Company Name: MOD-PAC CORP
Public Availability Date: March 8, 2004Document Sections:
INQUIRY LETTER
STAFF REPLY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
January 27, 2004 Federal Express U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
Judiciary Plaza, 450 Fifth Street N.W.
Washington, DC 20549 Dear Sir or Madam:
Re: MOD-PAC CORP.; Shareholder Proposals - 2004 Annual Meeting of Shareholders.
As counsel to our client, MOD-PAC CORP. (the "Company"), we hereby request on
behalf of the Company that the staff of the Division of Corporation Finance (the
"Staff") recommend no action to the Securities and Exchange Commission (the
"SEC") if the Company omits from its proxy statement and form of proxy
(collectively, the "Proxy Materials") for the Company's 2004 Annual Meeting of
Shareholders certain shareholder proposals received by the Company from Mr.
Edward K. Duch, Jr., Mr. Thomas R. Gibson and Ms. Linda P. Duch (Mr. Duch, Mr.
Gibson and Ms. Duch are collectively referred to in this letter as the
"Submitting Shareholders"). Pursuant to Rule 14a-8(j) promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and in accordance with the guidance provided in
the Division of Corporation Finance's Staff Legal Bulleting No. 14 dated July
13, 2001, enclosed herewith are six (6) copies of this letter and the following
correspondence of the Company and the Submitting Shareholders:
1. Letter of Mr. Duch to the Company dated November 1, 2003 (Exhibit A);
2. Letter of the Company to Mr. Duch dated December 3, 2003 (Exhibit B);
3. Email (with attachments) of Mr. Duch received December 15, 2003 (Exhibit C);
4. Letter of Mr. Duch to the Company dated December 15, 2003 (Exhibit D);
5. Letter of Mr. Gibson to the Company dated December 15, 2003 (Exhibit E);
6. Letter of Ms. Duch to the Company dated December 15, 2003 (Exhibit F);
7. Letter of the Company to Mr. Duch dated December 31, 2003 (Exhibit G);
8. Letter of Mr. Duch to the Company dated January 6, 2004 (Exhibit H).
Also in accordance with Rule 14a-8(j), a copy of this letter and its exhibits
have been mailed on this date to each of the Submitting Shareholders,
constituting notice to each of them of the intentions of the Company outlined in
this letter. Pursuant to Rule 14a-8(j), this letter is being submitted to the
Staff not fewer than 80 days before the Company intends to file its definite
proxy statement and form of proxy with the Securities and Exchange Commission.
The Company believes that the shareholder proposals of Mr. Gibson and Ms. Duch
may be excluded from the Company's Proxy Materials because of the SEC's "one
proposal" rule of Rule 14a-8(c). The Company also believes that it may omit the
shareholder proposals of Mr. Gibson and Ms. Duch because they were received by
the Company after the properly calculated deadline of Rule 14a-8(e). It should
be noted that it is the intention of the Company to include Mr. Duch's amended
Proposal One and supporting statement in its Proxy Materials in the form in
which it was submitted and received by the Company by letter dated December 15,
2003 (See Exhibit C). We respectfully request, on behalf of our client, that the
Staff concur in the views contained in this letter for the reasons stated
herein. Summary of Facts. On November 24, 2003, the Company received a letter from Mr. Duch dated November
1, 2003 containing three shareholder proposals for inclusion in the Company's
Proxy Materials for its 2004 Annual Meeting of Shareholders (See Exhibit A). The
first proposal recommended that the Company redeem any "poison pill" previously
issued by the Company and recommended that the Company obtain shareholder
approval prior to adopting or extending any "poison pill" ("Proposal One"). The
second proposal requested that the Company adopt a conflict of interest policy
in regard to any management or board ownership of equity or debt of any private
company that does business the Company ("Proposal Two"). The third proposal
requested that the Board of Directors of the Company promptly adopt a resolution
that requires that the majority of the Company's Board of Directors consist of
persons who do not serve in the management of the Company or who are not former
directors of the Company ("Proposal Three"). In a letter dated December 3, 2003,
the Company timely provided Mr. Duch with a notice of deficiencies required by
Rule 14a-8(f) (See Exhibit B). In the notice of deficiencies, the Company
informed Mr. Duch that pursuant to Rule 14a-8(b) he was required to provide a
written statement regarding his intentions for holding stock of the Company and
that pursuant to Rule 14a-8(c) he was limited to one shareholder proposal.
