Company Name: American Power Conversion Corp.
Public Availability Date: March 29, 2002
Document Sections:
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
APPENDIX 3
APPENDIX 4
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
January 18, 2002
VIA OVERNIGHT DELIVERY
Office of Chief Counsel
Staff of Corporate Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 02549
Re: American Power Conversion Corporation - Omission of Shareholder Proposal
Ladies and Gentlemen:
American Power Conversion Corporation (the "Corporation") received two
proposals, each dated November 20, 2001, for inclusion in the Corporation's
Proxy Statement and form of Proxy relating to the 2002 Annual Meeting of
Stockholders (the "2002 Annual Meeting") (collectively, the "Proxy Materials").
The first proposal, sent via facsimile ("Proposal A") was submitted by the
Teachers Insurance and Annuity Association College Retirement Equities Fund
("Proponent A") and the second proposal, sent via Certified Mail ("Proposal B,"
and together with Proposal A, the "Proposals") was submitted by the
Massachusetts Laborers' Pension Fund ("Proponent B," and together with Proponent
A, the "Proponents"). Proposal B was received after Proposal A. Proposal A and
Proposal B are attached hereto as Exhibit A and Exhibit B, respectively. The
Corporation hereby requests confirmation that the staff of the Division of
Corporation Finance of the Securities and Exchange Commission (the "Staff") will
not recommend enforcement action if the Corporation, pursuant to Rules
14a-8(i)(10), (3) and (11) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), omits the Proposals from the Proxy Materials for the 2002
Annual Meeting for the reasons set forth.
GENERAL
The 2002 Annual Meeting is scheduled to be held in June 2002. The Corporation
intends to file its definitive Proxy Materials with the Securities and Exchange
Commission (the "SEC") on or about April 25, 2002 and to commence mailing the
same to its stockholders on or about such date.
Pursuant to Rule 14a-8(j) promulgated under the Exchange Act, enclosed are:
1. Six copies of the Proposals and supporting statements; and
2. Seven copies of this letter, which includes an explanation of why the
Corporation believes that it may exclude the Proposals.
A copy of this letter is also being sent to the Proponents as notice of the
Corporation's intention to omit the Proposals from the Corporation's proxy
materials for the 2002 Annual Meeting.
SUMMARY OF PROPOSALS
Proposal A
Proposal A requests that the Board of Directors adopt a policy to nominate
director candidates such that a substantial majority of the directors would be
"independent," as defined therein, and, if sufficient independent directors are
elected, that all key committees would be composed solely of such directors.
Proposal B
Proposal B urges the Board of Directors to establish a Board of Directors with
at least two-thirds of its members being "independent" directors, as defined
therein.
REASONS FOR EXCLUSION OF PROPOSALS
The Corporation believes that both Proposals may be properly omitted from the
Proxy Materials for 2002 Annual Meeting pursuant to Rules 14a-8(i)(10) and (i)(3).
The Proposals may be excluded pursuant to Rule 14a-8(i)(10) because the
Corporation has substantially implemented the goal of the Proposals. The
Proposals may also be excluded pursuant to Rule 14a-8(i)(3) because due to their
vagueness, the Proposals are contrary to the proxy rules and regulations.
In the event the Staff does not concur that Proposal A may be omitted from the
proxy materials for the 2002 Annual Meeting, Proposal B may be excluded pursuant
to Rule 14a-8(i)(11) because it substantially duplicates Proposal A, which was
received by the Corporation prior to Proposal B.
1. The Corporation may omit both Proposals pursuant to Rule 14a-8(i)(10) because
they have already been substantially implemented.
Rule 14a-8(i)(10) permits the omission of a stockholder proposal if "the company
has already substantially implemented the proposal." The "substantially
implemented" standard replaced the predecessor rule allowing the omission of a
proposal that was "moot." It also clarifies the Staff's interpretation of the
predecessor rule that the proposal need not be "fully effected" by the company
to meet the mootness test, so long as it is substantially implemented. The Staff
has consistently taken the position that a stockholder proposal has been
substantially implemented when a company already has already taken steps to
fulfill the underlying goal of the proposal. See AMR Corporation, (April 17,
2000) ("AMR"); and Masco Corporation, (March 29, 1999) ("Masco 1").
In AMR, a proposal recommending that members of certain board committees be
independent directors was substantially implemented, but not "fully effected."
The AMR by-laws imposed-standards of independence for Directors serving on
certain committees. While the AMR proposal differed slightly from the
independence requirements already followed by the company, and thus had not been
"fully effected," the Staff applied the "substantially implemented"
interpretation in concurring that the AMR proposal could be excluded under Rule
14a-8(i)(10). In Masco 1, the Staff allowed the omission of a proposal that
required a new standard for the qualifications of "outside directors" because
the company's board had a standard that was similar, but not identical, to the
standard set forth in the proposal. Similarly, in the present case, the
Proposals seek a Board of Directors composed of a majority of "independent
directors" and committees composed solely of independent directors. The
Corporation believes that in practice it has already taken steps so that a
majority of its Board, and all members of committees of the Board are
independent, thus substantially implementing the goals of the Proposals.
a) A majority of the current directors of the Corporation are independent
The Corporation already meets the standard of a majority of independent
directors set forth in Proposal A, and falls just shy of meeting the two-thirds
requirement proposed in Proposal B. Four of the seven directors of the
Corporation are independent in that they have no relationship to the Corporation
that would interfere with the exercise of their independent judgement. Two of
the four independent directors were appointed by the Board in June, 2001 in
order to increase the number of independent directors on the Board. Proposal A
requires that a substantial majority of the board be independent. Although no
definition of "substantial majority" is provided in Proposal A, the Corporation
asserts that under the current make-up of the Board, it has substantially
implemented the purpose set forth by the Proposals.
Although the Corporation does not currently meet the two-thirds standard
presented in Proposal B, four out of seven independent directors substantially
implements the focus of the proposal. The Corporation believes that the
submission of the proposal was based, at least in part, on an incorrect
understanding of the current board of directors. The supporting statement to
Proposal B states:
At our Company, three of the five members of the board of directors do not
qualify as independent directors under the definition provided.
Since at the time Proposal B was submitted the Corporation's Board consisted of
seven members (and the election of the additional members had been made public
months before the receipt of the proposal), this statement is false and could
mislead shareholders if presented to them.
b) The current members of the Corporation's board of directors substantially
meet the proposed standards of independence
A majority of the Corporation's directors are independent under commonly
accepted corporate governance standards, as well as the standards for
independent directors promulgated by the National Association of Securities
Dealers Automated Quotations (the "Nasdaq") and sanctioned by the SEC for audit
committees. Under the Nasdaq requirements, no member of an audit committee may
have: 1) been employed by the corporation or its affiliates in the current or
past three years; 2) accepted any compensation from the corporation or its
affiliates in excess of $60,000 during the previous fiscal year (except for
board service, retirement plan benefits, or non-discretionary compensation); 3)
an immediate family member who is, or has been in the past three years, employed
by the corporation or its affiliates as an executive officer; 4) been a partner,
controlling shareholder or an executive officer of any for-profit business to
which the corporation made, or from which it received, payments (other than
those which arise solely from investments in the corporation's securities) that
exceed five percent of the organization's consolidated gross revenues for that
year, or $200,000 whichever is more, in any of the past three years; or 5) been
employed as an executive of another entity where any of the corporation's
executive serve on that entity's compensation committee. Even though the Nasdaq
standard pertains only to members of the audit committee, a majority of the
members of the Corporation's entire board of directors meet this standard.
