May 15, 1998,
addressed to the Company and the accompanying Proposal. The Company did not
furnish, and thus we enclose herewith, Mr. Horne's letter dated May 18, 1998,
addressed to the Board of Directors of the Company, the Company's letter, dated
May 29, 1998, addressed to Mr. Horne, and Mr. Horne's letter dated June 10,
1998, addressed to the Secretary of the Company. While we have excluded the
enclosures contained in Mr. Horne's June 10, 1998 letter, they indicate his very
significant ownership of both Class A and Class B Common Stock for many years.
Please review these additional letters and enclosures.
The Company has stated its belief that the Proposal may be omitted from its
proxy statement pursuant to Rule 14(a)-8(c)(1) because the matter proposed is an
improper subject for stockholder action under the laws of Delaware and pursuant
to Rule 14(a)-8(c)(3) because the Proposal and the statement are false and
misleading.
Mr. Horne and we disagree with both arguments for the reasons set forth below.
Rule 14(a)-8(c)(1)
The Proposal asks the stockholders to vote on an amendment to the Company's
Certificate of Incorporation, but does not purport, by itself, to amend the
Certificate of Incorporation. Nor does the Proposal mandate any action by the
Board of Directors. While we agree that in order to validly amend the
Certificate of Incorporation, a proposal must be initiated by the Company's
Board of Directors pursuant to Section 242(b)(i) of the Delaware General
Corporation Law, this Proposal is only intended to express the sense of the
stockholders that the Board of Directors should initiate such an amendment.1
In order to clarify the Proposal, Mr. Horne would be willing to restate the
Proposal to request the Board of Directors take the steps necessary to amend and
restate the Certificate of Incorporation to delete the provisions that create
two classes of common stock, so that there is only one class of common stock,
each with one vote per share. A copy of a possible revised proposal is enclosed
for your review.
Rule 14(a)-8(c)3)
The Company has stated that the Proposal is false and misleading in four
separate respects. We disagree and respond to each of those arguments in order.2
(i) Contrary to the Company's argument, the Proposal does not say or imply that
the Proposal will actually effectuate an amendment to the Company's Certificate
of Incorporation (although this objection would be irrelevant if Mr. Horne is
permitted to alter the Proposal as set forth above). Further, in the event that
the Company wishes to clarify this matter, it can certainly state its position
in its opposition to the Proposal.
(ii) Mr. Horne and we do not understand the Company's position that his Proposal
is "vague and indefinite as to how a single class of stock would be created." In
fact, the effect of an amendment to eliminate the Class B stock is rather
simple, since the elimination of the Class B stock would merely mean that all of
the Class B stock, which is currently convertible into Class A stock, would be
converted into Class A stock on a share-for-share basis. With respect to the
resultant value on the shares, Mr. Horne has quite clearly expressed his
opinions on this subject and it is these opinions that the Company attacks in
(iii) below.
(iii) The Proposal clearly characterizes Mr. Horne's opinions as just that, and
Mr. Horne is permitted to state his opinions. With respect to the three examples
cited by the Company, the first example ("perception among investors of limited
available outstanding shares and reduced board independence") is provable by Mr.
Horne's own perception as well as the results of his discussions with others;
the second example ("the Class B super voting provisions may [emphasis added]3
represent an impediment....") clearly states Mr. Horne's judgment on this
matter; and, finally, the third example used by the Company completely ignores
all of Mr. Horne's opinions as to the benefits that are briefly described in the
supporting statement to the Proposal. In addition, the Company states that Mr.
Horne should state any disadvantages of the Proposal. If the Company believes
there are disadvantages to the elimination of the Class B stock, it may state
them in its opposition statement in the proxy statement; the proponent of a
proposal is not required to argue both sides of the issue.
(iv) Lastly, the Company has stated in its submission that it is somehow
material that Mr. Horne did not disclose that he had previously "served as a
trustee of the Horne Family Voting Trust, which holds most of the Class B common
stock, through 1997."1 Mr. Horne has not omitted any required information about
himself. Adding information to this effect provides no required or even useful
information to the Company's stockholders. The omission of facts relating to Mr.
Horne's lifelong relationship with the Horne family and approximately 25 year
relationship with the Company does not make the Proposal false and misleading.
If the Company can somehow establish the relevance of this information to the
Proposal and wishes to disclose it in its response, it may do so.
