Press Release Source: Xmark Asset Management, LLC
Xmark Writes Open Letter to Stockholders of Spectrum Pharmaceuticals, Inc. Over CEO's Rich Compensation Package and Disregard of Corporate Governance
Tuesday June 7, 4:10 pm ET
STAMFORD, Conn., June 7 /PRNewswire/ -- Xmark Asset Management, LLC, the investment advisor to The Xmark Funds, announced today it is publicizing an open letter to the stockholders of Spectrum Pharmaceuticals, Inc. (Nasdaq: SPPI - News) because the company's management and board of directors have either rebuffed or ignored Xmark's calls for corporate governance reform and board accountability. In its letter to the stockholders, Xmark says that it will not support the election of directors at the upcoming June 10 annual meeting in an effort to make a definitive statement to the board and management that they will be under close and constant scrutiny until appropriate corporate governance measures are adopted and the board recognizes its accountability. A copy of that letter is attached to this release.
As part of its letter, Xmark shares its informal comparison of compensation packages awarded to chief executive officers of public companies that the Company's proxy identifies as its peer group utilized by its independent compensation-consulting firm. Xmark notes that this data was gathered from external public sources, the sources have not been independently verified, and the data may not be the same data as was used by the Company's consultant. Nevertheless, Xmark believes it is one of many illustrative pieces that fit into the mosaic of Xmark's concerns.
Xmark continues to support the company through its stock ownership, but is growing increasingly concerned about the ability of management and the board of directors to responsibly lead the company. "We continue to think Spectrum is a great company with valuable assets in its pipeline, but we are questioning the independence, fairness and wisdom of certain important decisions that are being made in the company's boardroom," said Mitchell D. Kaye, Chief Investment Officer of The Xmark Funds. The Xmark Funds beneficially own approximately 7.5% of the company's outstanding stock and collectively are the company's second largest institutional shareholder.
June 7, 2005
Dear Fellow Shareholders:
We believe it is appropriate to expand upon some statements we have previously made about Spectrum Pharmaceuticals, Inc. and its management. On May 20, 2005, we filed an amendment to our Schedule 13D (an SEC Form required of holders of over 5% of an issuer's shares) and stated:
XAM has recently raised a number of concerns to the board of directors of
the Company with respect to corporate governance. While XAM remains
committed to the Company and believes in the potential value of its
principal business model, XAM expressed concerns about the process for
setting executive compensation, the Board's determination to reduce the
size of the Board from seven to five directors, the Board's role in
setting the strategic direction of the Company, and certain other
matters.
While our commitment to the Company remains strong, we want to provide more detail on the concerns disclosed in our Schedule 13D, and to do what we can as major shareholders to uncover and correct practices that we believe may not comport with best practices for corporate governance.
In April of this year, we wrote to the directors of Spectrum expressing concern about compensation issues. In that letter we stated in part:
In view of the call throughout corporate America for greater focus on
reasonable compensation and "pay for performance", I would like to draw
the committee's attention to some areas of concern. For the year-ended
December 31, 2003, the compensation committee rewarded management
handsomely. Dr. Shrotriya as chief executive officer received salary and
bonus of $818,000, compared to $260,000 in 2002. In addition, Dr.
Shrotriya received stock options in 2003 of 440,000 shares.
In your compensation committee report, you explained the rationale for
the substantial pay raises, bonuses and stock option grants by focusing
on what you perceived as outstanding performance in 2003. In viewing
compensation for 2004, I hope you will continue to focus on performance.
One area of critical focus should be to note that since December 31,
2003, the per share stock price of the Company's common stock has dropped
from $8.37 on December 31, 2003 to $6.66 on December 31, 2004 (a drop of
20%) and to $5.85 as of yesterday, April 25, 2005 (a drop of 30% since
year-end 2003). This decline in shareholder value has taken place in
spite of apparent operational progress at the Company. I am troubled
that this "progress" has not been converted into increased shareholder
value. To a large degree, I believe that management must be held
accountable for such a disappointing calculus. Until the capital markets
reward the Company for its performance, I believe that it would be
inappropriate for management to be rewarded by the compensation committee
or the Board. It would be patently inconsistent with the committee's
stated goal of aligning management and stockholder interests for
management to be rewarded while the Company's shareholders lose money.
