Company Name: Telular Corp. (Rossi)
Public Availability Date: December 5, 2003Document Sections: INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
STAFF REPLY LETTER
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
September 24, 2003 BY HAND U.S. Securities and Exchange Commission Division of Corporation Finance Office of Chief Counsel 450 Fifth Street, N.W. Washington, DC 20549 Re: Telular CorporationOmission of Shareholder Proposal from Proxy Material Ladies and Gentlemen: This letter is submitted on behalf of our client, Telular Corporation, a
Delaware corporation (the "Company"), to request confirmation from the staff of
the Division of Corporation Finance that it will not recommend an enforcement
action to the Securities and Exchange Commission (the "Commission") if the
shareholder proposal described herein is omitted from the Company's proxy
material for its 2004 Annual Meeting of Shareholders. On August 14, 2003, the Company received by facsimile transmission a letter from
Mr. Edward A. Rossi, dated August 14, 2003, a copy of which is attached hereto
as Exhibit A. In the letter, Mr. Rossi sets forth a proposal that he has
requested be included in proxy materials for the Company's 2004 Annual Meeting
of Shareholders. For the reasons set forth below, the Company believes that the
proposal may be excluded from its proxy materials in accordance with Rules
14a-8(b)(1), 14a-8(b)(2), 14a-8(i)(3) and 14a-8(i)(6) under the Securities
Exchange Act of 1934, as amended. The proposal and supporting statement relate to the composition of the
committees of the Company's Board of Directors and state: Shareholders of Telular Corporation (WRLS) request that a by-law be adopted that
only independent directors be nominated to the key board committees: 1. Audit 2. Nomination 3. Compensation With the corporate scandals that began with Enron, increased attention is being
given to the importance of independent directors. The definition of an independent director is the definition developed and now
used by the Council of Institutional Investors. We submit that the proposal is properly excludable under (1) Rules 14a-8(b)(1)
and 14a-8(b)(2), because Mr. Rossi has not met the procedural and eligibility
requirements for submitting a shareholder proposal; (2) Rule 14a-8(i)(3),
because the proposal contains false and misleading statements in violation of
Rule 14a-9 and (3) Rule 14a-8(i)(6), because the Company lacks the power or
authority to implement the proposal. I. Discussion A. Mr. Rossi Has Not Satisfied Procedural and Eligibility Requirements, and
Therefore the Proposal is Excludable under Rule 14a-8(b)(1) and 14a-8(b)(2). Rule 14a-8(b)(1) requires that, in order to be eligible to submit a proposal for
inclusion in the proxy material, a shareholder must have continuously held at
least $2,000 in market value, or 1%, of the company's securities entitled to be
voted on the proposal at the meeting for at least one year as of the date the
proposal is submitted. Rule 14a-8(b)(1) further requires that the shareholder
hold such securities through the date of the meeting. In his August 14, 2003, letter, Mr. Rossi did not specify the amount of the
Company's common stock he owns. Mr. Rossi did not, moreover, provide a written
statement from the record holder of the shares verifying that Mr. Rossi had, as
of the date he submitted his proposal, owned the shares continuously for at
least one year prior to the date he submitted the proposal. In addition, Mr.
Rossi did not provide the Company with a written statement that he intends to
continue holding his shares through the date of the 2004 Annual Meeting of
Shareholders. By letter dated August 15, 2003, the Company advised Mr. Rossi of his need to
prove his eligibility to submit his proposal under Rules 14a-8(b)(1) and
14a-8(b)(2). The Company also provided Mr. Rossi with a copy of Rule 14a-8 to
assist him in understanding the requirement. A copy of this letter is attached
hereto as Exhibit B. In the letter, the Company further informed Mr. Rossi that
if he did not comply with these requirements within 14 calendar days, the
Company intended to omit his proposal from the proxy material. On August 29,
2003, the Company received by facsimile transmission a letter from Charles
Schwab & Co., Inc. ("Schwab"), the record holder of Mr. Rossi's shares, dated
August 29, 2003, a copy of which is attached hereto as Exhibit C, confirming
that Mr. Rossi "held over $2000.00 market value of Telular Corporation (WRLS)
for over a year." This letter, while stating that Mr. Rossi had held his shares
"for over a year" as of August 29, 2003, did not specifically verify that Mr.
