Company Name: Micronics Computers, Inc.
Public Availability Date: 11-29-1993
[INQUIRY LETTER 1]
FENWICK & WEST
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
TELEPHONE(415) 494-0600 October 29, 1993 VIA EXPRESS DELIVERY Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549 Re: Micronics Computers, Inc. (Commission File Number 0-19272)
Second Request - Omission of Stockholder Proposal Pursuant to Rule 14a-8 Ladies and Gentlemen: We write on behalf of Micronics Computers, Inc., a Delaware corporation (the
"Company") to request your concurrence with our interpretation of Rule 14a-8
promulgated under the Securities Exchange Act of 1934, as amended, as such Rule
relates to proposals (the "Proposals") submitted for inclusion in the Company's
1994 proxy statement and form of proxy (the "Proxy Materials") by Ms. Diane
Materia (the "Proponent"). This is the second of two letters submitted to you
today, each concerning proposals made by different stockholders of the Company. We hereby request confirmation that the Division of Corporation Finance (the
"Division") will not recommend any enforcement action to the Securities and
Exchange Commission (the "Commission") if, in reliance on one or more of our
interpretations of Rule 14a-8, the Company excludes the Proposals from its Proxy
Materials. Pursuant to Rule 14a-8(d), enclosed herewith are six copies of the
following materials: (1) the original undated Proposal (Exhibit A); (2) our letter to the Proponent, dated September 27, 1993 (Exhibit B); (3) Proponent's letter dated October 4, 1993, the first of two letters of the
same date (Exhibit C); (4) Proponent's second letter dated October 4, 1993, which includes a statement
in support of Proponent's second Proposal (Exhibit D); and (5) this letter, which sets forth the reasons supporting the Company's proposed
omission of the Proposals from its Proxy Materials. This letter includes our legal opinion to the extent such reasons are based on
matters of law. By copy of this letter, the Company is notifying the Proponent
of its intention to omit her Proposals from the Company's Proxy Materials. Background On or about September 9, 1993, the Company received Proponent's first letter
wherein she described six Proposals to be included in the Proxy Materials (see
Exhibit A). On September 27, this law firm sent a letter to the Proponent on the
Company's behalf, requesting, among other things, that the Proponent choose one
proposal pursuant to the provisions of Rule 14a-8(a)(4) (see Exhibit B). On or
about October 8, 1993, the Company received two letters from the Proponent, both
in the same envelope, each proporting to choose a single Proposal for inclusion
in the Proxy Materials. Proposal 1, which did not include a supporting
statement, reads as follows: Micronics shall buy in 4 million shares of its Common Stock as recommended by
South Coast Capital Corp. on 9/1/93. Proposal 2, which was accompanied by a supporting statement (see Exhibit D), is
simply a phrase: Bonuses based on Company performance. The Company believes that the Proposals may properly be omitted from its Proxy
Materials pursuant to: (1) Rule 14a-8(a)(4), as to both Proposals 1 and 2, since more than one Proposal
has been submitted to the Company by the Proponent; (2) Rule 14a-8(a)(3) as to Proposal 2, since Proposal 2 was submitted for the
first time after September 11, 1993, and after the 120-day limit set forth in
the Rule; (3) Rule 14a-8(c)(7), as to both Proposals 1 and 2, because the buy back of
shares and the adoption of bonus plans for employees involve the ordinary
business affairs of the Company; and (4) Rules 14a-8(c)(3) and 14a-9, as to both Proposals 1 and 2, since the
Proposals are unclear and it is uncertain what actions the Company would be
required to take as a result. More Than One Proposal Submitted (Rule 14a-8(a)(4)). Rule 14a-8(a)(4) specifies that: The proponent may submit no more than one proposal and an accompanying
supporting statement for inclusion in the registrant's proxy materials for a
meeting of security-holders. If the proponent submits more than one proposal, or
if he fails to comply with the 500-word limit mentioned in paragraph (b)(1) of
this rule, he shall be provided the opportunity to reduce the items submitted by
him to the limits required by this rule, within 14 calendar days of notification
of such limitations by the registrant. On or about September 9, the Proponent submitted a letter to the Company
requesting that a number of proposals be included in the Proxy Materials. On