Conclusion
For the reasons set forth above, we urge the Staff to conclude that Mr. Horne's
Proposal and supporting statement may not be omitted from the Company's proxy
statement or, in the alternative, that he be provided an opportunity to amend
the Proposal and supporting statement in order to rectify any of the Staff's
concerns.
We are filing six copies of this letter and the enclosures, and we are
concurrently sending a copy to the Company and its counsel.
Very truly yours,
Roger D. Feldman
RDF:djp92702
cc: Watts Industries, Inc. (Attn. Secretary)
John R. LeClaire, Esq.
Frederic B. Horne
-----FOOTNOTES-----
1 In fact, Mr. Horne's May 18, 1998, letter to the Board of Directors requests
the Board to support the Proposal.
2 Mr. Horne would also be willing to amend the supporting statement to correct
any concerns of the Staff.
3 This highlights the importance of the key word not quoted by the Company in
its submission to the Staff.
1 In fact, Mr. Horne voluntarily resigned in October 1997 in connection with the
formation of a new voting trust in which he declined to participate.
[LETTER OF INQUIRY 5]
June 26, 1998
Via Federal Express
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, D.C. 20549
Re: Frederic B. Horne's response to Watt's Industries, Inc.'s opinion and
request
for no-action relief re Watts Industries, Inc. shareholder proposal
Ladies and Gentlemen:
This firm represents Watts Industries, Inc., a Delaware corporation (the
"Company"). By letter dated June 18, 1998, counsel for Frederic B. Horne (the
"Proponent") responded to the Company's letter of June 12, 1998, notifying you
of its intention to omit the Proponent's shareholder proposal (the "Proposal").
In this letter we respond to various statements made by the Proponent. We also
continue to rely on our opinion of June 11, 1998 which was filed with the
Company's letter of June 12, 1998.
I. The Company's filing.
The Proponent states that the Company did not submit (i) the Proponent's letter
of May 18, 1998 addressed to the Company's Board of Directors; (ii) the
Company's letter of May 29, 1998 requesting evidence of Proponent's beneficial
ownership in accordance with Rule 14a-8(a); and (iii) the Proponent's letter of
June 10, 1998. The Company did not submit the above letters because (i) they are
not required to be filed under Rule 14a-8(d) and (ii) they are immaterial to the
question of whether the Proposal should be excluded pursuant to Rule 14a-8(c)(1)
or Rule 14a-8(c)(3).
II. Response to Proponent's Rule 14a-8(c)(1) argument.
Proponent states that "[w]hile we agree that in order to validly amend the
Certificate of Incorporation, a proposal must be initiated by the Company's
Board of Directors pursuant to Section 242(b)(i) [sic] of the Delaware General
Corporation Law, this Proposal is only intended to express the sense of the
stockholders that the Board of Directors should initiate such an amendment."
(Emphasis added.) Yet, that is not how the Proposal is drafted. Moreover, the
shareholders should not have to decipher what the "intention" of the Proposal
is. As the Proponent admits, the Proposal in its current form is not a proper
subject for action under applicable state law.
III. Response to Proponent's Rule 14a-8(c)(3) argument.
Even if the Proponent were to recast his Proposal in precatory form, that would
not cure the defects of the Proposal and the supporting statement under Rule
14a-8(c)(3):
a. The Proponent states that the Company is free to clarify, in the Company's
statement of position in opposition to the Proposal, that the Proposal cannot
effectuate what it appears to effectuate. The Proponent's argument, however, is
not adequate to cure the conceded defects in the Proposal as written and hence
the inclusion of the Proposal, without the necessary clarification, would
violate Rule 14a-9 because it is vague (i.e., false and misleading).
Furthermore, it is the Proponent's obligation, not the Company's, to make the
Proposal comply with Rule 14a-9.
b. The Proponent states that he does not understand the Company's position that
his Proposal is "vague and indefinite as to how a single class of stock would be
created" and suggests that somehow all Class B shares would "be converted" into
Class A shares. The Proposal does not suggest "converting" Class B shares into
Class A shares; instead, it simply suggests that there would be only one class
of stock with one vote per share. The Proposal does not suggest what the
proposed amendment would provide, how it would operate, who would vote on it, or
what the required votes would be to approve it.
c. The Proponent says that he "clearly characterizes" much of his supporting
statement as opinion and cites three examples of what he claims are opinions.