By an email received by the Company on December 15, 2003, Mr. Duch provided an
unsigned electronic document containing a letter dated December 15, 2003 (See
Exhibit C). In the attached letter, Mr. Duch provided the required statement of
intention to hold the shares of the Company. Also in the letter, Mr. Duch
included the following statement regarding the number of submitted shareholder
proposals: "Second: In regard to the number of proposals, I have amended my original letter
to one proposal from me and the additional proposals from two other shareholders
(one for each proposal). They will also be sending you their affirmation
electronically." Also attached to this email was an unsigned electronic document containing a
proposal alleged by Mr. Duch to be submitted by Mr. Gibson and an unsigned
electronic document alleged by Mr. Duch to be submitted by Ms. Duch. The
proposal alleged to be submitted by Mr. Gibson was substantially similar to
Proposal Two and the proposal alleged to be submitted by Ms. Duch was
substantially similar to Proposal Three, each previously submitted by Mr. Duch.
By a letter dated December 15, 2003 (which was received by the Company on
December 18, 2003), Mr. Gibson submitted a signed shareholder proposal and
supporting statement similar to Mr. Duch's previously submitted Proposal Two
(See Exhibit D). By a letter dated December 15, 2003 (which was received by the
Company on December 22, 2003), Ms. Duch submitted a signed shareholder proposal
and supporting statement similar to Mr. Duch's previously submitted Proposal
Three (See Exhibit E). The shareholder proposals of Mr. Gibson and Ms. Duch were
both received by the Company after the deadline for submission of shareholder
proposals as determined in accordance with Rule 14a-8(e).1
In a letter dated December 30, 2003, the Company informed Mr. Duch that it was
the intention of the Company to include in its proxy statement his Proposal One
and its supporting statement in the form in which it was originally submitted
(See Exhibit F).2 The Company also stated that it was the intention of the
Company to omit the shareholder proposals submitted by Mr. Gibson and Ms. Duch
because such proposals were untimely submitted. Pursuant to the prior guidance provided by the Staff, notice of deficiencies
were not sent to Mr. Gibson and Ms. Duch; however, copies of the Company's
December 30, 2003 letter to Mr. Duch were provided to them. See, Division of
Corporation Finance: Staff Legal Bulleting No. 14 (July 13, 2001)(Question 6c -
"The company does not need to provide the shareholder with a notice of defect(s)
if the defect(s) cannot be remedied...for example if ...the shareholder failed
to submit a proposal by the company's properly determined deadline").
Analysis. 1. The shareholder proposals of Mr. Gibson and Ms. Duch may be omitted from the
Company's Proxy Materials because the Submitting Shareholders have violated the
"One Proposal" Rule of Rule 14a-8(c). The proposals of Mr. Gibson and Ms. Duch may also be omitted from the Company's
proxy materials by reason of Rule 14a-8(c), which permits each shareholder no
more than one proposal for each shareholder meeting. In its adopting release of
the one proposal rule, the SEC noted "The Commission is aware of the possibility
that some proponents may attempt to evade the new limitations through various
maneuvers... The Commission wishes to make clear that such tactics may result
in... the granting of requests by 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). In cases where a
shareholder has submitted multiple proposals and then has had family members,
friends or other associates submit the same or similar proposals shortly after
being notified of the one proposal rule, the Staff has normally held that such
tactics will entitle the Company to request that the proposals be omitted from
its proxy statement. See, Staten Island Bancorp, Inc., 2002 WL 32166624
(February 27, 2002)(shareholder submitted five shareholder proposals, was
notified by the company of the one proposal rule, then family members, friends
and associates submitted five similar proposals); Spartan Motors, Inc., 2001 WL
278545 (March 12, 2001)(shareholder submitted three proposals, was notified of
the rule, and then he and his wife submitted two similar proposals); Drexler
Technology Corporation, 1999 WL 409999 (June 14, 1999)(shareholder submitted
five proposals, was notified of the rule, then he, his wife, his son and other
persons submitted five similar proposals); International Business Machines, 1998
WL 37795 (January 26, 1998)(shareholder submitted four proposals initially, was
notified of the rule, then he, his wife, son and daughter submitted four similar
proposals); See Also, Commercial Federal Corporation, 1996 WL 490698 (August 28,
1996); American Power Conversion Corporation, 1995 WL 138137 (March 27, 1996);
Pacific Enterprises, 1996 WL 61497 (February 12, 1996); Dominion Resources,
Inc., 1993 WL 52205, (February 24, 1993). The facts in the present situation are very similar to the facts in the letters
outlined above and demonstrate that Mr. Duch, Mr. Gibson and Ms. Duch acted in
concert to circumvent the one proposal rule of Rule 14a-8(c). Mr. Duch
originally submitted three shareholder proposals (See Exhibit A). When notified
of the deficiencies in his multiple proposal submission, Mr. Duch later informed
the Company that "I have amended my original letter to one proposal from me and
the additional proposals from two other shareholders (one for each proposal)".
