Company Name: Peregrine Pharmaceuticals, Inc.
Public Availability Date: August 25, 2004Document Sections:
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
June 17, 2004 Via Federal Express U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Rule 14a-8(j)Exclusion of Stockholder Proposals
Dear Ladies and Gentlemen: We represent Peregrine Pharmaceuticals, Inc., a Delaware corporation
("Peregrine" or "Company"). Peregrine intends to omit from its proxy materials
for its 2004 Annual Meeting of Stockholders three stockholder proposals received
from Mr. Christopher Smith and Mrs. Susan Smith which are described below. In
our opinion, Peregrine has the right to omit the proposals. We respectfully
request your concurrence and a letter from the Division of Corporation Finance
(the "Division") of the Securities and Exchange Commission ("Commission")
stating that it will not recommend any action to the Commission if Peregrine
omits the proposals from its proxy material. SUMMARY
Peregrine intends to omit three stockholder proposals submitted by stockholders
Mr. Christopher Smith and his wife, Mrs. Susan Smith. Mr. and Mrs. Smith
originally submitted 5 proposals: three proposals on behalf of each of himself,
his wife and a brokerage account held by Mr. and Mrs. Smith as joint tenants,
and two back up proposals in the event Peregrine found just cause to exclude one
or more of the first three proposals. However, after Peregrine notified Mr. and
Mrs. Smith that their proposals violated the one proposal rule, Mr. and Mrs.
Smith withdrew their two back-up proposals, but maintain they are entitled to
submit the three remaining proposals. Peregrine may omit all three proposals
under Rule 14a-8(c), the "one proposal" rule, because Mr. and Mrs. Smith, each a
single proponent, are offering one proposal each, and one on behalf of their
joint brokerage account. In the event the Division disagrees as to the
applicability of the one proposal rule in this case, Peregrine may alternatively
omit only the third proposal under the "one proposal rule" and the other two
proposals for several other substantive reasons. The first proposal ("Proposal 1") is submitted by Mr. Smith and requires
expansion of the board of directors so that one-third of the total seats on the
board of directors can be filled by appointments made by Peregrine's largest
institutional investors. Proposal 1 is submitted by Mr. Smith.
Proposal 1 may be omitted as it is improper for shareholder action under
Delaware law (Rule 14a-8(i)(1)); it violates Delaware and federal law (Rule
14a-8(i)(2)); it relates to the election of directors (Rule 14a-8(i)(8)); and
Peregrine lacks the power and authority to implement it (Rule 14a-8(i)(6)).
The second proposal ("Proposal 2") mandates that Peregrine nominate fifty
percent more candidates for the board of directors than there are available
seats; post to its website requirements and procedures for shareholders to
follow for the submission of nominees; individually list each nominee to the
board on Peregrine's proxy requiring each shareholder to specifically denote for
which candidates he or she is voting; and permit shareholders in attendance at
the annual meeting of the shareholders to vote for candidates individually
rather than as a group. Proposal 2 is submitted by Mrs. Smith.
Proposal 2 violates Rule 14a-8(i)(8) as it concerns an election to the company's
board of directors; it further violates the one proposal rule; and two-thirds of
it has been substantially implemented (Rule 14a-8(i)(10)).
The third proposal ("Proposal 3") requires Peregrine to revoke the authority of
all company officials, including the CEO, board of directors and the
compensation committee, to issue stock options to any and all officers or
directors of Peregrine. Instead, Peregrine must submit award proposals to the
shareholders as part of its annual proxy materials, which must detail the
justification for the proposed awards. A majority of shares must approve any
awards; broker non-votes would not be considered votes cast either in favor or
against the proposals. Proposal 3 is submitted by the Smiths as joint tenants.