Rossi had, as of the date he submitted his proposal, owned his shares
continuously for at least one year prior to the date he submitted the proposal
(August 14, 2003). Moreover, Mr. Rossi again did not provide a written statement
that he intends to continue holding his shares through the date of the 2004
Annual Meeting of Shareholders. By letter dated September 9, 2003, attached
hereto as Exhibit D, the Company again advised Mr. Rossi of his need to prove
his eligibility to submit his proposal under Rule 14a-8(b)(2). By a second
letter, to Schwab, dated September 9, 2003, with a copy to Mr. Rossi, the
Company requested that Schwab specify whether Mr. Rossi has held his shares
continuously for one year as of August 14, 2003. A copy of this letter is
attached as Exhibit E. On September 17, 2003, the Company received a facsimile from Mr. Rossi, a copy
of which is attached hereto as Exhibit F, in which Mr. Rossi states his
intention to hold his shares through the date of the 2004 Annual Meeting of
Shareholders. However, as of September 23, 2003, the last business day preceding
the date of this letter, which is significantly more than 14 calendar days after
the mailing of the August 15, 2003, letter to Mr. Rossi, the Company has
received no communications from Mr. Rossi or Schwab demonstrating that Mr. Rossi
has continuously held his shares of Company stock for one year as of August 14,
2003, the date Mr. Rossi submitted his shareholder proposal. In view of the fact that Mr. Rossi has failed to correct the defects in his
shareholder proposal within 14 days after receipt of notice thereof from the
Company, it is our opinion that the Company, in accordance with Rule
14a-8(f)(1), is permitted to omit Mr. Rossi's shareholder proposal from its
proxy material for the 2004 Annual Meeting. The staff has consistently granted no-action relief with respect to an omission
of a proposal from proxy materials when a proponent has not provided evidence
that he meets the eligibility requirements of Rule 14a-8(b). See, e.g., Pepco
Holdings, Inc. (January 6, 2003); The Walt Disney Company (November 29, 2002);
Lucent Technologies, Inc. (November 18, 2002), and Exxon Mobil Corporation
(October 9, 2002). In summary, Mr. Rossi has not demonstrated his eligibility to submit a
shareholder proposal and the proposal, therefore, may be properly omitted from
the Company's proxy statement. B. The Company Lacks the Power or Authority to Implement the Proposal, and
Therefore the Proposal is Excludable under Rule 14a-8(i)(6). Rule 14a-8(i)(6) provides that a company may exclude a proposal from its proxy
materials "[i]f the company would lack the power or authority to implement the
proposal." Mr. Rossi's proposal, if implemented, would require the Company's
Board of Directors to nominate only "independent directors" (as defined in the
proposal) to the Company's audit, nomination and compensation committees. Thus,
in order to comply with the proposal, the Company would be required to ensure
that: (1) a sufficient number of independent directors are elected by the
Company's shareholders to the Board of Directors each year to appropriately fill
positions on the Board's audit, nomination and compensation committees; (2) such
persons, if so elected, would be willing to serve respectively, on such
committees; and that (3) such directors would maintain their independent status
(or additional independent directors would be available to replace any member of
the committees who ceases to be independent). The Company is a Delaware corporation and is subject to the Delaware General
Corporation Law (the "DGCL"). Section 211 of the DGCL provides that the
Company's directors are elected only by its shareholders. Although vacancies on
the board may be filled by the affirmative vote of a majority of the remaining
directors, a person who is appointed as a director to fill a vacancy must stand
for election after his/her initial term expires. In addition, under Section
141(k) of the DGCL, only shareholders, and not the board, have the power to
remove directors. Thus, ultimately, the Company's shareholders determine who
serve as the Company's directors. It is not within the power of the Company or
its Board of Directors to enforce the election by shareholders of any particular
persons as directors, nor to require or ensure that the number of persons
elected by the shareholders who meet Mr. Rossi's criteria will be sufficient to
permit the board to fill specified committees with people who meet those
criteria. The staff has consistently permitted the exclusion under Rule 14a-8(i)(6) of
proposals seeking to impose qualifications on members of the board and board
committees, recognizing that it is beyond the corporation's power to ensure