Of course, if and when the market rewards the Company for its progress in
terms of an increased market valuation, also it would then be appropriate
for management to benefit.
Obviously, in light of your fiduciary duty to stockholders, it is for you
-- not us -- to set executive compensation. However, based on the
Company's 2004's performance, the significant decline in market value
which the Company's stockholders suffered during this past year and the
need to conserve cash in light of continuing losses, I would expect this
to be a year during which significant bonuses will not be awarded. I
would expect other stockholders to share this view if asked.
Further, while I understand the value of officers having equity in the
Company to align their interests with those of the shareholders, I call
your attention to the fact that this alignment is imperfect, as stock
options only give management the opportunity to share the upside, but not
the downside, as we have seen this year. As a result of the very
significant stock option grants last year, Dr. Shrotriya already is the
beneficial owner of approximately 5% of the company's common stock. With
that size stake, there is substantial upside protection, and I do not
believe that further option grants of any significance are required to
align his interests with that of the other stockholders, particularly in
light of the dilution that the stockholders suffered as a result of last
year's option grants. Again, I would not be surprised if this feeling
were shared by other stockholders.
In response to this letter, representatives of our firm were assured that the compensation committee of the board understood our position and would act appropriately.
We were then shocked to see Spectrum's proxy statement filed on April 29 and see its disclosures of compensation to Dr. Shrotriya. We again felt compelled to write to the board. We first asked our counsel to request the compensation committee report referenced in the proxy statement. In an email sent on May 4, our counsel noted:
To follow up on our conversation last night -- I had requested a copy of
the consultant's report (as my client had previously requested of the
company) and we have not received it -- Accordingly, I asked one of my
paralegals to obtain the compensation data from the proxy statements of
the companies that your proxy statement referenced as the basis for your
consultant's report ... . I attach a copy for your reference. Obviously
this work is not scientific ... . But in short, your proxy statement is
disingenuous at best in suggesting that Dr. Shrotriya is paid on level
with his peers when among the 16 companies, he is 1st in salary (tie),
2nd in 2004 cash bonus and 2nd in number of option shares granted in 2004
(but by far 1st in number of options granted as a percentage of the
outstanding shares), and all of this without including the 500,000
options he was granted on January 3, 2005. With that January 3 grant,
Dr. Shrotriya also now far exceeds his peers in percentage of options
compared to outstanding shares (he was already tied for 1st at 12/31/04
before that grant).
A copy of the chart that we provided to the Company is attached to this letter. Although we are not compensation experts, we are active investors in companies like Spectrum. We gathered the data contained in the enclosed chart from publicly available sources we reasonably believe to be reliable. We have not independently verified any of the information contained in the chart. For those reasons, we urge caution against reliance on the chart and any conclusions drawn from the chart. As to our own use of the chart, we are not relying on any of those conclusions as the sole or even a paramount basis for our view on Dr. Shrotriya's compensation. The chart is merely one of many illustrative pieces of the mosaic that depicts our overall concerns. Receiving no response, we wrote a letter to the Board on May 5, 2005, in which we demanded that litigation be commenced against those at the Company responsible for what we saw as a giveaway of excess compensation. To justify our request, we stated in part:
I had received assurances in response to my April 26 letter that the
Compensation Committee was acting independently and took my points very
seriously. .... Thus, I was shocked and disgusted to see in your
proxy filed at the end of the day last Friday that Dr. Shrotriya's salary
remained at $500,000, that he received a $250,000 cash bonus, and that he
received not one but two stock option grants for an aggregate of 950,000
shares. Combined with prior grants, the compensation committee has given
away options for about 10% of the outstanding stock of the Company to Dr.
Shrotriya, while the shareholders continue to lose money. What is
especially galling is that the option exercise prices ($6.66 and $6.05)
are significantly less than the price recently paid by investors ($7.75
per share) who put money directly into the Company in the last
financing. ... .
