Company Name: Peregrine Pharmaceuticals, Inc.
Public Availability Date: July 28, 2006
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
June 2, 2006
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 are counsel to Peregrine Pharmaceuticals, Inc., a Delaware corporation
("Peregrine" or the "Company"). On May 8, 2006, Peregrine received a stockholder
proposal and supporting statement (together, the "Proposal") from Mr. Joseph
Petrellese, Jr. (the "Proponent" or "Mr. Petrellese"), for inclusion in the
proxy statement (the "2006 Proxy Statement") to be distributed to the Company's
stockholders in connection with its 2006 Annual Meeting of Stockholders.
We hereby request that the staff of the Division of Corporation Finance (the
"Staff") confirm that it will not recommend any enforcement action to the
Securities and Exchange Commission (the "Commission") if, in reliance on certain
provisions of Commission Rule ("Rule") 14a-8 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), Peregrine excludes the Proposal from
its proxy materials.
Peregrine's 2006 Annual Meeting of Stockholders is scheduled for October 3,
2006. Peregrine currently intends to file its definitive 2006 Proxy Statement
with the Commission on or about August 28, 2006. Accordingly, this filing is
timely made in accordance with the requirements of Rule 14a-8(j) of 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 is being mailed to Mr. Petrellese
informing him of Peregrine's intention to omit the Proposal from its 2006 Proxy
Statement.
The Proposal
Mr. Petrellese, a stockholder of the Company, has submitted for inclusion in the
2006 Proxy Statement a proposal which, in substance, would require the Company
to freeze base compensation for the Company's executive officers at their levels
reported in the Company's 2005 proxy materials and discontinue all future
incentive and bonus compensation, all until certain milestones are obtained. Mr.
Petrellese's letter to Paul J. Lytle, dated May 6, 2006, is attached hereto as
Exhibit A. Included in the correspondence set forth in Exhibit A are the
attachments to Mr. Petrellese's letter, including the Proposal and a letter
dated April 21, 2006 from TD Waterhouse to Mr. Petrellese and his wife,
verifying that they own (and have owned for the requisite ownership period) at
least $2,000 worth of the Company's Common Stock at that firm.
The full text of the Proposal, minus the supporting statement, is as follows:
"This proposal is designed to throttle the ever increasing pay to the Directors
and Executive Officers of Peregrine Pharmaceuticals until the activities of
these individuals generates meaningful increased value for the shareholders of
this company.
The Proposal Details
1. All base compensation of the Directors and Executive Officers of Peregrine
Pharmaceuticals will be rolled back and frozen at the levels detailed in the
Company's 2005 proxy materials, dated August 29th, 2005.
2. All future incentive or bonus compensation of the Directors and Executive
Officers of Peregrine Pharmaceuticals shall be eliminated.
3. These compensation controls will automatically rescind at a point in time
that the Company achieves and maintains a market capitalization of $800,000,000
for ninety (90) consecutive calendar days or reaches a market capitalization of
$1,000,000,000 for five (5) consecutive calendar days, based upon the number of
shares outstanding and official closing stock price on each day. Shall the
Company's market capitalization reach the milestone's listed above before the
2006 Stockholder's meeting, this proposal will automatically be withdrawn.
For the reasons stated below Peregrine believes that the Proposal may be
properly omitted from the Company's 2006 Proxy Materials pursuant to (i) Rule
14a-8(i)(1) under the Exchange Act because the proposal is not a proper subject
for action by stockholders under Delaware law, (ii) Rule 14a-8(i)(2) under the
Exchange Act, because, if implemented, it would violate Delaware law, and (iii)
Rule 14a-8(i)(6) under the Exchange Act because the Company lacks the power and
authority to implement the proposal.
Reasons for Omission
I. Rule 14a-8(i)(1) - The Proposal is not a Proper Subject Matter Under Delaware
Law.
Rule 14a-8(i)(1) allows a company to exclude a shareholder proposal that is not
a proper subject for action by the shareholders under the laws of the
jurisdiction of the company's organization. The Proposal would require action
that, under Delaware law, falls within the "sole authority" of Peregrine's board
of directors and, therefore, the Company believes that the Proposal may be
excluded under Rule 14a-8(i)(1).