election of a particular person or type of person. See Alcide Corporation
(August 11, 2003); I-many, Inc. (April 14, 2003); Archon Corp. (March 16, 2003);
Commonwealth Energy Corp. (November 15, 2002); Farmer Brothers Co. (October 15,
2002); Dendrite Int'l, Inc. (March 20, 2002); and Marriott Int'l, Inc. (February
26, 2001). Mr. Rossi's proposal is distinguishable from proposals that provide exceptions
for contingencies outside of the corporation's control. For example, a proposal
submitted for inclusion in General Electric's proxy statement recommended that
"strictly independent directors be nominated by the board for key board
committees to the fullest extent possible." (Emphasis added.) The staff
determined that this proposal was not excludable. General Electric Co. (February
5, 2003). Similarly, a proposal that "urge[d]" the Board of Directors to adopt a
policy requiring all members of the compensation and nominating committee to be
independent contained a proviso that compliance was excused during periods in
which the board did not contain enough independent directors to serve on the
committee. In that case, the staff also determined that Rule 14a-8(i)(6) did not
permit the registrant to exclude the proposal. Murphy Oil Corp. (March 10,
2002). See also EMC Corp. (March 10, 2002) (refusing a request for no-action
letter to exclude a proposal requesting that audit, nominating and compensation
committees be composed entirely of independent directors "when sufficient
independent Directors are elected.") Because the proposal requests that the by-laws be amended so "that only
independent directors be nominated to the key board committees" without any
exception for contingencies outside the Company's control, it is not within the
Company's power to implement. The General Electric, Murphy Oil Corporation and
EMC Corporation decisions demonstrate that a proposal addressing the
independence of committee members is not excludable if it contains appropriate
carveouts. See also Alcide Corporation. For these reasons, it is the Company's view that the proposal, together with its
supporting statement, may be omitted under Rule 14a-8(i)(6) as beyond the
Company's power or authority to implement. C. The Proposal Contains False and Misleading Statements in Violation of Rule
14a-9, and Therefore the Proposal is Excludable under Rule 14a-8(i)(3). A shareholder proposal or supporting statement may be omitted under Rule
14a-8(i)(3) where it is "contrary to any of the Commission's proxy rules,
including Rule 14a-9, which prohibits materially false or misleading statements
in proxy soliciting materials." A proposal is sufficiently vague and indefinite
to justify its exclusion where "neither the shareholders voting on the proposal,
nor the Company in implementing the proposal (if adopted), would be able to
determine with any reasonable certainty exactly what actions or measures the
proposal requires." Philadelphia Electric Co. (avail. July 30, 1992); see also
Revlon, Inc. (March 13, 2001) and Wal-Mart Stores, Inc. (April 2, 2001). The proposal provides that, for the purposes of the proposal, independence will
be defined as "developed and now used by the Council of Institutional
Investors." But the proposal neither states what this definition is nor where it
can be found. Moreover, the proposal does not clarify whether the definition of
"independent director" is more or less stringent than the independence
requirements of the Sarbanes-Oxley Act of 2002, those promulgated by the
Commission or those recently proposed by NASDAQ to which the Company is and
would be subject. Moreover, shareholders voting on the proposal are not
sufficiently informed as to what adoption of the proposal would mean for the
committees of the Board of Directors, so that shareholders would not be able to
determine with any reasonable certainty what actions or measures the proposal
requires. As such, the proposal is impermissibly vague because it neither
clearly identifies when a director would be considered independent for the
purposes of the proposal, nor indicates whether this definition would permit the
Company to comply with laws, rules and regulations to which it is subject. This
thus justifies exclusion of the proposal. Therefore, the proposal the Company believes it can properly exclude the
proposal and supporting statement pursuant to Rule 14a-8(i)(3). Conclusion In view of the fact that (1) Mr. Rossi has not demonstrated his eligibility to
submit a shareholder proposal, (2) the Company lacks the power or authority to
implement the proposal and (3) the proposal contains false and misleading
statements, it is our opinion that the Company, in accordance with Rules
14a-8(b)(1), 14a-8(b)(2), 14a-8(i)(3) and 14a-8(i)(6) is permitted to omit Mr.