September 27, 1993, we responded on behalf of the Company requesting, among
other things, that proponent choose one of the proposals formerly presented
pursuant to Rule 14a-8(a)(4). On October 4, 1993, the Proponent sent to the
Company, in the same envelope, the two letters attached hereto as Exhibits C and
D, each including a different requested proposal for inclusion in the Proxy
Materials. Proposal 1 is a revised version of one of the initial proposals
respecting a requirement that the Company repurchase shares of its Common Stock
in the open market. Proposal 2 is a new proposal never before submitted by the
Proponent to the Company. Since the Proponent has submitted more than one
proposal, the Proponent has failed to meet the requirements of Rule 14-8(a)(4)
and the Proposals may therefore be omitted. Proposal 2 - Submitted After September 11, 1993 (Rule 14a-8(a)(3)). Proposal 2 was submitted to the Company for the first time on or after October
4, 1993. The last date that proposals may be made by stockholders under Rule
14a-8(a)(3) is no later than 120 calendar days in advance of the date of the
Company's proxy statement released to security-holders in connection with the
previous year's annual meeting of security-holders, in this case, September 11,
1993. Accordingly, we are of the view that Proposal 2 may be omitted from the
Proxy Materials pursuant to Rule 14a-8(a)(3). See Commission No-Action Letter,
American Telephone and Telegraph Company (February 1, 1991). Proposals 1 and 2 - Ordinary Business Affairs (Rule 14a-8(c)(7)). Rule 14a-8(c)(7) provides that the Company may omit a stockholder's proposal and
any statement in support "if the proposal deals with a matter relating to the
conduct of the ordinary business operations of the registrant." Proposal 1. Proposal 1 reads as follows: "Micronics shall buy in 4 million
shares of its Common Stock as recommended by South Coast Capital Corp. on
9/1/93." No supporting statement was submitted. Please refer to Commission
No-Action Letter, Clothestime (March 31, 1991) wherein the Commission, under
substantially similar facts, determined that "the repurchase of Common Stock may
involve a matter of policy, questions concerning the terms and conditions of
such transactions,. . ." and therefore involve decisions that relate to the
conduct of the ordinary business operations of the Company. In Clothestime, a
stockholder submitted a proposal that the corporation repurchase 2,500,000
shares of its Common Stock, $0.01 par value, in the open market under specified
conditions. The Proponent has also submitted such a proposal to the Company,
though in this case it is unclear exactly what conditions were proposed by South
Coast Capital Corp. In Clothestime, the Division stated: A corporate repurchase program must fall under the umbrella of "ordinary
business operations," as contrasted with those activities which mandate the
concurrence of shareholders, because the decision to implement, as well as the
actual implementation of, such a program involves (i) expert financial analysis
which must be consistent with the other financial policies and goals of a
company (policies which must be adaptable to changes in the economic
environment) and (ii) compliance with various federal securities laws which
involve day-to-day compliance obligations (e.g., Rules 10b-5 and 10b-18). In
addition, if such a program does fit into such a financial plan, questions
relating to implementation must be addressed (e.g., how many shares should be
repurchased, over what period of time and at what price). Allowing shareholders
to affect such financial policy (whether or not such shareholders have
themselves retained competent financial experts) has the effect of
second-guessing the day-to-day financial policy of a corporation. As a practical
matter, boards of directors and management could not implement a consistent
financial policy under such circumstances. Proposal 2. Proposal 2 is simply a phrase: "Bonuses based on Company
performance." The supporting statement suggests a better bonus plan in the
opinion of the Proponent but does not actually ask the stockholders to adopt
that plan. Assuming for the sake of argument that the Proposal is a request to
have the Company's stockholders adopt a bonus plan "that pays a certain
percentage to employees and officers based on the Company's retained earnings,"
(as stated in the Proponent's supporting statement for Proposal 2) we believe
such a proposal intrudes upon the ordinary business affairs of the Company.