Proposal 3 may be omitted as it relates to Peregrine's ordinary business
operations (Rule 14a-8(i)(7)); it is improper for shareholder action under
Delaware law (Rule 14a-8(i)(1); it violates state law (Rule 14a-8(i)(2)); and it
alone violates the one proposal rule. Peregrine's 2004 Annual Meeting of Stockholders is scheduled for October 25,
2004. Peregrine currently intends to file definitive 2004 proxy materials with
the Commission on or about September 6, 2004. Accordingly, this filing is timely
made in accordance with the requirements of Rule 14a-8(j) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"). Six (6) copies of this
letter and its attachments are enclosed pursuant to Rule 14a-8(j) of the
Exchange Act. Also in accordance with Rule 14a-8(j), a copy of this letter and
its attachments are being mailed to Mr. and Mrs. Smith individually, informing
them of Peregrine's intention to omit the proposals from its 2004 proxy
materials. BACKGROUND On Monday, May 3, Peregrine received an e-mail from Mr. Smith attached to which
were a cover letter dated May 2, 2004, and five shareholder proposals being
submitted on behalf of Mr. and Mrs. Smith for inclusion in Peregrine's proxy
materials for its 2004 Annual Meeting of Stockholders. A copy of the e-mail,
cover letter and proposals are attached as "Exhibit A." As originally submitted,
the submission actually contained five proposals in violation of Rule
14a-8(a)(4) under the Exchange Act. Peregrine responded to Mr. and Mrs. Smiths'
submissions on May 14, 2004 via e-mail and Federal Express, advising Mr. and
Mrs. Smith of the violation of the "one proposal" rule as required by Rule
14a-8(f), requesting the required documentation of their shareholdings, and
informing them of the fourteen-day response period as required by the rule. A
copy of Peregrine's response is attached as "Exhibit B." Peregrine advised Mr.
and Mrs. Smith that they were only entitled to submit two proposals, as the
couple's joint account did not constitute a third stockholder.
Mr. and Mrs. Smith timely responded, withdrawing two proposals and providing
appropriate ownership documentation, together with a cover letter dated May 26,
2004, which are attached as "Exhibit C." As part of the response, Mr. and Mrs.
Smith produced three letters from Ameritrade and Morgan Stanley, respectively,
confirming share ownership in three brokerage accounts, one for the benefit of
Mr. Smith individually, another for the benefit of Mrs. Smith individually, and
the third for the benefit of them both as joint tenants. Mr. and Mrs. Smith continue to maintain that they are entitled to submit a
proposal on behalf of their brokerage account that they hold as joint tenants,
in addition to the two proposals each of them submitted individually. In their
cover letter, the Smiths have demanded that the Division make a decision on
whether their joint account is entitled to submit a proposal based on the State
of Delaware's purported recognition of tenancies by the entirety. In Mr. Smith's
words, "I require the [C]ommission to rule based upon the following Delaware
state law. [Peregrine] is incorporated in the state of Delaware and must adhere
to the property laws of the state. Delaware explicitly differentiates between
sole ownership and joint ownership of property, including real estate, bank and
brokerage accounts, especially when a husband and wife own the joint property.
Joint property owned by a husband and wife in Delaware (and Pennsylvania) is
afforded unique ownership protection under the law by what is known as `tenancy
by the entireties' [sic]. Since the state of Delaware recognizes our ownership
in [Peregrine] as 3 distinct and unique owners, [Peregrine] and the SEC must
also recognize these three accounts as separate and unique shareholders, thus, a
shareholder proposal submitted under our joint account must also be accepted."
DISCUSSION Peregrine intends to exclude all three proposals submitted by the Smiths from
its proxy statement and form of proxy for its year 2004 Annual Meeting of
Stockholders. The proposals may be excluded under Rule 14a-8(c), the
Commission's "one proposal" rule (each shareholder may submit no more than one
proposal per shareholders meeting). Alternatively, Proposals 1, and 2 may be
omitted under multiple substantive bases, and Proposal 3 itself may be omitted
pursuant to the "one proposal" rule. I. All Proposals May Be Omitted As A Violation Of The Commission's "One
Proposal" Rule (Rule 14a-8(c)). While there are numerous problems with Mr. and Mrs. Smiths' assertions of law
(e.g., the property laws of the state in which they livenot Delaware law -
would likely govern the terms of their property ownership; they hold the
brokerage account as joint tenantsnot as a tenancy by the entirety, etc.), the
Division has made very clear that the use of various forms of joint ownership
will not be allowed to circumvent or defeat the "one proposal" rule. Proposals
1, 2 and 3 may be excluded by reason of Rule 14a-8(c), which permits each
stockholder no more than one proposal for each particular stockholders' meeting.
