Company Name: Peregrine Pharmaceuticals, Inc.
Public Availability Date: August 15, 2007
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
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 Mr. Zachary Smith ("Mr.
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 Mr. Smith
informing him of Peregrine's intention to omit the Proposal from its 2007 Proxy
Statement.
The Proposal
Mr. Smith, a stockholder of the Company, has submitted for inclusion in the 2007
Proxy Statement a proposal that, in substance, would require the Company to
nominate more candidates than open seats on the board of directors for all
elections of directors. Mr. 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 Mr. Smith's letter, including the Proposal and
a letter dated April 11, 2007 from TD Ameritrade to Mr. Smith verifying that he
owns (and has owned for the requisite ownership period) at least $2,000 worth of
the Company's Common Stock at that firm.
Mr. Smith's Proposal reads as follows:
"Resolved, that the shareholders urge the Board of Directors to take the
necessary steps to nominate more candidates then open seats on the Board of
Directors, including if necessary. the modification of Peregrine
Pharmaceuticals' Certificate of Incorporation, By-laws, Charter of the
Nominating Committee, and any other appropriate document or policy. The names,
biographical sketches, SEC-required declarations and photographs of such
candidates shall appear in the Company's proxy materials (or other required
disclosures) to the same extent that such information is required by law and is
our Company's current practice with the single candidates it now proposes for
each position.
The minimum number of candidates to be nominated for each Election of Directors
will be determined by multiplying the number of open board seats by 1.65 and
rounding up any fractional product to the next whole number.
Examples |[NCCDEF] |[UCA1] |[TDC4,M'Open Board Seats',QC] |[TCC4,MP1,QC]
|[TCC4,M'Number of',QC] |[XT] |[ST]|[LC15]|[RS4]Number of Open Board Seats |[TA]Calculation
|[TA]Number of Nominees |[ST]|[LC5]1 |[TA]1 x 1.65 = 1.65 |[TA]2 |[ST]5 |[TA]5 x
1.65 = 8.25 |[TA]9 |[ST]9 |[TA]9 x 1.65 = 14.65 |[TA]15'' |[ET]
Reasons for Omission
As discussed more fully below, Peregrine believes that the Proposal may properly
be excluded from the 2007 Proxy Materials pursuant to (i) Rule 14a-8(i)(6)
because the Company lacks the power or authority to implement the proposal and
Rule 14a-8(i)(3) because the Proposal violates proxy rules in that it is false
and misleading. Alternatively, should the Staff determine that the Proposal may
not be excluded, we believe that certain statements within the Proposal, which
are set out below, may be omitted from Peregrine's 2007 Proxy Materials as they
re materially false and misleading under Rule 14a-8(i)(3).
Peregrine acknowledges that the Staff has repeatedly denied the exclusion of
proposals urging the board of directors of an issuer to take the necessary steps
to nominate at least two (2) candidates for each directorship to be filed by
voting of stockholders at annual meetings. See SBC Communications, Inc. (January
31, 2001), Bank of America Corporation (February 16, 2001) and General Electric
Company (January 12, 2001). Peregrine believes, however, that the current
situation is distinguishable from prior precedents.
A. Rule 14a-8(i)(6) - Company Lacks the Power or Authority to Implement the
Proposal.
Rule 14a-8(i)(6) permits a company to exclude a shareholder proposal from its
proxy materials if the company "would lack the power or authority to implement
the proposal." In a line of no-action letters, the Staff has consistently
allowed companies to omit certain proposals imposing director qualifications on
the ground that neither a company nor its board has the power to ensure that
directors satisfying the requirements are elected. See, e.g. General Electric
Company (February 4, 2002) (company allowed to exclude a proposal requesting a
majority of the board of directors be independent). While the Proposal does not
expressly impose director qualifications, given the regulatory requirements with
respect to board and committee composition, it indirectly imposes qualifications
on nominees and therefore Peregrine argues that these precedents compel the
conclusion that the Proposal is excludable.