The six stated requirements for independence proposed by Proponent B are met by
a majority of the Corporation's current board members. It is only by reference
to Proposal A's more restrictive definition of "independence" that a majority of
the Corporation's board could be considered anything other than independent.
However, the Corporation believes that the four members it considers independent
substantially meet the requirements of Proposal A.
Proposal A provides that "independent directors" are directors:
who are not present or former employees of the Company and, other than stock
ownership, have no significant personal or financial ties to the Company or
management that in fact or appearance could compromise directors' objectivity or
loyalty to the shareholders. (emphasis added)
Proposal A thus requires that the director has never been employed by the
Corporation. Proponent A thus argues that one of the directors, Mr. Ervin Lyon,
is not independent since he was the founding Chairman of the Board. But Mr. Lyon
has not been an employee, an officer or Chairman of the Board of the Corporation
for approximately 15 years, which is twice as long as the period in which he was
an employee of the Corporation. The Corporation believes it is reasonable to
rely on Mr. Lyon's ability to not allow his initial experience with the
Corporation to interfere with his exercise of independent judgment, and that Mr.
Lyon should be considered independent.
With respect to the second part of the independence standard in Proposal A,
unfortunately, there is no definition or other explanation of what is meant by
"no significant personal or financial ties." If Proposal A were adopted, the
standard of "no significant personal or financial ties" is so vague that the
Corporation could not know with surety if this requirement had been met.
However, the Corporation believes that the current Board of Directors has a
majority of independent directors and substantially meets the standards for
independence in Proposal A because four of the seven directors meet the
objective criteria of Nasdaq and Proposal B, and, the Corporation believes, do
not have "significant personal or financial ties to the [Corporation] or
management that in fact or appearance could compromise directors' obligation of
loyalty to the shareholders."
c) The members of the Corporation's committees are independent as required by
the Proposals.
The Corporation believes that its committees are free from conflict of interest
and thus independent. All of the members of the Corporation's committees are
independent, as discussed in subsection (b) above.
In AMR, the board of directors removed inside directors from key committees so
that in both policy and practice, the committees fulfilled the goals of the
proposal. The Staff found that in light of the company's representation that the
members of the committees identified in the shareholder proposal met the
criteria of independence proposed, there was a basis to support the argument
that the shareholder proposal had already been substantially implemented. In the
situation at hand, the result should be the same. The Corporation's committees
already meet the standards of independence set forth in Proposal B, as well as
complying with the requirements set forth by Nasdaq.
While the Corporation concedes that, because of Proposal A's vague definition of
independent and Proposal B's requirement of a two-thirds majority, it has not
"fully-effected" every word of the Proposals, the Corporation believes that it
has, nonetheless, "substantially implemented" the goals of the Proposals to
increase the number of independent directors that have no relationship with the
Corporation that would interfere with the exercise of their independent
judgment. Accordingly, the Corporation may properly exclude the Proposals
pursuant to Rule 14a-8(i)(10). Additionally, the Corporation incorporates herein
the arguments below with regard to excluding the Proposals in reliance on Rule
14a-8(i)(3).
2. The Corporation may omit the Proposals pursuant to Rule 14a-8(i)(3) because
they are vague and misleading, and therefore contrary to Rule 14a-9.
Rule 14a-8(i)(3) allows a registrant to exclude a proposal that is contrary to
any of the SEC's proxy rules and regulations, including Rule 14a-9, which
prohibits the making of false or misleading statements in proxy soliciting
materials or the omission of any material fact necessary to make statements
contained therein not false or misleading. The Staff has traditionally
recognized that a proposal may be excluded under Rule 14a-8(i)(3) (and its
predecessor, Rule 14a-8(c)(3)) if it is so vague and indefinite that
stockholders voting on the proposal would not be able to determine with
reasonable certainty exactly what action or measures would be required in the
event the proposals were adopted. See SI Handling Systems, Inc., (May 5, 2000);
Kmart Corporation, (March 28, 2000); and California Water Service Group,
(February 8, 1999).
Proposal A
As noted above, Proposal A requires the Corporation to have a "substantial
majority" of "independent directors" on its Board of Directors, but provides
virtually no guidance with respect to the definition of either term.
If Proposal A was to be presented to the Corporation's stockholders, it would
not be clear what standard of "independence" was being presented for their vote.
The implementation of the "significant ties" standard set forth in Proposal A,
raises numerous questions that are not addressed in either the proposal or the
supporting corresponding statement. What relationships would disqualify a
person? Could individuals with significant banking relationships with the
Corporation serve on the Board of Directors? Does the "personal" relationships
mean blood or marriage relationships, or does it include personal friendships?
What amount of money is significant: $100, $1,000, $100,000? Is it "significant"
to the Corporation or the individual? And what is a substantial majority? Four
of seven directors? Seven of seven directors? Therefore Proposal A is properly
excludable under 14A-8(i)(3) as it is vague and misleading and would be
impossible to fully implement.
Proposal B
The supporting statement to Proposal B makes mischaracterizations by implying
that members of the Corporation's management should be replaced. "The board of
directors must operate independently of the Corporation's chief executive
officer and senior management if it is to fulfill its duty to hire, oversee,
compensate and if necessary replace management ... we believe independent boards
are better positioned to remove non-performing senior executives." (emphasis
added). Proposal B is properly excludable as these statements are contrary to
Rule 14a-9's prohibition on materially false and misleading statements in proxy
materials. Unfounded and incorrect assertions representing the personal opinions
of shareholders have been viewed by the Staff as excludable under 14a-8(i)(3)
and Rule 14a-9. See SI Handling Systems, (May 5, 2000). In addition, the
Corporation notes that the supporting statement for Proposal B mistakes the
current number of directors, although the Corporation recognizes that this
mistake could be easily corrected.
The Staff has long recognized that a proposal may be excluded under Rule
14a-8(i)(3) if the proposal is so inherently vague and indefinite that "neither
the stockholders voting on the proposal, nor the Company in implementing the
proposal would be able to determine with any reasonable certainty what actions
or measures the proposal requires." See Philadelphia Electric Co. (July 30,
1992); and Corning Inc. (February 18, 1997). Therefore, pursuant to Rule
14a-8(i)(3), the Proposals may be excluded as being contrary to the Commission's
proxy rules and regulations, namely Rule 14a-9.
3. If the Staff does not concur that the Proposals may be omitted pursuant to
Rule 14a-8(i)(3) or Rule 14a-8(i)(10) as set forth above, the Corporation may
omit Proposal B pursuant to Rule 14a-8(i)(11) because it substantially
duplicates Proposal A which was received by the Corporation before Proposal B.