In adopting the one proposal rule, the Division stated, "[The one proposal]
limitations will apply collectively to all persons having an interest in the
same securities (e.g., the record owner and the beneficial owner, and joint
tenants)." The Division further noted the "possibility that some proponents may
attempt to evade the rule's limitations through various maneuvers, such as
having other persons whose securities they control submit two proposals each in
their own names." Exchange Act Release No. 34-12999 (November 22, 1976)
("Release 12999"). See also Dominion Resources, Inc. (February 24, 1993), and
Jefferson-Pilot Corporation (March 12, 1992). The Division has interpreted Rule
14a-8(c) (formerly Rule 14a-8(a)(4)) to permit exclusion of all of a group of
multiple proposals submitted by related parties when circumstances show that
"one proponent is the `alter ego' of another proponent or that one proponent
possesses `control' over the shares owned of record, or beneficially, by another
proponent." Jefferson-Pilot Corporation (supra) (citing Trans World Corp.
(February 5, 1981). See also Spartan Motors (March 12, 2001); Banc One
Corporation (February 2, 1993); Occidental Petroleum Corporation (March 27,
1984). There can be no doubt that Mr. and Mrs. Smith, and each of them, are in control
of their joint brokerage account. By submitting a third proposal on behalf of
their joint account, each of them has attempted to circumvent the one proposal
per stockholder limitation. They have been given an opportunity to reduce the
number of proposals submitted, and still failed to abide by the one proposal
limitation. Accordingly, all three of their proposals should be excluded from
Peregrine's 2004 proxy materials. We believe it is appropriate to consider Mr.
and Mrs. Smith each a single proponent limited to one proposal each for purposes
of Rule 14a-8(c). Therefore, we request the Division to concur that pursuant to
Rule 14a-8(c), Peregrine may exclude the entire group of proposals.
II. Proposal 1 May Be Omitted as It is Improper for Stockholder Action under
State Law (Rule 14a-8(i)(1)); It Violates State and Federal Law (Rule
14a-8(i)(2)); It Relates to the Election of Directors (Rule 14a-8(i)(8)); and
Peregrine Lacks the Power/Authority to Implement (Rule 14a-8(i)(6)).
The substantive portions of Proposal 1 follow:
"1. A number of seats on the board of directors equal to one-third of the total
will be reserved for directors assigned by institutional holders of the company
stock. 1a. Directors seated in this manner will be viewed as having equal voting
authority and stature to all other board members. No actions may be taken by the
board of directors to minimize or limit the voting authority of stature of these
directors. 1b. The company will pay no salary to directors who are seated under this
procedure. However, such directors will be entitled to equal pay and expense
reimbursement for attending board meetings and performing other duties as
required as a member of the board of directors. 2. An institutional investor may be awarded the opportunity to assign only one
seat on the board of directors each year. 3. In order for an institutional investor to qualify for representation on the
board of directors, they must be represented at the stockholder meeting. They
must bring with them certification as to the number of shares which they
currently hold and the name and qualifications of the individual they wish to
have seated on the board of directors. Obviously, institutional investor may
choose not to participate in this program. 3a. An individual whom an institutional investor desires to seat on the board of
directors may not be a direct employee of the institutional investor. However,
since the company will not pay this individual for sitting on the board of
directors, the institutional investor may appropriately compensate the
individual for accepting to serve as their representative.
4. At the stockholders meeting, each of the largest institutional investor(s) in
order by size of current stock holding will be awarded one seat until the total
number of seats available for institutional representation are filled.
