Executive Industries, Inc.

June 26, 1981

INQUIRY LETTER 1

Executive Industries, Inc.

P.O. BOX 4508

ANAHEIM, CALIFORNIA 92803

(714) 779-8640

June 12, 1981

Securities and Exchange Commission

Division of Corporation Finance

500 North Capitol Street, N.W.

Washington, D.C. 20549

Re: Daniel H. Luxenberg

Shareholder Proposal

Gentlemen:

On February 4, 1981, this Company announced that its Board of Directors had approved in principle the merger of the Company with Frank Executive Industries, Inc. ("FEI"), a corporation wholly-owned by Mr. Thomas E. Frank, the Companys President and Chief Executive Officer, in which shareholders of the Company other than Mr. Frank would receive $5.50 per share, consisting of $2.00 cash and $3.50 principal amount of three-year, 9% subordinated notes. On March 20, 1981, the Company announced that the terms of the merger had been renegotiated so that shareholders other than Mr. Frank would receive $4.25 cash per share, rather than cash and notes aggregating $5.50. A copy of the Companys announcements of February 4 and March 20 are enclosed. On April 9, 1981, the Board of Directors approved and adopted, subject to shareholder approval, an Agreement and Plan of Merger providing for the merger on the terms announced on March 20, 1981. Preliminary proxy materials to solicit shareholders approval of the merger were filed with the Commission on April 10, 1981.

In connection with the proposed merger, Mr. Daniel H. Luxenberg, a shareholder of the Company, has submitted for inclusion in the Companys proxy material a proposal calling for the Company to repurchase up to one million shares of its Common Stock. A copy of the following correspondence between Mr. Luxenberg and the Company is enclosed: (1) letter from Mr. Luxenberg to the Company submitting his proposal; (2) letter from the Company to Mr. Luxenberg requesting documentation of his shareholdings and intention to appear at the shareholders meeting; and (3) Mr. Luxenbergs reply to the Companys request.

The Company believes that Mr. Luxenbergs proposal may properly be omitted from the Companys proxy material pursuant to Rule 14a-8 for the following reasons:

(1) The proposal is not a proper subject for action by the Companys shareholders under the laws of the State of California, the Companys domicile, because a determination as to whether the Company should purchase its stock is the perogative of the Companys Board of Directors. Thus, the proposal may be omitted under Rule 14a-8(c)(1).

(2) The supporting statement is false and misleading because (i) it incorrectly states that the Company would benefit from purchasing its stock at below book value, (ii) it incorrectly implies that the proposed purchase would benefit those shareholders who tender their stock, and (iii) it implies that the proposed purchase would benefit those shareholders who do not tender without describing potential, material disadvantage of the proposal. Thus, the proposal and its supporting statement may be omitted under Rule 14a-8(c)(3).

(3) The proposal is clearly intended by Mr. Luxenberg as an alternative to the proposed merger and, thus, may be omitted under Rule 14a-8(c)(9).

An opinion of counsel supporting these conclusions is also enclosed.

Concurrently with the filing hereof, we are mailing to Mr. Luxenberg a copy of this letter and of the enclosed press releases, correspondence and opinion of counsel, thereby notifying him that the Company intends to omit his proposals from its proxy material.

Because the Company did not receive documentation of Mr. Luxenbergs shareholdings and intention to appear at the Annual Meeting until after the preliminary proxy materials were filed with the Commission, the Company hereby requests that the Staff permit the filing of this letter as of the date hereof pursuant to Rule 14a-8(d).

Very truly yours,

EXECUTIVE INDUSTRIES, INC.

By

Donald R. Einhorn, Secretary

INQUIRY LETTER 2

KINDEL & ANDERSON

TWENTY-SIXTH FLOOR, 555 SOUTH FLOWER STREET

LOS ANGELES, CALIFORNIA 90071

TELEPHONE(213) 680-2222

05792-7 001

Executive Industries, Inc.

5460 East La Palma Avenue

Anaheim, California 92806

Re: Daniel H. Luxenberg

Shareholder Proposal

Gentlemen:

You have requested our comments on the propriety, under Rule 14a-8 promulgated pursuant to the Securities Exchange Act of 1934 (the "Act"), of excluding from the 1981 proxy material of Executive Industries, Inc. (the "Company") the proposal of Mr. Daniel H. Luxenberg, a shareholder of the Company. We understand the facts to be as follows:

On February 4, 1981, the Company announced that its Board of Directors had approved in principle the merger of the Company with Frank Executive Industries, Inc. ("FEI"), a corporation wholly-owned by Mr. Thomas E. Frank, the Companys President and Chief Executive Officer, in which shareholders of the Company other than Mr. Frank would receive $5.50 per share, consisting of $2.00 cash and $3.50 principal amount of three-year, 9% subordinated notes. On March 20, 1981, the Company announced that the terms of the merger had been renegotiated so that shareholders other than Mr. Frank would receive $4.25 cash per share, rather than cash and notes aggregating $5.50. On April 9, 1981, the Board of Directors approved and adopted, subject to shareholder approval, an Agreement and Plan of Merger providing for the merger on the terms, announced on March 20, 1981.