The Proponent's first example is that there is a "perception among investors of
limited available outstanding shares and reduced board independence." This
example is an unqualified statement, a purported fact. It does not disclose; it
is merely the Proponent's opinion. Moreover, the Proponent's letter reveals the
false and misleading nature of the Proponent's supporting statement, in that
Proponent's counsel concedes that the "perception among investors" is meant to
refer to the "perception" of the Proponent himself. That fact is not disclosed
in the supporting statement. The Proponent's second example is the use of the
word "may" in "the Class B super voting provisions may represent an
impediment...." (Emphasis in original.) In this example, "may" does not
represent an opinion, but rather is a statement of possibility or a reference to
a degree of likelihood. The Proponent's third example that the "Company
completely ignores all of Mr. Horne's opinions as to the benefits that are
briefly described in the supporting statement" is also definitely stated as a
fact, not an opinion. Reading the supporting statement makes it clear that none
of his declarations regarding the so-called benefits of the Proposal are
expressed as merely being opinions. Instead, the Proponent only speaks in
unqualified terms.
d. Finally, the Proponent argues that his service as a "trustee of the Horne
Family Voting Trust" is immaterial and omitting it would not be false and
misleading. We believe the fact that the Proponent previously served as a
trustee of the Horne Family Voting Trust and in this capacity on many occasions
exercised the voting power associated with the Class B shares (including in
elections of directors) is material because it discloses to other Company
shareholders that the Proponent has changed his position with respect to the
issue raised in the Proposal. This fact may cause the shareholders to consider
the Proposal in a different light than they would if they did not know this
fact.
For the foregoing reasons, as well as those stated in our opinion dated June 11,
1998, the Company intends to omit the Proposal and requests that the Staff of
the Division of Corporation Finance confirm that it will not recommend any
enforcement action if the Company excludes the Proposal from its proxy
statement. If the Staff has any questions concerning this request or would like
any additional information with respect thereto, please contact the undersigned
at 617-570-1886.
We are filing an additional six copies of this letter with copies simultaneously
being sent to the Proponent and his counsel.
Thank you very much for your consideration of this matter.
Very truly yours,
Stephen D. Poss, P.C.
SDP:ct
cc: Mr. Frederic B. Horne
Mr. Roger D. Feldman, Esq.
[LETTER OF INQUIRY 6]
July 1, 1998
VIA FEDERAL EXPRESS
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, DC 20549
RE: Watts Industries, Inc. Stockholder Proposal
Gentlemen and Ladies:
This firm represents Frederic B. Horne (the "Proponent") and we communicated to
you by letter dated June 18, 1998 regarding the Proponent's shareholder proposal
(the "Proposal"). By letter, dated June 26, 1998, Goodwin, Proctor & Hoar LLP,
counsel to Watts Industries, Inc. (the "Company"), responded to our letter.
The June 26, 1998 letter from the Company's counsel, which focuses on the
Proponent's supporting statement, does not raise any new arguments. We do not
believe that the Proponent's supporting statement is defective (although the
Proponent reiterates his willingness to amend the supporting statement as well
as the Proposal).
The Company's counsel is merely engaging in a dissembling of words in order to
attribute ambiguity where none exists, and to require the Proponent to
repetitively state that it is only in his opinion that certain benefits could
occur. Finally, the Company's counsel argues that the Proponent's past service
as a trustee of the Horne Family Voting Trust is material (because it discloses
to other Company shareholders that the Proponent has changed his position with
respect to the issue raised in the Proposal) and therefore to omit it is false
and misleading. However, we fail to see the materiality of Mr. Horne having
changed his views on this subject. This information does not rise to the dignity
of "false and misleading" under Rule 14a-9.
We are filing an additional six copies of this letter with copies simultaneously
being sent to the Company and its counsel.
Very truly yours,
Roger D. Feldman
RDF:djp92702
cc: Watts Industries, Inc. (Attn. Secretary)
John R. LeClaire, Esq.
Frederic B. Horne
[APPENDIX]
May 18, 1998
Board of Directors
Watts Industries, Inc.
815 Chestnut Street
North Andover, MA 01845
Gentlemen:
This letter is to explain the enclosed stockholder proposal recently made by me.