Section 141(a) of the Delaware General Corporate Law ("DGCL") states that the
"business and affairs of every corporation organized under this chapter shall be
managed by or under the direction of a board of directors, except as may be
otherwise provided in this chapter or in its certificate of incorporation."
Section 122(5) of the DGCL authorizes corporations to provide their officers
with suitable compensation. Additionally, Section 122(15) of the DGCL authorizes
corporations to establish and carry out stock option plans for directors,
officers and employees. These powers are generally within the sole authority of
a corporation's board, and the exercise of these powers is protected by the
presumption of the business judgment rule. See In re Walt Disney Co. Derivative
Litigation, 731 A.2d 342, 362 (Del. Ch. 1998), rev'd on other grounds,
746 A.2d 244 (Del. 2000) (stating that "in the absence of fraud, this court's deference
to directors' business judgment is particularly broad in matters of executive
compensation"); Haber v. Bell,
465 A.2d 353, 359 (Del. Ch. 1983) (stating that
"generally directors have the sole authority to determine compensation levels
and this determination is protected by the presumption of the business judgment
rule (emphasis added)"). Furthermore, Section 157 of the DGCL authorizes a
corporation to create, issue and establish the terms of stock options, and
Section 161 of the DGCL authorizes a corporation's board to issue additional
shares of the corporation's capital stock to satisfy the exercise of stock
options.
The Staff has permitted the exclusion of shareholder proposals that direct a
company's board to take certain actions inconsistent with the discretionary
authority provided to the board under state law. See Phillips Petroleum Co. (Quintas)
(March 13, 2002) (allowing the exclusion of a proposal under Rule 14a-8(i)(1)
that proposed an increase in executives' salaries of three percent per year as
an improper subject under Delaware law); El Paso Energy Corp. (March 9, 2001)
(allowing the exclusion of a proposal pursuant to Rule 14a-8(i)(1) that required
the cancellation of the company's restricted stock grant program as an improper
subject under Delaware law); 3D Systems Corp. (April 6, 1999) (allowing the
exclusion of a proposal under Rule 14a-8(i)(1) that intruded on the exclusive
authority of the board by prohibiting the awarding of an incentive plan to
executive officers unless the company's stock value increased); SBC
Communications, Inc. (January 11, 1999) (allowing the exclusion of a proposal
under Rule 14a-8(i)(1) that mandated the abolition of all stock options); see
also In re Walt Disney Co. Derivative Litigation, 731 A.2d at 362; Haber, 465
A.2d at 359.
To implement the Proposal, the Company's compensation committee and board of
directors would be forced to approve new compensation terms and amend existing
compensation packages and option programs, regardless of whether the
compensation committee or the board of directors concludes that such action is
appropriate or in the Company's best interest. If adopted, the Proposals would
limit the ability of the Company's board of directors to exercise its business
judgment as it pertains to matters of employee compensation by restricting the
board's discretion with respect to setting base salaries, bonuses and
stock-based compensation. Thus, by denying the board of directors its statutory
authority and responsibility to manage Peregrine's business and affairs,
including compensation to be paid to Peregrine's Executive Officers,
implementation of the Proposal would violate Delaware law. The board of
directors has been given exclusive discretion to make these types of decisions
under Delaware law, and no statutory provision authorizes the stockholders to
determine these types of company policies.
Additionally, the note to Rule 14a-8(i)(1) provides that "depending on the
subject matter, some proposals are not considered proper under state law if they
would be binding on the company if approved by shareholders. In our experience,
most proposals that are cast as recommendations or requests that the board of
directors take specified action are proper under state law." Furthermore, the
Staff has stated that "proposals that are binding on the company face a much
greater likelihood of being improper under state law and, therefore, excludable
under Rule 14a-8(i)(1)." See Staff Legal Bulletin No. 14 (July 13, 2001). The
Proposal is not drafted as a recommendation or request to the Company's board of
directors; instead, it mandates that these actions be taken. Thus, Peregrine
believes the Proposal may be excluded because it would be binding on the board
of directors and, therefore, improper under state law.