As noted above, both Proposals were dated on November 20, 2001, but Proposal B
was received later in time. Also, as noted above, Proposal A seeks to establish
a Board of Directors that is composed of a substantial majority of "independent"
directors (as defined therein). Proposal B also seeks to establish a Board of
Directors composed of two-thirds of "independent" directors, as defined therein.
Accordingly, under Rule 14a-8(i)(11), Proposal B substantially duplicates
Proposal A.
Each of the Proposals desires that the Corporation's Board of Directors be
composed of a majority of independent directors. Both Proposals partially define
an independent director as one who is not a current employee of the Corporation
and both definitions address the personal and professional relationships the
individual might have with the Corporation. Additionally, the supporting
statements of each of the Proposals share a common goal of long term success of
the Corporation through removal of management's influence on the Board. Although
the two proposals are not identical, they are substantially similar in their
focus and intent. The Staff has traditionally taken the view that proposals do
not have to be identical to be excluded under Rule 14a-8(i)(11) (and its
predecessor, Rule 14a-8(i)(c)(11)). The test for exclusion under Rule
14a-8(i)(11) is whether the core issues addressed by the proposals are
substantially the same, sharing the same principle thrust and principle focus,
even though the proposals may differ somewhat in their terms and breadth. See
Verizon Communications, Inc., (January 31, 2001); EMCOR Group, Inc., (May 16,
2000) ("EMCOR"); Centerrior Energy Corporation, (February 27, 1995); and Masco
Corporation, (March 27, 1992) ("Masco II").
In Masco II, both proposals requested that the board amend the bylaws to provide
for a majority of independent directors on the board. However, the second Masco
II proposal provided additional criteria in its definition of "independent." The
Staff concurred that the Masco II proposals were substantially duplicative. In
EMCOR, the first proposal requested that the board "refrain from adopting a
rights plan or agreement without the prior approval of the stockholders and to
redeem the rights plan currently in place." The second EMCOR proposal requested
that an article be added to the by-laws prohibiting the company from "entering
into an shareholder rights plan or similar agreement" without the approval of a
majority of the outstanding shares of common stock, as well as redeeming the
rights outstanding under the existing plan. The Staff concurred that the EMCOR
proposals were substantially duplicative and that the later received proposal
could be omitted.
Consistent with the Staff's interpretation of Rule 14a-8(i)(11) i Masco II and
EMCOR, the Corporation believes that the Proposals submitted to the Corporation
are substantially duplicative. In the instant case, the core issues in the
Proposals, as presented above, are the same. Also, the supporting statements of
the Proposals are very similar in substance. The Proposals only contain slight
differences. For example, Proposal A requires that the compensation, audit and
nominating committees also consist solely of independent directors. Proposal B's
definition of independence is limited to affiliation with the Corporation in the
past five years, where Proposal A requires that the director has never been
employed by the Corporation. Consistent with prior letters, there is no
requirement that Proposals be identical in order for one to be excluded under
Rule 14a-8(i)(11). The proposals need only be substantially the same and may, in
fact, differ in terms or breadth. Lucent Technologies, (October 31, 2000); and
The Proctor & Gamble Company, (July 19, 2000).
Furthermore, the Corporation believes the inclusion of both Proposals in the
Corporation's proxy materials for the 2002 Annual Meeting would be confusing to
stockholders and, if both were approved, would result in alternative and
inconsistent results. The Corporation should not be required to include multiple
proposals concerning an independent Board of Directors as there would be no way
to establish which approach the stockholders prefer, nor would the Corporation
be able to fully implement each proposal due to inconsistent or conflicting
provisions, as discussed above. While the core issues of both Proposals are
substantially the same, their requirements are different. If both proposals were
included in the Corporation's Proxy Materials and approved, would the
Corporation adopt Proposal A's or Proposal B's definition of "independent
director?" Would the Corporation have to follow Proposal B and require that all
members of board committees be independent? Would the independence standard
apply to two-thirds of the directors as set forth in Proposal B, or just a
"substantial majority" as required by Proposal A?
If the Staff does not concur that Proposal A may be omitted in reliance on
either Rule 14a-8(i)(10) or Rule 14a-8(i)(3) as set forth above, the Corporation
intends to include Proposal A in its proxy statement for its 2002 Annual
Meeting. In that event, pursuant to Rule 14a-8(i)(11), Proposal B may be
excluded as being substantially duplicative of the earlier received proposal
that will be included in the Company's proxy materials for the same meeting.
CONCLUSION
On the basis of the foregoing, the Corporation respectfully requests the
concurrence of the Staff that the Proposals may be excluded from the
Corporation's Proxy Materials for the 2002 Annual Meeting.
If you have any questions or would like any additional information regarding the
foregoing, please do not hesitate to contact the undersigned at 401-789-5735
(x2822).
Please acknowledge receipt of this letter by stamping and returning the enclosed
receipt copy of this letter in the enclosed prepaid return envelope. Thank you
for your prompt attention to this matter.
Very truly yours,
/s/
Jeffrey J. Giguere, Esq.
Vice-President, General Counsel
Enclosures
cc: Mr. Thomas P.V. Masiello, (Massachusetts Laborers' Pension Fund)
Mr. Peter C. Clapman, (Teachers Insurance and Annuity Association College
Retirement Equities Fund)
William B. Simmons, Jr., Esq. (Testa, Hurwitz & Thibeault, LLP)
[APPENDIX 1]
RESOLUTION
WHEREAS, we believe that the Board of Directors has fundamental responsibility
to foster the Company's long-term success, to enhance shareholder value, and to
represent the interests of all shareholders;
WHEREAS, to best fulfill these responsibilities, a substantial majority of the
Boardand all members of the audit, compensation and nominating committees of
the Boardshould be "independent directors," who are not present or former
employees of the Company and, other than stock ownership, have no significant
personal or financial ties to the Company or management that in fact or
appearance could compromise directors' objectivity or loyalty to the
shareholders;
RESOLVED, shareholders request that the Board adopt, and communicate to
shareholders, a policy to nominate director candidates such that, if elected, a
substantial majority of directors would be independent, and if sufficient
independent directors are elected, to appoint entirely independent audit,
compensation and governance/nominating committees.
SUPPORTING STATEMENT
The Company appears to us to be committed to meeting regulatory and stock
exchange requirements that apply to board membership, and going no further.
There had been no change in the composition of the Board between 1988 and 2001,
when new stock exchange audit committee requirements came into force, and when
the Board named two new directors. The Board appointed the new directors within
two weeks after the annual meeting, rather than presenting them to the
shareholders in the proxy statement so that they might be considered and elected
or not elected by the shareholders.
Even with the 2001 changes, the Board still does not have an independent
majority, in our view, since three of the Board's seven directors are employees,
and a fourth is the founding Chairman. The Board has no nominating committee,
and the audit and compensation committees do not meet the standard of
independence articulated in this resolution. This appears to us to be a case of
technically competent founders and top management seeking to dominate the
governance of the company, while obtaining financing from, and extending
ownership to, public shareholders. Although interests of founders and management
may initially coincide with those of public investors, the time to provide for
diverse perspective and independent governance is before major problems occur
and make the need for board independence clear after the fact.