Your proxy claims that a compensation consultant was hired to provide the
Compensation Committee with guidance with respect to executive
compensation. ... As you know, my firm invests exclusively in
companies in your space. Accordingly I am very surprised that a
reputable consultant could recommend the levels of salary, bonus and
options granted this year in light of the size of the Company as well as
its substandard stock price performance. ... .
In light of the paucity of information in the Compensation Committee
report, I have attempted to speak to the board. To date I have been
rebuffed. I feel that I, and all of the shareholders of the Company, are
entitled to more of an explanation than we received in the proxy
statement.
Based on the results reached by the compensation committee we do not
believe that they have acted independently and in accordance with law
when evaluating executive compensation this year, nor do we believe that
they have fulfilled the role of acting as a fiduciary for the
shareholders. We also do not believe that the negotiation for, nor the
acceptance of, this bounty by the Chief Executive Officer is consistent
with his fiduciary duties to the shareholders.
Having received no meaningful response to our correspondence, a representative of our firm spoke with the Chairman on May 16 and requested a board seat. We felt that by granting our request (as the Company's second largest shareholder) the Board would have the opportunity to show that it was not concerned about having a truly independent voice in the boardroom.
As we awaited a meaningful response to our concerns about executive compensation, we were also led to raise other concerns about the oversight of the Company with the Board. For instance the Company's generics strategy strikes us as unfocused and ill-advised. We believe it is harming the value of the Company's shares. In addition, we believe that the CEO has little or no experience in this very competitive segment of the industry, and we further believe that he should remain focused in areas in which his team is skilled, such as drug development. Along these lines, we question recent purchases of non-core assets at a time when the stock price is falling and there has been a lack of monetization of the Company's existing asset base.
Last night our counsel finally received a responsive letter from Spectrum's counsel. As to our request that we be granted a board seat as a showing of openness in corporate governance, we were told that no decision had been made, and our request was deferred until the Board's next meeting. As to our other concerns, we were informed that an Investigative Committee of the Board (whose members were not identified in the letter) had been formed to consider the matters we raised, and that the Committee had unanimously determined that our demands were rejected. We of course will now consult with counsel about pursuing those claims in another manner.
As a result of this lack of action in response to our communications, we intend to vote against the Board's slate of directors at next week's board meeting. We know that this cannot influence the result of the vote as we are not nominating an opposing slate and the Board is running unopposed. (We note that we had not even received a proxy from the Company and had to call the Company to get a proxy faxed to us.)
However, we hope to send a message to the Board that we are concerned about its performance and that it is being watched. We believe that other shareholders are similarly dissatisfied. For our part, we will continue to investigate matters which we believe indicate poor governance and control procedures and continue to make our opinions known when we do not believe that the current board is pursuing policies that enhance shareholder value. We hope that this will encourage the Board to fulfill its role as a watchdog for the shareholders of the Company and to act as a check on management's future activities. We also encourage our fellow shareholders to share with Spectrum's Board directly or with us their opinions on the propriety of recent actions the Board has taken and any future actions they may question. We believe that an active shareholder base is one of the more effective ways to insure that boards act to fulfill their fiduciary duties.
-----------------
By: Mitchell D. Kaye
Title: Chief Investment Officer
Compensation
For
2004
Company Name Position Salary Bonus
Spectrum Rajesh Chairman, Chief $500,000 $250,000
Pharmaceuticals, Shrotriya Executive Officer,
Inc. President
Allos Therapeutics Michael E. President and Chief $351,346 $80,000
Inc. Hart Executive Officer
AVI Biopharma Inc. Denis R. Chief Executive $330,000 $120,000
Burger, Officer
Ph.D
Avigen Inc. Kenneth G. $343,775 $25,000
Chahine,
Ph.D., J.D.
Cortex Roger G. President, Chief $138,000 $63,000
Pharmaceuticals Stoll, Executive Officer
Inc. Ph.D.
