Company Name: Drexler Technology Corp.
Public Availability Date: June 14, 1999
Document Sections:
LETTER OF INQUIRY 1
LETTER OF INQUIRY 2
STAFF REPLY LETTER
[LETTER OF INQUIRY 1]
May 18, 1999
VIA FEDERAL EXPRESS
Securities and Exchange Commission
Office of Chief Counsel
Division of Corporate Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Drexler Technology Corporation
1999 Annual Meeting Proxy Statement
Notice of Intention to Omit Stockholder Proposal
Dear Commissioners:
We are counsel to Drexler Technology Corporation, a Delaware corporation ("Drexler"). As will be described more fully below, Drexler has received from Dr. Eli Shapiro ("Dr. Shapiro"), a trustee under the Eli Shapiro Revocable Living Trust (the "Eli Shapiro Trust"), and certain related parties (collectively, the "Nominal Proponents"), five proposed stockholder resolutions (the "Proposals") for inclusion in the proxy statement and form of proxy (the "Proxy Material") to be distributed to Drexler's stockholders in connection with its 1999 Annual Meeting of Stockholders. The text of each of the Proposals appears below.
For the reasons set forth in this letter, we believe that under the provisions of Rule 14a-8 all of the Proposals may properly be omitted from the Proxy Material, and we therefore respectfully request the Staff to advise us that it will not recommend any action to the Securities and Exchange Commission (the "Commission") if Drexler does so. Pursuant to Rule 14a-8(d), we are notifying Dr. Shapiro and each of the Nominal Proponents of Drexler's intention to omit the Proposals from its 1999 Proxy Material, and the reasons for its omission, by sending them a copy of this letter.
In accordance with Rule 14a-8(d) under the Securities Exchange Act of 1934, as amended, the undersigned, on behalf of Drexler, hereby files six (6) copies of this letter and Exhibits attached hereto.
I. Background
A brief summary of the correspondence in this matter makes it obvious that Dr. Shapiro has orchestrated, and controls, submission of the multiple Proposals in a conscious and deliberate attempt to circumvent Rule 14a-8(c).
1. We believe that the relevant correspondence begins with a July 21, 1998 letter from Dr. Shapiro to Drexler's Chairman of the Board, in which Dr. Shapiro made a number of suggestions designed to improve "the awareness level of Drexler Technology Corporation in the investment community." (See Exhibit A, Attachment 1.) In particular, Dr. Shapiro asked that Drexler engage an investor relations firm. Drexler did not respond to this letter in writing, but during a number of earlier and subsequent conversations with Dr. Shapiro Drexler's Chairman informed Dr. Shapiro that Drexler did not want to hire an investment relations firm.
2. In a letter to Drexler dated February 4, 1999 (see Exhibit A, Attachment 2), Dr. Shapiro then submitted five Proposals for consideration at the Annual Meting.
3. On February 19, 1999, counsel to Drexler wrote Dr. Shapiro a letter in response to his letter of February 4, indicating among other things that under the Commission's Rules Dr. Shapiro could not submit more than one proposal for consideration at the Annual Meeting (see Exhibit A, Attachment 3). In this letter, counsel suggested that Dr. Shapiro limit his Proposals to one, and notified him that his response must be sent within 14 days.
4. Within three weeks after Dr. Shapiro received Drexler's February 19, 1999 response, Drexler received "new" proposals from Dr. Shapiro and four other stockholders (see Exhibit A, Attachments 6 through 10). The four new proponents included Dr. Shapiro's wife and son and the adult children of his neighbor and close personal friend Mrs. Margot Meyers (the "Nominal Proponents"). All of the Nominal Proponents are represented by the same Michigan attorney who represents Dr. Shapiro in this matter, although they themselves live in Florida, California, New York, and Texas, respectively.