5. Individuals who are seated on the board of directors in this manner will
serve a one-year term beginning immediately after assignment during the
stockholder meeting and ending at the time of the following year's stockholder's
meeting." Proposal 1 is flawed on many levels. Mr. Smith does not indicate how many
additional seats on the board would be added (currently there are four seats on
Peregrine's board of directors), only that one-third would be allocated to
institutional investor appointees. Mr. Smith does not require a minimum amount
of stockholdings, leaving open the possibility that the largest institutional
investors could have minimal shareholdings in Peregrine, and yet the power to
appoint one-third of Peregrine's board of directors. According to the NASDAQ
Stock Market, as of March 31, 2004, approximately 15.8% of Peregrine's
outstanding common stock is held by more than 60 institutional investors, and
these numbers are in constant flux. There is no way to know if institutional
investors would even be interested in participating in such a program. Moreover,
institutional investors already have access to the director nomination process
as do all stockholders. Proposal 1, if adopted, would be mandatory as it affects the Company and thereby
violates Rule 14a-8(i)(1). This exclusion is intended to allow the omission of
proposals that under the corporate law of an issuer's state of incorporation may
be initiated only by the board of directors, are committed to board discretion,
or otherwise ignore the statutory role of directors by proposing direct adoption
of an action. Release 12999. Implementation of the proposal would involve
matters not appropriate for stockholder action. Directors are elected by the
stockholders at an annual meeting of the stockholders. Delaware General
Corporation Law ("DGCL") §211(b). Unless otherwise provided by a company's
certificate of incorporation, each share of stock carries with it one vote. DGCL
§212(a). By allowing the largest institutional investors to appoint one-third of
Peregrine's directors without regard to their stockholders, in effect the
proposal eliminates the right of all stockholders to vote for all of the members
of the Company's Board of Directors. Further, the proposal has the effect of
giving the institutional investors more than one vote per share with respect to
the election of directors. Accordingly, Peregrine's certificate of incorporation
would have to be amended to provide for such an appointment process. DGCL §242
only permits amendment of a corporation's certificate of incorporation where the
board of directors proposes the amendment and declares its advisability to the
stockholders. Further, although different classes of stock may carry different voting rights,
votes must be uniform with respect to the shares of the same class. See
Providence & Worcester Co. v. Baker, 378 A.2d 121, 123 (Del. 1977). In other
words, if the largest institutional investors held the same class of stock
(i.e., common stock) as the other stockholders voting in an election of
directors, the institutional investors' shares could not carry more votes than
other shares without violating the DGCL. Thus, in order to give institutional
investors the number of votes necessary to elect one-third of the board,
Peregrine would have to create an additional class of securities that voted
separately from common stockholders, and issue those shares to institutional
investors (the mix of which is continuously changing). Additional classes of
stock may only be created through an amendment to the certificate of
incorporation, which, as discussed above, requires proper board action under
DGCL §242. Further, all stock issuances must be authorized by the board of
directors by virtue of DGCL §151. See e.g., Liebermann v. Frangiosa, 844 A.2d
992 (Del. Ch. 2002). As a violation of Rule 14a-8(i)(1), Proposal 1 would also violate Rule
14a-8(i)(2), since a proposal that is not a proper subject for stockholder
action violates state law and Rule 14a-8(i)(6), since a company does not have
the power to effectuate a proposal if it is not a proper subject for stockholder
action. Proposal 1 is also impossible to implement, thereby violating Rule 14(a)-(i)(6),
because it would apparently require all stockholders other than the
institutional investors with the right to assign the proposed directors to
refrain from voting with respect to such board seats. By allowing the largest
institutional investors to appoint one-third of Peregrine's directors without
regard to their stockholdings, the proposal is advocating an election procedure
with respect to the election of such directors which requires the "abstention"
of all other stockholders. The proposal also has the effect of eliminating the
right of all stockholders to vote for all of the members of the board of
directors. See, e.g., Student Loan Corporation No Action Letter (March 8, 1999).
Due to the foregoing, this proposal is beyond the Company's power to implement.
Proposal 1 also violates Rule 14a-8(i)(8). Proposal 1 clearly relates to an
election to Peregrine's board of directors. Mr. Smith proposes to permit
institutional investors to elect one-third of the board. As the SEC has stated,
"the principal purpose of this grounds for exclusion is to make clear, with
respect to corporate elections, that Rule 14a-8 is not the proper means for
conducting elections or effecting reforms in elections of that nature, since
other proxy rules, including Rule 14a-11, are applicable thereto." Exchange Act
Release No. 12,598, 1976 SEC LEXIS 1290 (July 7, 1976). Allowing institutional
investors the ability to appoint certain directors permits them to circumvent
the entire nomination and election process. Finally, the federal proxy rules set
forth rules and procedures which must be complied with by any stockholder
seeking to have any candidate elected as a director. If the Proposal is enacted,
stockholders would, in effect, be given an opportunity to place a candidate on
the board without complying with, and, as such, in contravention of, such rules.
