GIBSON, DUNN & CRUTCHER LLP
A REGISTERED LIMITED LIABILITY PARTNERSHIP
INCLUDING PROFESSIONAL CORPORATIONS
4 Park Plaza Irvine, California 92614-8557
(949) 451-3800 (949) 451-4220 Fax
www.gibsondunn.com
March 22, 2002
Direct Dial
(949) 451-3880
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Stockholder Proposal Submitted by Mark Latham
Ladies and Gentlemen:
We are writing on behalf of our client, Fleetwood Enterprises, Inc., a Delaware corporation ("Fleetwood" or the "Company"), and hereby request confirmation that the staff of the Division of Corporation Finance (the "Staff") of the Securities and Exchange Commission (the "SEC") will not recommend any enforcement action if, in reliance on certain provisions of Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Fleetwood excludes a proposal (the "Proposal") submitted by Mark Latham (the "Proponent") from the Company’s proxy materials for the 2002 Annual Meeting of Stockholders (the "Proxy Materials").
In accordance with Rule 14a-8(j), we are furnishing you with six copies of (1) this letter which outlines Fleetwood’s reasons for excluding the Proposal from its Proxy Materials, (2) correspondence between the Company and the Proponent and (3) the Proponent’s letter setting forth the Proposal, including the attachments thereto. We also are sending a copy of this letter to the Proponent as notice of the Company’s intention to omit the Proposal from its Proxy Materials. Fleetwood plans to file its definitive Proxy Materials with the Commission on or after July 15, 2002. We respectfully request that you advise the Company with respect to the Proposal at your earliest convenience.
The Proposal
The Proposal is word for word the same (except for the names of the companies) as a proposal submitted by the same Proponent last year to SONICblue Inc. (the "Identical Proposal") and which the SEC has already considered. See SONICblue Inc. (March 23, 2001) ("SONICblue").
The Proponent submitted his Proposal for presentation at Fleetwood’s next annual meeting by letter dated January 25. In accordance with Rule 14a-8(f), Fleetwood sent a letter to the Proponent dated February 7, 2002, requesting information necessary to determine whether the Proponent satisfied the eligibility requirements set forth in Rule 14a-8(b) and to request that the Proponent omit reference in the Proposal to his Web site as a source for further information concerning the Proposal in accordance with the procedural requirements of Rule 14a-8(d). By letter dated February 20, 2002, Proponent provided Fleetwood with information regarding his eligibility pursuant to Rule 14a-8(b) and declined to revise the Proposal to remove reference to the Web site.
The Proposal requests that the Board allow the stockholders annually to select the Company’s independent auditors. In SONICblue, the Staff granted the company’s request for no-action advice stating that the Identical Proposal could be omitted under Rule 14a-8(i)(7). As was the case with SONICblue, Inc., Fleetwood believes that the Proposal at issue may be omitted from its Proxy materials, or if included it should be modified, based on the following reasons, as more fully discussed below:
1. Rule 14a-8(i)(7), because the Proposal deals with a matter relating to Fleetwood’s ordinary business operations;
2. Rule 14a-8(i)(1), because the Proposal concerns a subject upon which stockholders may not properly take action under the laws of the State of Delaware, Fleetwood’s state of incorporation;
3. Rule 14a-8(i)(3), because the Proposal is so vague and indefinite as to be materially false and misleading under Rule 14a-9; and
4. Rule 14a-8(i)(3), because the Proposal incorporates irrelevant information that is materially false and misleading under Rule 14a-9.
Reasons for Omission of the Proposal
1. The Proposal deals with a matter relating to Fleetwood’s ordinary business operations and, therefore, may be excluded under Rule 14a-8(i)(7).
Fleetwood may exclude the Proposal pursuant to Rule 14a-8(i)(7), which permits the omission of proposals that deal with matters relating to the company’s ordinary business operations. As described above, the Proposal at issue is identical to the proposal submitted by this same Proponent in SONICblue. The Staff granted the registrant’s no-action request in SONICblue providing that the registrant had a basis for excluding the Identical Proposal, as a matter "relating to [the company’s] ordinary business operations (i.e., the method of selecting independent auditors)." Accordingly, the Staff stated that it would not recommend enforcement action if the registrant omitted the Identical Proposal under Rule 14a-8(i)(7).