He emailed to the Company unsigned electronic shareholder proposals alleged to
be from Mr. Gibson and Ms. Duch (See Exhibits C and D). The shareholder
proposals submitted by Mr. Gibson and Ms. Duch were nearly identical to Proposal
Two and Proposal Three previously submitted by Mr. Duch. The letters containing
the shareholder proposals of Mr. Gibson and Ms. Duch were each similar in
structure and used identical language in several places. Additionally, Mr.
Gibson and Ms. Duch each acknowledged in their signed submission letters to the
Company that they were acting in concert with Mr. Duch by stating the following:
"In response to your letter of December 3, 2002 to Mr. Duch I appreciate the
opportunity to support the shareholder proposal as previously submitted and
attached for inclusion in the Company's proxy material for 2004 and for a
shareholder vote at its 2004 annual meeting". The similarity of the proposals of Mr. Duch and those of Mr. Gibson and Ms. Duch,
the admissions of Submitting Shareholders contained in their letters, the
similarity in the wording of those letters and the timing of each submission to
the Company clearly indicate that the submission of the three proposals was
coordinated and arranged by Mr. Duch. The Company believes the Submitting
Shareholders are attempting to circumvent the one proposal rule of Rule
14a-8(c), and as such, the Company is entitled to omit the proposals of Mr.
Gibson and Ms. Duch from its Proxy Materials. 2. The shareholder proposals of Mr. Gibson and Ms. Duch may also be omitted from
the Company's Proxy Materials under Rule 14a-8(e) because they were not
submitted in a timely manner. The proposals of Mr. Gibson and Ms. Duch may also be omitted from the Company's
proxy materials because they were not timely received before the shareholder
deadline calculated in accordance with Rule 14a-8(e). The signed shareholder
proposals of Mr. Gibson and Ms. Duch were received at the offices of the Company
on December 18, 2003 and December 22, 2003, respectively. The proxy statement of
the Company for its 2003 Annual Meeting of Shareholders mistakenly stated the
following in reference to the deadline for submission of shareholder proposals
for the 2004 Annual Meeting of Shareholders: "To be considered for inclusion in
the proxy materials for the 2004 Annual Meeting of Shareholders, shareholder
proposals must be received by the Company no later than December 5, 2003." In
accordance with Rule 14a-8(e), the proxy statement should have stated that the
proper deadline for submission of shareholder proposals was December 16, 2003.
Although the deadline stated in the proxy statement was incorrect, Mr. Gibson's
and Ms. Duch's shareholder proposals were each received by the Company after
December 16, 2003, the properly calculated deadline under Rule 14a-8(e).
Therefore, despite the error, the Company should still be permitted to omit the
untimely proposals. See, Jameson Inns, Inc., 2001 WL 521901 (May 15, 2001)
(company was not precluded from no-action relief when it had an incorrect date
for the deadline for submission of shareholder proposals in its proxy statement
for the previous year). The Staff has permitted the exclusion of shareholder proposals that were not
received by the Company by the date calculated in accordance with Rule 14a-8(e).
