Company Name: Peregrine Pharmaceuticals, Inc.
Public Availability Date: July 31, 2007
Document Sections:
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
June 8, 2007
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, 2007, Peregrine received a stockholder
proposal (the "Proposal") and supporting statement from Ms. Susan C. Smith ("Ms.
Smith") for inclusion in the proxy statement (the "2007 Proxy Statement") to be
distributed to the Company's stockholders in connection with its 2007 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 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 2007 Annual Meeting of Stockholders is tentatively scheduled for
October 22, 2007. Peregrine currently intends to file its definitive 2007 Proxy
Statement with the Commission on or about August 28, 2007. 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 Ms. Smith
informing her of Peregrine's intention to omit the Proposal from its 2007 Proxy
Statement.
The Proposal
Ms. Smith, a stockholder of the Company, has submitted for inclusion in the 2007
Proxy Statement a proposal that, in substance, would require the Company's board
of directors appoint a committee of independent directors to evaluate the
strategic direction of the Company and the performance of its management team.
Ms. Smith's letter to Paul J. Lytle dated May 5, 2007, is attached hereto as
Exhibit A. Included in the correspondence set forth in Exhibit A are the
attachments to Ms. Smith's letter, including the Proposal and a letter dated
April 10, 2007 from Morgan Stanley to Ms. 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.
Ms. Smith's Proposal reads as follows:
"Resolved, that the shareholder recommend and request that:
1. The Board of Directors of Peregrine Pharmaceutical. (the "Company") promptly
appoint a committee (the "Shareholder Value Committee") comprised exclusively of
independent directors to evaluate the strategic direction of the Company and the
performance of the management team;
2. The Shareholder Value Committee, among its duties, shall study strategic
alternatives for the Company, including:
A sale or buyout of the Company in part or whole
Opportunities to expedite and fund clinical trials of the Company's
developmental drug candidates without further dilution of Shareholder equity
The sale, partnership, or licensing (globally and/or regionally) of the
Company's existing therapeutic and diagnostic compounds
A re-composition of the executive team;
3. The Shareholder Value Committee shall completely document their findings and
release them to the shareholders no later than 90 days after the Company's 2007
Annual Meeting. The complete final report will be made available on the
Company's public website through the Company's 2008 Shareholder meeting. This
report should include (but not be limited to) the following:
A current independent appraisal of all corporate assets valued at more than
$1,000,000, listed in meaningful and purchasable units, in whole and in part,
with the appraised value of each asset. Purchasable asset units, for example,
would include the Company as a whole, Avid, the entire TNT Platform, Cotara
globally, Cotara regionally etc.
Detailed strategic alternatives to enhance Shareholder value in the near term,
including the sale, license, partnership, etc., of corporate assets. Such
strategies should also identify which assets may be best "sacrificed" today in
order to fund the development of potentially more lucrative future technologies
so that the development of these assets would not further dilute Shareholder
equity.
An unbiased evaluation of our current technology research and development
strategies, including the Company's relationships with various researchers and
institutions and recommendations, if any, to further enhance and expedite the
development of the Company's assets.
An unbiased evaluation of the performance of the Company's management team,
including strengths, weaknesses and recommendations, if any, to enhance the
management team or Corporation, in order to improve the chances of this Company
achieving its full potential and provide Shareholders the value and return on
investment which they deserve.
4. In carrying out its evaluation, the Shareholder Value Committee shall avail
itself of independent legal, investment banking and such other third Party
advisers, each with no connection to current management, as the Shareholder
Value Committee shall determine its sole discretion;
5. At least one member of the Shareholder Value Committee shall be a director
(if any) who was newly elected at the Company's 2007 Annual Meeting of
Shareholders."
Reasons for Omission
The Proposal calls for the Company's board of directors to establish a
Shareholder Value Committee (the "Committee") to evaluate the strategic
direction of the Company and the performance of the management team. In
particular, the Proposal contemplates that the Committee would study strategic
alternatives for the Company including a sale of all or part of the Company,
opportunities to expedite and fund clinical trials without diluting shareholder
equity, the sale, partnership or licensing of existing technologies, and changes
to the management team. In addition, the Proposal requires the preparation of a
detailed written report to be made available on the Company's website.
