Company Name: Peregrine Pharmaceuticals, Inc.
Public Availability Date: July 28, 2006
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
Company Name: Peregrine Pharmaceuticals, Inc.
Public Availability Date: July 28, 2006
[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 7, 2006, Peregrine received a stockholder
proposal (the "Proposal") and supporting statements from Mrs. Susan C. Smith,
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" or "Division") 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 tentatively 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 Mrs.
Smith informing her of Peregrine's intention to omit the Proposal from its 2006
Proxy Statement.
The Proposal
Mrs. Smith, a stockholder of the Company, has submitted for inclusion in the
2006 Proxy Statement a proposal that, in substance, requires the Company to post
on its website detailed information regarding on-going clinical trials. Mrs.
Smith'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
Mrs. Smith's letter, including the Proposal and a letter dated April 12, 2006
from Morgan Stanley to Mrs. Smith verifying that she owns (and has owned for the
requisite ownership period) at least $2,000 worth of the Company's Common Stock
at that firm.
The Mrs. Smith Proposal reads as follows:
1. The Company is required to post on its website monthly updated statistics
regarding each and every one of their clinical trials. The Company is required
to take all steps necessary to post this information to their website within 15
calendar days after the end of each and every month.
2. The Company is required to provide the following counts at an overall trial
level for each and every clinical trial:
A. Total patients enrolled in trial to date
B. Total patients having started treatment
C. Total patients having completed defined course of treatment
D. Total patients who have completed treatment but continue to be evaluated
E. Total patients who have completed all trial requirements
F. Total patients who have abandoned the trial
G. Total patients needed to complete enrollment requirements of the trial
H. Current projected enrollment completion date
I. Current projected trial completion date
3. The Company is required to provide the following counts by each trial site
for each and every clinical trial (patients who abandon trial should be excluded
from these numbers):
J. Total patients enrolled in trial to date
K. Total patients having begun actual treatment
L. Total patients having completed defined course of treatment
M. Total patients who have completed treatment but continue to be evaluated
N. Total patients who have completed all trial requirements
4. The Company is required to provide this information on their website for each
and every trial until final trial results are made public.
For the reasons stated below, we believe that the Proposal may be properly
omitted from the Company's 2006 Proxy Materials pursuant to (i) Rule 14a-8(i)(7)
under the Exchange Act, because it concerns matters relating to the conduct of
Peregrine's ordinary business operations
Reason for Omission
Rule 14a-8(i)(7) - Conduct of Ordinary Business Operations
Under Rule 14a-8(i)(7), a registrant may properly exclude a proposal dealing
with a matter relating to the conduct of the registrant's ordinary business
operations and not involving "significant policy issues." The policy underlying
Rule 14a-8(i)(7) is "to confine the solution of ordinary business problems to
the management and the board of directors and to place such problems beyond the
competence and direction of stockholders since it is impracticable for
stockholders to decide how to solve such problems at an annual meeting."
Exchange Act Release No. 34-40018 (May 21, 1998) (the "SEC Release").
This policy rests primarily on two key considerations. First, certain tasks are
so fundamental to management's ability to run a company on a day-to-day basis
that they are not proper subjects for shareholder proposals. See SEC Release.
The second consideration "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." Id.
We believe the Proposal falls squarely within the parameters of the ordinary
business exception contained in Rule 14a-8(i)(7) because the proposal interferes
with the Company's ability to control decisions related to the disclosure of
highly confidential and sensitive information.
A. The Proposal infringes upon management's core function of determining the
scope of disclosure on ordinary business matters and is not a proper subject for
a stockholder proposal.
The Commission promulgates rules governing the appropriate disclosure by
companies in order to allow stockholders and potential investors to evaluate
Peregrine based on ample and relevant information. Decisions to disclose
additional information beyond that which is required by the Commission fall
squarely within management's ordinary business judgment. The Proposal requires
Peregrine to post on its website monthly statistics regarding all of its
on-going clinical trials. The specific detailed information that would be
required to be disclosed is highly confidential and sensitive and relates to the
conduct of Peregrine's ordinary business operations. Such information would be
of great importance to Peregrine's competitors, and hence, decisions as to what
constitutes appropriate disclosure concerning clinical trials are fundamental
management decisions and relate to Peregrine's ordinary course of business.