Under the Proposal, Peregrine's board of directors (the "Board") would be
required to nominate nine (9) candidates to fill the Board's five (5) director
seats at each annual election. At the stockholder meeting, the five (5)
candidates receiving a plurality of the votes would be elected to the Board.
This is consistent with the Staff's position with respect to similar proposals.
See SBC Communications, Inc. (January 31, 2001) (the Staff noted that "the
proposal does not require separate voting for each open board position, but
rather, requires the nomination of at least two (2) candidates for each open
board position").
As a Delaware corporation, the Company's stockholders are vested with the sole
authority to elect directors of the Company. Delaware General Corporation Law ("DGCL")
211. While the Board may appoint directors to fill vacancies, such appointees
must be elected by the stockholders at the next election of their class in order
to remain directors. DGCL 223. Thus, only stockholders may determine who may
serve as a director, and only directors may serve on committees of the Board.
As a result of the Satbanes-Oxley Act of 2002, there are new regulatory
requirements for publicly listed corporations that require the audit,
compensation and nominating committees of the board of directors to be composed
entirely of independent directors. The Commission's rules require public
companies to disclose whether there is at least one (1) audit committee
financial expert serving on the audit committee. See Item 401(h) of Regulation
S-K, 17 CFR 229.401(h). In addition, NASDAQ rules require that each member of
the audit committee must be able to read and understand financial statements
(the "Financial Sophistication Requirement"). See NASDAQ Marketplace Rule
4350(d)(2). Peregrine takes corporate governance seriously and is proud it
complies with the foregoing committee requirements. The Board is committed to
the continued compliance with all board and committee composition requirements.
While the present situation is not squarely on point with this line of no action
letters, adoption of this Proposal would place Peregrine in an analogous
situation whereby it would be near impossible to ensure that the resulting Board
(and committee) composition would be in compliance with SEC and NASDAQ rules and
regulations or Peregrine's existing audit, compensation and nominating committee
charters. This creates an insurmountable task of finding six (6) candidates who
not only qualify as "audit committee financial experts" but who would also be
willing to go through the interview process and serve on the Board given the
lottery approach to their likely election. Consequently, by its very nature, the
Mr. Smith Proposal imposes qualification requirements on the candidates and is
therefore excludable pursuant to Rule 14a-8(i)(6) as evidenced by the previously
cited line of no-action letters.
Recent SEC and NASDAQ rules and regulations impose requirements with respect to
board and committee composition. Most notably, Peregrine must ensure that its
board and committees thereof satisfy certain recent independence and financial
sophistication requirements. Because the Board does not have the power or
authority to dictate who is elected as a director of the Company, the Board
cannot ensure that a sufficient number of "independent directors," will be
elected to serve on the Company's board of directors, or any of the three (3)
committees of the board, as required by NASDAQ rules or as may be necessary to
comply with the respective committee charters. More significantly, the Board
cannot ensure whether one (1) of the candidates elected will qualify as an
"audit committee financial expert" or whether two (2) others meet the Financial
Sophistication Requirement, unless eight (8) of the nominees meet the requisite
independence requirements and Financial Sophistication Requirement and six (6)
of the candidates qualify as an "audit committee financial expert".
The Staff has consistently permitted companies to exclude proposals that request
a company's board of directors to adopt requirements that all committee members
be "independent" on the basis that it is simply impossible for the board to
ensure a sufficient number of "independent" directors will be elected. See,
e.g., Peabody Energy Corporation (February 23, 2004) (proposal urging policy
that only independent directors, as defined in the proposal, may serve on the
board's various committees); Alcide Corporation (avail. Aug. 11, 2003) (proposal
to require members of compensation committee to be "otherwise independent" as
defined by SEC rule); I-many Inc. (avail. Apr. 4, 2003) (proposal mandating
compensation committee comprised solely of non-management directors and at least
one (1) independent, non-director shareholder); Archon Corp. (avail. March 16,
2003).