5. All of the "new" Proposals were substantively the same as the five Proposals originally submitted by Dr. Shapiro. In addition to being sent at about the same time and evidently in response to Drexler's February 19 response letter, the letters containing the "new" Proposals were:
a. Phrased in language virtually the same as and clearly derived from the language Dr. Shapiro had used in his February 4 letter;
b. Written in the identical format (including with respect to typeface, paragraph breaks, and the location of addresses, dates, and signatures), all of which is also the same as that used in Dr. Shapiro's February 4 letter;
c. Accompanied by the same or markedly similar documentation: and
d. Submitted without Statements in Support.
6. On March 19, 1999, counsel for Drexler sent counsel for Dr. Shapiro and the Nominal Proponents a detailed letter responding in detail to each of the five Proposals in their then-current form and raising various objections to the Proposals, among them the "one Proposal" rule (see Exhibit A, Attachment 11). Drexler has never received any communication from Dr. Shapiro or any of the Nominal Proponents explaining why the Nominal Proponents should not be considered to be alter egos of Dr. Shapiro under Rule 14a-8(c).
7. On March 30, 1999 counsel for Dr. Shapiro and the Nominal Proponents sent counsel for Drexler a letter proposing that all but two of the Proposals would be withdrawn if Drexler would agree to certain conditions (see Exhibit A, Attachment 12). This suggestion was verbally declined by counsel on behalf of Drexler.
8. On April 14, 1999 Dr. Shapiro submitted a revised version of his March 3 Proposal (which he had originally submitted on February 4 and again on March 4), together with the formal nomination of his son, Bradley J. Shapiro, to be elected to Drexler's Board of Directors at the Annual Meeting (see Exhibit A, Attachment 13).
9. On April 15, 1999, Ms. Meyers submitted a revised version of Mrs. Shapiro's March 4 Proposal, which was itself a restated version of one of Dr. Shapiro's original February 4 Proposals (see Exhibit A, Attachment 14). She did not then withdraw, and she has not since withdrawn, her earlier (March 10) Proposal.
10. Like the March 410 letters from Dr. Shapiro and the Nominal Proponents, the April 14 and 15 letters from Dr. Shapiro and Ms. Meyers are strikingly similar in form and content, being, once again:
a. Phrased in language which is markedly similar to the letters accompanying the earlier Proposals (and as each other);
b. Written in identical formats (including with respect to typeface, paragraph breaks, and the location of addresses, dates, and signatures), which are the same as those used in Dr. Shapiro's original February 4 letter and the five letters sent by Dr. Shapiro and the Nominal Proponents on March 410;
c. Accompanied by markedly similar documentation; and
d. Submitted with Statements in Support which are also similar in format and typeface.
11. On April 26, 1999, counsel for Drexler wrote to counsel for Dr. Shapiro and the Nominal Proponents, pointing out certain deficiencies in the material submitted and requesting clarification of the status of the three Proposals not included with the April 14 and 15, 1999 letters from Dr. Shapiro and Ms. Meyers (see Exhibit A, Attachment 15).
12. As of the date of this letter, no written response to Drexler's April 26 letter has been received from Dr. Shapiro or any of the Nominal Proponents, or from their counsel, and none of the Nominal Proponents has, verbally or in writing, withdrawn any Proposal submitted to Drexler. In particular, Ms. Meyers has not withdrawn the proposal she originally submitted in her March 10 letter, which is different from the one she later submitted in her April 15 letter.
In summary, then, Dr. Shapiro started out by suggesting a variety of techniques by which Drexler could bring more press and investor attention to its stock. Finding that Drexler would not agree to implement his suggestions, he then attempted to achieve the same result by submitting to Drexler proposals for consideration at the Annual Meeting (including his original suggestion that an investor relations firm be hired) which, when publicly announced by Drexler, would have the inevitable result of drawing the same investor attention that has been his goal all along. When he was told that under the Commissions Rules he would not be allowed to sponsor more than one of these proposals, he attempted to circumvent the Rule by using friends and family members as the ostensible proponents, assisting them not only by orchestrating the substance, text, and timing of their submissions but also (apparently) by providing them with the very submittal letters and Proposals they signed and sent on to Drexler on his behalf.