See, Valspar Corporation, SEC No-Action Letter, 2002 WL 32078259 (November 20,
2002); Carrington Laboratories, Inc., SEC No-Action Letter, 2000 WL 459741
(March 31, 2000); Bank of America Corporation, SEC No-Action Letter, 2002 WL
571775 (March 18, 2002); Transcend Services, Inc., SEC No-Action Letter, 1998 WL
98615 (February 22, 1999); Weyerhaeuser Company, SEC No-Action Letter, 1999 WL
95476 (February 19, 1999; Luby's Cafeterias, Inc., SEC No-Action Letter, 1998 WL
741095 (October 22, 1998). Historically, the Staff has made clear that it will
strictly enforce the deadline for submission of proposals without inquiring as
to the reasons for failure to meet the deadline. See, Viacom, Inc., SEC
No-Action Letter, 2003 WL 1057515 (March 10, 2003)(proposal was omitted when
late by one day); El Paso Corporation, SEC No-Action Letter, 2003 WL 942743
(March 3, 2003)(proposal was omitted when late by three days); Guest Supply,
Inc., SEC No-Action Letter, 1998 WL 730561 (October 20, 1998) (proposal was
omitted when late by one day); EG&G, Inc., 1997 WL 790290 (December 23,
1997)(proposal was omitted when late by one day). The shareholder proposal of
Mr. Gibson was received by the Company two days after the properly calculated
deadline and the shareholder proposal of Ms. Duch was received by the Company
six days after the properly calculated deadline. In his letter dated January 6, 2003, Mr. Duch states that it is his belief that
Mr. Gibson's and Ms. Duch's shareholder proposals were received by the Company
on November 24, 2003, the date the Company received Mr. Duch's original
submission letter dated November 1, 2003. (See Exhibit G). It is our opinion
that Mr. Duch's attempt to "assign" the date of submission of his previously
submitted Proposal Two and Proposal Three to Mr. Gibson and Ms. Duch,
respectively, is without support under applicable SEC rules and regulations
promulgated under the Exchange Act. Although Mr. Duch provided Proposal Two and
Proposal Three to the Company prior to the shareholder proposal deadline, Rule
14a-8(c) limits shareholders to no more than one proposal as stated above. Upon
notification of the deficiencies in his original submission, Mr. Duch chose to
retain Proposal One. To allow Mr. Duch to "assign" his additional shareholder
proposals to Mr. Gibson and Ms. Duch (and thus assign the date of his original
submission of the proposals to the Company) would permit him to circumvent the
one proposal rule of Rule 14a-8(c) and would allow Mr. Gibson and Ms. Duch to
circumvent the shareholder proposal deadline rule of Rule 14a-8(e).
It is irrelevant that the Company had notice prior to the shareholder submission
deadline that proposals similar to Mr. Duch's Proposal Two and Proposal Three
might be submitted to the Company by Mr. Gibson and Ms. Duch. See, IBP, Inc.,
SEC No-Action Letter, 2000 WL 124451 (January 19, 2000)(proposal excludable for
being received after the deadline despite the fact that the proponent notified
the company of intent to submit proposal prior to the deadline). Mr. Duch's
email sent to the Company on December 15, 2003 provided the Company with only
unsigned electronic versions of the proposals alleged by Mr. Duch to be from Mr.
Gibson and Ms. Duch. In the email, Mr. Duch informed the Company that "[Mr.
Gibson and Ms. Duch] will also be sending you their affirmation electronically"
(See Exhibit C). The Company did not receive these affirmations until after the
proposal submission deadline had passed (See Exhibits E and F).
For these reasons, the Company believes that the untimely proposals of Mr.
Gibson and Ms. Duch may also be excluded by the Company from its Proxy Materials
for the 2004 Annual Meeting of Shareholders pursuant to Rule 14a-8(e).
Conclusion. Based on the foregoing analysis, we respectfully request that the Staff
recommend to the Securities and Exchange Commission that no action be taken if
the Company includes Mr. Duch's amended Proposal One, but omits the shareholder
proposals of Mr. Gibson and Ms. Duch from its Proxy Materials.
Please contact us if we can provide you with any additional information or
answer any questions that you may have regarding this matter. If we can be of
any further assistance in this matter, please contact me at (716) 848-1550, or
you may contact my partner Robert J. Olivieri at (716) 848-1244.
Very truly yours, /s/
John B. Drenning Enclosures
cc: Daniel G. Keane
President and CEO, MOD-PAC CORP. Mr. Edward K. Duch, Jr.
Ms. Linda P. Duch
Mr. Thomas R. Gibson -----FOOTNOTES-----
1 The deadline for submission of shareholder proposals was mistakenly stated in
the Company's proxy statement for its 2003 Annual Meeting of Shareholders as
December 5, 2003. The actual deadline for submission of shareholder proposals
calculated in accordance with Rule 14a-8(e) was December 16, 2003. Mr. Gibson's
and Ms. Duch's submissions were received by the Company on December 18, 2003 and
December 22, 2003, respectively. 2 The Company now intends to include Mr. Duch's amended Proposal One and its
supporting statement in the form submitted to the Company in Mr. Duch's December
15, 2003 letter (See Exhibit C). It now intends only to omit Mr. Gibson's and
Ms. Duch's shareholder proposals for the reasons stated herein.
