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November 24, 2004
Via U.S. Mail and facsimile at 858.704.3344
Jay Sitlani
Director of Operations
Relational Investors LLC
11975 El Camino Real, Suite 300
San Diego, CA 92130
Re: SPX Corporation (the "Company")
Preliminary Proxy Statement on Schedule 14A Filed November
16,
2004
by Relational Investors LLC
File No. 001-06948
Dear Mr. Sitlani:
We have reviewed your filings and have the following comments.
Preliminary Proxy Statement on Schedule 14A, Filed November 10,
2004
General
1. Please revise to indicate that the form of proxy is a
preliminary
copy. Refer to Rule 14a-6(e)(1). In addition, please revise your
disclosure throughout your proxy materials to identify the color
of
your proxy card.
2. We note that you refer readers to the Company`s 2003 Annual
Report
on Form 10-K and 2004 proxy materials. Consider whether it might
be
more helpful to readers to make specific references to the
sections
of the materials that you are directing them to read. In
addition,
please advise us regarding your intent to update the material upon
the company`s filing of its 2004 Annual Report and 2005 proxy
materials, if necessary.
Letter to Shareholders
3. We note your statements that "Relational Funds will provide
this
proxy statement to certain Company stockholders with whom it has
discussions regarding the 2005 Annual Meeting . . . commencing on
or
about November 15, 2004" and "the date of this proxy statement is
November 15, 2004, and the Relational Funds expect to first send
or
make this proxy statement available to certain shareholders on or
about November, 15, 2004." Supplementally inform us whether you
have
provided this preliminary proxy to any shareholders. In addition
please confirm that all written communications to shareholders
have
been filed.
4. We note the company has not selected the time and location for
the
2004 annual meeting or set the record date for determining those
stockholders who will be entitled to vote at the meeting. Please
advise us as to whether you will wait for the meeting and record
dates to be set prior to the dissemination of definitive materials
and proxy cards. We may have further comment.
Proposal for Election of Directors - Pages 2 to 4
5. We note your disclosure that the Relational Funds reserve the
right to nominate additional individuals for election in addition
to
the Relational Funds Nominees if the size of the Board is
increased
and such additional positions are voted upon at the 2005 Annual
Meeting. We further note your plan to distribute at a later date
a
revised form of proxy to include new matters. Please clarify
whether
the revised proxy would include the names of any additional
nominees.
Further, what would the effect of the distribution of a new form
of
proxy be on any old proxies already received?
6. Please disclose any potential effects of your proposal on the
Company`s existing security holders. For instance, do you know of
any existing company agreements with change of control provisions
that may be triggered by the election of your nominees?
Background of and Reasons for This Solicitation - Pages 5 to 9
7. Characterize each statement or assertion of opinion or belief
as
such, and ensure that a reasonable basis for each opinion or
belief
exists. Also refrain from making any insupportable statements.
Support for opinions or beliefs should be self-evident, disclosed
in
the proxy statement or provided to the staff on a supplemental
basis,
with a view toward disclosure, by submitting a Schedule 14A that
has
been annotated with support for each of the assertions made. We
cite
the following examples of statements or assertions in the proxy
statement that, at a minimum, must be supported on a supplemental
basis, or require both supplemental support and recharacterization
as
statements of belief or opinion:
* that the market value of the Company`s stock has been adversely
affected "by a history of poor asset allocation by the Company`s
management" (page 5);
* that the shareholder base has become "disenchanted with the
management and the Board`s oversight" (page 5);
* that the EVA plan has been adjusted "to effectively reward poor
performance by reducing performance standards (page5);
* that the shareholder base is "confused by and dissatisfied with
the
Company`s compensation structure and practices" (page 6);
* the statement that the Company`s public filings "do not provide
meaningful information" (emphasis added) to determine whether the
Board`s executive compensation decisions are fair (page 7); and
* that management`s recent adjustments to the EVA formula "benefit
the officers and directors at the expense of the Company`s
shareholders" (page 8).
These examples do not represent an exhaustive list of the
statements
that need to be amended and/or supported. In addition, to
facilitate
our review, provide an annotated copy of the proxy statement,
identifying the specific support for each such statement or group
of
related statements. Where the bases are other documents, such as
prior proxy statements, Forms 10-K and 10-Q, annual reports,
analysts` reports and newspaper articles, provide either complete
copies of the documents or sufficient pages of information so that
we
can assess the context of the information upon which you rely.