II. The Proposals
None of the five proposals originally submitted by Dr. Shapiro, and later resubmitted by him and the Nominal Proponents, have been formally withdrawn, despite Drexler's request for clarification and repeated warnings that no stockholder may submit more than one proposal for consideration at a single meeting.
Following is the text of all five Proposals, accompanied by the texts of the proposals originally submitted by Dr. Shapiro. Proposals No. 1 and 2, as listed below, are the two most recently received by Drexler (see Exhibit A, Attachments 13 and 14).
Proposal No. 1
As submitted by Dr. Shapiro in his most recent (April 14, 1999) letter (see Exhibit A, Attachment 13), this Proposal is stated as follows (Dr. Shapiro's Statement in Support of this Proposal is included with this letter as Attachment 1 to Exhibit B):
"'Resolved, That the Corporation, acting through the Board of Directors, engage an Investment Banker for the purpose of recommending strategic steps that the Corporation can take to increase shareholder value, including but not limited to the sale or merger of the Corporation; the sale of its assets or a substantial portion of its assets; or a strategic alliance.'
In the event that it is determined that this Proposal is improper under Delaware Law for the reason that such action is reserved to the Board of Directors, then the Proposal shall instead read as follows:
'Resolved, That it is recommended that the Corporation, acting through the Board of Directors, engage an Investment Banker for the purpose of recommending strategic steps that the Corporation can take to increase shareholder value, including but not limited to the sale or merger of the Corporation; the sale of its assets or a substantial portion of its assets; or a strategic alliance.'"
Dr. Shapiro's original proposal, set forth in his February 4, 1999 letter to Drexler as Proposal #5 (see Exhibit A, Attachment 2), was as follows:
"Engage an Investment Banking firm to help increase shareholder value by putting the company up for sale, merger, or other strategic alliance."
A slightly revised version of this proposal was later submitted by Dr. Shapiro with his March 3, 1999 letter to Drexler (see Exhibit A, Attachment 6), as follows:
"That Drexler Technology Corporation immediately engage an investment banking firm to act as a financial advisor to explore and recommend steps to the Board of Directors to maximize shareholder value, including but not limited to the possible merger, sale, or other strategic alliance of the Company."
Proposal No. 2
In its current form, as most recently submitted by Ms. Randee Meyers in her letter dated April 15, 1999 (see Exhibit A, Attachment 14), this Proposal is stated as follows (Ms. Meyers' Statement in Support of this Proposal is included with this letter as Attachment 2 to Exhibit B):
"Resolved, that the By-Laws of the Corporation be amended, in Section III.2, to read:
Number and Qualification of Directors. The authorized number of directors shall be seven (7), unless and until changed by a proper amendment to this Section III.2. A reduction in the authorized number of directors shall not remove any director prior to the expiration of such director's term of office. Directors need not be stockholders of the corporation."
Dr. Shapiro's original proposal, set forth in his February 4, 1999 letter to Drexler as Proposal #1 (see Exhibit A, Attachment 2), was as follows:
"Increase the size of the Board of Directors to seven members from four, with the three additional members representatives of the shareholders."
A slightly revised version of this Proposal was later submitted by Dr. Shapiro's wife, Esther E. Shapiro, in her March 4, 1999 letter to Drexler (see Exhibit A, Attachment 7), as follows:
"That Drexler Technology Corporation increase the size of the Board of Directors to seven members from four, with not less than three members being direct representatives of the shareholders."
Proposal No. 3.
In its current form, as most recently submitted by Mr. Bradley J. Shapiro in his letter dated March 10, 1999 (see Exhibit A, Attachment 9), this Proposal is stated as follows:
"That Drexler Technology Corporation hire a new Vice Chairman and Chief Executive Officer to work with current management toward defining the company's business plan and expanding and enhancing the company's focus."
Dr. Shapiro's original Proposal #2, as set forth in his February 4, 1999 letter, was:
"Hire a new Vice Chairman and Chief Executive Officer to work with Richard Haddock to expand and enhance the company's focus."
Proposal No. 4.