[STAFF REPLY LETTER]
December 15, 2003 Mr. Daniel G. Keane
President and Chief Executive Officer
MOD-PAC Corporation
1801 Elmwood Avenue
Buffalo, New York 14207 Dear Mr. Keane:
I am in receipt of your letter of December 3, 2003, which was received on
December 6, 2003. I'm sorry that the importance of these issues do not in
themselves remedy the compliance deficiencies. However, I appreciate the
opportunity to remedy the noted deficiencies pursuant to Exchange Act Rule
14a-8(f). First: In regard to Security Ownership Requirements, in addition to your
recognition of my security ownership under Rule 14a-8(b)(1), I have continuously
held at least $2,000.00 in the company's securities (since they were issued by
the company) for at least one year prior to the date I submitted the proposal.
In addition, I plan to hold the stock shares of MOD-PAC previously noted in my
November 1, 2003 letter (17,476 shares of Common Stock, 7,418 shares of Class B
Stock) through the date of MOD-PAC's Annual meeting. Second: In regard to the number of proposals, I have amended my original letter
to one proposal from me and the additional proposals from two other shareholders
(one for each proposal). They will also be sending you their affirmation
electronically. Once again I appreciate your attention to these issues and trust that if your
need any additional information or clarification, that you will be in touch with
me. Sincerely, Edward K. Duch Jr.
EKD:dmd modpac1203 [APPENDIX]
AMENDED PROPOSAL FROM EDWARD K. DUCH JR.SHAREHOLDER VOTE ON POISON PILLS
(ANTI-TAKEOVER PROVISIONS) This is to recommend that our Board of Directors redeem any poison pill
previously issued and not adopt or extend any poison pill unless such adoption
or extension has been submitted to a shareholder vote. This topic won an average 60% yes vote at 50 companies in 2002 according to the
Investor Responsibility Research Center tabulation on Average Voting Results,
December 2002. Shareholder Position:
Our company's stock/market value is being seriously limited by the current
structure and actions of management and the past boards. Since the Class B
MOD-PAC shares cannot be bought in the open market but carry super voting rights
10 times greater than the shares that can be bought, the "Class B" shares
prohibit another company from acquiring MOD-PAC at a fair market price.
Why should management, who owns 16% of the total stock, control 29% of the total
votes? These Class B shares are not publicly priced and therefore do not add to
a shareholder's stated portfolio value unless the shareholder sells their Class
B shares. If shareholders elect to sell those shares, the result would further
increase management's vote and control. Most importantly, no MOD-PAC shareholder
has ever been allowed to vote on whether this provision should be allowed to
exist. The provision only protects management. The Harvard Report:
A 2001 Harvard Business School study found that good corporate governance (which
took into account whether a company had a poison pill) was positively and
significantly related to company value. This study, conducted with the
University of Pennsylvania's Wharton School, reviewed the relationship between
the corporate governance index for 1,500 companies and company performance from
1990 to 1999. The report is titled, "Corporate Governance and Equity Prices,"
July 2001, Paul A. Gompers, Harvard Business School. Some believe that a company with good governance will perform better over time,
leading to a higher stock price. Others see good governance as a way of reducing
risk, as they believe it decreases the likelihood of bad things happening to a
company. Source: "Putting a Value on Governance," Directors & Boards, Spring
1997 by Robert Felton and Alec Hudnut of McKinsey & Co. and Jennifer Van
Heeckeren, University of Oregon. Since the 1980's, Fidelity, a mutual fund giant with $800 billion invested, has
withheld votes for directors at companies that have approved poison pills, "Wall
Street Journal," June 12, 2002. Council of Institutional Investors Recommendation
The Council of Institutional Investors (www.cii.org), an organization of 120
pension funds, which invests $1.5 trillion, called for shareholder approval of
poison pills. The Council of Institutional Investors position is specified in
the Council of Institutional Investors' "Corporate Governance Policies," under
Core Policies, Shareholder Voting Rights, item 5.b with the key word "poison
pills." In recent years companies have been willing to redeem existing poison
pills or seek shareholder approval for their poison pill. This includes
Columbia/HCA, SBC, Wyeth and McDermott International. I believe our company
should follow suit and allow shareholder input. [INQUIRY LETTER]
November 1, 2003 Mr. Daniel G. Keane
President and Chief Executive Officer
Mod-Pac Corporation
1801 Elmwood Avenue
Buffalo, New York 14207 Dear Mr. Keane:
Pursuant to ModPac's guidelines for submitting proxy material, I submit the
following proposals for inclusion in the Company's proxy material for 2004 and
for a shareholder vote at its 2004 annual meeting. As of November 1, 2003, I am
a holder of 17,476 shares of Class A stock and 7,418 shares of Class B shares.