On March 3, 1981 the Company received from Mr. Luxenberg the following proposal for inclusion in its proxy material:

Resolved: That the Corporation offer to buy in up to one million shares of the corporations common stock (sic) at $5.50 per share payable at $2 down and the balance in 3 equal installments (sic) with interest at 9% payable annually.

Reason: The Corporation should benefit from buying this stock at below actual book value and is financially capable of doing same.

By a certified letter delivered on April 6, 1981, the Company requested Mr. Luxenberg to document his shareholdings and declare his intention to present his proposal in person at the Annual Meeting. Mr. Luxenbergs response was received by the Company on April 20, 1981. On April 10, 1981, the Company filed its preliminary proxy material with the Securities and Exchange Commission (the "Commission") without Mr. Luxenbergs proposal.

Rule 14a-8 (the "Rule") adopted pursuant to the Act provides in part as follows:

(a) If any security holder of an issuer notifies the issuer of his intention to present a proposal for action at a forthcoming meeting of the issuers security holders, the issuer shall set forth the proposal in its proxy statement and identify it in its form of proxy and provide means by which security holders can make the specification required by Rule 14a-4(b).

The Rule further provides that the issuer shall not be required to include a shareholder proposal in its proxy material unless:

(1) Eligibility. At the time he submits the proposal, the proponent shall be a record or beneficial owner of a security entitled to be voted at the meeting on his proposal, and he shall continue to own such security through the date on which the meeting is held. If the issuer requests documentary support for a proponents claim that he is a beneficial owner of a voting security of the issuer, the proponent shall furnish appropriate documentation within 10 business days after receiving the request. . . .

(2) Notice. The proponent shall notify the issuer in writing of his intention to appear personally at the meeting to present his proposal for action. The proponent shall furnish the requisite notice at the time he submits the proposal, except that if he was unaware of the notice requirement at that time, he shall comply with it within 10 business days after being informed of it by the issuer. . . .

We assume that Mr. Luxenbergs letter of April 16 does constitute the requisite notice and documentation of eligibility. Nevertheless, we believe that his proposal may be omitted from the Companys proxy material in reliance upon subsections c(1), (3) and (9) of Rule 14a-8.

Mr. Luxenbergs Proposal Is Not A Proper Subject For Action By Shareholders Under California Law And, Therefore, May Be Omitted Under Rule 14a-8(c)(1).

Rule 14a-8(c)(1) provides that a proposal may be omitted by management from its proxy material "_if the proposal as submitted is, under the laws of the issuers domicile, not a proper subject for action by security holders. . . ."

The Company is incorporated under the laws of the State of California. Section 300(a) of the California Corporations Code (the "Code") provides:

(a) Subject to the provisions of this division and any limitations in the articles relating to action required to be approved by the shareholders (Section 153) or by the outstanding shares (Section 152), the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board.

The Code in Section 300(a) vests the exclusive duty of management in the Board of Directors, and does not elsewhere grant to the shareholders the authority to require the Company to repurchase its stock. It is well established in California that, as with other forms of distributions ¹ the purchase by a corporation of its own shares lies in the honest discretion of the Board of Directors. 1 Ballantine & Sterling, California Corporation Laws §§ 142.05_1b, 143.02₃ and 144.03_2b. Mr. Luxenbergs proposal is an intrusion upon the recognized perogative of the Board of Directors under California law and, thus, is not a proper subject for shareholder action.

Section 500 et seq. of the Code provides that a corporation may not make a "distribution" to its shareholders unless it meets specified criteria as to the amount of retained earnings or assets. Thus, the Code charges the Companys Board of Directors with the responsibility of making a specific determination as to the financial condition of the Company before a distribution may be made. Inasmuch as Mr. Luxenbergs proposal, if adopted, would require the Directors to initiate a distribution, it would be inconsistent with this statutorily mandated responsibility and, thus, is not a proper subject for shareholder action.

Mr. Luxenbergs Proposal And Supporting Statement Are False And Misleading And, Therefore, May Be Omitted Under Rule 14a-8(c)(3).

Rule 14a-8(c)(3) provides that an issuer shall not be required to include a shareholder proposal in its proxy material "_if the proposal or the supporting statement is contrary to any of the Commissions proxy rules and regulations, including Rule 14a-9. . . which prohibits false and misleading statements in proxy soliciting materials. . . ."