I have been uncomfortable with the provisions of the Watts Industries Amended
and Restated Certificate of Incorporation that entitles each share of Class B
Common Stock to ten votes. This situation has been reviewed with various
entities, including Morgan Walke (please refer to their August 1997 letter),
other stockholders, investment bankers and attorneys. Also considered was the
historical performance of the Company's Class A Common Stock, both absolutely
and in comparison to market indicators and other peer companies. After
considering all of these facts, I am concerned that the super voting provisions
attached to the Company's Class B shares are not in the best interests of the
Company and its stockholders.
I believe that the Class B share super voting provisions are contrary to most
investors' standards for independent board governance and may actually inhibit
corporate growth strategies by impeding share valuation. In further support of
this argument and despite the Company's efforts to improve stockholder returns,
the stock continues to trade on reduced volume and the Company lacks broad
investor support.
I would prefer that the proposed resolution to amend the Company's Amended and
Restated Certificate of Incorporation be presented to the stockholders with the
support of the Board of Directors. I request that the Board of Directors
consider the adoption of the proposed resolution and propose such amendment to
the stockholders for their approval at the 1998 Annual Meeting.
I hope that the Directors will undertake appropriate independent action and
consider this proposal in good faith in order to make an informed decision in
their fiduciary capacity. In the interest of impartiality, I urge you to form a
special committee with a majority of independent Directors to review generally
the alternatives for increasing stockholder value and, more specifically, the
merits of such a proposal, especially in the context of the Horne family voting
trusts. I recommend that you solicit the views of stockholders. investment
bankers and other appropriate outsiders as part of this consideration.
In this connection, please note that, to my knowledge, the Board of Directors
was not presented the opportunity to formally review (for conformity with the
interests of all stockholders) or approve the 1997 Horne family voting trust at
the time it was adopted.
I understand that this proposal can be easily defeated by the Directors and by a
vote of the Class B shares. Nevertheless, I believe it is important for you to
hear and consider the market sentiments that I have heard and considered. Thank
you for your consideration.
Very truly yours,
Frederic B. Horne
May 29, 1998
Via Return Receipt Express Mail
Mr. Frederic B. Horne
219 Liberty Square
Danvers, MA 01923
Dear Mr. Horne:
We have received your letter dated May 15, 1998 as well as your letter to the
Board of Directors of Watts Industries, Inc. (the "Company") dated May 18, 1998.
In these letters you request that a proposal be submitted for stockholders
approval at the next annual meeting of stockholders of Watts Industries, Inc.
(the "1998 Annual Meeting").
Your proposal fails to meet the requirements of Rule 14a-8(a) of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"). As a matter of
policy, Watts believes that it should treat all the makers of stockholder
proposals, no matter what their relationship to the Company may be, in the same
manner. Therefore, in accordance with Rule 14a-8(a), we hereby request
documentary support to your claim of beneficial ownership made in your letter
dated May 15. Your letter dated May 15 neglects to indicate the dates upon which
you acquired the voting securities in the Company, as well as evidence that you
have held the voting securities in question for a period of at least one year
preceding the 1998 Annual Meeting.
Please submit a statement indicating the dates upon which you acquired the
voting securities in the Company, and a copy of a Schedule 13D, Schedule 13G,
Form 13F, Form 3 and/or Form 4, or amendments thereto, indicating your
beneficial ownership as of or prior to one year preceding the 1998 Annual
Meeting. Please also submit a copy of all subsequent amendments reporting a
change in ownership level.
This request neither precludes our rights to challenge your proposal as
improperly submitted nor our rights to challenge the accuracy of any language
contained therein and/or the legality thereof. Please also be reminded of your
obligations under the SEC's proxy solicitation rules (Regulations 14A and 14C of
the Exchange Act) and under your severance agreement dated September 16, 1997.
Finally, in connection with this matter, the Company wishes to confirm that the
Board of Directors of the Company has always considered and continues to
consider the interests of the Company's shareholders and the promotion of the
Company's long-term growth.
Very truly yours,
Suzanne Zabitchuck
SZ:ean
cc: Roger Feldman, Esq.
June 10, 1998
Ms. Suzanne Zabitchuck
Secretary
Watts Industries, Inc.
815 Chestnut Street
North Andover, MA 01845
Dear Ms. Zabitchuck:
This letter responds to your letter, dated May 29, 1998.