We believe that a board with a substantial and clear majority of independent
directorsand all-independent audit, compensation and nominating committeesis
an essential component of an effective corporate governance system. An
independent board can best represent all shareholders and inspire shareholder
confidence in the quality and impartiality of its decision-making processes and
the decisions themselves, as well as avoid the appearance of conflicts of
interest. We acknowledge the importance of management perspective to board or
committee deliberations, but believe key management executives can take active
part in board discussions without being board members.
We urge shareholders to vote for this resolution, sending a message that board
independence is critical to investor confidence in the quality of corporate
governance.
[APPENDIX 2]
EX. A
November 20, 2001
Emanuel E. Landsman
Clerk
American Power Conversion Corporation
132 Fairgrounds Road
West Kingston, Rhode Island 02892
Dear Mr. Landsman:
Please be advised that I, Peter C. Clapman, Senior Vice President and Chief
Counsel, Investments of COLLEGE RETIREMENT EQUITIES FUND, on behalf of
COLLEGE RETIREMENT EQUITIES FUND ("CREF")
730 Third Avenue
New York, New York 10017
Tel. No. (212) 916-4232
hereby submit the enclosed shareholder resolution to be presented at the next
annual meeting of American Power Conversion Corporation. A CREF representative
whose name will be timely submitted will be present to support the resolution.
CREF holds 1,084,048 shares of American Power Conversion Corporation common
stock, which has a value of $15,900,000, and has held shares valued at $2,000 of
American Power Conversion Corporation for a period in excess of one year prior
to the date of this submission. CREF intends to hold a sufficient number of
shares as are required under the proxy rules for eligibility purposes through
the date of the annual meeting.
Enclosed herewith are the shareholder proposal and supporting statement. Also
enclosed is a letter from Bankers Trust, the recordholder of shares of American
Power Conversion Corporation owned beneficially by CREF, evidencing CREF's
eligibility to submit a shareholder proposal.
Very truly yours,
/s/
Peter C. Clapman
cc: Donald M. Muir
B.A. (Dolph) Bridgewater, Jr.
Enclosures
[APPENDIX 3]
Resolved, that the shareholders of American Power Conversion Corporation
("Company") request that the Company's Board of Directors set a goal of
establishing a board of directors with at least two-thirds of its members being
independent directors. The Board should pursue this goal and transition to an
independent Board through its power to nominate candidates to stand for election
by shareholders. For purposes of this resolution, a director would not be
considered independent if he or she is currently or during the past five years
has been:
Employed by the company or an affiliate in an executive capacity;
Employed by a firm that is one of the Company's paid advisors or consultants;
Employed by a significant customer or supplier;
Employed by a tax-exempt organization that receives significant contributions
from the Company;
Paid by the Company pursuant to any personal services contract with the
Company;
Serving in an executive capacity or as a director of a corporation on which
the Company's chairman or chief executive officer is a board member; or
Related to a member of management of the Company.
Statement of Support: The board of directors plays a critical role in
determining a company's long-term success. A board helps meet the challenge of
maximizing long-term corporate value through those roles attributed to it by law
and regulation. A board serves as management monitor, working to assemble a
well-qualified senior management team. In conjunction with senior management, a
board contributes to the development and implementation of a corporation's
competitive strategies, while also serving as the architect of an executive
compensation plan that provides necessary incentives and rewards to accomplish
long-term corporate success. The board of directors must operate independently
of the corporation's chief executive officer and senior management if it is to
fulfill its duty to hire, oversee, compensate, and if necessary replace
management. Independence has been referred to as "a director's greatest virtue"
(Robert Rock, Chair of National Association of Corporate Directors, "Directors
and Boards," Summer edition 1996) and we believe independent boards are better
positioned to remove non-performing senior executives.
In order to best fulfill its responsibilities and ensure the corporation's
long-term success, we believe that at least two-thirds of a board's members
should be "independent" directors. At our Company, three of the five members of
the board of directors do not qualify as independent directors under the
definition provided above. Messrs. Rodger B. Dowdell, Emanuel E. Landsman, and
Neil E. Rasmussen are employed by the Company in an executive capacity.
As long-term shareholders, we believe an independent board best represents
shareholders. Adoption of this resolution would encourage our company to work
towards this goal. We urge your support for this resolution.
[APPENDIX 4]
EX .B
MASSACHUSETTS LABORERS' PENSION FUND
14 NEW ENGLAND EXECUTIVE PARK SUITE 200
P.O. BOX 4000, BURLINGTON, MASSACHUSETTS 01803-0900
TELEPHONE (781)272-1000
FAX (781)272-2226
1(800)342-3792
Certified Mail, Return Receipt Requested
November 20, 2001
Mr. Emanuel E. Landsman, Clerk
American Power Conversion Corporation
132 Fairgrounds Road
West Kingston, RI 02892
SUBJECT: Shareholder Proposal
Dear Mr. Landsman:
On behalf of the Massachusetts Laborers' Pension Fund ("Fund"), I hereby submit
the enclosed shareholder proposal ("Proposal") for inclusion in the American
Power Conversion Corporation ("Company") proxy statement to be circulated to
Company shareholders in conjunction with the next annual meeting of
shareholders. The Proposal is submitted under Rule 14(a)-8 (Proposals of
Security Holders) of the U.S. Securities and Exchange Commission's proxy
regulations.
The Fund is the beneficial owner of approximately 1,400 shares of the Company's
common stock, which have been held continuously for more than a year prior to
this date of submission. The Fund, like many other Building Trades' pension
funds, is a long-term holder of the Company's common stock. The Proposal is
submitted in order to promote a governance system at the Company that enables
the Board and senior management to manage the Company for the long-term.
Maximizing the Company's wealth generating capacity over the long-term will best
serve the interests of the Company shareholders and other important constituents
of the Company.
The Fund intends to hold the shares through the date of the Company's next
annual meeting of shareholders. The record holder of the stock will provide the
appropriate verification of the Fund's beneficial ownership by separate letter.
Either the undersigned or a designated representative will present the Proposal
for consideration at the annual meeting of shareholders.
If you have any questions or wish to discuss the Proposal, please contact our
Corporate Governance Advisor, Linda Priscilla at (202) 942-2359. Copies of
correspondence or a request for a "no-action" letter should be forwarded to Ms.
Linda Priscilla, Laborers' International Union of North America Corporate
Governance Project, 905 16\th/ Street, NW, Washington, DC 20006.