As discussed in greater detail below, the Company intends to omit the Proposal
from its 2007 Proxy Statement because the Proposal relates to the conduct of the
ordinary business operations of the Company and, therefore, may be omitted
pursuant to Rule 14a-8(i)(7).
A. Peregrine May Exclude the Proposal Pursuant to Rule 14a-8(i)(7) Because the
Proposal Concerns the Ordinary Business Operations of the Company.
Rule 14a-8(i)(7) of the Exchange Act allows a company to omit from its proxy
materials a shareholder proposal and any statement in support thereof "if the
proposal deals with a matter relating to the company's ordinary business
operations." The Commission has provided the following guidance with respect to
the purpose and application of Rule 14a-8(i)(7):
The general underlying policy of this exclusion is consistent with the policy of
most state corporate laws: to confine the resolution of ordinary business
problems to management and the board of directors, since it is impracticable for
shareholders to decide how to solve such problems at an annual shareholders
meeting... Certain tasks are so fundamental to management's ability to run a
company on a day-to-day basis that they could not, as a practical matter, be
subject to direct shareholder oversight.
Release No. 34-40018 (May 21, 1998). The ordinary business rule operates to
exclude shareholder proposals that "deal with ordinary business matters of a
complex nature that shareholders, as a group, would not be qualified to make an
informed judgment on, due to their lack of business expertise and their lack of
intimate knowledge of the issuer's business." Release No. 34-12999 (Nov. 22,
1976); see also Release No. 34-40018 (May 21, 1998). The exclusion recognizes
that management has special expertise and is more qualified than shareholders to
make most business decisions. For these reasons, the ordinary business exclusion
seeks to preserve the board's delegation to management of the power over
day-to-day matters and recognizes that under most states' laws (including the
laws of the State of Delaware under which the Company is incorporated) the
opportunity for shareholder participation in corporate decision making is
generally limited to extraordinary corporate transactions.
Accordingly, under current Staff application of the rule, a shareholder proposal
may be excluded if it involves business matters that are non-extraordinary and
the proposal does not implicate any significant social policy issues or other
considerations. The Proposal requests that the Board "promptly appoint a
committee (the "Shareholder Value Committee")" to "evaluate the strategic
direction of the Company and the performance of the management team." The
Proposal further states that the "strategic alternatives" shall include a sale
of the Company, opportunities to expedite the funding of clinical trials, the
sale, partnership or licensing of existing technologies, and the reconstitution
of the Company's management team. Thus, the text of the Proposal covers both
ordinary business matters as well as extraordinary corporate transactions.
Within the scope of the Proposal, the Committee could recommend any number of
strategic steps to take short of an extraordinary corporate transaction.
Moreover, the breadth of the Proposal's mandate intrudes upon ordinary business
matters that are reserved for management and the board of directors under
applicable corporate law. The Company is a Delaware corporation, and under the
Delaware General Corporation Law ("DGCL"), the board of directors has the
authority to conduct the ordinary business of the corporation. Pursuant to
Section 141(a) of the DGCL, "the business and affairs of every corporation
organized under the DGCL shall be managed by or under the direction of a board
of directors, except as may be otherwise provided in the DGCL or in its
certificate of incorporation." The Company's Certificate of Incorporation does
not contain any limitations on the Board's authority to so manage the Company
and instead provides in Section 1 of Article 5 that "The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors ..."
It is precisely the role of the Board of Directors of the Company to oversee the
management and operation of the Company in ordinary business areas, including
the area of operating performance. The Board could take a number of actions to
maximize stockholder value short of a sale of the Company or other extraordinary
corporate transaction. For example, to improve operating performance the Board
of Directors could reduce discretionary spending (including the number of
clinical trials or pre-clinical trials), minimize corporate overhead,
restructure management, develop initiatives that could generate new earnings or
undertake other performance-improvement initiatives. None of these alternatives
would require a stockholder vote under the DGCL or involve any extraordinary
corporate transaction, and all would impact the Company's operating performance
and thereby potentially increase stockholder value. In addition, determining
which, if any, of these actions would be the optimal strategy for improving
operating performance and stockholder value would require an intimate knowledge
of the Company's business and operations. This determination is exactly the kind
of complex ordinary business problem that management and boards of directors are
better positioned to address than stockholders and that the ordinary business
rule is intended to exclude from stockholder action. It is in the stockholders'
interests that the Board exercise its business judgment in making decisions
regarding how best to maximize operating performance, taking into account all
relevant factors.