In its current form, as most recently submitted by Ms. Meyers in her letter dated March 10, 1999 (see Exhibit A, Attachment 10), this Proposal is stated as follows:
"That Drexler Technology Corporation immediately hire a qualified Vice President of Marketing to expand and enhance the company's marketing efforts."
Dr. Shapiro's original Proposal #3, as set forth in his February 4, 1999 letter, was:
"Hire a new Vice President of Marketing to expand and enhance the company's marketing efforts."
To date, Ms. Meyers has not withdrawn this Proposal, despite having subsequently submitted Proposal No. 2, above.
Proposal No. 5.
In its current form, as most recently submitted by Mr. David Meyers in his letter dated March 4, 1999 (see Exhibit A, Attachment 8), this Proposal is stated as follows:
"That Drexler Technology Corporation engage a professional Investor Relations firm to introduce the company to various credible institutional investors, professional money managers, and other interested parties."
Dr. Shapiro's original Proposal #4, as set forth in his February 4, 1999 letter, was:
"Engage an Investor Relations firm."
III. Relationships Among the Proposing Persons
Dr. Shapiro was formerly the Chairman of the Board and Chief Executive Officer of Nu-Vision, Inc., a corporation registered with the Commission under the 1934 Act. Esther Elaine Shapiro is Dr. Shapiro's wife, and Bradley J. Shapiro is his son.
Randee and David Myers are brother and sister, the adult children of Mrs. Margot Meyers, who is a neighbor of Dr. and Mrs. Shapiro in Florida (Dr. Shapiro's Florida address is 20320 Fairway Oaks Drive #333, Boca Raton, Florida, and we understand Mrs. Meyers' Florida address to be 20290 Fairway Oaks Drive, #262, Boca Raton, Florida). We understand that the Shapiro and Meyers families are close personal friends of long standing.
Jonathan E. Raven, Esq., counsel to Dr. Shapiro and the Nominal Proponents, was formerly the President, and a Director, of Nu-Vision, Inc.
IV. Grounds for Omission of the Proposal
A. All of the Proposals May Be Omitted Under Rule 14a-8(c) as a Violation of the "One Proposal" Rule
We believe that all of the Proposals may be omitted from the Proxy Material in accordance with Rules 14a-8(c) and 14a-8(f)(1), because they violate the "one proposal" rule.
Rule 14a-8(c) provides that a proponent may submit no more than one proposal and an accompanying supporting statement for inclusion in a registrant's proxy materials for a meeting of security holders. If a proponent submits more than one proposal, the registrant is required by Rule 14a-8(f)(1) to provide the proponent the opportunity to reduce the items submitted to the limit provided by the rule within 14 calendar days of notification by the registrant to the proponent of the limitation. In adopting the rule, the Commission noted the possibility that some proponents would attempt to evade the rule's limitations through various maneuvers, but held out the promise of "No-Action" letters as a safeguard: "[T]he Commission is aware of the possibility. that some proponents may attempt to evade the new limitations through various maneuvers, such as having other persons whose securities they control submit two proposals each in their own names. The Commission wishes to make it clear that such tactics may result in measures such as the granting of requests by the affected managements for a `No-Action' letter concerning the omission from their proxy materials of the proposals at issue." Exchange Act Release No. 34-12999, (November 22, 1976); See also Pacific Enterprises, (February 12, 1996).
The Commission has ruled, on numerous occasions over many years, that a proponent's failure to timely reduce multiple proposals to one following an explicit request from the registrant to do so will result in the exclusion of the proposals. See, e.g., Clemente Global Growth Fund, Inc. (May 8, 1998); International Business Machines Corporation (January 26, 1998); Citizens Corporation (April 4, 1997); The Harper Group, Inc. (February 12, 1997); Allstate Corporation (January 29, 1997); Merck & Co., Inc. (January 29, 1997); Storage Technologies Corporation (February 22, 1996); Eli Lilly and Company (November 22, and October 13, 1995); Kmart Corporation (February 8, 1995); Dow Chemical Company (January 11, 1995).