In several other recent no-action letters, the Staff has affirmed that the method of selecting independent auditors is a matter relating to a company’s ordinary business operations. See Community Bancshares, Inc. (March 15, 1999) (proposal requesting that the company’s bylaws be amended to require that its independent auditors be a regional or national certified accounting firm and be selected by an independent audit committee); Excalibur Technologies Corporation (May 4, 1998) (proposal requesting that the appointment of independent auditors be subject to stockholder approval); LTV Corp. (December 22, 1997) (proposal requesting that the board disclose certain financial information of the company’s auditors in the proxy statement); Occidental Petroleum Corporation (January 22, 1997) (proposal requesting that the board provide information regarding the financial capacity of the company’s independent auditors to pay claims for malpractice, negligence and fraud); Transamerica Corporation (March 8, 1996). (proposal requiring new auditors every four-years).
We note that this long-standing approach contrasts with the Staffs reaction to the entirely distinct issue raised by proposals to prohibit an auditing firm from providing non-audit services. See Motorola Inc. (January 16, 2002); Ameren Corp. (January 14, 2002); see also The Walt Disney Company (December 18, 2001). The Staff explained in Ameren Corp. that such proposals may not be omitted "in view of the widespread public debate concerning the impact of non-audit services on auditor independence and the increasing recognition that this issue raises significant policy issues." This issue of the impact of non-audit services on auditor independence is entirely different from issue presented by the Proposal, which involves the method of selecting independent auditors.
Fleetwood respectfully submits that the responsibility of selecting its independent auditors is a matter of the Company’s ordinary business. Such responsibility rests in the hands of Fleetwood’s board of directors (the "Board") in managing the business and affairs of the Company. In carrying out its responsibilities, Fleetwood has established an independent audit committee (the "Audit Committee") which, unless the Board has otherwise directed, has authority to select, evaluate and, if appropriate, remove the Company’s independent auditors. Further, Fleetwood has adopted an Audit Committee Charter (the "Charter") that details the qualifications for membership of the Committee, including independence and financial literacy, and specifically defines the detailed responsibilities of the members, including reviewing and analyzing the independence and responsiveness of the Company’s auditors. In further evaluating the performance of the auditors, the Audit Committee will consider the auditors’ expertise and resources, and also the time and resources required to acquaint new auditors with the Company and its procedures. Because of the need to evaluate these and other factors, and because of the expertise and independence Fleetwood requires of those directors who perform that evaluation, it is reasonable and appropriate that the selection of the Company’s independent auditors fall within the purview of the Board and the Audit Committee as part of the Company’s ordinary business operations.
In addition, under NYSE Rule 303.01, the Company’s Audit Committee must consist of at least three directors who are independent of the Company’s management and who must be able to read and understand financial statements. NYSE Rule 303.01 also requires each U.S.-listed company to adopt a written audit committee charter which must specify that, among other matters, (i) the outside auditors are ultimately accountable to the board of directors and the audit committee, (ii) the ultimate authority and responsibility to select, evaluate, and, where appropriate, replace the outside auditors is vested in the board and audit committee, and (iii) the audit committee will ensure that the outside auditors periodically provide formal written statements regarding all relationships with the company—whereby the audit committee will then review such statements and open up a dialogue with the outside auditors regarding all such disclosed relationships or services that may impact the objectivity and independence of the company’s outside auditors—and then make appropriate recommendations to the board in response.
The NYSE audit committee provisions place ultimate responsibility for the selection of independent auditors on the board of directors and the audit committee. The Proposal at issue, contrary to the NYSE audit committee provisions and the Company’s Charter, allows "any qualified auditing firm" to "put itself on the ballot," as stated in paragraph 3 of the Proposal. Therefore, the Proposal, if adopted, would conflict with the Board and the Audit Committee’s conduct of ordinary business operations, including overseeing, removing, selecting or recommending auditors, as required under NYSE Rule 303.01 and the Company’s Charter.
2. Under Delaware law, the Proposal is not a proper subject for stockholder action and may be excluded pursuant to Rule 14a-8 (i) (1).
In addition, Fleetwood may omit the Proposal from its Proxy Materials pursuant to Rule 14a-8(i)(1) which permits the omission of a stockholder proposal that is not a proper subject for stockholder action under the laws of the company’s state of incorporation. The Proposal, if adopted, would mandate that the stockholders annually elect the Company’s independent auditors and thereby improperly intrudes upon the Board’s authority.