We believe the Proposal, which would be binding on the board if implemented,
relate to compensation matters for which only the board of directors has the
"sole authority" to review, evaluate and decide under Delaware law. Accordingly,
it is our opinion that the Proposal is not proper for shareholder action under
Delaware law and, therefore, may be excluded pursuant to Rule 14a-8(i)(1).
II. Rule 14a-8(i)(2) -The Mrs. Smith Proposal, If Implemented, Would Require
Peregrine to Violate Law.
Rule 14a-8(i)(2) states that a company may omit a stockholder proposal if
implementation of the proposal would cause the company to violate any state,
federal, or foreign law to which it is subject. For the reasons set forth below,
the Company believes, and it is our opinion, that implementation of the
Proposal, which, among other things, requires the elimination of all future
incentive and bonus compensation, which naturally includes the granting of stock
options, would cause the Company to violate Delaware law.
Section 122(15) of the DGCL establishes the Board's authority to establish and
carry out, among other things, stock option, incentive, and compensation plans.
More specifically, Section 157 of the DGCL vests the power to grant rights and
options exclusively in the Board. Section 157 of the DGCL provides, in pertinent
part:
"(a) Subject to any provisions in the certificate of incorporation, every
corporation may create and issue, whether or not in connection with the issue
and sale of any shares of stock or other securities of the corporation, rights,
or options entitling the holders thereof to purchase form the corporation any
shares of its capital stock of any class or classes, such rights or options to
be evidenced by or in such instrument or instruments as shall be approved by the
board of directors.
(b) The terms upon which, including the time or times which may be limited or
unlimited in duration, at or within which, and the price or prices at which any
such shares may be purchased from the corporation upon the exercise of any such
right or option, shall be such as shall be stated in the certificate of
incorporation or in a resolution adopted by the board of directors providing for
the creation and issue of such rights or options, and, in every case, shall be
set forth or incorporated by reference in the instrument or instruments
evidencing such rights or options. In the absence of actual fraud in the
transaction the judgment of the directors as to the consideration for the
issuance of such rights or options and the sufficiency thereof shall be
conclusive." (Emphasis added.)."
Significantly, Section 157(a) permits the board to approve the instruments
evidencing rights and options. Further, Section 157(b) provides that the terms
of stock options shall either be as stated in the certificate of incorporation
or in resolutions of the board and that only the board can determine
conclusively the sufficiency of the consideration. Accordingly, under the DGCL,
the Board of Directors (or a compensation committee thereof) has the power to
issue stock options and set the terms and conditions thereof.
While Peregrine is aware of Staff's position on proposals requiring stockholder
approval of option grants (See e.g., Cell Pathways, Inc. (April 4, 2003)), this
Proposal completely eliminates the Company's ability to grant stock options to
Executive Officers and Directors. Because this Proposal completely eliminates
the ability to grant such options (a power clearly vested with the Board of
Directors), rather than merely subjecting grants to stockholder approval or
oversight, we believe it is excludable under Rule 14a-8(i)(2).
III Rule 14a-8(i)(6) -Peregrine Lacks the Power or Authority to Implement the
Proposal.
Rule 14a-8(i)(6) states that a company may omit a stockholder proposal if the
company would lack the power or authority to implement the proposal.
The Proposal is excludable under Rule 14a-8(i)(6) because it affects the
business and affairs of the Company in violation of its Charter and Bylaws.
Article V, Section 1 of the Charter and Article III, Section 1 of the Bylaws
each provide that the property, business and affairs of the Company must be
managed by the board of directors. Additionally, Article III, Sections 11 and 12
of the Bylaws states that compensation of employees (including executive
officers) and directors shall be determined by the compensation committee and
board of directors, respectively. Because the Proposal violates these sections
by handing over responsibility for the "business and affairs" of the Company to
the shareholders, Peregrine does not have the power or authority to implement
the Proposal. Thus Peregrine believes the Proposals may be excluded under Rule
14a-8(i)(6).