The Staff has repeatedly taken the position that a registrant's disclosure
practices relating to ordinary business operations fall within the ordinary
business of the registrant and that stockholder proposals addressing general
corporate disclosure practices are excludable. See Burlington Northern Santa Fe
Corporation (February 9, 1998) (omission of a proposal seeking a report on the
company's guidelines regarding soft dollar contributions); General Motors
Corporation (February 28, 1997) (omission of a proposal recommending disclosure
of taxes paid and collected by the registrant in the annual report); WPS
Resources Corp. (January 23, 1997) (omission of a proposal requesting additional
disclosure of the costs of registrant's quality program); E.I. DuPont de Nemours
and Company (January 31, 1996) (omission of a proposal requiring registrant to
disclose in the annual report certain cost information relating to product and
environmental liability, employee medical benefits, and compliance with
environmental regulations).
The Staff has reaffirmed that where "the subject matter of the additional
disclosure sought in a particular proposal involves a matter of ordinary
business ... it may be excluded under rule 14a-8(i)(7)." See Johnson Controls, Inc., (Oct. 26, 1999).
In our view, the Proposal infringes upon management's core function of
determining the timing and level of disclosure of sensitive and confidential
business information, the disclosure of which could adversely affect Peregrine's
competitive advantage.
B. The Proposal seeks, in the words of the SEC Release, to "micro-manage" the
Company by probing too deeply into matters of a complex nature upon which
stockholders, as a group, would not be in a position to make an informed
judgment.
The second key consideration underlying the policy of Rule 14a-8(i)(7) "relates
to the degree to which the proposal seeks to `micro-manage' a 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." SEC Release.
Determining whether to disclose, and the timing and extent of any such
disclosure of, sensitive and confidential business information regarding
Peregrine's on-going clinical trials (which information is not otherwise
required to be disclosed in accordance with the Commission's rules and
regulations) is clearly probing too deeply into matters of a complex nature upon
which stockholders, as a group, would not be in a position to make an informed
judgment. Peregrine, in compliance with Commission and other regulatory
requirements, provides comprehensive disclosure with respect to the results of
clinical trials following the completion of such trials and the proper
evaluation of clinical data.
C. The Proposal does not involve the type of policy issue exempt from the
ordinary business exclusion.
We acknowledge that the Staff generally exempts stockholder proposals raising
certain social policy issues from the operation of Rule 14a-8(i)(7). The fact
that a proposal relates to ordinary business matters does not conclusively
establish that a company may exclude the proposal from its proxy materials. As
the Commission stated in the SEC Release, proposals that relate to ordinary
business matters but that focus on "sufficiently significant social policy
issues ... would not be considered to be excludable because the proposals would
transcend the day-to-day business matters." The Staff has noted that "the
presence of widespread public debate regarding an issue is among the factors to
be considered in determining whether proposals concerning that issue transcend
the day-to-day business matters." Staff Legal Bulletin No. 14A (July 12, 2002).
The Staff does not, however, simply except proposals from the ordinary business
exclusion because the proposal relates to a public policy issue. See, e.g., AT&T
Corp. (Feb. 21, 2001) (proposal requesting preparation of a report relating to
the company's involvement in the pornography industry excluded); Mead Corp.
(Jan. 31, 2001) (proposal requesting information related to environmental risks
excluded); Wal-Mart Stores, Inc. (Mar. 15, 1999) (proposal requesting
preparation of a report relating to labor conditions of company's suppliers
excluded); Kmart Corp. (Mar. 12, 1999) (same). Instead, the Staff considers
proposals on a case-by-case basis, taking into account factors such as the
nature of the proposal and the circumstances of the company to which it is
directed.
The Proposal does not raise the type of policy issue that would bring it outside
the exclusion found in Rule 14a-8(i)(7). Instead, the Proposal merely addresses
the ordinary business of the Company and should be excluded under Rule
14a-8(i)(7).
For these reasons, the Company believes that the Proposal is excludable from its
2006 Proxy Statement under Rule 14a-8(i)(7) as pertaining to the ordinary
business operations of the Company.