See, e.g., Kmart Corporation No Action Letter (March 23, 2000). To that extent,
Proposal 1 violates Rule 14a-8(i)(8) and further violates Rule 14a-8(i)(2) as a
violation of law. III. Proposal 2 May Be Omitted as It Relates to the Election of Directors (Rule
14a-8(i)(8)); It Further Violates the One Proposal Rule; and It is Substantially
Implemented (Rule 14a-8(i)(10)). Proposal 2 states:
"Introduction. This proposal is designed to provide individual stockholders with
more options in the selection and election of individuals to serve on the
company's board of directors. 1. The company must nominate at least fifty percent more candidates for the
board of directors than seats on the board. 1a. Currently there are four members on the board of directors; therefore this
proposal would cause the company to nominate six individuals for stockholder
consideration. 1b. The company retains the right to communicate to the shareholders which
specific candidates the company desires to sit on the board of directors.
2. The company must document and make public to stockholders, by posting on the
company website, requirements and procedures for stockholders (or stockholder
groups) to follow for the submission of stockholder nominees for the board of
directors. This must be done immediately and would be effective for the election
of directors during the annual stockholders meeting to be held in 2005 and
future years. 3. The proxy statement sent to stockholders for director voting must list all
appropriately nominated director candidates individually, instead of as a group.
The voter must denote on the proxy each individual for which they are voting to
serve on the board, up to the number of seats available. The same individual
selection of board members must be afforded to those individuals who will cast
their ballot in person at the stockholders meeting. Why Stockholder is Asking for Your Approval. Stockholders today are not given a
`true' option in regards to exercising their voting rights in the election of
directors. In the past, the company presents only four nominees to fill the four
director openings. The company recommends these four members and forces
stockholders to vote for the four nominees as a group on the proxy. Currently a
vote to `withhold authority' is a meaningless vote. This proposal will provide
all stockholders with a real choice and a meaningful vote whereby they can truly
impact the make-up of the board of directors of the company.
Proposal 2 is excludable pursuant to Rule 14a-8(i)(8) because it relates to
election for membership on Peregrine's Board of Directors. The Division has
consistently applied that provision to allow companies to exclude proposals
which attempt to use Rule 14a-8's mechanisms to cause contested elections of
directors, rather than establishing procedures for nomination or qualification
generally. Exclusion of the proposal is also consistent with a long line of no-action
letters in which the Division has held that companies may exclude shareholder
proposals seeking to effect director "election contests." For example, in
Storage Technology Corp. (March 11, 1998), the Division allowed the company to
exclude a proposal under Rule 14a-8(c)(8) (re-designated as Rule 14a-8(i)(8) in
the 1998 amendments to Rule 14a-8) that would have required the company to amend
its charter documents to permit shareholders (in groups of three) to include
their own nominees to the board in the company's proxy materials. The Division
also permitted exclusion of similar shareholder proposals in Unocal Corp.
(February 8, 1991) and Amoco Corp. (February 14, 1990) because they could result
in contested elections for individual director vacancies. More recently, in Toys
"R" Us, Inc. (April 3, 2000) and Kmart Corp. (March 23, 2000), the Staff allowed
to be excluded proposals that would have required the company to include a
non-management candidate for election to the board of directors and develop a
system to advance the candidacy of that non-management candidate. Even more
recently, and despite attempts by the proponent there to classify the
shareholder proposal as a "corporate governance measure," in United Road
Services, Inc. (May 5, 2000) the Staff permitted exclusion of a proposal that
would have required shareholder-nominated candidates for the Board of Directors
to be listed in the company's proxy statement. The Staff concluded that the
proposal "would establish a procedure that may result in contested elections of
directors." While we recognize that the Division did no grant a no action request in the
context of the nomination of additional candidates for election to the board
where such additional candidates were to be nominated by the board itself rather
than shareholders or other parties (see General Electric Company (January 12,
2001)), Mrs. Smith's proposal is distinguishable in that "[t]he company retains
the right to communicate to the shareholders which specific candidates the
company desires to sit on the board of directors." Her proposal thus ensures a
contested election for directors by permitting the board to support certain
candidates and not others, and causes the board to object to its own nominees.
Accordingly, Proposal 2 is excludable as it violates Rule 14a-8(i)(8).
Proposal 2 may also be excluded under Rule 14a-8(i)(10) on the grounds that
Peregrine has already substantially implemented two-thirds of the proposal.