Compensation of employees is part of the Company's ordinary business operations.
Under Delaware law, the law applicable to the Company, stockholders are given
rights to approve major business transactions and the right to elect the
directors of the corporation. Stockholders are not involved in the day to day
management of the corporation and do not have access to management to gain the
knowledge necessary to determine compensation issues. Applicable law leaves to
the board of directors the responsibility to oversee and approve compensation
issues for all employees. Chrysler Corporation (Commission No-Action Letter available February 13, 1992)
makes reference to a proposal recommending that the board of that corporation
adopt a policy regarding the strike price of options under a proposal that the
Division in its resulting no-action letter considered to be an issue relating to
compensation of officers or employees. The great weight of no-action letters
quoted in Chrysler Corporation would uphold the authority of the board to
administer employee option plans, and thus, impliedly, employee compensation
plans in general. On the particular facts of Chrysler Corporation, the Division
was unable to conclude that the stockholder proposal in question could be
omitted under Rule 14a-8(c)(7) because (1) the Division stated that it was not
clear whether the proposal was targeted at compensation of the corporation's
executive officers or related to general compensation policy and (2) the
proposal in Chrysler Corporation was also stated in precatory, rather than
mandatory, language. In the instant case, Proposal 2 is not stated in terms of a recommendation, but
mandates action by the Board of Directors, removing the Board's discretion
entirely. In addition, the Proponents' supporting statement presumes that all
bonuses to all employees would be covered by the Proposal's prohibitions, since
the Proponents repeatedly state that "employees and officers" are to be affected
by Proposal 2. Proposal 2 is targeted, therefore, at the general policies
relating to all compensation to the Company's employees. As a consequence, we
believe Proposal 2 may be omitted from the Proxy Materials pursuant to Rule
14a-8(c)(7). Proposals 1 and 2 - False and Misleading Statements (Rules 14a-8(c)(3) and
14a-9). Rule 14a-8(c)(3) permits exclusion if inclusion of a proposal would be contrary
to Rule 14a-9 which prohibits false or misleading statements in proxy materials.
Both Proposals 1 and 2 are unacceptably vague and contain a number of errors. As
a result, the Company's stockholders voting on the proposal will not be able to
determine with any reasonable certainty exactly what measures the Company would
be required to take in the event the proposals are adopted. The Division has
consistently taken the position that such a confusing proposal may be omitted
under Rule 14a-8(c)(3). See Commission No-Action Letters, U.S. Industries, Inc.
(February 17, 1983), Duquesne Light Co. (January 6, 1981) and No-Action Letters
cited therein, and Jos. Schlitz Brewing Co. (March 21, 1977). Proposal 1. The Company is being asked to present to its stockholders a proposal
to repurchase 4,000,000 shares of its Common Stock under terms recommended by
South Coast Capital Corp. The Company has not seen any such recommendation and
has no information as to whether or not that recommendation has even been reduce
to writing. Since no supporting statement has been provided, the exact terms of
such a buy back offer are unclear. We believe Proposal 1 is unacceptably vague. Proposal 2. It is not clear from Proposal 2 exactly what action the Company is
being asked to take. Proposal 2 is a phrase "Bonuses based on Company
performance." If Proposal 2 is mandating that the Company adopt some bonus plan
based on Company performance, it is unclear why the Company's existing bonus
plan does not meet those requirements. The Company currently pays its employees
eligible to participate in its bonus plans a base salary that is somewhat less
than could be obtainable elsewhere in competing businesses but has chosen to pay
a larger portion of an employee's compensation based on the Company's
performance. The Company's existing bonus plans have resulted, during the last
three six-month bonus periods, in fully one-third of the aggregate bonuses paid
to the Company's employees having been distributed under a profit sharing
arrangement. The remaining two-thirds allocated to all employees as a group is