B. Rule 14a-8(i)(3) - The Proposal Contains Materially False and Misleading
Statements.
The Proposal may be excluded in its entirety under Rule 14a-8(i)(3) because the
Proposal contains statements that are either false or misleading in violation of
Rule 14a-9. Staff Legal Bulletin No. 14 (July 13, 2001) ("SLB 14") states that
"when a proposal and supporting statement will require detailed and extensive
editing in order to bring them into compliance with the proxy rules, [the Staff]
may find it appropriate for companies to exclude the entire proposal, supporting
statement, or both, as materially false or misleading." Requiring the Staff to
spend large amounts of time reviewing shareowner proposals "that have obvious
deficiencies in terms of accuracy, clarity or relevance...is not beneficial to
all participants in the [shareholder proposal] process and diverts resources
away from analyzing core issues arising under rule 14a-8." SLB 14.
Mr. Smith's Statements in the Proposal That Are Materially False or Misleading.
In the supporting statement for the Proposal, Mr. Smith states the following:
"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 one nominee to fill each open seat on the board of Directors. Shareholders
who oppose a candidate have no easy way to do so unless they are willing to
undertake the considerable expense of running an independent candidate for the
board. The only other way to register dissent about a given candidate is to
withhold support for all nominees, but that process does not affect the outcome
of director elections and the Company's own proxy materials have stated that
"proxies voted to Withhold Authority' and broker non-votes will have no
practical effect."
"The current system thus provides no readily effective way for shareholders to
oppose a candidate that has failed to attend board meetings; or serves on so
many boards as to be unable to supervise our Company management diligently: or
who serves as a consultant to the Company that could compromise independence; or
pose other problems."
Mr. Smith's first claim above that "[s]tockholders today are not given a `true'
option" is false and misleading in two manners. First, stockholder voting is
conducted in accordance with state corporate and federal securities laws, rules
and regulations, which together establish a framework for stockholders to make
nominations in accordance with the bylaws of the company and to freely vote
their shares. Morcover, many reforms have been enacted that have provided
stockholders with effective ways to oppose candidates. These range from
expanding the ability to conduct "vote no" campaigns to lowering the costs and
regulatory impediments to conducting contests. This statement's implication that
stockholders don't enjoy an open election process or that they have been
stripped over their ability to oversee management is similar to statements which
the Staff concurred could be excluded in Unocal Corporation (avail. Feb. 19,
1988) and Mobil Corporation (avail. Feb. 19, 1988) (allowing exclusions of false
statements that "there are no free elections in corporate America").
Second, it is false and misleading to imply that Peregrine's stockholders do not
have a choice in the election of directors or that Peregrine represents a
"typical" board election. Peregrine has indicated in its prior proxy statements
that stockholders of record may submit director nominations for consideration by
the Nominating and Governance Committee of Peregrine's Board of Directors. In
light of the foregoing, Mr. Smith's attempt to generalize the corporate election
process and apply its alleged shortcomings to Peregrine is false and misleading
and should be omitted as a result.
The second statement above, that "The current system thus provides no readily
effective way for shareholders to oppose a candidate that has failed to attend
board meetings; or serves on so many boards as to be unable to supervise our
Company management diligently; or who serves as a consultant to the Company that
could compromise independence; or pose other problems" is also false and
misleading as it strongly suggests that the nominees for election to Peregrine's
board of directors suffer from the enumerated negative characteristics. Yet, a
reading of prior proxy statements clearly indicates that the foregoing negative
characteristics are not representative of the nominees.
For the reasons set forth above, the Proposal should be excluded from the 2007
Proxy Statement.