In particular, the Staff has interpreted Rule 14a-8(c) (formerly Rule 14a-8(a)(4)) to permit the exclusion of all of a group of multiple proposals submitted by related parties when the circumstances show that the "nominal proponents are acting on behalf of, under the control of, or alter ego of" another party. See, e.g., Banc One Corporation (February 2, 1993); Occidental Petroleum Corporation (March 27, 1984).
Moreover, as the Staff has construed Rule 14a-8(c) and its predecessor, the presence of influence, even in the absence of explicit control or domination over cooperating proponents, may be sufficient to justify the omission of multiple proposals submitted by nominal proponents as part of an orchestrated scheme. See, e.g., Clemente Global Growth Fund, Inc. (supra), International Business Machines Corporation (supra); Weyerhaeuser Company (December 20, 1995); BankAmerica (supra); Stone & Webster, Inc. (March 3, 1995); and NMR of America, Inc. (May 11 and May 28, 1993). In numerous cases the Staff has issued No Action Letters based, not on the existence of outright "control," but on evidence that the proponents or nominal proponents have acted in a coordinated, arranged, or manipulated manner, with the evident purpose of avoiding the "one proposal" rule. See, e.g., Weyerhaeuser Company (supra), Dominion Resources, Inc. (February 24, 1993), and Occidental Petroleum Corporation (supra).
The facts here are strongly similar to those in Dominion Resources, Inc. (February 24, 1993), where the true proponent submitted three proposals to the Company, and following notification that he could only put in one, had the other two resubmitted by nominally independent proponents. Each of the nominal proponents in that case were evidently created on the same typewriter or word processor, and all three were sent via certified mail from the same post office with consecutive serial numbers. Comparable or identical facts are present here, as is made clear above under the heading "Background."
That the Nominal Proponents are in fact acting as a group and as Dr. Shapiro's alter egos, and not independently of him or each other, is clear not only from their relationships and the circumstances and appearance of their submissions, but also from the fact that their joint counsel offered to limit the total number of Proposals to two (the same two Proposals most recently submitted by Dr. Shapiro and Ms. Meyers on April 14 and 15) if Drexler would agree, among other things, not to oppose them (see Exhibit A, Attachment 12).
It is difficult to imagine a more clear or deliberate violation of the "one proposal" rule embodied in Rule 14a-8(c). This kind of behavior is particularly egregious in the case of a man like Dr. Shapiro, who served for years as the Chairman of the Board and Chief Executive Officer of a company, Nu-Vision, which was a publicly registered corporation and itself subject to the Commission's rules. Dr. Shapiro should know better.
For all of the above reasons, we believe that Dr. Shapiro and the Nominal Proponents have violated Rule 14a-8(c) by submitting multiple proposals in conscious violation of the "one proposal" rule. Despite repeated requests and warnings, Dr. Shapiro has refused to select one Proposal for submission at the Annual Meeting. Instead, he and the Nominal Proponents have repeatedly flouted the Rule by submitting and resubmitting the Proposals in various forms, and swapping Proponents as convenient. Ms. Meyers, even is she were to be viewed as a legitimate independent proponent, now has two separate Proposals outstanding, having submitted as her own Proposal No. 2 (as a stand-in for Mrs. Shapiro) as well as Proposal No. 3. Dr. Shapiro and all of the Nominal Proponents have been given adequate, repeated, and timely warning on this issue on several occasions over the last three months. They have made no effort to explain or justify their actions, or to conform to Rule 14a-8(c).
In our view, even if some or all of the Proposals were now to be withdrawn it would be too late to remedy the violations of the Rule already perpetrated by Dr. Shapiro and the Nominal Proponents. Under Rule 14a8(f)(1), a Proponent has 14 days in which to remedy a defect in any submission, once the defect has been pointed out by the company. In this case, counsel for Drexler pointed out to Dr. Shapiro as early as February 19, 1999 (see Exhibit A, Attachment 3), that he was entitled to submit only one proposal for the Annual Meeting. This warning was followed by instigation of the scheme described above. The warning was repeated in a March 19, 1999 letter to counsel for Dr. Shapiro and the Nominal Proponents (See Exhibit A, Attachment 11). Three months after the first warning, and two months after it was repeated, no written or practical response has ever been received from Dr. Shapiro or the Nominal Proponents, and all of the multiple Proposals remain outstanding. This is exactly the kind of situation referred to by the Commission in its November 22, 1976 Release quoted above, and the remedy there suggested should be appliedall of the Proposals should be omitted.