based on the Company's income before taxes; allocation of the bonus pool to
individual employees is based on merit. It is unclear what the Proponent finds objectionable in the method of bonus
allocation currently used by the Company. The current plan is based on
performance. Profit sharing plans presume a profit must be available before a
bonus can be paid. The larger the profit, the greater the bonus. The second
portion of the Company's current bonus plan is to be no greater than 8% of
earnings before taxes (after deduction of the profit sharing portion). Over the
last three or four six-month bonus periods, actual bonuses (both profit sharing
and merits portions together) have ranged from 5.7% to 5.9% of income before
taxes, one-third of which is the profit sharing component, and the other
two-thirds are merit bonuses. Merit bonuses are based on net income before
taxes. If there is no net income, there will be no bonus; the larger net income,
the larger the bonuses available. The Company believes its current bonus plan is
performance based. Second, the Company is unsure what the Proponent means by suggesting that a
"better bonus plan would be one that pays a certain percentage to employees and
officers based on the Company's retained earnings (i.e., up to 10% of the
Company's earnings)." The total bonus paid by the Company to all employees
(whether officer or other employee) over the last three years was $3,874,448,
averaging 6.78% of income before taxes. If the Company were to pay 10% of
retained earnings (currently about $32,200,000) in bonuses as the Proponent
appears to be suggesting, the bonus for this year alone would be over
$3,200,000, approximating the bonus actually paid over the entire last three
years. Third, the Proponent has incorrectly calculated the bonuses earned over the last
three years by the Company's employees. The amounts attributed to the five
former executive officers is not an amount in addition to the total $3,974,448
bonus but these amounts are included within that figure. This results in a total
bonus to all employees that equals 6.78% of income before taxes, 18% of net
income and 12% of retained earnings at the end of the period (not 25% as is
asserted in Proposal 2). We believe it is evident that the Proponent's Proposals are vague, indefinite
and misleading. Any actions the Company might take to implement these Proposals
would likely be quite different from those envisioned by the stockholders should
they vote in favor of the Proposals. Thus, we request your concurrence that the
Proposals may be omitted pursuant to Rules 14a-8(c)(3) and 14a-9. Conclusion. For the foregoing reasons, it is our belief that the Company may omit Proposals
1 and 2 from its Proxy Materials. If for any reason, you do not concur with our
conclusions, we would appreciate the opportunity to confer with members of the
Staff by telephone prior to any written response to this letter. This request is being sent to you approximately 70 days prior to the date the
Company's definitive proxy materials for the 1994 annual stockholder meeting are
expected to be filed with the Commission and delivered to stockholders. Under
Rule 14a-8(d) the Company is required to deliver this statement in support of
its decision to omit these proposals from its Proxy Materials not later than 80
calendar days prior to the date the definitive proxy statement and form of proxy
are expected to be filed with the Commission for the annual meeting, or such
shorter period prior to such date as the Commission or its staff may permit. Due
to the length of time it took to solicit a reduction in the number of Proposals
and the fact that the Board of Directors of the Company was unable to consider
the Proposals until October 22, the Company respectfully requests a sufficient
shortening of time during which this statement can be filed with, and considered
by, the Division. The Company expects to file its definitive Proxy Material on
or before the 4th of January 1994 and requests the Division's response by that
time. If you have any questions or desire to discuss any of the issues described
herein in more detail, please contact the undersigned at (415) 494-0600,
extension 290. Thank you for your attention to this matter. Very truly yours, Gail E. Suniga cc: Mr. Steven P. Kitrosser (Micronics Computers, Inc.)
Mr. Robert D. Campbell (Micronics Computers, Inc.)
Stephen Bene, Esq. 72531 14851-00500/72531.1/10-30-93/04:17 PM
[INQUIRY LETTER 2]
DIANE MATERIA
2348-61ST STREET
BROOKLYN, NY 11204 Micronics Computers, Inc.