Requirements and procedures for stockholders (or stockholder groups) to follow
for the submission of stockholder nominees for the board of directors are
available on Peregrine's website at
http://www.peregrineinc.com/media/pdf/ncc.pdf as an exhibit to its Nominating
Committee Charter, which is also attached as "Exhibit D." In addition,
Peregrine's proxy card permits each stockholder the opportunity to vote for or
withhold authority for each individual nominee, in full compliance with Rule
14a-4. See "Exhibit E." Thus, Proposal 2 is excludable under Rule 14a-8(i)(10).
Proposal 2 also internally violates the one proposal rule. While facially tied
together under the theme of giving shareholders more options in elections,
Proposal 2 contains three distinct proposals: (1) additional board appointed
nominees, (2) making accessible to shareholders information concerning the
nomination process, and (3) individual listing of nominees on proxy materials.
IV. Proposal 3 May Be Omitted as It Relates to Peregrine's Ordinary Business
Operations (Rule 14a-8(i)(7)); It is Improper for Shareholder Action under
Delaware Law (Rule 14a-8(i)(1)); It Violates Delaware Law (Rule 14a-8(i)(2));
and It Violates the One Proposal Rule. Proposal 3 states:
Introduction. This proposal is designed to force stockholder approval of all
stock options and warrants issued to members of the company's board of directors
and officers of the company. The Proposal Details
1. Revoke from all company officials, representatives and committees, including
the CEO, board of directors and the compensation committee, the authority to
issue stock options and/or warrants to any and all officers of the company and
directors of the company. 2. The company is permitted each year to submit multiple proposals for
stockholder approval to reward the officers and directors of the company with
stock options and/or warrants based upon performance. 2a. These company proposals must appear on proxy material for vote by all
stockholders of record. 2b. The board of directors must approve each of these company proposals.
2c. Each proposal must detail the desired recipient(s) of the stock options or
warrants, the quantity of the stock options or warrants and the performance of
the recipient(s) over the past year that merits consideration for such a reward.
3. Approval of a proposal to issue stock options and/or warrants to an officer
or director of the company requires the affirmative vote of a majority of votes
cast. Broker non-votes will not be treated as votes cast for purposes of
determining approval of such proposal and will not be counted as votes for or
against such proposal. Why Stockholder is Asking for Your Approval. This proposal is designed to
eliminate the unjustified issuance of stock options to those individuals who
have not earned such a reward. I have the utmost confidence in the stockholders
of this company to reward performance that is beneficial to the stockholders of
the company. It is long past time to stop the issuance of stock options to
officers and directors of the company for performance which has not benefited
stockholders and which stockholders have not been informed of the justification
for the issuance of such rewards. Proposal 3 intends to "revoke from all company officials, representatives and
committees, including the CEO, board of directors and the compensation
committee, the authority to issue stock options and/or warrants to any and all
officers of the company and directors of the company." Under Delaware law, only
the board of directors, or a committee thereof, has the authority to issue stock
options. DGCL §151; see Liebermann, 844 A.2d 992. As a violation of Rule
14a-8(i)(1), Proposal 3 would also violate Rule 14a-8(i)(2), since a proposal
that is not a proper subject for shareholder action violates state law, and Rule
14a-8(i)(6), since a company does not have the power to effectuate a proposal if
it is not a proper subject for shareholder action. Proposal 2 also violates Rule 14a-8(i)(7) because it relates to Peregrine's
ordinary business operations. First, an evaluation of the performance of senior
management is the job of the board, and it involves many factors outside of the
average stockholder's competence. One of the primary considerations in adopting
Rule 14a-8(i)(7) "relates to the degree to which the proposal seeks to
`micro-manage' the company by probing too deeply into matters of a complex
nature upon which shareholders, as a group, would not be in a position to make
an informed judgment. This consideration may come into play in a number of
circumstances, such as where the proposal involves intricate detail, or seeks to
impose specific time-frames or methods for implementing complex policies."
Exchange Act Release No. 40,018, 1998 SEC LEXIS 1001 (May 21, 1998).