Mr. Smith Makes an Apparent Factual Statement in the Proposal without
accompanying Substantiation, Rendering the Statement Materially False or
Misleading
In the support for the Proposal Mr. Smith asserts that "[e]ven directors of near
bankrupt Companies have in the past enjoyed re-election with 90%+pluralities"
however he provides no authority or support of any kind for such inflammatory
statement. It would be misleading to allow the statement to remain in the
Proposal unless its accuracy can be verified. The Staff has required
substantiation of similar statements in situations where proponents cast
opinions as facts without providing any factual support. See, e.g., Boeing Co.
(avail. February 7, 2001) (requiring proponent to recast numerous statements as
opinions and to provide factual support for several of its assertions); R.J.
Reynolds Tobacco Holdings, Inc. (avail. March 7, 2000) (requiring proponent to
provide citations to a "report" and an "experiment" before such references could
be included). Similarly, Mr. Smith's supporting statement identified above does
contain the proper citation or support, and therefore may be omitted pursuant to
Rule 14a-8(i)(3) unless such information is provided.
For the reasons set forth above, we believe that Mr. Zachary Smith's Proposal
may be omitted from the 2007 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. Zicbell
MRZ:rp Enclosures
cc: Mr. Zachary Smith 103 Cedar Street Cornwall, PA 17016
[INQUIRY LETTER]
May 5, 2007
To: Mr. Paul J. Lytle Chief Financial Officer and Corporate Secretary Peregrine
Pharmaceuticals, Inc. 14272 Franklin Avenue Tustin, CA 92780
Sir,
Enclosed is my shareholder proposal offered up for consideration by the
stockholders of Peregrine Pharmaceuticals. This proposal is being submitted for
stock held in a TD Ameritrade account in my name and social security number.
These holdings include over 2600 shares of Peregrine Pharmaccuticals, held
continuously for longer than a year. At least $2000.00 of this stock in the
Company will be held in this account until the annual stockholders meeting in
accordance with appropriate stockholder proposal requirements.
Sincerely,
/s/
Zachary Smith
PO Box 321
103 Cedar Street
Cornwall, PA 17016
717-274-5032
Stockholder Proposal
Require Peregrine Pharmaceuticals (the Company) to Nominate More Candidates Then
Open Seats on the Board of Directors for All Elections of Directors
The Proposal Details
Resolved, that the shareholders urge the Board of Directors to take the
necessary steps to nominate more candidates then open seats on the Board of
Directors, including if necessary, the modification of Peregrine
Pharmaceuticals' Certificate of Incorporation, By-laws, Charter of the
Nominating Committee, and any other appropriate document or policy. The names,
biographical sketches, SEC-required declarations and photographs of such
candidates shall appear in the Company's proxy materials (or other required
disclosures) to the same extent that such information is required by law and is
our Company's current practice with the single candidates it now proposes for
each position.
The minimum number of candidates to be nominated for each Election of Directors
will be determined by multiplying the number of open board seats by 1.65 and
rounding up any fractional product to the next whole number.
Examples |[NCCDEF] |[UCA1] |[TDC4,M'Open Board Seats',QC] |[TCC4,MP1,QC]
|[TCC4,M'Number of',QC] |[XT] |[ST]|[LC15]|[RS4]Number of Open Board Seats |[TA]Calculation
|[TA]Number of Nominees |[ST]|[LC5]1 |[TA]1 x 1.65 = 1.65 |[TA]2 |[ST]5 |[TA]5 x
1.65 = 8.25 |[TA]9 |[ST]9 |[TA]9 x 1.65 = 14.65 |[TA]15 |[ET]
Why Stockholder is Seeking Your Support and 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 one nominee to fill each open seat on the Board of Directors. Shareholders
who oppose a candidate have no easy way to do so unless they are willing to
undertake the considerable expense of running an independent candidate for the
board. The only other way to register dissent about a given candidate is to
withhold support for all the nominces, but that process does not affect the
outcome of director elections and the Company's own proxy materials have stated
that "proxies voted to `Withhold Authority' and broker non-votes will have no
practical effect." The current system thus provides no readily effective way for
shareholders to oppose a candidate that has failed to attend board meetings; or
serves on so many boards as to be unable to supervise our Company management
diligently; or who serves as a consultant to the Company that could compromise
independence; or pose other problems. As a result, while directors legally serve
as the shareholder agent in overseeing management, the Elecction of Directors at
the annual meeting is largely perfunctory. Even directors of near bankrupt
Companies have in the past cnjoyed re-election with 90% pluralities. The "real"
selection comes through the nominating committee, a process too often
influenced, if not controlled, by the very management the board is expected to
scrutinize critically.