232 East Warren Avenue
Freemont, California 94539 Dear Mr. Campbell: Enclosed you will find proposals for the next annual meeting. Proposal 1 Company shall buy in 2 million shares of its common stock, as previously
announced, via a public tender offer within fifteen days following the annual
meeting. Proposal 2 Micronics shall pay out and declare after taxes, a 20% cash dividend quarterly. Proposal 3 All members of the Board of Directors shall be stockholders prior to nomination,
with a minimum of 10,000 shares owned. Proposal 4 Micronics shall apply for listing on the New York Stock Exchange (N.Y.S.E.),
immediately following approval by its shareholders. Proposal 5 Micronics shall retain a reputable Wall Street Investment Banking Firm to
evaluate and enhance shareholder values. I am requesting a copy of the current stockholders list, including both private
and institutional investors. I, Diane Materia, presently own over 60,000 shares of Micronics common stock at
A. 6. Edward, Company. I am placing my name in nomination for the Board of
Directors, as I show greater confidence in the company than its present
officers. Sincerely, DIANE MATERIA
[INQUIRY LETTER 3]
FENWICK & WEST
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
TELEPHONE(415) 494-0600 EXHIBIT B Certified Mail, Return Receipt Requested
Ms. Diane Materia
2348 61st Street
Brooklyn, New York 11204 Re: Your letter to Micronics Computers, Inc. Dear Ms. Materia: This law firm represents Micronics Computers, Inc. Robert Campbell, Chief
Financial Officer of Micronics, has referred to us your letter in which you list
five proposals to be considered by the shareholders at the next annual meeting
of shareholders scheduled for February 1994. Micronics' management has
considered the advisability of including your proposals in its next proxy
statement. A final decision should be forthcoming shortly. In the meantime, we
have been requested to obtain from you certain information required to satisfy
Securities and Exchange Commission regulations in connection with shareholder
proposals and to inform you which of your proposals might be acceptable to
Micronics in accordance with what it believes is sound business judgment and
applicable law. As you may know, many of Micronics' shareholders hold their stock in street
name. When Micronics receives a proposal from a person stating that the proposal
is from a shareholder, it must check its records to be sure the request is
actually from a shareholder. Micronics could not locate your name as a holder of
record and, therefore, assumes that you are holding in street name. Under SEC
regulations, at the time you submit your proposal you must be a record or
beneficial owner of at least one percent or $1,000 in market value of the
Micronics' Common Stock entitled to be voted on the proposal at the meeting and
have held such securities for at least one year. You should also continue to own
the Common Stock through the date on which the meeting is held. To comply with
these regulations, we request that you deliver to us within 14 calendar days
after receiving this letter (the response time specified by the SEC) certain
documentation that includes the following: (1) A written statement by you that you intend to continue ownership of your
Micronics' Common Stock through the date on which the meeting is held and, if
applicable, a copy of a Schedule 13D or a Schedule 13G or a Form 3 or Form 4
filed with the SEC that might indicate your beneficial ownership as of the date
on which the one-year period commences. (2) Your address, number of shares of Common Stock you hold of record or
beneficially, the dates upon which you acquired the securities and documentary
support for a claim of beneficial ownership for one year. SEC regulations (Rule 14a-9) also specify that you may submit no more than one
proposal and an accompanying supporting statement (limited to 500 words) for
inclusion in a public company's proxy materials for a meeting of security
holders. If you submit more than one proposal or fail to comply with the
500-word limit, you will be given the opportunity to reduce the items submitted
for inclusion. In accordance with SEC rules, please provide us, within the 14
calendar day response period specified by the SEC, with your decision as to
which of the proposals is most important to you. Please note that under SEC regulations and certain no-action letters issued by
the SEC in the past, a public company may omit certain shareholder proposals.
Micronics has not yet determined what action it will take in connection with the
proposal you choose. You should be aware, however, that Micronics believes that
each of your proposals may be omitted in accordance with SEC rules or may be
omitted as the proposal is currently drafted. Finally, Micronics is not required
to place your nomination for director in its proxy and related proxy statement.
Please refer to SEC Rule 14a-7 for the procedure to follow should you desire to
solicit your own proxies in connection with your nomination. Once we have received the information needed concerning your shareholdings and
your choice as to which of the five proposals is most important to you,
Micronics will further comply with SEC regulations and will let you know what
its position will be in connection with your proposal not later than 30 calendar
days prior to the date definitive copies of Micronics' proxy statement and form
of proxy are filed with the SEC in connection with its next annual meeting of
shareholders. In the meantime, we ask that you deliver the information detailed
above to us in accordance with the time periods stated by the SEC. A
self-addressed return envelope is enclosed for your convenience. Very truly yours, Gail E. Suniga cc: Mr. Stephen P. Kitrosser
Mr. Robert P. Campbell
Stephen Bene, Esq.