Mark
the supporting documents provided to identify the specific
information relied upon, such as quoted statements, financial
statement line items, press releases, and mathematical
computations,
and identify the sources of all data utilized.
8. Avoid issuing statements in your proxy statement that directly
or
indirectly impugn the character, integrity or personal reputation
or
make charges of illegal, improper or immoral conduct without
factual
foundation. Disclose the factual foundation for such assertions
or
delete the statements. Support for opinions or beliefs should be
self-evident, disclosed in the proxy statement or provided to the
staff on a supplemental basis, with a view toward disclosure, by
submitting a Schedule 14A that has been annotated with support for
each of the assertions made. In this regard, note that the
factual
foundation for such assertions must be reasonable. Refer to Rule
14a-9. The following statements should be revised or deleted:
* Your implication that management`s decision making amounts to
"self-dealing." page 6;
* Your implication that management has "let personal financial
interests come before their fiduciary duty to the Company and its
shareholders." Page 6;
* Your statement that management has "siphoned resources from the
business units" and your implication that management "uses [the
business units] to extract undeserved and excessive compensation"
page 8;
* Your statement that stewardship of the Company is driven as much
or
more by "the interests of the current Board and management in
protecting or enhancing the current compensation
arrangements...than
by the interests of the Company`s shareholders." Page 8; and
* Your implication that the Company`s strategic decisions are
"driven
by short-term compensation or employment considerations." Page 8.
9. Expand the disclosure to provide more background regarding the
allegations itemized in the first paragraph under this heading.
In
particular, the bases for the assertions of "a pattern of one-time
charges indicative of overpaying for acquisitions and failed
restructuring charges" and "excessive leverage" are unclear and
should be provided. Please revise.
Excessive Executive Compensation - Pages 5 to 6
10. We note your statement that "[n]one of [the EVA] adjustments
have
been approved by the Company`s shareholders." Please revise your
statement to clarify whether the Company had an obligation to seek
shareholder approval before making these adjustments.
11. Please support your stated belief that without the "ad hoc
one-
time adjustments" (emphasis added) cited from the Company`s 2004
proxy, the Chief Executive Officer and therefore the non-employee
directors would have received no bonus for 2003. For example,
please
provide us with your analysis and calculation as to how the EVA
plan
adjustments increased bonus awards from "zero to approximately
five
times their target bonus amount of $20,000."
12. You state that "`Income from continuing operations` actually
decreased by $24 million from 2002 to 2003," citing the Company`s
Annual Report on Form 10-K for the year ended December 31, 2003,
as
support for your belief that "true" EVA could not have improved.
This statement, however, omits the fact that EVA is defined in the
1996 proxy statement as Net Operating Profit After Taxes
(calculated
by adding back Interest Expense to Income from continuing
operations,
minus a charge for all capital employed in the business). It
appears
to us that this amount increased between 2002 and 2003. If you
intend to quote the Company`s materials, please provide adequate
context so that investors will not be confused by your
characterization. Please provide us with your analysis and
calculations supporting your belief that EVA could not have
improved,
including an explanation of why "income from continuing
operations"
is relevant to EVA, as defined.
13. Please elaborate upon how you have defined "interested
parties."
If this is your definition, briefly define it for the readers.
14. Please avoid statements describing the beliefs, motivation or
intent of third parties. We note, for example, your statement on
page 6 that "the shareholder base is confused and dissatisfied..."
and on page 7 that management and the Board are "in a defensive
posture...and may try to appease investor`s discontent by pursuing
short-term strategies that are not in the shareholders
interest...."
Lack of Board Objectivity and Failure to Communicate Openly With
Shareholders - Pages 7 to 8
15. We note your asserted beliefs regarding management`s "weak
budgeting and forecasting process" and it`s failure to
"objectively
[evaluate] its own performance." Please tell us whether any of
your
nominees will seek to become members of management. If you plan
to
appoint your nominees, if elected, as certain officers of the
Company, please revise to prominently disclose these intentions so
that shareholders clearly understand that you do not intend to
retain
the current management.
16. Please describe the "other matters" that you claim illustrate
"the Company`s failure to clearly and openly communicate to its
shareholders."