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 either or both of the Proposals 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:rp
Enclosures
cc: Mrs. Susan C. Smith
103 Cedar Street
Cornwall, PA 17016
[INQUIRY LETTER]
June 2, 2006
U.S. Securities and Exchange Commission
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Stockholder Proposal of Susan C. Smith Company - Peregrine Pharmaceuticals
Letter Dated June 2, 2006 by Mark Ziebel of Snell & Wilmer
Dear Ladies and Gentlemen,
Peregrine Claims that the Stockholder Proposal Submitted By Susan C. Smith May
be Excluded.
The Company routinely fails to provide material updates to its stockholders of
the progress of ongoing clinical trials. Trials are started, stockholders are
told that many financing activities are occurring to support ongoing clinical
trials, yet months or years go by and no information is provided to stockholders
as to the trial enrollment status and the projected enrollment completion date.
Other companies routinely provide stockholders with clinical trial enrollment
updates.
June 10th, 2005 - Peregrine Pharmaceuticals Opens Patient Enrollment for Its
Tarvacin(TM) Phase I Solid Cancer Therapy Clinical Trial - enrollment open for a
year yet stockholders have no idea if even one patient has been treated in this
trial or when enrollment will be completed.
August 29th, 2005 - Peregrine Pharmaceuticals and New Approaches to Brain
Tumor Therapy (NABTT) Consortium Initiate Cotara(R) Brain Cancer Trial - over 9
months later, stockholders have no idea if even one patient has been treated in
this trial or when enrollment will be completed.
Lack of timely progress in trial enrollment is a material event yet stockholders
of Peregrine Pharmaceuticals continue to receive no information as to the status
of these important trials.
The proposal is clear in its design - guarantee stockholders receive routine
updates regarding the enrollment status of the Company's clinical trials.
This proposal should not be excluded from stockholder consideration and vote.
Sincerely,
/s/
Susan C. Smith
PO Box 321
103 Cedar Street
Cornwall, PA 17016
717-274-5032
[INQUIRY LETTER]
June 2, 2006
U.S. Securities and Exchange Commission
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Stockholder Proposals of Christopher C. Smith and Zachary C. Smith Company -
Peregrine Pharmaceuticals Letter Dated June 2, 2006 by Mark Ziebel of Snell &
Wilmer
Dear Ladies and Gentlemen,
I have no interest in wasting your precious time nor mine, so here we go:
Peregrine Claims that Christopher C. Smith Submitted 2 Stockholder Proposals.
These claims are unfounded for the following reasons:
Zachary C. Smith has clearly been the owner of Peregrine stock for a number of
years, regardless of the type of account the stock resided in. His ownership was
established in 2001 and continues today. All stock was purchased with his money
and in a broker account in his name. As the owner of the stock and as he is 18
years of age, he has asserted his right to submit a stockholder proposal under
Rule 14a-8.
Zachary C. Smith owns more stock in Peregrine Pharmaceuticals that has been
purchased with his own money than a number of Company Officers and Board
members.
As Zachary C. Smith is the true owner of the stock, rightfully submitted his
proposal and was not a minor at the time the proposal was submitted, any claims
Peregrine makes regarding his proposal and their unfounded linkage to the
proposal of Christopher C. Smith must be denied in their entirety as Peregrine
failed to properly follow Rule 14a-8. Peregrine failed to notify the stockholder
and proposal submitter, Zachary C. Smith, of any suspected deficiency with his
proposal as required by Rule 14a-8. The rule is clear, the stockholder must be
notified. (See Attachment `A' - Letter Addressed to Christopher C. Smith and
Attachment `B' - First page of the enclosed letter also addressed to Christopher
C. Smith)
Rule 14a-8 specifically provides a stockholder time to rectify a problem with
a proposal submission. The company's issue was addressed in a timely fashion as
the stock was transferred from the custodian account owned by Zachary C. Smith
to a newly created individual account owned by Zachary C. Smith. Peregrine now
is obviously not happy with how the issue was rectified.