Susan Pyne, Esq. 14851-00000/60482.1/09-27-93/02:56 PM
[INQUIRY LETTER 4]
DIANE MATERIA
2348-61ST STREET
BROOKLYN, NY 11204 EXHIBIT C Mr. Robert P. Campbell
Micronics Computers Inc.
232 East Warren Avenue
Freemont, California 94539 Dear Mr. Campbell: In accordance with SEC Rules, I have enclosed statements verifying that at the
time I submitted my five proposals I was record owner of at least one percent
and/or $1,000 in market value of Micronics common stock and that I have held
such securities for at least one year. I, Diane Materia, fully intend to
continue ownership of Micronics common stock through the date on which the
meeting is held. As requested in the Fenwick and West letter dated September 27, 1993 I have
selected one of the five proposals which is most important to me. Proposal: Micronics shall buy in 4 million shares of its common stock as recommended by
South Coast Capital Corp. on 9/1/93. Sincerely, Diane Materia
[INQUIRY LETTER 5]
DIANE MATERIA
2348-61 STREET
BROOKLYN, NY 11204 October 4, 1993 Mr. Robert P. Campbell
Micronics Computers Inc.
232 East Warren Avenue
Freemont, California 94539 Dear Mr. Campbell: In accordance with SEC Rules, I have enclosed statements verifying that at the
time I submitted my five proposals I was record owner of at least one percent
and/or $1,000 in market value of Micronics common stock and that I have held
such securities for at least one year. I, Diane Materia, fully intend to
continue ownership of Micronics common stock through the date on which the
meeting is held. As requested in the Fenwick and West letter dated September 27, 1993, I have
selected one of the five proposals previously sent to you with an accompanying
supporting statement. The proposal which is most important to me deals with the
issue of bonuses based on company performance. Proposal: Bonuses based on company performance According to your Annual Report and Proxy Material, Micronics may pay up to 10%
of its net income based on earnings performance each fiscal year. Bonuses should
be based on the performance of Micronics Computers Inc. If the employees and
officers of Micronics are entitled to bonuses, the shareholders of Micronics
should also be considered as recipients of such performance. During the period of 1990 to 1992 Micronics paid cash bonuses of $5,161,104 of
which $3,974,448 were paid to employees and $1,186,656 to five executive
officers of the company. During this same period the company earned $21,883,000.
If you deduct the 5,161,104 paid in cash bonuses from the $21,883,000 in company
earnings you will see that almost 25% of all retained earnings were paid out in
cash bonuses. This is the equivalent of one dollar in four going to employees
and officers as bonuses, while the remaining three dollars was credited to the
company. No dividends, however, were paid to the owners of the company, its
shareholders. This does not take into account the enormous amount of stock
options granted each year to employees and officers of the company. This is a
very large perk, not offered to shareholders. A better bonus plan would be one that pays a certain percentage to employees and
officers based on the companys retained earnings (i.e. up to 10% of the company
earnings). A 10% yearly bonus to employees and officers is more than generous,
and would also enable the distribution of dividends to shareholders. Sincerely, Diane Materia
[STAFF REPLY LETTER]
November 29, 1993 RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE Re: Micronics Computers, Inc. (the "Company")
Incoming letter dated October 29, 1993 The proposals request that the Company repurchase common stock and implement a
bonus program based on the Company's performance. There appears to be some basis for your view that the proponent has exceeded the
one proposal limitation set forth in rule 14a-8(a)(4). Accordingly, the Division
will not recommend enforcement action to the Commission if the Company omits the
proposals from its proxy materials in reliance on rule 14a-8(a)(4). In reaching
a position, we have not found it necessary to address the alternative bases for
omission upon which the Company relies. Sincerely, Amy Bowerman Freed
Special Counsel
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