Contrary to the assertion in Mr. Luxenbergs supporting statement, the Company would not benefit in any way from repurchasing its own stock, whether at below book value or at any other price. Although the Company may benefit from "going private", by eliminating the expenses associated with being a public company, for example, such benefits are unrelated to the method used to go private or to the price paid by the Company to repurchase its shares. Thus, Mr. Luxenbergs supporting statement is false and misleading, and may be omitted in reliance upon Rule 14a-8(c)(3), because there is no basis for the assertion that the proposed repurchase at below book value would benefit the Company.

Mr. Luxenbergs supporting statement is also false and misleading because it incorrectly implies that the Companys shareholders would benefit from the proposed repurchase. Shareholders whose stock is purchased by the Company are clearly in no better position than they would have been had they received cash in the merger. Although shareholders whose stock is not purchased would seemingly benefit from an increase in the book value of their shares resulting from the Companys repurchase at below book value; they would also suffer certain disadvantages which Mr. Luxenberg has failed to disclose. The proposed repurchase would result in the Companys stock being delisted and in the elimination of an active trading market. In addition, such a repurchase would most likely result in the Companys terminating its reporting obligations under the Securities Exchange Act of 1934. Thus, Mr. Luxenbergs supporting statement is false and misleading because it incorrectly implies that the proposed repurchase would benefit shareholders who tender their stock whereas the merger would not. Furthermore, it is misleading because it implies that the proposed repurchase without benefit shareholders who tender their stock whereas the merger would not. Furthermore, it is misleading because it implies that the proposed repurchase would benefit shareholders who do not tender without describing potential, material disadvantages of the proposal.

Mr. Luxenbergs Proposal is A Counter Proposal Which May Be Omitted Under Rule 14a-8(c)(9).

Rule 14a-8(c)(9) provides that management may omit a proposal and any supporting statement from its proxy material "_if the proposal is counter to a proposal to be submitted by the issuer at the meeting". This exclusionary provision applies not only to a shareholder proposal which is the simple negative of managements proposal, but it also sanctions the omission of a shareholder proposal which is in contradiction to the purpose of managements proposal or which is inconsistent with managements proposal.

Mr. Luxenbergs letter dated March 2, 1981 to the Company clearly demonstrates his intention to advance his proposal as an alternative to managements proposed merger. In addition, the proposed merger and the proposed repurchase are inconsistent alternatives. It would be impossible to effect the simultaneous repurchase of Common Stock and the cancellation of that stock as provided for in the merger.

The inconsistency between managements proposal and Mr. Luxenbergs proposal, if contained in the Companys proxy material, would have the potential to confuse management and shareholders alike. Shareholders could vote in favor of both proposals. Those who did would, in effect, be voting "yes" and "no" on each proposal. In addition, the approval of both proposals would leave management with an inconsistent and inconclusive mandate from the shareholders, rendering it incapable of effecting either proposal and rendering the proxy solicitation a futile exercise.

The Commissions staff has concluded in similar circumstances that a shareholder proposal counter to managements merger proposal may be omitted from managements proxy material. See, e.g., The Firestone Tire & Rubber Company (available February 21, 1979); Pantepec International, Inc. (available September 7, 1976).

On the basis of the foregoing, we believe that Mr. Luxenbergs proposal constitutes a counter proposal, and may be omitted from managements proxy material in reliance upon Rule 14a-8(c)(9).

Very truly yours,

KINDEL & ANDERSON

By

Stephen E. Newton

INQUIRY LETTER 3

Daniel H. Luxenberg

9302 Stockton Road

Somis, California 93021

Board of Directors

Executive Industries Inc.

5500 East LaPalma Ave.

Anaheim, Calif.

SEC File # 1-7847

Gentlemen:

I am a stockholder of EII and it is my understanding that the directors of a corporation have a fiduciary obligations its shareholders.

It appears to me that Mr. T.E. Frank, President, Director and less than 10% stockholder of our company, has come to an agreement with the Idanta partners, also directors of our company, The latter has agreed to sell their 331,000 shares at $5.50 per share with $2 down and the balance over a 3 year period with 9% interest. These shares would be bought by Mr. Frank. (This information came to me via a press release and I assume it is correct. The release also indicated that the offer would be made to all the stockholders.

I do not understand why any of the directors would go along with this offer to sell out to an individual rather than have the company buy in these shares plus those of any other director that wanted to "give away" their stock at what appears to me to be a large discount from actual book value.

It appears to that there might be a conflict of interest on, the part of Mr. Frank not to recommend that the company buy in its own shares as the cash reserves plus balance of real estate owned works out to a value greater than $5.50 per share.