In Christopher C. Smith's response to Peregrine's multi-proposal issue, dated
May 27th, 2006 (See Attachment `C' - By the way, please read this entire
letter. Peregrine failed to provide the SEC with a `true' copy of this document
- after you read it, it will be clear why Peregrine chose to blanked out and
hide from the SEC parts of this document), Mr. Smith's final paragraph, in good
faith, questioned Peregrine whether the remedy sufficiently resolved their
concerns, and if not, requested an explanation as to why the remedy was not
sufficient. Peregrine did not act in good faith by not responding to Mr. Smith
and then filing with the SEC their continued objection and desire to have these
two proposals linked. Both Christopher C. Smith and Zachary C. Smith have had
their rights violated by Peregrine Pharmaceuticals. The Smith's did take action
to immediately remedy the situation and still had sufficient time left (of the
14 days from initial receipt) to further remedy any issues with the proposals if
the Company would have notified them of any.
No one from Peregrine Pharmaceuticals or their attorney has ever met nor
spoken to Zachary C. Smith, yet they claim he is under my control and is not
competent to make adult decisions on his own. Zachary graduated high school last
year, a year before everyone else his age. By Christmas of this year (a year and
a half after graduating from HS) he will be a Junior in college, with a 3.6+
GPA, majoring in Actuarial Sciences with a minor in Accounting He also has a
strong background in Economics and has studied the stock market in school. For
his first job, he worked for over 14 months (part-time during school, full-time
over summer) at one of the archives of start-up FinGlobe (http://www.finglobe.com/),
a firm that archives and provides financial reports for over 30,000 corporations
worldwide. He worked directly for the owner of the company. Since last summer,
Zachary works in a statistical analysis group within the Pennsylvania Higher
Education Assistance Agency. Next summer he hopes to get an internship at the
Harrisburg branch of Price Waterhouse Coopers. Although he could have liquidated
his holdings to pay for college, he has taken loans in his own name instead. He
is, and has been in control of this stock, regardless of the type of account the
stock was technically held in. He is more than competent to make his own
decisions with regard to this matter and is clearly capable of crafting and
submitting a stockholder proposal in his name as is his right under Rule 14a-8.
Peregrine has no evidence as to who wrote or sent either of these two
proposals or a third proposal submitted by my wife, Susan C. Smith. Stockholders
are not required to prepare or send proposals themselves. Many people have
lawyers submit proposals for them and in their name. All of Peregrine's claims
in this area are unsubstantiated and immaterial. Christopher C. Smith and
Zachary C. Smith each individually meet all requirements of Rule 14a-8 and have
each rightfully submitted a stockholder proposal in their individual names. As a
matter of fact, rule 14a-8 does not set a required age for stockholder
submission. Zachary has held off submitting a proposal until he had reached the
age of majority in Pennsylvania (18). Zachary turned 18 in September of 2005.
Peregrine claims evidence of control includes `form letter' replication and
bad grammar. Is that the best they and their lawyer can come up with? Now please
check out the incompetence of their lawyer, who had the audacity to be so
nitpicky. I'm sure you have Mr. Ziebel's filing to exclude the proposal
submitted by Susan C. Smith. Take a look at the last paragraph of that filing
and Mr. Ziebel's filing that this is letter in response to as they both state
the following;
'We respectfully request your advice in this matter. If you have any questions
regarding either or both of the Proposals or this request, please do not
hesitate to contact me.'
Since Susan C. Smith only submitted one proposal, that statement by Mr. Ziebel
is down right inaccurate. I think the SEC should ignore all of Mr. Ziebel's
filings because obviously he's using templates and can't proof read worth a
damn. Obviously the other filing is incomplete as it only discusses one
Proposal. Certainly you have to reject the filing, right? I hope you have
enjoyed that little bit of levity See the crap stockholders in Peregrine
Pharmaceuticals have to put up with to be heard?
[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 post on its website monthly statistics
regarding its clinical trials.
There appears to be some basis for your view that Peregrine may exclude the
proposal under rule 14a-8(i)(7), as relating to Peregrine's ordinary business
operations (i.e., disclosure of ordinary business matters). Accordingly, we will
not recommend enforcement action to the Commission if Peregrine omits the
proposal from its proxy materials in reliance on rule 14a-8(i)(7).
Sincerely,
/s/
Ted Yu Special Counsel
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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