B. Other Reasons For Omitting the Proposals Under Rule 14a-8
For a variety of reasons, some of which relate the contents and timing of several of the submissions and others relating to the substantive provisions of Rule 14a-8, we believe that many if not all of the Proposals are subject to omission from the Annual Meeting Material pursuant to the Rule on bases other than those cited above. Because we believe that the objections expressed above are sufficient, alone, to justify the omission of all of the Proposals, we will not discuss our additional grounds for omitting the Proposals at this time, but we reserve the right to raise those issues later should the Staff not concur with our conclusion.
Based on the foregoing, we respectfully request on behalf of Drexler that the Staff concur that it will not recommend any enforcement action if all of the Proposals are excluded from Drexler's Annual Meeting Material. If you have any questions about this matter, please do not hesitate to contact me at the above direct dial number.
Very truly yours,
Philip S. Boone, Jr.
Cc: Jonathan E. Raven, Esq.
Dr. Eli Shapiro
Esther Elaine Shapiro
Bradley J. Shapiro
Randee Meyers
David Meyers
Jerald E. Rosenblum, Esq.
[LETTER OF INQUIRY 2]
June 9, 1999
James M. Daly
Assistant Director
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Drexler Technology Corporation
Rule 14a-8 Proposal of Dr. Eli Shapiro
Dear Mr. Daly:
We are writing this letter on behalf Dr. Eli Shapiro in response to the letter dated May 18, 1999 of Philip S. Boone, Jr., counsel to Drexler Technology Corporation ("Drexler" or the "Company"), in connection with Dr. Shapiro's submission of a proposal for inclusion in Company's proxy soliciting material for its 1999 Annual Meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934. Dr. Shapiro has proposed that the shareholders recommend to the Company's Board of Directors that they hire an investment banking firm to recommend strategic steps that Drexler can take to increase shareholder value (the "Proposal").
In his letter, Mr. Boone argues that the Proposal may properly be omitted because Dr. Shapiro and certain other shareholders of Drexler have violated the Commission's "one-proposal" rule. As discussed more fully below, we believe the Proposal may not be properly excluded from Drexler's 1999 proxy materials for the following reasons:
We do not concur with Mr. Boone that the shareholders have violated the "one proposal" rule. Although we ultimately believe this argument is moot for the reasons described below, it may be important in considering the proper resolution of this matter.
In any event, Drexler's argument is moot in view of the fact that all but one of the proposals has been or will be withdrawn.
In view of the circumstances, the proper resolution in this instance is to allow the remaining proposal to be included in the proxy materials, rather than to allow Drexler to omit all of the proposals.
We do not represent any of the other proponents. We understand, however, that Jonathan Raven, Esq., who at the time was acting in his capacity as counsel for all of the proponents, verbally indicated his intention to withdraw three of the proposals by telephone conference with Drexler's counsel.1 In addition, we understand that Randee Myers has withdrawn or will shortly formally withdraw her proposal (relating to the amendment to the Bylaws to increase the size of the Board from four to seven) in writing. Accordingly, only one proposal remains or will remain following such withdrawal.
The shareholders have not violated the "one proposal" rule.