Where a proposal relates to a board of directors' selection of business policies
to enhance financial performance, the Staff has repeatedly taken the position
that such proposals relate to ordinary business operations and are excludable
under Rule 14a-8(i)(7). According to the Staff, "the determination of whether,
and what, steps should be taken to enhance the financial performance of the
company; including the sale of corporate assets" is a matter relating to the
conduct of the company's ordinary business operations. Ohio Edison Co. (Feb. 3,
1989); see also SunSource Inc. (Mar. 31, 2000) (permitting exclusion of a
proposal requesting the creation of a special committee with the specific goal
of maximizing stockholder value as relating to ordinary business matters);
Tremont Corp. (Feb. 25, 1997) (permitting exclusion of a proposal requesting
that the board instruct management to prepare a plan to narrow the gap between
the value of the company's shares and the value of its underlying assets as
relating to the conduct of the company's ordinary business operations);
Novametrix Medical Systems, Inc. (June 12, 1996) (permitting exclusion of a
proposal requesting the board to take the steps to initiate a program to
maximize stockholder value as relating to ordinary business matters); Integrated
Circuits Inc. (Dec. 27, 1988) (permitting exclusion of a proposal relating to
the engagement of an investment banker to make recommendations to maximize
stockholder value as relating to the implementation of the Company's strategies,
an ordinary business matter). In issuing no-action letters in the foregoing
cases, the Staff implicitly recognized that maximizing stockholder value
implicates a myriad of ordinary business operations. For instance, the salaries
and incentives paid to a company's employees, the size of its workforce, the
training of its salespeople, its product pricing, the size and duration of
promotional campaigns, the details of its financing, and other such
considerations all affect the Company's costs, expenses, profitability and
prospects, which in turn affect the Company's stock price.
In addition, when a shareholder proposal appears to relate in part to
non-extraordinary matters that constitute part of the company's ordinary
business operationseven though, in some cases, the proposals suggest both
ordinary and extraordinary courses of actionthe Staff has consistently granted
no-action relief pursuant to Rule 14a-8(i)(7). In numerous cases, the Staff has
permitted exclusion of proposals that sought to have the board of directors
appoint a special committee or retain the services of an independent third party
for the general purpose of exploring ways to enhance stockholder value,
including the sale of the company or other extraordinary transaction, finding
that such proposals relate to both extraordinary and non-extraordinary matters.
See, e.g., First Charter Corp. (Jan. 18, 2005); Medallion Financial Corp. (May
11, 2004); BKF Capital Group, Inc. (Feb. 27, 2004); Telular Corp. (Dec. 5,
2003); Archon Corp. (Mar. 10, 2003); Lancer Corp. (Mar. 13, 2002); E*Trade
Group, Inc. (Oct. 31, 2000); NACCO Industries Inc. (Mar. 29, 2000); Sears,
Roebuck & Co. (Feb. 7, 2000). In each of these cases, the consideration of
alternatives to enhance or maximize stockholder value was found to involve
ordinary business concerns that are incident to a board's managerial powers and
such proposals were, therefore, excludable even though they also included the
consideration of an extraordinary transaction. In this case, ordinary business
concerns are central to the Proposal.
The Proposal does not focus only on extraordinary corporate transactions such as
a spinoff, sale of all or substantially all assets, merger or liquidation.
Instead, the Proposal expressly presents non-extraordinary matters such as
exploring ways to fund clinical trials that are not dilutive, partnering or
licensing technologies, or changing management as alternative means to enhancing
the value of the Company. Because the Proposal clearly contemplates and urges
non-extraordinary corporate transactions, the Proposal relates to the Company's
ordinary business operations and the Company should be permitted to omit it from
its Proxy Materials pursuant to Rule 14a-8(i)(7).