While we appreciate Mr. Smith's confidence in the stockholders of Peregrine, it
is doubtful that executive employment candidates will feel the same. If
implemented, this proposal would undoubtedly limit Peregrine's ability to hire
and promote qualified executives, which is exactly the reason for Rule
14a-8(i)(7). Executive compensation packages vary widely company to company, and
frequently include equity components. Proposal 3 would effectively tie the
board's hands by preventing it from being able to retain and hire qualified
senior executives, as such employment candidates would be forced to endure the
proxy process in order to receive any equity compensation. Given the volatility
of markets, few qualified executives would be willing to wait around to know
what compensation they might end up. Finally, as discussed under Part I above, Rule 14a-8(c) permits each stockholder
no more than one proposal for each particular stockholders' meeting. If the
Division should conclude that Peregrine may not omit all three proposals due to
the Smith's violation of the "one proposal" rule, as discussed under Part I
above, Peregrine at a minimum is entitled to exclude the third proposal because
each of Mr. Smith and Mrs. Smith, individually, possess control over the shares
held in the joint account, upon which the Smiths rely to argue that they are
three stockholders. Spartan Motors makes it clear that the third proposal may be
omitted because the individuals who control the shares in the joint account,
which has been proffered as the third stockholder, have already submitted
individual proposals. CONCLUSION We believe Peregrine may omit Proposals 1, 2 and 3 from its 2004 proxy materials
as each of Mr. and Mrs. Smith violated the one proposal rule by submitting
Proposal 3 on behalf of their joint brokerage account in addition to the
proposals they submitted individually. Mr. and Mrs. Smith were informed of this
violation, given the opportunity to cure their violation, and yet still failed
to conform to the requirements of the proxy rules. As such, we request the
Division's concurrence that all three proposals may be excluded from Peregrine's
proxy materials. In the event the Division disagrees with our interpretation of
the one proposal rule, there are numerous substantive bases to exclude each of
the proposals as well. We respectfully request your advice in this matter. Thank you in advance for
your assistance. Very truly yours, Snell & Wilmer
/s/ Mark R. Ziebell
MRZ:jlm Enclosures
cc: Mr. Christopher Smith and Mrs. Susan Smith (via Federal Express, w/encl)
PO Box 321
103 Cedar Street
Cornwall, PA 17106 [INQUIRY LETTER]
June 18, 2004 U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Stockholders Response to Stockholder Proposal Exclusion Document Submitted
in Behalf of Peregrine Pharmaceuticals by the Law Offices of Snell & Wilmer,
Dated June 17, 2004 Dear Ladies and Gentlemen:
I would like to respond to the document of Exclusion submitted by Peregrine
Pharmaceuticals on my wife's behalf and mine. I will attempt to make my points
for your consideration as brief and concise as possible. Please understand that
we are not lawyers and only wish to ensure that our legal rights under this
process are not just routinely dismissed as the company is attempting to do.
1. Company's Contention That All Proposals Be Omitted As A Violation of The
Commison's "One Proposal" Rule Currently my wife and I currently hold approximately 135,000 shares of Peregrine
Pharmaceuticals' stock worth approximately $183,532 as of close to trading
today. My wife owns over 4900 shares in her name. I own over 55,000 shares in my
name. Jointly we own over 75,000 shares. We are attempting to submit three
stockholder proposals. The company contends that we are in violation of the "One
Proposal" rule. We fully understand the commissions Rule 14a-8(c); however, we
choose to challenge the company's interpretation of the rule and possibly the
commission's as well. a. First, since the only way to challenge the rule is for us to submit 3
proposals and force the SEC to consider our argument. b. We believe that stock is property. We believe that any `entity' defined by
law such that the governmental legal system recognizes the `entity' as being
unique, with laws that define the unique characteristics and unique rules for
treatment of property owned by such `entities', should be afforded unique
shareholder standing and be allowed, if such an entity meets the stock ownership
requirements as defined by rule 14a-8, to submit a shareholder proposal.
c. We believe that the state laws of Delaware (state of incorporation) and
Pennsylvania (state of our residence) which specifically define a unique type of
joint ownership limited to husbands and wives as "tenancy by the entireties" to
define a unique ownership entity. Thus we believe our joint account to define a
unique shareholder. d. We believe this argument to be a unique challenge to Rule 14a-8(c) and as
such, if we do not prevail in our challenge, we do not believe our rights to
submit stockholder proposals under our individual names and qualifications to be
impacted. e. When notified by the company that we were in procedural non-compliance with
Rule 14a-8(c), we did correct our proposal submissions in accordance to the
rules, while specifically noting our challenge to the Rule on the grounds that
the current interpretation conflicts with "tenancy by the entireties" laws.
f. Joint accounts do not have to specifically note "tenancy by the entireties"
to fall under such laws. We believe our joint account is afforded "tenancy by
the entireties" standing in both Pennsylvania and Delaware.
g. According to Rule 14a-8, the company has the burden of demonstrating that it
is entitled to exclude a proposal. The company, in our opinion, has not proven
that "tenancy by the entireties" laws do not define a unique ownership entity.