Rossi's shareholder proposal from its proxy material for the 2004 Annual Meeting
of Shareholders. Based on the foregoing, the Company respectfully requests the advice of the
staff that it will not recommend enforcement action to the Commission if the
Company omits Mr. Rossi's shareholder proposal described above from its proxy
materials for the 2004 Annual Meeting. If the staff disagrees with our
conclusion that this proposal may be omitted from the proxy materials, we would
appreciate an opportunity to discuss the matter with the staff prior to issuance
of its formal response. As required by Rule 14a-8(j), six copies of this letter are enclosed and a copy
is being forwarded concurrently to Mr. Rossi. Please acknowledge receipt of this letter on the additional enclosed copy
enclosed for this purpose and return it to our messenger. Very truly yours, /s/ Michael E. Cutler Enclosures cc: Mr. Jeffrey L. Herrmann Mr. Edward A. Rossi [APPENDIX]
Shareholder Proposal Please insert proper number Shareholders of Telular Corporation (WRLS) request that a by-law be adopted that
only independent directors be nominated to the key board committees: 1) Audit 2) Nomination 3) Compensation With the corporate scandals that began with Enron, increased attention is being
given to the importance of independent directors. The definition of an independent director is the definition developed and now
used by the Council of Institutional Investors. [INQUIRY LETTER]
August 14, 2003 Mr. Jeffrey L. Herrmann Corporation Secretary Telular Corporation 647 N. Lakeview Parkway Vernon Hills, Il. 60061 Phone: (847) 247-9400 Fax: (847) 247-0021 Dear Mr. Hermann. As a long time shareholder of Telular stock, I am submitting a shareholder
proposal for inclusion in the year-end September 30, 2003 shareholder meeting in
accordance with Rule 14A-8 shareholder proposals. Your inclusion of this
proposal is greatly appreciated. Sincerely, /s/ Edward A. Rossi WRLS Sharholder
[STAFF REPLY LETTER]
August 15, 2003 Certified Mail, Return Receipt Requested Mr. Edward A. Rossi 128 The Crossways Yonkers, New York 10701 Dear Mr. Rossi: We received your proposal for inclusion in the proxy materials for Telular
Corporation's 2004 annual meeting of shareholders on August 14, 2003. Rule 14a-8(b)(1) of the proxy rules of the Securities and Exchange Commission
provides that in order to be eligible to submit a proposal, the proponent "must
have continuously held at least $2,000 in market value ... of the Company's
securities entitled to be voted on the proposal at the meeting for at least one
year by the date" the proposal is submitted. In addition, the proponent must
confirm that he intends to hold the shares through the date of the meeting. The
rules also specify in Rule 14a-8(b)(2)(i) how you must prove to us your stock
ownership if your shares are held in the name of another record holder.
Moreover, the rules specify that each shareholder "may submit no more than one
proposal to a company for a particular shareholders' meeting." We are enclosing Rule 14a-8 for your reference. You should pay particular
attention to Question 2 (Rule 14a-8(b)(1), 14a-8(b)(2), 14a-8(b)(2)(i)),
Question 3 (Rule 14a-8(c)) and Question 6 (Rule 14a-8(f)). Telular Corporation intends to omit your proposal from its proxy materials
unless your proposal is amended within 14 calendar days to comply with the
eligibility provisions discussed above and we subsequently determine that the
proposal is appropriate for inclusion under the Securities and Exchange
Commission's proxy rules. Very truly yours, /s/ Jeffrey L. Herrmann Executive Vice President and Chief Operating Officer Cc: Kenneth E. Millard Chairman of the Board [INQUIRY LETTER]
8/29/2003 Telular Corporation 647 North Lakeview Parkway Vernon Hills, Illinois 60061 Dear Mr. Jeffrey L Herrmann: Thank you for choosing Charles Schwab & Co., Inc. for your investment needs.
Unfortunately, we are unable to process your request for the following
reason(s): Persuant to your letter of August 15,2003 to our client Mr. Edward Rossi, please
be adviced that Mr.Rossi held over $2000.00 market value of the Telular
Corporation (WRLS) for over a year. When you have completed the necessary paperwork (if applicable), please return
it together with any other enclosures in this letter, and we will process your
request as soon as possible. Should you have any questions regarding this
matter, please do not hesitate to call us at 800-472-9813. Sincerely, /s/ Thamar Garcia 800-472-9813 UFSB
[STAFF REPLY LETTER]
September 9, 2003 Certified Mail, Return Receipt Requested Mr. Edward A. Rossi 128 The Crossways Yonkers, New York 10701 Dear Mr. Rossi: We received a letter from Charles Schwab & Co., Inc. dated August 29, 2003, in
response to our request, by letter dated August 15, 2003, that you demonstrate
your eligibility to submit a shareholder proposal for inclusion in the proxy
materials for Telular Corporation's 2004 annual meeting of shareholders. Rule 14a-8(b)(2) of the proxy rules of the Securities and Exchange Commission
specifies how you must prove to us your stock ownership if your shares are held
in the name of another record holder. The records that you have provided to us