PROPOSAL #1: SHAREHOLDER VOTE ON POISON PILLS (ANTI-TAKEOVER PROVISIONS)
This is to recommend that our Board of Directors redeem any poison pill
previously issued and not adopt or extend any poison pill unless such adoption
or extension has been submitted to a shareholder vote. This topic won an average 60% yes vote at 50 companies in 2002 according to the
Investor Responsibility Research Center tabulation on Average Voting Results,
December 2002. Shareholder Position:
Our company's stook/market value is being seriously limited by the current
structure and actions of management and the past boards. Since the Class B
ModPac shares cannot be bought in the open market but carry super voting rights
10 times greater than the shares that can be bought, the "Class B" shares
prohibit another company from acquiring ModPac at a fair market price.
Why should management, who own 16% of the total stock, control 29% of the total
votes? You will also note that these Class B shares are not publicly priced and
therefore do not add to a shareholder's stated portfolio value unless the
shareholder sells their Class B shares. Should shareholders elect to sell those
shares, this would further increase management's vote and control. Most
importantly, no ModPac shareholder has ever been allowed to vote on whether this
provision should be allowed to exist. The provision only protects management.
The Harvard Report: A 2001 Harvard Business School study found that good corporate governance (which
took into account whether a company had a poison pill) was positively and
significantly related to company value. This study, conducted with the
University of Pennsylvania's Wharton School, reviewed the relationship between
the corporate governance index for 1,500 companies and company performance from
1990 to 1999. The report is titled, "Corporate Governance and Equity Prices,"
July 2001, Paul A. Gompers, Harvard Business School. Some believe that a company with good governance will perform better over time,
leading to a higher stock price. Others see good governance as a way of reducing
risk, as they believe it decreases the likelihood of bad things happening to a
company. Source: "Putting a Value on Governance," Directors & Boards, Spring
1997 by Robert Felton and Alec Hudnut of McKinsey & Co. and Jennifer Van
Heeckeren, University of Oregon. Since the 1980's, Fidelity, a mutual fund giant with $800 billion invested, has
withheld votes for directors at companies that have approved poison pills, "Wall
Street Journal," June 12, 2002. Council of Institutional Investors Recommendation
The Council of Institutional Investors (www.cii.org), an organization of 120
pension funds, which invests $1.5 trillion, called for shareholder approval of
poison pills. The Council of Institutional Investors position is specified in
the Council of Institutional Investors' "Corporate Governance Policies," under
Core Policies, Shareholder Voting Rights, item 5.b with the key word "poison
pills." In recent years companies have been willing to redeem existing poison
pills or seek shareholder approval for their poison pill. This includes
Columbia/HCA, SBC and McDermott International. I believe our company should
follow suit and allow shareholder input. PROPOSAL #2: SHAREHOLDER VOTE ON CORPORATE CONFLICTS OF INTEREST
Resolved, that the shareholders of ModPac Corporation (the "Company") request
that the Board of Directors adopt a conflict of interest policy in regard to any
management and/or board ownership of equity or debt of any private company that
does business with ModPac. SHAREHOLDER POSITION:
With today's corporate scandals ModPac must insure that no conflicts of interest
or even a "potential" for conflicts exist. ModPac performed printing and order
fulfillment services for VistaPrint Limited, resulting in net sales of $594,000,
$3,220,000 and $6,198,000 during each of the years in the three-year period
ended December 31, 2002. VistaPrint owed ModPac Corp. $1,944,000 and $ 927,000
at December 31, 2001 and 2002, respectively, related to such services. Robert S.
Keane, the son of Kevin T. Keane, is a shareholder in and chief executive
officer of VistaPrint Limited. In addition, Kevin T. Keane, (Chairman of
ModPac), is a shareholder in VistaPrint Limited, holding between 1 and 4% of its
capital stock. Also the ModPac agreement with VistaPrint requires that ModPac
equip a pilot production facility for VistaPrint at an aggregate cost of $1.0
million. If this is a strategic growth opportunity for ModPac, why should ModPac
only own the debt and not the equity? Why shouldn't the Internet Business
provided by VistaPrint be a division or wholly owned subsidiary of ModPac?