They have not proven under applicable state laws that our joint account does not
deserve such unique shareholder standing. Therefore, the company can not exclude
any proposals submitted under the "One Proposal" provision.
SHAREHOLDERS DESERVE A CHOICE. The proposal only asks that the Company nominate
more candidates than seats on the Board so that Shareholders have a choiceand
that a real election is held. The Company's representative even has the nerve to suggest that this proposal
should be omitted because the company has implemented `two-thirds of the
proposal'. Mrs. Smith submitted the proposal on May 3, 2004. The company only
adopted their CHARTER OF THE NOMINATING COMMITTEE OF THE BOARD OF DIRECTORS on
APRIL 29, 2004. This information was not made public until sometime later. It is
absolutely INAPPROPRIATE that Mrs. Smith's proposal should be omitted in its
entirety because of replication unknown to Mrs. Smith at the time the proposal
was drafted and submitted. Certainly this proposal has merit if the company has
chosen to implement some of it, or so they claim. Mrs. Smith should be able to
modify the proposal removing parts that the company actually has implemented.
4. Company's Contention That The Proposal Denoted as Proposal 3 Can Be Omitted
The purpose of this proposal is to force to Company to justify to Stockholders
why stock options are being granted to Directors and Officers of the Company and
allow the Stockholders to approve the granting of these options or not.
The Company believes that granting stock options to Directors or Officers of the
Company is ordinary business operations. On October 21, 2003, the Company
granted 300,000 to 350,000 share options to Directors and Officers of the
Company. The Company has never disclosed to the Stockholders the reason these
stock options were granted. The Company believes this to be `ordinary business'.
We do not hold that belief. We believe this is abuse of power, fraud and
shameful disregard of these individuals fiduciary duty to the stockholders.
The Company states that stockholders would not be able to make an informed
decision as to the merits of such compensation being granted. We believe the
Company should inform the stockholders and make a case for these excessive
options grants. We believe the Company is in non-compliance with full-disclosure
provisions for not informing stockholders as to why these options were granted.
The Company has discontinued quarterly conference calls over a year ago, in part
we believe, so that the management team can hide from the stockholders and not
address these abuses in public. The SEC, federal regulators, congress and stockholders around the country are
tired of continued abuses of Corporate Executives. This Company's executives are
no better than those whose abuses are well documented in the headlines. The
stockholders who actually own stock in the company should be informed as to why
such compensation is to be granted and allowed to vote whether or not such
compensation is deserved. Thank you for your consideration on the matters before you.
/s/ Christopher C. Smith
PO Box 321
103 Cedar Street
Cornwall, PA 17016
717-274-5031 /s/ Susan C. Smith
PO Box 321
103 Cedar Street
Cornwall, PA 17016
717-274-5032 [STAFF REPLY LETTER]
August 25, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Peregrine Pharmaceuticals Incoming letter dated June 17, 2004
The proposals relate to expanding the board of directors to include directors
assigned by the largest institutional investors, modification of the procedures
for the election of directors, and new procedures for granting stock options and
warrants to directors and officers of the company. There appears to be some basis for your view that Peregrine Pharmaceuticals may
exclude the proposals under rule 14a-8(c), which provides that a proponent may
submit no more than one proposal. In this regard, the Commission has indicated
that the limitation on the number of proposals applies "collectively to all
persons having an interest in the same securities (e.g., the record holder and
the beneficial owner, and joint tenants)." Securities Exchange Act Release No. 12999 (November 12, 1976). Under these circumstances, it is our view that the
proponents have exceeded the one proposal limitation. Accordingly, we will not
recommend enforcement action to the Commission if Peregrine Pharmaceuticals
excludes the proposals 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 bases for omission upon which Peregrine Pharmaceutical relies.
Sincerely, /s/
Grace K. Lee
Special Counsel
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