17. Please provide supplemental support for your allegation that
the
Company denied your request for a meeting with the Compensation
Committee. In this regard, if available, please provide us with a
copy of any written communication or transcript of any call
denying
such a meeting.
18. As a related matter, you disclose on page 8 that the Company
did,
in fact, offer a meeting with the members of the Compensation
Committee. Please disclose whether this meeting occurred. In
addition, expand your disclosure to explain why you believe the
company has been non-responsive to requests in light of the
proffered
meeting. Please revise or advise.
Corporate Overhead and Value Added - Page 8
19. The basis for your assertion of "poor capital allocation
decisions" remains unclear. Please expand here or where
appropriate.
Further, the connection between the departure of certain business-
unit executives and the failure of corporate stewardship is
unclear.
Please expand. For example, did the company or executives give
reasons for their departures?
Stewardship and Accountability - Page 8
20. You indicate that the Board will have "independent shareholder
representation." Please elaborate on how you have defined
"independent." Is this your definition or is this the definition
as
applied by the listing standards of the NYSE? If this constitutes
your definition, briefly define it for the readers.
The Need for Improvement - Pages 8 to 9
21. You refer to the "current depressed value of the Company`s
stock." Please expand to describe any analysis that you have done
regarding the value of the company`s stock. Further, clarify by
what
standard the stock is depressed. How has the performance of the
company`s stock compared to that of other companies in the
industry?
You need to provide more discussion of the value to place the
statement in proper context.
22. Please elaborate upon how you plan to achieve certain of the
steps you plan on taking. For example, please explain how your
nominees will "improve operating margins of existing businesses,"
"[delever] the balance sheet" and "restore investor confidence."
23. Additionally, if your nominees are elected, they will
constitute
a minority of the board of directors. Therefore, they may not be
able to effect the changes you seek unless they gain the support
of
other board members. Please discuss in the proxy statement.
Certain Information Concerning the Relational Funds and Other
Participants in the Solicitation - page 10
24. You indicate that each of the Relational Funds "may" be deemed
to
be participants in the proxy solicitation. It appears
inappropriate
to indicate that such entities "may" be deemed to be participants.
Please revise or advise.
Proxy Solicitation Expenses - Page 15
25. You state that proxies may be solicited by the Relational
Funds,
"partners," members and employees. Please ensure that you have
identified all "partners" as participants in the solicitation.
Refer
to Instruction 3 of Item 4 to Schedule 14A.
26. We note your disclosure that proxies may be solicited by
telephone, telecopier and via the Internet. Please advise us as
to
how you plan on verifying that any person from whom you have
received
a proxy has previously been furnished with a proxy statement.
Refer
to Rule 14a-3(a).
27. Additionally, we remind you to file under the cover of
Schedule
14A, on the date of first use, all written soliciting materials,
including any scripts to be used in soliciting proxies by personal
interview, telephone, television, radio, e-mail correspondence and
information posted on web sites and chat rooms. Refer to Rule
14a-
6(b) and (c).
28. We note your disclosure that "[r]egular employees" may solicit
proxies on behalf of the Relational Funds. Please describe the
class
or classes of employees to be so employed, and the manner and
nature
of their employment for such purpose. Refer to Item 4(b) of
Schedule
14A.
Form of Proxy
29. Revise your card to provide clear instructions regarding how a
stockholder may withhold authority to vote for one or more of your
nominees. It is unclear from the Edgar copy of the form of proxy.
See the sample form of proxy in Release No. 34-31326.
30. You refer to matters of which you are not now aware that may
come
before the meeting and state that you will use discretionary
authority to vote upon such matters. Please note that you may not
use discretionary authority conferred with these proxies to vote
upon
matters not known to you at the time of this solicitation but
which
come to your attention a reasonable time before the meeting.
Refer
to Rule 14a-4(c). Please confirm your understanding.
* * * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested supplemental information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision.
In connection with responding to our comments, please
provide,
in writing, a statement acknowledging that:
* the filer is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the filer may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
Direct any questions to Adelaja Heyliger at (202) 824-5082
or,
in his absence, to me at (202) 942-1976.
Sincerely,
Michael Pressman
Special Counsel
Office of Mergers and Acquisitions
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Relational Investors LLC
November 24, 2004
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