Very truly yours,
/s/
Thomas P. V. Masiello
Administrator
TPVM/dmk
Enclosure
Cc. Linda Priscilla
Certified Mail, Return Receipt: 7000-1670-0008-3420-8909
[INQUIRY LETTER]
January 30, 2002
Securities and Exchange Commission
Division of Corporation Finance
Office of the Chief Counsel
450 Fifth St. N.W.
Judiciary Plaza
Washington, D.C. 20549
Ladies and Gentlemen:
I am writing in reference to the letter, dated January 18, 2002 (the "No-Action
Request"), submitted by American Power Conversion Corporation (the "Company" or
"APC"), asking the staff of the Division to confirm that it would take a
no-action position, pursuant to 14a-8(i)(10) and (i)(3), if the Company omits
from its proxy statement for its 2002 annual meeting a proposal submitted by the
College Retirement Equities Fund ("CREF"). For the reasons discussed below, each
of these arguments is mistaken, and there is no appropriate basis on which the
Company may omit the Proposal from its proxy statement.
CREF has proposed to include in the Company's proxy statement a resolution
requesting the Company's Board of Directors (the "Board") to adopt, and
communicate to shareholders, a policy to nominate director candidates such that,
if elected, a substantial majority of directors would be independent, and if
sufficient independent directors are elected, to appoint entirely independent
audit, compensation and governance/nominating committees.
CREF long has been an advocate of strong board independence, submitting more
than 25 shareholder resolutions to companies on this issue in recent years. Most
of these resolutions were withdrawn after the companies took actions to enhance
board independence. Those voted on received substantial support from independent
shareholders, with vote levels as high as 59% in support of a policy of board
independence. TIAA-CREF, a leading financial services organization that
encompasses CREF, currently has about $275 billion in assets under management.
THE COMPANY HAS NOT "SUBSTANTIALLY IMPLEMENTED" THE PROPOSAL
The essence of the Company's position is first to rewrite our resolution,
substituting its own definition of "independence," and then to argue on the
basis of the Company's proposed definition that it has substantially implemented
the proposal. As defined in our shareholder proposal, "independent directors"
are those "who are not present or former employees of the Company and, other
than stock ownership, have no significant personal or financial ties to the
Company or management that in fact or appearance could compromise directors'
objectivity or loyalty to the shareholders." Under this definition, at best only
three of seven directors on the Board are independent, since the Board includes
three executives and one former executive of the firm. This is not a majority of
independent directors, let alone a substantial majority.
Moreover, the Company makes no claim that it has adopted a policy to nominate
directors such that a substantial majority, by the definition used in the
resolution, is independent. Nor does the Company make any claim in the No-Action
Request that it has a policy of maintaining Compensation and Nominating
Committees with all-independent directors, as is requested in the resolution.
Indeed, while the Company focuses attention in the No-Action Request on the
definition of "independence," it makes no claim to have any policy of board and
committee independence, by any definition. Under the definition cited by the
Company, the Board clearly lacked an independent majority until June 2001, and
it has articulated no commitment to a continuing policy of "board independence"
by its own definition.1 A policy commitment is what CREF seeks in the
shareholder resolution. Even if we accepted the definition used by APC, without
such a commitment we have no reason to be confident that the Board would
continue to be majority independent.
Further, we do not believe that the Board maintains and has a policy of
maintaining all-independent Audit, Compensation and Nominating Committees, as
defined in the resolution. In Section 1(c) of its No-Action Request, the Company
states that "all of the members of the Corporation's committees are independent,
as discussed in subsection (b)." But subsection (b) only discusses the Audit
Committee. Moreover, as far as we can determine, the Audit and Compensation
Committees each continue to include a retired company executive, who by the
terms of our resolution is not classified as independent.
We note in addition that as far as Company SEC filings reveal, the Board does
not even have a Nominating Committee, much less one that is fully independent.
We do not believe the Company has disclosed the existence of such a committee in
any public document, and the No-Action Request never claims that such a
committee exists. In its 2001 proxy statement, the Company stated that it did
not have a Nominating Committee.
Thus, by the clear terms of the resolution, the Board of APC lacks an
independent majority, and therefore also lacks a "substantial majority" of
independent directors. Nor does the Company have a policy of board and committee
independence as called for in the resolution. Finally, as far as is known, the
Company does not have all-independent Audit, Compensation and Nominating
committees, by the terms of the resolution. The request made in the shareholder
resolution clearly is not "substantially implemented" by any reasonable
understanding of that term, and the Company may not properly exclude the
proposal pursuant to 14a-8(i)(10).
The no-action letters cited by the Company in this regard are easily
distinguishable. AMR already had a policy of Audit, Compensation and Nominating
Committee independencethe issue raised in the resolution submitted at AMRas
evidenced by bylaws and board resolutions (AMR Corporation, April 17, 2000). As
far as can be gleaned from APC's public filings and the No-Action Request, APC
has no board independence policy, and has no committee independence policy other
than the Nasdaq requirements for the Audit Committee. The board of Masco, in
response to the shareholder resolution at that company, in fact adopted a policy
of board independence that closely followed the terms of the Masco shareholder
resolution, adding only a materiality standard for relationships to the company
excluded by the definition in question (Masco Corporation, March 29, 1999). APC,
again, has not adopted a board independence policy, and the definition of board
independence the Company uses in arguing for omission of the CREF resolution
differs substantially from the definition used in the CREF resolution.
THE PROPOSAL IS NOT VAGUE AND MISLEADING
It is clear that the CREF proposal is neither vague nor misleading; for it
specifically requests that the Board of Directors:
- Adopt a policy
- To nominate director candidates so that a substantial majority of directors
would be independent
- Enabling all key committees to be composed solely of such independent
directors.
Thus unlike the resolutions cited in the No-Action Request2, the CREF proposal
appears explicit, rather than vague on its face, and in our view is sufficiently
specific so that shareholders will know what they are requesting of the Board.
We note in this regard the concept of "substantial majority" is promulgated as a
director independence standard by a number of groups. For example, The Business
Roundtable recommends in its Statement on Corporate Governance that "a
substantial majority of directors of large, publicly-held companies should be
outside (non-management) directors." 3
Rather than fixing an exact percentage, we prefer to give a certain amount of
leeway for a company to decide how to meet the shareholder request. However, we
believe that "substantial majority" is commonly understood to be more than a
"bare majority," and that, for example, a four-to-three "independent" majority
on a seven-member board would not constitute a "substantial" majority. (As noted
earlier, the APC Board does not have even this level of board independence by
the definition used in the resolution.) We believe that a shareholder voting on
the resolution (as well as a board interpreting the resolution) will be able to
appropriately interpret the word "substantial" without further guidance.
If the Staff does not concur with our view, we would be willing to amend the
resolution to put in a specific threshold.
CONCLUSION
Because the proposal raises an important corporate governance policy not adopted
by the Company and is not otherwise excludable under Rule 14a-8, we urge the
Division to deny the No-Action Request submitted by APC on January 18, 2002.
Thank you for your time and attention to this matter. If you have any questions
or would like additional information, please do not hesitate to call me at (212)
916-4232.
I would appreciate your acknowledgement of receipt of this letter, through
stamping and returning the enclosed "receipt copy" in the enclosed prepaid
return envelope.
Sincerely,
/s/
Peter C. Clapman
cc: Jeffrey J. Giguere, Esq.