Furthermore, if any portion of a proposal relates to the company's ordinary
business activities, the Staff has consistently permitted companies to exclude
the entire proposal from its proxy materials. In E*Trade Group, Inc. (Oct. 31,
2000), the Staff permitted the exclusion of a proposal to establish a
"shareholder value committee" to advise the board on mechanisms for enhancing
shareholder value. The Staff found that two of the four suggested mechanisms for
increasing stockholder value related to ordinary business affairs. Id. In
addition to the "merger or outright sale of the company" the proposal identified
alternative mechanisms for increasing stockholder value, including "possible
reductions in staff to improve earnings performance" and the "dismissal and
replacement of Executive Officers (CEO, COO, CFO etc.)." Id. In its no-action
response, the Staff specifically identified these alternative mechanisms as
relating to ordinary business operations and permitted the exclusion of the
entire proposal on these grounds. Id. As was the case in E*Trade, several
strategic alternatives for the Committee in the instant Proposal, such as
reconstituting the management team, exploring opportunities to fund clinical
trials, or licensing or partnering drug candidates, likewise relate to the
Company's ordinary business operations and the entire Proposal should,
therefore, be excludable under Rule 14a-8(i)(7). See also Associated Estates
Realty Corp. (Mar. 23, 2000) (permitting exclusion of a proposal relating to
both officer compensation and the adoption of a business plan to increase
stockholder value, which plan included the disposition of non-core businesses
and assets, an ordinary business matter); Wal-Mart Stores, Inc. (Mar. 15, 1999)
(permitting exclusion of entire proposal where only one out of five matters in
the proposal concerned the ordinary business operations of the company).
B. 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 Proposal also requests that the Committee document its findings and release
them to the shareholders in the form of a report to be made available on the
Company's public website. 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 the following:
A current independent appraisal of all corporate assets valued at more than
$1,000,000, with the appraised value of each asset.
Detailed strategic alternatives to enhance shareholder value in the near term,
including the sale, license, partnership, etc., of corporate assets. Such
strategies should also identify which assets may be best "sacrificed" today in
order to fund the development of potentially more lucrative future technologies.
An unbiased evaluation of our current technology research and development
strategies, including the Company's relationships with various researchers and
institutions.
An unbiased evaluation of the performance of the Company's management team,
including strengths and weaknesses.
Much of the specific detailed information that would be required to be disclosed
is or will likely be highly confidential and sensitive, and most 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 with respect to the foregoing items 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.
While the Staff has a practice of issuing no-action responses that permit
shareholders to make revisions that are minor in nature and do not alter the
substance of the proposal, the Staff has stated that this practice is meant "to
deal with proposals that generally comply with the substantive requirements of
the rule, but contain some relatively minor defects that are easily corrected."
Staff Legal Bulletin No. 14 (July 13, 2001). As discussed above, the Proposal
focuses on ordinary business matters and any revisions to the Proposal to shift
its focus away from ordinary business matters would necessarily be substantive
and not minor in nature. Moreover, the Staff has specifically advised that "it
has not been the Division's practice to permit revisions under Rule
14a-8(i)(7)." E*Trade Group, Inc. (Oct. 31, 2000). Accordingly, the Staff has
concurred in the omission of proposals that, while in part may appear to address
matters outside the scope of ordinary business, also relate to a company's
ordinary business operations.
For the reasons stated above, the Company believes that the Proposal and its
supporting statement intrude upon the Board's statutory authority to manage the
business and affairs of the Company under applicable law and relate to ordinary
business matters. In addition, 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. As a consequence, the Company believes
that the Proposal and its supporting statement may properly be omitted from the
Proxy Materials pursuant to Rule 14a-8(i)(7), and we respectfully request that
the Staff concur with the Company's view on this basis.
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:rp
Enclosures
cc: Ms. Susan Smith
103 Cedar Street
Cornwall, PA 17016
[STAFF REPLY LETTER]
July 31, 2007
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Peregrine Pharmaceuticals, Inc. Incoming letter dated June 8, 2007
The proposal recommends that the board promptly appoint a committee of
independent directors to evaluate the strategic direction of the company and the
performance of the management team, and study strategic alternatives for the
company that are specified in the proposal.
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. We note that the proposal appears to relate to both extraordinary
transactions and non-extraordinary transactions. 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/
Tamara M. Brightwell
Special Counsel
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