Mr. Boone has not accurately summarized and/or interpreted certain provisions of Rule 14a-8. In doing so, he skews the Rule in a fashion which would make it substantially more difficult for shareholders who in good faith desire to have legitimate proposals put before the shareholders to do so. Rule 14a-8 provides that a registrant is required to notify a proponent of defects in a proposal within 14 days after receipt of the proposal. The proponent has 14 days in which to respond. It is not entirely accurate to suggest, as Mr. Boone does, that the proponent has 14 days to "remedy" the defect; rather the proponent has 14 days to respond to the registrant's objections. In this case, as we would surmise is the case in many other instances, there has been a course of timely correspondence between the registrant and proponents as proposals and objections are refined.2
In fact, it is not accurate to say, as Mr. Boone does on page 10 of his letter, that "no written or practical response" has been received from Dr. Shapiro. In fact, an offer was made to reduce the number of proposals to two. See Mr. Raven's letter of March 30, 1999, attached as Exhibit 12 to Mr. Boone's letter. This is a defensible posture adopted by Mr. Raven, as counsel for the proponents. At least two of the proponents, Dr. Shapiro and Ms. Myers are separate and independent shareholders. Dr. Shapiro has no ability to control the actions of Ms. Myers; rather, they are both shareholders of Drexler who share similar concerns about the Company. Each is independently at risk for the full value of his or her own investment. No voting or other agreement exists or has ever existed between these shareholders. In addition, we believe that the provision of legal and clerical support by itself is not sufficient to demonstrate that one proponent is the "nominal proponent" of another.
In any event, Drexler's argument is moot in view of the fact that all but one of the proposals has been or will be withdrawn.
We understand from Mr. Raven and Dr. Shapiro that Ms. Myers is withdrawing her proposal. Accordingly, of the original five proposal, only the Proposal remains. Therefore, even if the staff were to take the position that all of the Shareholders should be deemed one shareholder for determining whether or not "one proposal" had been submitted, the Shareholders have cured any defect in the proposal(s) relating to Rule 14a-8(c).
We anticipate that Drexler and Drexler's counsel may speculate that the withdrawal of Ms. Myers' proposal results from Dr. Shapiro's "control" or "manipulation" of, or other "influence" (undue or otherwise) over, Ms. Myers. However, as stated above, Ms. Myers is a separate and independent shareholder from Dr. Shapiro. He has no ability to control her actions, or vote or control the disposition of any of her assets, including the Drexler shares she owns. Dr. Shapiro and Ms. Myers do, however, share similar concerns regarding Drexler, and have discussed those concerns with each other. We understand that the course of action these shareholders are pursuing is intended to maximize their chance of presenting at least one proposal to the Drexler shareholders because of their mutual concern for the Company and not because of Dr. Shapiro's control or influence over the actions of Ms. Myers. We believe they should not be penalized because they have shared their feelings regarding Drexler with each other.
In view of the circumstances, the proper resolution in this instance is to allow the remaining proposal to be included in the proxy materials, rather than to allow Drexler to omit all of the proposals.
The staff has taken the position in other instances that the proper remedy where a proponent has requested more than one proposal be included in a company's proxy materials is for the proponent to reduce the number of proposals. Consolidated Freightways, Inc. (February 23, 1994); Occidental Petroleum Corp. (May 27, 1984). In addition, the staff has recommended that a company allow a proponent to cure other defects of a more substantive nature in other cases. See, e.g., Triarc Companies, Inc. (April 22, 1999) (permitting a proponent to recast a proposal as a recommendation to the board of directors within seven days after receipt of the staff's letter).
In Consolidated Freightways, two members of a union submitted two separate proposals, and the staff reasoned that there was a basis for concluding the one proposal rule had been violated. However, in that case, because the issue was not free from doubt, the staff concluded that the proper remedy was to permit the proponents to withdraw one of the two proposals. See also Aranow & Einhorn on Proxy Contests for Corporate Control, 16.03, page 16-28 ("if one proponent is the `alter ego' of a proponent, or controls another proponent, [the staff] will allow these persons to choose one of the proposals to submit to the company." (emphasis added)).3 As we have stated above, we see no reason to conclude that the provision of legal and clerical support alone is sufficient to conclude that all of the proponents are Dr. Shapiro's "nominal" proponents. In any event, the issue here is not "free from doubt", and the harsh remedy of excluding all of the proposals should not be applied, especially given that only Dr. Shapiro's proposal remains.