Vice President, General Counsel
American Power Conversion Corporation
132 Fairgrounds Road
West Kingston, RI 02892
-----FOOTNOTES-----
1 Until June 2001, the APC Board had not changed for many years. From 1988 to
June 2001, three of the Company's five directors were employees and a fourth was
the retired Chairman of the Board of Directors. Two additional independent
directors were appointed after the Annual Meeting in June 2001.
2 The no-action letters cited by the Company again are inapposite. The
resolution at SI Handling Systems, Inc., proposed a mandatory bylaw amendment
where it was not clear which bylaws were being amended. (SI Handling Systems,
Inc., May 5, 2000.) The Kmart resolution requested disclosure of contributions
to "political parties not recognizing unborn persons' constitutional protections
which all other persons have." (Kmart Corporation, March 28, 2000.) Kmart argued
the proposal was vague because the supporting statement as a whole was "a
confusing series of statements presented in no logical order." APC does not make
analogous arguments about the CREF proposal. Finally, in the California Water
Service Group proposal, which concerned preemptive rights, there was no
"resolved" clause and it was not clear what action the proposal would request or
mandate, or indeed whether action was requested or mandated. (California Water
Service Group, February 8, 1999.)
3 The Business Roundtable, Statement on Corporate Governance, September 1997.
[INQUIRY LETTER]
February 27, 2002
VIA OVERNIGHT DELIVERY
Office of Chief Counsel
Staff of Corporate Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 02549
Re: American Power Conversion Corporation - Omission of Shareholder Proposal
Ladies and Gentlemen:
This letter is being submitted to the Division of Corporation Finance (the
"Division") on behalf of American Power Conversion Corporation (the
"Corporation"). The Corporation submitted a request for no-action relief to the
Division on January 18, 2002, (the "Initial Request) a copy of which is
attached, regarding its receipt of two shareholder proposals, each dated
November 20, 2001, for inclusion in the Corporation's Proxy Statement and form
of Proxy relating to the 2002 Annual Meeting of Stockholders (the "2002 Annual
Meeting") (collectively, the "Proxy Materials"). The first proposal ("Proposal
A") was submitted by the Teachers Insurance and Annuity Association College
Retirement Equities Fund ("Proponent A") and the second proposal ("Proposal B,"
and together with Proposal A, the "Proposals") was submitted by the
Massachusetts Laborers' Pension Fund ("Proponent B," and together with Proponent
A, the "Proponents"). The Proposals ask the Corporation's Board of Directors
(the "Board") to adopt policies regarding the independence of the members of the
Board.
This letter is being submitted i) to inform the Division that since the date of
the Corporation's submission of the Initial Request, the Corporation's Board has
approved a resolution adopting, in substantially the same form submitted by the
Proponents, a policy to nominate for election a majority of directors who
fulfill certain criteria with regard to independence and ii) in response to the
letter submitted by Proponent A to the Division on January 30, 2002 ("Proponent
A's Letter"). The Corporation renews its request for confirmation that the staff
of the Division (the "Staff") will not recommend enforcement action if the
Corporation, pursuant to Rules 14a-8(c), 14a-8(i)(10), (3) and (11) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), omits the
Proposals from the Proxy Materials for the 2002 Annual Meeting for the reasons
set forth in this letter and reasserts the arguments set forth in the
Corporation's Initial Request.
ADDITIONAL REASONS FOR EXCLUSION OF PROPOSALS
The Corporation reasserts its belief that both Proposals may be properly omitted
from the Proxy Materials for the 2002 Annual Meeting pursuant to Rules
14a-8(i)(10), (3) and (11) of the Exchange Act, as discussed in the
Corporation's Initial Request. Additionally, the Corporation believes that the
Proposals may be excluded pursuant to Rule 14a-8(i)(10) because the Corporation
has further substantially implemented the goal of the Proposals, and that
Proposal A may be excluded pursuant to Rule 14a-8(c) because Proponent A
presents two separate proposals in Proposal A.
1. The Corporation may omit both Proposals pursuant to Rule 14a-8(i)(10) because
they have already been substantially implemented.
As discussed in the Initial Request, Rule 14a-8(i)(10) permits the omission of a
stockholder proposal if "the company has already substantially implemented the
proposal." The "substantially implemented" standard replaced the predecessor
rule allowing the omission of a proposal that was "moot." It also clarifies the
Staff's interpretation of the predecessor rule that the proposal need not be
"fully effected" by the company to meet the mootness test, so long as it is
substantially implemented. The Staff has consistently taken the position that a
stockholder proposal has been substantially implemented when a company has
already taken steps to fulfill the underlying goal of the proposal. See AMR
Corporation, (April 17, 2000); Masco Corporation, (March 29, 1999) ("Masco");
and BankAmerica Corporation, (February 10, 1997). The implementation or adoption
of a policy which substantially implements a proposal may be undertaken after
the corporation's receipt of the Proposal. See American HomePatient, Inc.,
(April 12, 2000) ("AHP"); Pacific Enterprises, (January 12, 1998).
The Corporation's Board has adopted a policy that it believes satisfies the
standards and underlying goals of the Proposals, therefore rendering them moot.
The Board adopted the policy to make clear the Corporation's intent to have a
majority of its Board remain independent. The resolution adopted by the
Corporation's Board reads as follows:
VOTED, that the Board of Directors hereby adopts the following policy regarding
the independence of the Board of Directors of the Corporation:
The Board of Directors will nominate candidates for the Board of Directors such
that, if elected, a majority of directors would be independent directors as
defined in the next sentence, and, if sufficient independent directors are
elected, will appoint only independent directors to serve on the committees of
the Board of Directors. For purposes of this policy, "independent director" will
mean a director who (i) has not within the prior five years been an employee of
the Corporation or of any of its affiliates, (ii) has not accepted from the
Corporation or any of its affiliates more than $60,000 during the previous
fiscal year, other than compensation for board service, benefits under a
tax-qualified retirement plan, or non-discretionary compensation, (iii) is not
an immediate family member of an individual who is or was an executive officer
of the Corporation or of any of its affiliates within the last five years (with
"immediate family member" meaning a person's spouse, parents, children,
siblings, mother-in-law, father-in-law, brother-in-law, sister-in-law, and
anyone who resides in such person's home), (iv) is not a partner, controlling
shareholder or executive officer of any for-profit business organization to
which the Corporation made, or from which the Corporation received, payments
within the last five years (other than those arising solely from investments in
the Corporation's securities) that exceed 5% of the Corporation's or business
organization's consolidated gross revenues for that year, or $200,000, whichever
is more, or (v) is not employed as an executive of another entity if any of the
Corporation's executives serve on that entity's compensation committee.