Therefore I hereby request that the following resolution be adopted at the forthcoming stockholders meeting:

Resolved: That the Corporation offer to buy in up to one million shares of the corporation common stock at $5.50 per share payable at $2 down and the balance in 3 equal installments with interest at 9% payable annually.

Reason: The Corporation should benefit from buying this stock at below actual book value and is financially capable of doing same.

If there is an objection to inserting this resolution in the forthcoming proxy statement please provide me with the stockholders list so that I might, at my own expense, mail out my proposed resolution to all the stockholders.

I will expect to hear from you by return mail.

Yours truly,

Daniel H. Luxenberg

INFORMAL PROCEDURES REGARDING SHAREHOLDER PROPOSALS

The Division of Corporation Finance believes that its responsibility with respect to matters arising under Rule 14a-8 _{17 CFR 240.14a-8}, as with other matters under the proxy rules, is to aid those who must comply with the rule by offering informal advice and suggestions and to determine, initially, whether or not it may be appropriate in a particular matter to recommend enforcement action to the Commission. In connection with a shareholder proposal under Rule 14a-8, the Divisions staff considers the information furnished to it by the Company in support of its intention to exclude the proposal from the Companys proxy material, as well as any information furnished by the proponent or the proponents representative.

Although Rule 14a-8(d) does not specifically provide for any communications from shareholders to the Commissions staff, the staff will always consider information concerning alleged violations of the statutes administered by the Commission, including argument as to whether or not activities proposed to be taken would be violative of the statute or rule involved. The receipt by the staff of such information, however, should not be construed as changing the staffs informal procedures and proxy review into a formal or adversary procedure.

The determination reached by the staff in connection with a shareholder proposal submitted to the Division under Rule 14a-8 does not and cannot purport to "adjudicate" the merits of the Companys position with respect to the proposal. Only a court such as a U.S. District Court can decide whether a Company is obligated to include shareholder proposals in its proxy material. Accordingly, a discretionary determination by the staff not to recommend enforcement action to the Commission does not preclude a proponent, or any shareholder of a company, from pursuing any rights he or she may have against the Company in court, should the management omit the proposal from the Companys proxy material.

STAFF REPLY LETTER

June 26, 1981

Stephen E. Newton, Esq.

Kindel & Anderson

Twenty-Sixth Floor

555 South Flower Street

Los Angeles, CA 90071

Re: Executive Industries, Inc.

Dear Mr. Newton:

This is in regard to your letter dated June 12, 1981 which was received by the Commission on June 16, 1981, concerning a request made to Executive Industries, Inc. ("Company") by Mr. Daniel H. Luxenberg ("Proponent") to include one shareholder proposal in the Companys proxy soliciting material for its 1981 annual meeting of security holders. Pursuant to Rule 14a-8(d) under the Securities Exchange Act of 1934, your letter indicated the managements intention to exclude this proposal from the Companys proxy material.

The resolution, the text of which is set forth as an exhibit to your letter, proposes an alternative to the Companys proposed merger with Frank Executive Industries, Inc. In your letter, the view has been expressed that the proposal is excludable from the Companys proxy material under paragraphs (c)(1), (c)(3) and (c)(9) of Rule 14a-8, as well as under Rule 14a-9, and you cite certain reasons in support of that opinion.

There appears to be some basis for your opinion that the proposal may be omitted from the Companys proxy material under Rule 14a-8(c)(9). The provision provides that a proposal may be omitted from the managements proxy material if it is counter to a proposal to be submitted by the management. In this connection, you point out that on April 9, 1981, the Board of Directors of the Company approved by Agreement and Plan of Merger, subject to shareholder approval, under which each shareholder of the Company, other than the offeror, would receive $4.25 cash per share. In contrast, the Proponents proposal requests that the Company repurchase up to one million shares of its common stock at $5.50 per share.

In light of the above facts, this Division concurs with your view that the proposal advocated by the Proponent would be in contradiction to managements purpose in submitting its merger proposal. In this regard, there appears to be some basis for the view that the primary purpose of the proposal is to oppose stockholder approval of the merger. Under the circumstances, we believe that the inclusion of the Proponents proposal in the Companys proxy material would be the source of shareholder confusion. Accordingly, this Division will not recommend any enforcement action to the Commission if management omits the subject proposal from the Companys proxy material. In considering our enforcement alternatives, we have not found it necessary to reach the other bases for omission upon which you rely.

In connection with the foregoing, your attention is directed to the enclosure which sets forth a brief discussion of the Divisions informal procedures regarding shareholder proposals.

Sincerely,

Michael R. Kargula

Attorney Adviser

Enclosure

cc: Mr. Daniel K. Luxenberg

9302 Strockton Road

Somis, California 93021

SEC_CODE_REF_0090001192884