The Note to Rule 14a-8(i)(1) states that some proposals are not considered proper under state law if they would be binding on the company if approved by stockholders. The Staff has interpreted this position to mean that the board has exclusive discretion in corporate matters, unless a specific provision in a state’s corporate code or in the corporation’s charter or bylaws states otherwise. See Securities and Exchange Act Release No. 34-12999 (November 22, 1976); see also Pay Less Drug Stores (April 11, 1975) (proposal may be omitted where California Corporations Code does not specifically provide for stockholder decisions regarding selection of the company’s independent auditors).
Fleetwood is a Delaware corporation. No provision in Fleetwood’s bylaws, its Certificate of Incorporation, or the Delaware General Corporation Law (the "DGCL") vests the stockholders with the power to select the Company’s independent auditors. To the contrary, Section 141(a) of the DGCL provides that the business and affairs of the corporation shall be managed by or under the direction of its board of directors, unless its bylaws or certificate of incorporation state otherwise. Fleetwood’s bylaws specifically provide that the business and affairs of the Company shall be managed by the Board. In addition, Section 122(5) of the DGCL provides the corporation with the power to "appoint such officers and agents as the business of the corporation requires." In this regard, Fleetwood’s stockholders have elected the Board and thereby empowered it with the authority and responsibility to manage the Company’s business and affairs.
The Staff has previously affirmed the position that, where a state’s corporate code:
(i) vests the company with the power to choose corporate agents and (ii) provides that the board shall, subject to the company’s articles or bylaws, have the corporate power to control the company’s business and affairs—a company is then permitted to exclude a stockholder proposal that deals with the method of selecting its independent auditors as an encroachment on the board’s authority. See Pay Less Drug Stores (April 11, 1975) (citing from the California Corporations Code). In a no-action letter issued to Pay Less Drug Stores, the Staff stated that it would not recommend enforcement action if the company excluded a stockholder proposal that provided for an individual stockholder nominating the company’s auditors. The Staff took the position that there was some basis for excluding the proposal in Pay Less Drug Stores as not a proper subject for stockholder action under California law. Parallel with the provisions of California’s Corporations Code cited in Pay Less Drug Stores, the DGCL utilizes analogous language to empower the board in handling a corporation’s business and affairs and in selecting corporate agents. Similar to Pay Less Drug Stores, the Proposal at issue contravenes Delaware law and is thus not a proper subject for stockholder action.
We respectfully submit that absent any provision in the DGCL, Fleetwood’s Bylaws or its Certificate of Incorporation, the Board holds the exclusive power to select its independent auditors, with the authority to delegate that power to the Audit Committee of the Board.
3. The Proposal is so vague and indefinite as to be materially false and misleading under Rule 14a-9 and, therefore, may be excluded under Rule 14a-8 (i) (3).
Fleetwood also may exclude the Proposal pursuant to Rule 14a-8(i)(3) which provides for the omission of proposals that are contrary to any of the SEC’s proxy rules, including Rule 14a-9, which prohibits materially false or misleading statements in proxy soliciting materials. The Staff has previously taken the position that proposals deemed vague and indefinite are misleading under Rule 14a-9 and, therefore, excludable under Rule 14a-8(i)(3).
In a no-action letter issued to Connecticut Natural Gas Corporation (November 29, 1993), the Staff granted the registrant’s request for no-action advice with respect to its decision to exclude a stockholder’s proposal because the proposal was ambiguous as to the criteria for selection of the auditors, the voting process by which the auditors should be chosen, and the effect the proposal would have on the board in the event of an affirmative vote. In Connecticut Natural Gas Corporation, the stockholder proposal did not address or set any standards for the selection of auditors, and further, it failed to provide rules for the voting process.
Similarly, the Proposal at issue is vague and indefinite as to both the standards for selecting auditors and voting procedures. The Proposal fails to provide any criteria for the selection of auditors or provide for the manner in which auditors might appear on the ballot. Rather, the Proponent states merely that any "qualified" accounting firm could place itself on the ballot. Fleetwood’s business requires the services of an accounting firm with sophisticated knowledge and experience. The Proposal fails to define or address what "qualified" entails and whether "qualified" includes only members of the "big five" accounting firms or whether any accounting firm would suffice. Further, in order to qualify, must the Company’s Audit Committee first evaluate and interview the candidates? If not, the Company would not be in compliance with NYSE Rule 303.01 or its Charter, as described above.