Because the Proposal would require the Company to act in contravention to its
Charter and Bylaws, the Company cannot lawfully effectuate the Proposal.
Therefore, Peregrine respectfully submits that the Proposal may be excluded
under Rule 14a-8(i)(6) because the Company does not have the power or authority
to implement the Proposals.
Conclusion
For the reasons set forth above, we believe that the Proposal may be omitted
from the 2006 Proxy Statement and respectfully request that the Staff confirm
that it will not recommend any enforcement action if the Proposal is excluded.
Please acknowledge receipt of this letter and its enclosures by stamping the
enclosed copy of this letter and returning it to me in the enclosed FedEx
envelope.
We respectfully request your advice in this matter. If you have any questions
regarding the Proposal or this request, please do not hesitate to contact me.
Thank you in advance for your assistance.
Very truly yours,
Snell & Wilmer
/s/
Mark R. Ziebell
MRZ:ph
Enclosures
cc: Mr. Joseph Petrellese Jr.
10 Arcadia Road
Woodcliff Lake, NJ 07677
[INQUIRY LETTER]
June 6, 2006
U.S. Securities and Exchange Commission
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549
Regarding:
Stockholder Proposal of Joseph Petrellese Jr. Submitted to Peregrine
Pharmaceuticals And in Response to Letter Dated June 2, 2006 by Mark Ziebel of
Snell & Wilmer
Dear Ladies and Gentlemen,
I hereby request that the letter dated June 2, 2006, by Mark Ziebel,
representing Peregrine Pharmaceuticals, be thrown out in its entirety and my
proposal be allowed to appear on the Company's forthcoming proxy statement. It
is clear that this document by Mr. Ziebel is improper and is clearly not
addressing my proposal. A significant portion of Mr. Ziebel's arguments are
clearly directed at some other proposal by a Mrs. Smith. On Page 4 of Mr.
Ziebel's letter is the following:
II. Rule 14a-8(i)(2) - The Mrs. Smith Proposal, If Implemented, Would...
For the next page, Mr. Ziebel addresses what's wrong with someone else's
proposal.
It is clearly obvious that the document of Mr. Ziebel's does not in fact address
my proposal and should be disregarded and my proposal should appear on the
Company's proxy statement.
Sincerely,
/s/
Joseph Petrellese Jr.
10 Arcadia Road
Woodcliff Lake, NJ 07677
[STAFF REPLY LETTER]
July 28, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Peregrine Pharmaceuticals, Inc. Incoming letter dated June 2, 2006
The proposal requires the company to freeze and roll back all base compensation
of directors and executive officers and eliminate all future incentive or bonus
compensation of directors and executive officers until the company's market
capitalization reaches certain levels.
There appears to be some basis for your view that Peregrine Pharmaceuticals may
exclude the proposal under rule 14a-8(i)(1), as an improper subject for
shareholder action under applicable state law. It appears that this defect could
be cured, however, if the proposal was recast as a recommendation or request to
the board of directors. Accordingly, unless the proponent provides Peregrine
Pharmaceuticals with a proposal revised in this manner, within seven calendar
days after receiving this letter, we will not recommend enforcement action to
the Commission if Peregrine Pharmaceuticals omits the proposal from its proxy
materials in reliance on rule 14a-8(i)(1).
We are unable to concur in your view that Peregrine Pharmaceuticals may exclude
the proposal under rule 14a-8(i)(2). Accordingly, we do not believe that
Peregrine Pharmaceuticals may omit the proposal from its proxy materials in
reliance on rule 14a-8(i)(2).
We are unable to concur in your view that Peregrine Pharmaceuticals may exclude
the proposal under rule 14a-8(i)(6). Accordingly, we do not believe that
Peregrine Pharmaceuticals may omit the proposal from its proxy materials in
reliance on rule 14a-8(i)(6).
Sincerely,
/s/
Ted Yu
Special Counsel
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