PROPOSAL #3: SHAREHOLDER VOTE ON BOARD INDEPENDENCE
It is hereby requested that the Board of Directors promptly adopt a resolution
that requires that the majority of ModPac's Board consist of non-ModPac
management and/or former board members. SHAREHOLDER POSITION:
The board of ModPac has only two individuals that were not part of management or
the former board. This is a minority position and does not reflect a true
independent board. Incumbent directors are anxious to protect their absolute
power over corporate activities. The root of that power is to control Corporate
Governance which is assured by control of board composition. Today's boardrooms
are not only under attack but also need major renovation. I look forward to hearing from you. If you need any additional information you
can contact me at the Naples address and phone number below, or through my
e-mail address. Sincerely, /s/
Edward K. Duch Jr. EKD:dmd Mpacsp1103 [INQUIRY LETTER]
January 30, 2004 Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549 RE: MODPAC Shareholder Proposals
Dear Chief Counsel: I am in receipt of MODPAC's response (sent to your attention) and dated January
27, 2004 to various Shareholder proposals previously sent to the company. Simply
stated, the company continues to omit relevant facts and misrepresents other
critical issues. First and foremost is the fact that the company inappropriately stated the
deadline for submission of Shareholder proposals as December 5, 2003 and now
changed to December 16, 2003. Second: There is no mention by the company that communication of all Shareholder
proposals to MODPAC was transmitted electronically to Daniel G. Keane, President
and CEO, by all shareholders on or before December 16, 2004. The company proxy
statement states, "shareholder proposals must be received by the Company no
later than December 5, 2003." This statement does not mandate paper
communication. In the past both the SEC, (Rule 30e-1. 66 FR 3734, 3759 January 16, 2001), and
the Company have respected electronic communication. I therefore request that
the Company also detail and inform the SEC of all electronic communication
received from shareholders in regard to this matter. The company has
acknowledged in Exhibit C, e-mails from me dated December 15, 2003 which
included copies of similar e-mails from Mr. Gibson and Mrs. Duch. These emails
were not "allegedly" sent by them within the required time period, they were
sent directly by Mr. Gibson and Mrs. Duch. The emails the company have will
clearly reflect the source of all electronic communication.
Third: On page 3 of Mr. Drenning's January 27, 2004 correspondence, (copy
attached), he states in the second paragraph and in the footnote that "Mr.
Gibson's and Ms. Duch's submissions were received by the Company on December
18,2003 and December 22, 2003, respectively." (I presume he is referring to the
hard copy letters which were sent as follow-up and not the electronic
communication previously sent.) Likewise, on page 5, Mr. Drenning continues by
stating "Mr. Gibson's and Ms. Duch's shareholder proposals were each received by
the Company after December 16, 2003." However, in Exhibit G, copy attached, Mr.
Keane states that "The proposals of Mrs. Duch and Mr. Gibson were received at
the offices of the Company on December 16, 2003 and December 18, 2003,
respectively. Which is correct? Fourth: In the new environment of Sarbanes/Oxley this Company does not appear to
want to deal with critical Shareholder issues of the time. I have never met Mr.
Gibson, but after some of the issues from the last annual meeting came to light,
I learned that he shared my concerns regarding some of the policies of the
Management and Board. It is unfortunate, that the Company would prefer to ignore
these issues. I hope I have provided you some further insight into the facts, and look forward
to your review and determination. Sincerely,
/s/ Edward K. Duch Jr.
EKD:dmd secmpac13004 Encl. [INQUIRY LETTER]
February 3, 2004 Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
Judiciary Plaza
450 Fifth Street N.W.
Washington, DC 20549
RE: MOD-PAC CORP. Shareholder Proposal
Dear Sir or Madam: I recently received a copy of a letter dated January 27, 2004 from Mr. John
Drenning to the Securities and Exchange Commission. In that letter, Mr. Drenning
stated his belief that my shareholder proposal to adopt a conflict of interest
policy should be excluded from MOD-PAC's proxy materials. I would like to take
this opportunity to respond to that letter. I emailed MOD-PAC requesting a response to my proposal on January 23, 2004 and
received a response the same day. Although the Company claimed in that email to
have sent me a copy of MOD-PAC's response on December 31,2003, I received no
such response. Please see Exhibit 1. I have been working with Mr. Ed Duch, another MOD-PAC shareholder, to get this
proposal submitted. I initially contacted Mr. Duch by phone to express my
concerns regarding MOD-PAC after having received a postcard that he mailed to a
number of MOD-PAC shareholders. I would like the Commission to know that I have
never met Mr. Duch, we had no prior friendship and are not related. However, I
have utilized his expertise in corporate and SEC matters to get this proposal
accepted. My proposal was submitted to the Company electronically on December 16, 2003,
the announced new date for submission of such proposals. Please see Exhibit 2.