Please vote `Yes' in support of this proposal.
[INQUIRY LETTER]
June 14, 2007
U.S. Securities and Exchange Commission
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Stockholder Proposal Zachary C. Smith Company - Peregrine Pharmaceuticals
Letter Dated June 8, 2007 by Mark Ziebel of Snell & Wilmer
Dear Ladies and Gontlemen,
The substance of my proposal is the same as a 2005 proposal that the SEC did not
allow Peregrine to exclude. That proposal received somewhere around 35-40% of
the votes cast by stockholders of Peregrine Pharmaceuticals. Similar proposals
have been included on the proxies of many companies, including Berkshire
Hathaway, General Electric and FedEx. This proposal can not be excluded as is
the desirc of Peregrine Pharmacenticals.
Mr. Ziebell, on the behalf of Peregrine, is so desperate to have this proposal
excluded, that he resorts to attacking the supporting statement. The verbiage
that is attacked is the same as what appeared on the 2005 proposal that appeared
on Peregrine's Proxy and as was previously reviewed by the SEC. These exact
statements have been reviewed time and time again by the SEC and your own
repeated approval of these statements has already set an undeniable precedent
and is if fact proof of its correctness and acceptability. If in fact the SEC
did take issue with any of the supporting statement, the SEC most certainly must
view such deficiency as correctable under the circumstances.
Mr. Ziebell is shameless in his attack, stating that sharcholders have the
ability to conduct "vote no" campaigns. What Mr. Ziebell fails to tell the SEC
is that Peregrine Pharmaceuticals currently does not have majority voting. The
Board of Directors controls who is nominated. Peregrine also has never, to my
knowledge, nominated more directors than board seats. Peregrine only allows
votes "For" or votes "Withhold Authority" for the directors nominated, and only
allows stockholders to vote on the entire group, not individual nominees.
Peregrine itself in the proxy materials even states year after year, and I
quote, `proxies voted to "Withhold Authority" and broker non-votes will have no
practical effect.' If Mr. Zicbell and Peregrine really wanted to provide
stockholders a "true" option, as Mr Zicbell suggests they already have, then
Peregrine's directors would have already implemented truo majority voting -
which of course, they have not.
Respectfully,
/s/
Zachary C. Smith
PO Box 321
103 Cedar Street
Cornwall, PA 17016
717-274-5032
Cc: Attn: Mark Ziebell Snell & Wilmer 600 Anton Blvd, Suite 1400 Costa Mosn, CA
92626-7689
[STAFF REPLY LETTER]
August 15, 2007
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Peregrine Pharmaceuticals, Inc. Incoming letter dated June 8, 2007
The proposal urges the board to take the necessary steps to nominate more
candidates than open seats on the board, with the minimum number of candidates
for each election of directors to be determined in accordance with the formula
specified in the proposal.
We are unable to concur in your view that Peregrine may exclude the proposal or
portions of the supporting statement under rule 14a-8(i)(3). Accordingly, we do
not believe that Peregrine may omit the proposal or portions of the supporting
statement from its proxy materials in reliance on rule 14a-8(i)(3).
We are unable to concur in your view that Peregrine may exclude the proposal
under rule 14a-8(i)(6). Accordingly, we do not believe that Peregrine 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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