The Board's resolution implements both Proponents' proposals with only slight
modifications. The adopted policy closely follows the definition of independence
as presented by Proponent B and is in compliance with the standard of
independence required by Nasdaq. It is in fact more restrictive than Proponent
A's definition except that it more reasonably provides that a director would be
considered independent if the director has not, within the prior five years (as
set forth in Proposal B), been an employee of the Corporation or any of its
affiliates. Where the Proposals request that independent candidates are
nominated so the Board will consist of either a "substantial" or "two-thirds"
majority of independent directors, the adopted policy requires that the Board
will nominate candidates so that if elected, a majority of the Board will be
independent. The Corporation continues to believe that Proponent A's standard of
a "substantial majority" is too vague to be appropriate as a policy of the
Corporation. In Proponent A's Letter, Proponent A states that "a shareholder
voting on the resolution (as well as a board interpreting the resolution) will
be able to appropriately interpret the word "substantial" without further
guidance." Although the Corporation believes that both its shareholders and its
Board are perceptive and sophisticated, it is not clear that further guidance
won't be necessary in order to define a "substantial majority." Also, it is
possible that the Board, who will be implementing and working within such a
standard, will define "substantial majority" differently than voting
shareholders. Such an imprecise standard is likely to subject the Corporation to
future challenges (including challenges from Proponent A) concerning whether or
not the Board has the proper number of independent members. Under the definition
of independence in the adopted policy and Proposal B, the Corporation's Board
currently has a majority of independent members. Also, all of the members of the
Corporation's two existing committees, the Audit and the Compensation and Stock
Option committees, are independent. Although the Corporation does not currently
have a Nominating committee, if it were to form one, such committee would be
subject to the same standard of independence.
The Staff has historically supported the omission of proposals, where the
company has taken steps to substantially implement policies similar to those
presented in shareholder proposals, even though the exact guidelines of the
proposals were not implemented by the company. In Masco, the Staff allowed the
omission of a proposal that required a new standard for the qualifications of
"outside directors" because the company's board of directors adopted a standard
that was similar, but not identical, to the standard set forth in the proposal.
In fact, the Staff refused to reconsider its decision for no-action after the
proponent argued that the modifications to the proposal as adopted by the
company did not substantially implement the goal of the original proposal.
(Masco Corporation (Recon) (April 19, 1999). In AHP, the Staff allowed the
omission of a proposal concerning the adoption of stock ownership guidelines for
the Board of Directors. Such proposal was omitted because it was rendered moot
when the company, after receiving the proposal, adopted a slightly modified
version of it, which substantially implemented the goals and intent of the
shareholder proposal. The Corporation believes that the policy adopted by the
Board fulfills the goals of the Proposals.
The slight changes between the adopted policy and the Proposals are intended to
make the policy clear and workable. The Corporation believes that these changes
address the intent and purpose of the Proposals, and actually clarify and
satisfy them while demonstrating the Corporation's commitment to maintaining a
majority of independent directors on the Board. The Board's adopted resolution
implements all other aspects of both Proposals. Although Proponent A's Letter
claims otherwise, under the definition of independence adopted by the board, and
the definition in Proposal B, the Corporation maintains that all of its
committees are currently and will continue to be composed of only independent
directors. Therefore, the Proponents' proposals have been substantially
implemented as contemplated under Rule 14a-8(i)(10).
In summary, the Corporation's existing director independence policy
substantially implements Proposal A and Proposal B's requests and underlying
goals. In accordance with Masco and AHP, the Proposals should be excluded from
the Corporation's Proxy Materials since they are moot.
2) Proposal A can be omitted under Rule 14a-8(c) as it contains multiple
proposals.
Rule 14a-8(c) limits shareholders to submitting only one proposal for inclusion
in the Proxy Materials. As Proponent A's Letter now makes clear, not only is the
Proponent requesting that the Corporation's Board adopt a policy regarding the
independent Board members, but it also proposes that the Board create a separate
nominating committee. The Corporation did not address this issue in its Initial
Request because it was not clear at that time that such an additional proposal
was being made by Proponent A in Proposal A. The Corporation does not currently
have a nominating committee. Proponent A's request for the creation of a
separate nominating committee is a separate and different issue than its
proposal for director independence. In accordance with the Rule 14a-8(c), and
not withstanding the aforementioned arguments, the Corporation requests that the
Staff not recommend enforcement action if the Corporation omits the Proposal
from the Proxy Materials.
CONCLUSION
On the basis of the foregoing, the Corporation respectfully requests the
concurrence of the Staff that the Proposals may be excluded from the
Corporation's Proxy Materials for the 2002 Annual Meeting.
If you have any questions or would like any additional information regarding the
foregoing, please do not hesitate to contact the undersigned at 401-789-5735
(x2822).
Please acknowledge receipt of this letter by stamping and returning the enclosed
receipt copy of this letter in the enclosed prepaid return envelope. Thank you
for your prompt attention to this matter.
Very truly yours,
/s/
Jeffrey J. Giguere, Esq.
Vice-President, General Counsel
Enclosures
cc: Mr. Thomas P.V. Masiello, (Massachusetts Laborers' Pension Fund)
Mr. Peter C. Clapman, (Teachers Insurance and Annuity Association College
Retirement Equities Fund)
William B. Simmons, Jr., Esq. (Testa, Hurwitz & Thibeault, LLP)
[INQUIRY LETTER]
March 5, 2002
Securities and Exchange Commission
Division of Corporation Finance
Office of the Chief Counsel
450 Fifth St. N.W.
Judiciary Plaza
Washington, D.C. 20549
Ladies and Gentlemen:
I am writing in reference to the letter, dated February 27, 2002, from American
Power Conversion Corporation (the "Company" or "APC"), indicating the Company's
adoption of a policy of board independence (the "APC Policy"). The Company
argues that by this action, it has "substantially implemented" the shareholder
resolution (the "Proposal") submitted by the College Retirement Equities Fund
(CREF) on November 20, 2001, and that it therefore should be permitted to omit
the resolution from its proxy statement for the APC 2002 Annual Meeting of
Stockholders. The Proposal requests the Company's Board of Directors (the
"Board") to adopt, and communicate to shareholders, a policy to nominate
director candidates such that, if elected, a substantial majority of directors
would be independent, and if sufficient independent directors are elected, to
appoint entirely independent audit, compensation and governance/nominating
committees. APC earlier submitted a request for no-action relief to the division
on January 18, 2002, and CREF responded in my letter dated January 30, 2002.
We do not agree that the Proposal should be omitted from the Company's proxy
statement, since the two arguments made by the Company in its latest letter are
mistaken. First, the company's codification of a policy of board independence
falls critically short of the policy requested in the CREF Proposal, and the
Company thus has not substantially implemented the Proposal.
The APC Policy even now substitutes its own definition of "independence," so
that the present Board qualifies as majority independent, while ignoring the
definition we use in the Proposal, by which the Board lacks a majority of
independent directors.
The APC Policy does not accept the concept of "substantial majority" as
requested in the Proposal, a standard quite different than "majority."
The APC Policy ignores the Proposal's request that such a policy include a
requirement for an independent nominating committee.
Second, we strongly disagree with the Company's assertion that we are making two
Proposals. In the case of this Company, full board independence and committee
independence (because of the absence of a nominating committee) are integrally
related to each other, and one without the other is an empty form.
1. The Corporation may not omit the Proposal pursuant to Rule 14a-8(i)(10)
because it has not been substantially implemented.