The company does not mention the electronic submission but rather selectively
focused on when the paper copy dated December 15, 2003 was received. The
Company's proxy statement states, "...shareholder proposals must be received by
the Company no later than December 5, 2003." This statement does not mandate
paper communication. In fact, I understand that SEC, Rule 30e-1. See 66 FR 3734,
3759 January 16, 2001 allows shareholders to submit their proposals by means,
including electronic means that permit them to prove the date of delivery.
My letter is included as Exhibit E of Mr. Drenning's package. Please see Exhibit
3. I have been a shareholder of Astronics Corporation since 1983 and, as a result
of their MOD-PAC spin-off, now have over 12,000 shares of MOD-PAC stock.
Adoption of a conflict of interest policy is needed to protect all shareholders.
In addition, given the current regulatory environment, I believe that it just
makes good business sense. Quite frankly, I am surprised that MOD-PAC's
management is opposed to this proposal. I respectfully request that the Commission Staff uphold my shareholder proposal
as submitted. Thank-you. Sincerely, /s/
Thomas R. Gibson [INQUIRY LETTER]
January 20, 2004 Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549 RE: MODPAC Shareholder Proposal Previously Submitted
Dear Chief Counsel: As of this date I have received no response from the company regarding the minor
changes previously submitted in regard to the attached shareholder proposal. I
ask for your appeal of their decision under Sec Release No. 34-12999 and allow
the revised proposal in the December 15thletter to represent this
shareholder's intent. I appreciate your intervention. If I can provide any additional information or
be of further assistance, please do not hesitate to contact me.
Sincerely, /s/
Edward K. Duch Jr. EKD:dmd secmpac104 [INQUIRY LETTER]
January 6, 2004 Mr. Daniel G. Keane
President and Chief Executive Officer Mod-Pac Corporation
1801 Elmwood Avenue
Buffalo, New York 14207 Dear Mr. Keane:
Thank you for your letter dated January 31, 2003. I acknowledge your acceptance
and inclusion of my Shareholder proposal and supporting statements in MODPAC's
proxy statement. However, I'm most concern about your statement and position that the proposal
submitted by me on December 15, 2003 is viewed by MODPAC to "constitute a
material modification to ......the original proposal and position." You are
correct that the Sec Release No. 34-12999 provides for minor changes to timely
submitted proposals and/or supporting statements. It does not seem reasonable
that the underlining/bold emphasis of three sentences out of an almost 500 word
document and the addition of the name of one company who has recently adopted a
similar proposal is considered adequate grounds not to accept these "minor
changes." It is my hope you would voluntarily change your position in this matter. If not,
I have copied the SEC's Office of Chief Counsel for future appeal. So there are
no misunderstandings, I appreciate a timely review of the final Proxy draft of
the layout and type sizes you elect to utilize for this proposal.
In regard to your decision not to include the shareholder proposals of Linda P.
Duch and Thomas R. Gibson, I suggest that MODPAC's April 14, 2003 proxy
statement specifically states, "...to be considered for inclusion in the proxy
material for the 2004 Annual Meeting of Shareholders, shareholder proposals must
be received by the company no later than December 5, 2003. These proposals were
received by MODPAC on November 24, 2003. Sincerely,
Edward K. Duch Jr. EKD:dmd Mpac1604
Cc: Office of Chief Counsel SEC Division of Corporation Finance
[STAFF REPLY LETTER]
March 8, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: MOD-PAC CORP.
Incoming letter dated January 27, 2004 The first proposal relates to the adoption of a conflict of interest policy. The
second proposal relates to a shareholder vote on board independence.
We are unable to concur in your view that MOD-PAC may exclude the first proposal
under rule 14a-8(c). Accordingly, we do not believe that MOD-PAC may exclude the
first proposal from its proxy materials in reliance on rule 14a-8(c).
We are unable to concur in your view that MOD-PAC may omit the first proposal
under rule 14a-8(e)(2). Accordingly, we do not believe that MOD-PAC may omit the
first proposal from its proxy materials in reliance on rule 14a-8(e)(2).
There appears to be some basis for your view that MOD-PAC may exclude the second
proposal under rule 14a-8(c). Accordingly, we will not recommend enforcement
action to the Commission if MOD-PAC omits the second proposal from its proxy
materials in reliance on rule 14a-8(c). In reaching this position, we have not
found it necessary to address the alternative basis for omission upon which
MOD-PAC relies. Sincerely, /s/
Daniel Greenspan
Attorney-Advisor |