Mr. Boone relies particularly on the staff's no-action letter in Dominion Resources, Inc. (February 24, 1993) in support of his position that Drexler should be permitted to exclude all of the proposals. See page 9 of Mr. Boone's letter. However, in Dominion Resources, the proponents had made no effort to withdraw or consolidate the three proposals at issue. Accordingly, the company could not make its own determination of which proposal to include. In our case, only one proposal remains. We see no reason why all of the proposals should be excluded in this case.
In addition, Mr. Boone suggests that it is "too late" to remedy the request for a proposal. See page 10 of Mr. Boone's letter. In our view, the Proposal, as modified per Dr. Shapiro's April 14, 1999 letter, was timely submitted, and there is ample time for Drexler to include the Proposal in its proxy solicitation materials, which will not be sent out until August 1999.4
In light of the foregoing, Dr. Shapiro respectfully requests that the Division of Corporation Finance advise Drexler that it is unable to concur in the view that Drexler may exclude the Proposal from its 1999 proxy statement and form of proxy. We are sending a copy of this letter and the attached exhibit to Drexler.
We also note that Mr. Boone reserved the right to raise other objections to the Proposal. We believe that is not typical practice; most registrants raise all of their objections at the same time, which gives the proponents and the staff ample time to respond to the registrant's concerns. If Drexler is permitted to continue to raise objections in a "piecemeal" fashion, it may jeopardize our ability to work with them to resolve these matters in a timely manner.
Seven copies of this letter are enclosed; please stamp your receipt and return to the messenger one copy of this letter. In addition, we have fixed a copy to your office.
If for any reason the staff has questions or requires additional information with respect to our position, we would appreciate an opportunity to confer with the staff prior to the issuance of a formal response. Please call Robert J. Endicott of this Firm at (314) 259-2447 or the undersigned at (314) 259-2222 if you have any questions or comments with regard to this matter.
Very truly yours,
I. Jack Lerner
cc: Dr. Eli Shapiro
Jonathan Raven, Esq.
Robert J. Endicott, Esq.
Philip S. Boone, Jr.
-----FOOTNOTES-----
1 Mr. Boone has indicated that he understands that none of the five of the "original" proposals have been withdrawn. It is our further understanding, however, from conversations with Mr. Raven, that written confirmation of the withdrawal of three of the proposals can be provided to Drexler at its request.
2 One of the alleged defects which Drexler cited in its correspondence with Dr. Shapiro was that he had not shown he was a shareholder of Drexler entitled to submit a proposal. However, the text of Rule 14a-8(b) clearly contemplates that a company may know when a shareholder has sufficient holdings and may not need to demonstrate eligibility to the company. Dr. Shapiro bought over $1 million of Drexler's securities directly from Drexler in a private placement in October 1997, and Dr. Shapiro has had correspondence with the Company about his concerns since that time. Nonetheless, Drexler demanded that Dr. Shapiro provide proof of share ownership from Dr. Shapiro. Such tactics were disingenuous on Drexler's part, to say the least.
3 Aranow & Einhorn, in analyzing the staff's position, have also concluded that the provision of clerical and legal support by unions is not in and of itself sufficient to demonstrate that a nominal proponent situation exists.
4 We note that the date of Drexler's 1998 Proxy Statement was August 19, 1998. The 1998 Proxy Statement discloses that proposals must be submitted prior to April 21, 1999 for inclusion in Drexler's 1999 Proxy Statement.
[STAFF REPLY LETTER]
June 14, 1999
Response of the Office of Chief Counsel
Division of Corporate Finance
Re: Drexler Technology Corporation
Incoming letter dated May 18, 1999
The five proposals concern Drexler engaging an investor relations firm and other matters.
There appears to be some basis for your view that Drexler may exclude the proposals under rule 14a-8(f) because the one proposal limitation in rule 14a-8(c) was exceeded. Accordingly, we will not recommend enforcement action to the Commission if Drexler omits all five proposals from its proxy materials in reliance on rules 14a-8(c) and 14a-8(f).
Sincerely,
Carolyn Sherman
Special Counsel