I strongly disagree with the conclusion stated in your May 29 letter that my
proposal "fails to meet the requirements of Rule 14a-8(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")." I have stated that the
dates upon which I acquired the securities were "at various times before the
Watts Common Stock was registered under the Securities Exchange Act of 1934, as
amended." This disclosure is quite adequate. All of the securities currently
owned by me are either shares of Class B Common Stock registered in my name as
the record owner or are shares of Class A Common Stock received by the upon
conversion of the Class B shares. Since Watts Industries, Inc. (the "Company")
is itself the transfer agent of the Class B Common Stock, the Company can verify
the dates of my acquisition of Class B shares (and, hence, the Class A shares)
from its records. If you require me to tell you the dates in a letter, then
request is hereby made that the Company, as the transfer agent of the Class B
shares, first furnish me with the dates of acquisition. Please also confirm in
writing to me my exact name and address as it appears in those stock records.
Nevertheless, I acknowledge that under Rule 14a-8(a) you may request additional
information. I am the beneficial holder of at least 1% of $2,000 in market value
of the voting securities of the Company. I enclose herewith a copy of my
Schedule 13G and my Schedule 13D, together with Amendments No. 1 through 4
thereto, all of which have been filed with the Securities and Exchange
Commission (the "Commission") pursuant to the Exchange Act. I also enclose
herewith copies of my Forms 4 which have also been filed with the Commission
pursuant to the Exchange Act during the period May 1997 through the last one
filed in March 1998. (As you know, the Schedule 13G and the Schedule 13D and
Amendments No. 1 and 2 thereto and all Forms 4 were prepared and filed by the
Company and its legal counsel on my behalf and I have previously delivered to
you copies of Amendments No. 3 and 4 to the Schedule 13D. However, I furnish you
with duplicate copies.) These filings confirm my beneficial ownership of at
least 1% or $2,000 in market value of the voting securities of the Company for
significantly longer than the relevant one-year period.
I also enclose herewith my Affidavit attesting to my continued beneficial
ownership of at least 1% or $2,000 in market value of the voting securities of
the Company for many years, including throughout the required one-year period
and as of the date of the Affidavit.
Finally, in satisfaction of Rule 14a-8(a)(1)(ii), I hereby state that I intend
to continue ownership of such securities through the date on which the Company's
meeting of stockholders is held.
I acknowledge the sentiment contained in the second sentence of the penultimate
paragraph of your letter of May 29, 1998. The proposal is focused solely on
improving stockholder value. In that connection, I remind the Company of its
obligations under my severance agreement dated September 16, 1997.
Very truly yours,
Frederic B. Horne
cc: Roger D. Feldman, Esq.
[STAFF REPLY LETTER]
July 10, 1998
RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE
Re: Watts Industries, Inc. (the "Company")
Incoming letter dated June 12, 1998
The proposal requires the Company's existing Certificate of Incorporation to be
amended to delete provisions creating two classes of common stock, so that there
is only one class of common stock and each share of common stock has one vote.
There appears to be some basis for your view that the proposal may be omitted
pursuant to rule 14a-8(i)(1) as an improper subject for shareholder action under
state law. It appears that this defect could be cured, however, if the proposal
is recast as a recommendation or a request that the board of directors take the
steps necessary to implement the proposal. Unless the proponent revises the
proposal in this manner, within seven calendar days after receiving this letter,
the Division will not recommend enforcement action to the Commission if the
Company omits the proposal from its proxy materials under rule 14a-8(i)(1).
The Division is unable to concur in your view that the entire proposal may be
omitted from the Company's proxy materials under rule 14a-8(i)(3). However,
there appears to be some basis for your view that portions of the supporting
statement may be false or misleading under rule 14a-9. In the staff's view, the
proponent must revise the supporting statement to clarify each of the following
portions is the proponent's opinion, or the portion may be excluded from the
Company's proxy materials: (1) the second paragraph of the supporting statement,
regarding "benefits" of adopting the proposal; and (2) the second sentence of
the fourth paragraph of the supporting statement, regarding the stockholder base
and trading volumes. Unless the proponent provides the Company with a proposal
revised in the manner indicated above, within seven calendar days after
receiving this letter, the Division will not recommend enforcement action to the
Commission if the Company omits these portions of the supporting statement from
its proxy materials under rule 14a-8(i)(3).
Sincerely,
Carolyn J. Sherman
Special Counsel
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