do not satisfy the requirements of Rule 14a-8(b)(2)(i) listed under Question 2
of the SEC's rules, which, in part, calls for you to: submit to the company a written statement from the "record" holder of your
securities (usually a broker or bank) verifying that, at the time you submitted
your proposal, you continuously held the securities for at least one year. The records we received from Charles Schwab & Co., Inc. specify that your shares
have been held "for over a year" but do not indicate that your shares have been
continuously held for one year as of August 14, 2003, the date we received your
shareholder proposal. We have written a letter to Charles Schwab & Co., Inc.,
with a copy to you, requesting that they confirm to us that you have
continuously held your shares for at least one year as of August 14, 2003. Moreover, Rule 14a-8(b)(2)(i) listed under Question 2 of the SEC's rules
provides that in order to be eligible to submit a proposal, the proponent must
confirm that he intends to hold the shares through the date of the meeting. Telular Corporation intends to omit your proposal from its proxy materials
unless (1) we promptly receive confirmation that you have continuously held your
shares for one year as of August 14, 2003, (2) you promptly confirm to us in
writing that you intend to hold the shares through the date of the meeting and
(3) we subsequently determine that the proposal is appropriate for inclusion
under the Securities and Exchange Commission's proxy rules. Very truly yours, /s/ Jeffrey L. Herrmann Executive Vice President and Chief Operating Officer Cc: Kenneth Millard Chairman of the Board
[STAFF REPLY LETTER]
September 9, 2003 Certified Mail, Return Receipt Requested Mr. Thamar Garcia Charles Schwab & Co., Inc. P.O. Box 628291 Orlando, FL 32862-8291 Dear Mr. Garcia: We received your letter on behalf of Mr. Edward A. Rossi, dated August 29, 2003,
indicating that Mr. Rossi has held over $2000.00 in market value of shares of
common stock of Telular Corporation "for over a year." Rule 14a-8(b)(2) of the proxy rules of the Securities and Exchange Commission
specifies how Mr. Rossi must prove to us his stock ownership if his shares are
held in the name of another record holder. The records we have received do not
satisfy the requirements of Rule 14a-8(b)(2)(i) listed under Question 2 of the
SEC's rules, which, in part, call for him to: submit to the company a written statement from the "record" holder of your
securities (usually a broker or bank) verifying that, at the time you submitted
your proposal, you continuously held the securities for at least one year. To assist us in determining whether Mr. Rossi has satisfied the requirements of
Rule 14a-8(b)(2) of the proxy rules of the Securities and Exchange Commission,
please confirm to us in writing whether Mr. Rossi has continuously held his
shares since August 14, 2002, as we received his shareholder proposal on August
14, 2003. Telular Corporation intends to omit Mr. Rossi's proposal from its proxy
materials unless (1) you promptly confirm the foregoing to us and (2) we
subsequently determine that the proposal is appropriate for inclusion under the
Securities and Exchange Commission's proxy rules. Very truly yours, /s/ Jeffrey L. Herrmann Executive Vice President and Chief Operating Officer cc. Mr. Edward A. Rossi 128 The Crossways Yonkers, New York 10701 Kenneth Millard Chairman of the Board [INQUIRY LETTER]
September 17, 2003 Via Fax and U.S. Mail Mr. J. L. Herrmann, COO 647 N. Lakeview Parkway Vernon Hills, Ill. 60061 Dear Mr. Herrmann: As a follow up to your letter of September 9, 2003 I have called Mrs. Garcia at
Schwab Brokerage to ensure she is sending you a follow up letter confirming my
continuous ownership of Telular stock since August 14, 2002. Concerning your
question as to my intent to hold shares, I thought that was made clear in my
cover letter with my shareholder proposal. "Rule 14a-8 requirements are intended
to be met including the amount and duration of continuous stock ownership
through the annual meeting date." Please take the above to represent my
intention to comply with my intent to hold Telular stock through the date of the
annual meeting. If you have any question, feel free to contact me. Sincerely, /s/ Edward A. Rossi
[STAFF REPLY LETTER]
December 5, 2003 Response of the Office of Chief Counsel Division of Corporation Finance Re: Telular Corporation Incoming letter dated September 24, 2003 The proposal relates to independent directors on key board committees. There appears to be some basis for your view that Telular may exclude the
proposal under rule 14a-8(f). We note that the proponent appears to have failed
to supply, within 14 days of receipt of Telular's request, documentary support
sufficiently evidencing that he continuously held Telular's securities for the
one-year period required by rule 14a-8(b). Accordingly we will not recommend
enforcement action to the Commission if Telular omits the proposal from the
proxy materials in reliance on rules 14a-8(b) and 14a-8(f). In reaching this
position, we have not found it necessary to address the alternative bases for
omission upon which Telular relies. Sincerely, /s/ Grace K. Lee Special Counsel
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