In addition, the Proposal fails to describe the voting process for selecting the independent auditors—particularly what would happen in the event that three or more accounting firms have placed themselves on the ballot. Under Section 216 of the DGCL and in conjunction with the Company’s Certificate of Incorporation and Bylaws, stockholder action, other than the election of directors, requires an affirmative vote of a majority of the shares present or represented at the meeting and entitled to vote on the subject matter. If there are three or more accounting firms on the ballot and no firm receives a majority of such votes, then any such selection would be invalid and would not constitute action by the stockholders. Thus, absent any other voting procedures, the Proposal could leave Fleetwood without any independent auditors.
The Company respectfully submits that the Proposal’s deficiencies render the Proposal so vague and indefinite as to violate Rule 14a-9.
4. The Proposal includes reference to the Proponent’s Web site as a source for additional information on the Proposal, but the Web site incorporates irrelevant information that is materially false and misleading under Rule 14a-9 and, therefore, reference to the Web site may be excluded under Rule 14a-8(i) (3).
The Proponent includes his Web site address, "corpmon.com," in the supporting statement to the Proposal as a source for additional information. The Staff has indicated that a Web site which is referenced in a proposal or supporting statement and provides irrelevant information that is materially false or misleading or otherwise contravenes the proxy rules may be excluded under Rule 14a-8(i)(3). See Staff Legal Bulletin No. 14, Questions and Answers C.2.b. and F.1. (July 13, 2001).
The Proponent’s Web site includes information that is entirely irrelevant to the Proposal and that impermissibly expands on its scope. Specifically, a substantial portion of the Proponent’s Web site, as of March 19, 2002, addresses proposals regarding the use of proxy advisory firms, which bear no relation to the subject matter of the Proposal. In this regard, the Proponent discusses stockholder voting alternatives, voting system reforms and the use of proxy advisory firms in connection therewith. In addition, the Proponent’s Web site is false and misleading by providing a link to an article entitled "SEC Clarifies Position on Auditor Independence Resolution." The author of the article asserts that the Staffs position regarding stockholder proposals that seek to prohibit auditing firms from providing non-audit services, as discussed and distinguished above, implicates a change in the Staff’s position regarding proposals similar to the Proponent’s in SONICblue and thus the Proposal at issue. In addition, the Proponent’s Web site discusses his "Pre-IPO" initiative for the start of new companies and. further provides several personal links, including his resume, commercial interests and his "personal home page." Again, none of the additional information provided at the Proponent’s Web site is relevant to the subject matter of the Proposal. Instead, the information provided at the Proponent’s Web site is, at best, only topically related to auditors, generally, but substantively irrelevant to the matter of the selection of auditors by stockholders, and reference to the Web site as a source of information on the Proposal is thereby more likely to confuse and mislead stockholders who view the Web site. Reference to the Proponent’s Web site in general, and specifically as a source for additional information on the Proposal, contravenes the proxy rules by being materially false and misleading as to the subject matter of, and reasons supporting, the Proposal. Finally, because the Proponent’s Web site is subject to change at his whim, the information provided at the Web site could be altered in the future (as has been done in recent weeks) to present additional and different information while his Proposal is under consideration by Company stockholders, thus enabling the Proponent to further expand the scope of the Proposal and its supporting statement.
We respectfully submit that because the Proponent’s Web site includes and discusses information that is irrelevant to the subject matter of the Proposal, is likely to confuse stockholders and is subject to change by the Proponent, reference to it in the Proposal violates Rule 14a-9’s prohibition against false and misleading statements in proxy soliciting materials. For these reasons reference to the Web site should be excluded from the Proposal in any event.
Conclusion
Based on the foregoing, we respectfully request that the Staff confirm that it will not recommend enforcement action if the Proposal is omitted from Fleetwood’s 2002 Proxy Materials. Should you disagree with the conclusions set forth herein, we would appreciate the opportunity to confer with you before the issuance of your response. If you have any questions regarding this request or require any additional information, please contact me at (949) 451-3880, or Mark Shurtleff at (949) 451-3802.
Very truly yours,
Jean D. Billyou
JDB/jdb
Enclosure(s)
cc: Mr. Mark Latham
Forrest D. Theobald
Leonard J. McGill
Fleetwood Enterprises, Inc.
Mark W. Shurtleff
Gibson, Dunn & Crutcher LLP