The APC Policy defines "independent director" to include former employees of the
Company, so long as the director has not been so employed for at least five
years. In this way, the APC Policy clearly fails to implement the CREF Proposal.
APC has created a policy that specifically allows the Founding Chairman and
President of the Companya long-time inside director with longstanding
relationships with other inside directorsto be redefined as independent.
This status-quo-serving definition has practical consequences at this Company,
since three current directors, out of a total of seven directors on the Board,
are concededly current executives. The Company's view that its Board is majority
independent (requiring that at least four out of the seven directors be so
designated) thus depends on the classification of the Founding Chairman as
independent.
Moreover, as far as we can tell, the Audit and Compensation committees each
continue to include the same retired former Chairman and President in their
memberships, who by the terms of our resolution is not classified as
independent. The full Board functions as the nominating committee, and, as
noted, lacks even a majority of independent directors as defined in the
Proposal. Thus, the APC Policy falls well short of the request made in the
shareholder Proposal in every respect.
Secondly, the Proposal requests a director nomination policy such that there
would be a "substantial majority" of independent directors. APC argues that in
interpreting "substantial majority" as "majority" in the APC Policy, its Board
"intended to make the policy clear and workable," and that the difference is
"slight." We do not find this explanation persuasive, and in any event we
disagree that the differences are "slight" or that "majority" and "substantial
majority" are substantively the same.
As we noted in our previous letter, the concept of "substantial majority" has
wide usage in codes suggesting guidelines for board independence, including by
The Business Roundtable in its Statement on Corporate Governance. We believe it
is consistent with Rule 14a-8 to leave a board some discretion in determining
how to fulfill the terms of a precatory shareholder resolution, and that a
shareholder voting on the resolution (as well as a board interpreting the
Proposal) would be able to appropriately interpret the word "substantial"
without further guidance. If the Staff does not concur in our view, we are
willing to amend the Proposal to put in a specific threshold.
Finally, the Company admits in its letter of February 27 that the Board does not
have a separate nominating committee, despite the original impression left by
the Company's letter of January 20 to the Staff. As discussed below, we believe
that committee independence, including a completely independent nominating
committee, is integral to the policy of board independence that we seek. The APC
Policy does not address the need for an independent nominating committee.
2. CREF is making a single Proposal, requesting an effective policy of board
independence
The Proposal seeks an effective policy of board independence. We believe
majority board independence without an independent nominating committee can be
an empty shell. In determining whether a single shareholder submission consists
of multiple proposals, the Staff has looked to determine whether "the elements
of the proposal all relate to one concept." Computer Horizons Corp. (April 1,
1993). If the elements of a proposal are sufficiently related to one specific
concept, the Staff will not allow exclusion under Rule 14a-8(c). See, e.g.,
Westinghouse Electric Corp. (January 27, 1995) (noting that all elements of the
proposal related to "specific limitations on executive compensation").
It is particularly critical to a policy of board independence that the director
nomination function be in the hands of independent directors, which is not the
case under the new APC Policy, or under existing practice at APC. The SEC itself
has recognized this in the context of mutual fund governance, when it said:
One recognized method of enhancing the independence of directors is to commit
the selection and nomination of new independent directors to the incumbent
independent directors. Independent directors who are selected and nominated by
other independent directors, rather than by the fund's adviser, are more likely
to have their primary loyalty to shareholders rather than the adviser. In
addition, when independent directors are self-selecting and self-nominating,
they are less likely to feel beholden to the adviser.1
The issue is exactly the same for corporations: Independent directors who are
selected and nominated by independent directors, rather than by directors who
are members of management or beholden to management, are more likely to have
their primary loyalty to shareholders, rather than to management. To argue that
"board independence" is somehow separable from "committee independence" is a
mechanistic approach that elevates form over substance.
The proxy rules should not be interpreted to require shareholders to vote on two
separate proposals, presumably by terms of Rule 14a-8(c) to be submitted by a
holder over two years, to communicate to the Board the collective view that
boards should be effectively independent, including a substantial majority of
independent directors on the full Board and completely independent nominating,
audit and compensation committees.
Conclusion
The new APC Policy falls well short of implementing the policy that CREF is
advocating in the Proposal. We continue to urge the Division to deny the
no-action request as submitted by APC on January 18, 2002 and February 27, 2002.
Thank you for your time and attention to this matter. If you have any questions
or would like additional information, please do not hesitate to call me at (212)
916-4232.
I would appreciate your acknowledgement of receipt of this letter, through
stamping and returning the enclosed "receipt copy" in the enclosed prepaid
return envelope.
Sincerely,
/s/
Peter C. Clapman
cc: Jeffrey J. Giguere, Esq.
Vice President, General Counsel
American Power Conversion Corporation
132 Fairgrounds Road
West Kingston, RI 02892
-----FOOTNOTES-----
1 SEC, Release Nos. 33-7754, 34-42007, IC-24082; 17 CFR Parts 239, 240, 270 and
274; RIN 3235-AH75 (1999 SEC LEXIS 2197, October 14, 1999), p. 42. Indeed, Rule
12b-1 permits the use of fund assets to pay for distribution of fund shares, but
only if the fund's independent directors select and nominate other independent
directors. Similarly, Rule 23c-3 permits the operation of interval funds if
independent directors are self-selecting, self-nominating, and comprise a
majority of the board.
[STAFF REPLY LETTER]
March 29, 2002
Response of the Office of Chief Counsel Division of Corporation Finance
Re: American Power Conversion Corporation
Incoming letter dated January 18, 2002
The first proposal requests that the board adopt "a policy to nominate director
candidates such that, if elected, a substantial majority of directors would be
independent, and if sufficient independent directors are elected, to appoint
entirely independent audit, compensation and governance/nominating committees."
The second proposal requests that the board of directors "set a goal of
establishing a board of directors with at least two-thirds of its members being
independent directors."
We are unable to concur in your view that American Power may exclude the first
proposal under rule 14a-8(c). Accordingly, we do not believe that American Power
may omit the first proposal from its proxy materials in reliance on rule
14a-8(c).
We are unable to concur in your view that American Power may exclude the first
proposal under rule 14a-8(i)(3). Accordingly, we do not believe that American
Power may omit the firs proposal from its proxy materials in reliance on rule
14a-8(i)(3).
We are unable to concur in your view that American Power may exclude the first
proposal under rule 14a-8(i)(10). Accordingly, we do not believe that American
Power may omit the first proposal from its proxy materials in reliance on rule
14a-8(i)(10).
There appears to be some basis for your view that American Power may exclude the
second proposal under rule 14a-8(i)(11) as substantially duplicative of a
previously submitted proposal, which will be included in American Power's proxy
materials. In this regard, we note your representation that American Power
received the first proposal prior to receiving the second proposal. Accordingly
we will not recommend enforcement action to the Commission if American Power
omits the second proposal from its proxy materials in reliance on rule
14a-8(i)(11). In reaching this position, we have not found it necessary to
address the alternative bases for omitting the second proposal upon which
American Power relies.
Sincerely,
/s/
Maryse Mills-Apenteng
Attorney Advisor
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