Genta Inc. Raymond P. Chairman and Chief $420,000 $160,000
Warrell, Executive Officer
Jr., M.D.
Immunomedics Cynthia L. President and Chief $500,000 $125,000
Inc. Sullivan Executive Officer
Kosan Biosciences Daniel V. Chairman, Chief $400,000 $105,000
Inc. Santi, Executive Officer
M.D., Ph.D and Director
Company Options Total Shares Percentage of
Options Outstanding Options
(rounded)
Spectrum 450,000 1,071,600 15,352,949 shares 7%
Pharmaceuticals, of common stock
Inc. outstanding as of
04/18/05
Allos Therapeutics 80,000 895,250 31,175,783 shares 3%
Inc. of common stock
outstanding as of
3/30/05
AVI Biopharma Inc. 0 845,824 44,144,462 shares 2%
of common stock
outstanding as of
3/18/05
Avigen 125,000 492,500 20,381,250 shares 2%
of common stock
outstanding as of
04/06/05
Cortex 300,000 1,267,195 32,753,122 shares 4%
Pharmaceuticals of common stock
Inc. outstanding as of
03/15/05
Genta Inc. 75,000 6,738,262 95,358,215 shares 7%
of common stock
outstanding as of
03/31/05
Immunomedics 150,000 1,020,000 54,073,059 shares 2%
Inc. of common stock
outstanding as of
10/13/04
Kosan Biosciences 105,000 570,000 29,189,310 shares 2%
Inc. of common stock
outstanding as of
04/01/05
Company Name Position Salary Bonus
La Jolla Steven B. Chief Executive $418,855 $144,474
Pharmaceutical Engle Officer and
Co. Chairman
Maxim Larry G. President and $450,000 $300,000
Pharmaceuticals Stambaugh Chief Executive
Inc. Officer
Neurobiological Paul E. President and 212,500 225,000
Technologies Inc.* Frieman Chief Executive
Officer
Sangamo Edward O. President and 394,000 170,000
BioSciences Inc. Lanphioer Chief Executive
II Officer
Seattle Genetics Clay B. President and 358,333 180,000
Inc. Siegall, Chief Executive
Ph.D. Officer
SuperGen Inc. Dr James President and 383,333 100,000
Manuso, Chief Executive
Ph.D. Officer
Targeted Genetics H. Stewart President and 398,000 81,969
Corp. Parker Chief Executive
Officer
Vical Inc. Vijay B. President and 380,000 200,000
Samant Chief Executive
Officer
Company Options Total Shares Percentage of
Options Outstanding Options
(rounded)
La Jolla 300,000 250,000 73,758,850 shares 0.3%
Pharmaceutical of common stock
Co. outstanding as of
03/24/05
Maxim 225,000 1,413,667 28,561,091 shares 5%
Pharmaceuticals of common stock
Inc. outstanding as of
12/31/04
Neurobiological 760,000 26,444,487 shares 3%
Technologies Inc. of common stock
and 534,000 of
preferred stock as
of 9/24/04
Sangamo 200,000 600,000 23,377,071 shares 3%
BioSciences Inc. of common stock
as of 4/11/05
Seattle Genetics 50,000 930,000 42,175,928 shares 2%
Inc. of common stock and
15,000,000 shares of
preferred stock as of
3/22/05
SuperGen Inc. 1,250,000 1,468,000 51,145,423 shares 3%
of common stock
as of 3/24/05
Targeted Genetics 200,000 992,344 85,628,244 shares of 1%
Corp. common stock as of
3/25/05
Vical Inc. 417,000* 675,000 23,515,744 shares of 3%
common stock and
15,000,000 shares of
preferred stock as of
3/24/05
* includes 317,500 of restricted stock awards
Note: Chart does not include additional 500,000 option grant to Dr. Shrotiya on January 3, 2005, which would bring his percentage of options to 10%.
* October, 2004 Proxy
Caution: Information in chart was taken from public filings of listed companies, and was not independently verified. Listed companies are those identified by Spectrum in its proxy statement performance graph as its peer group companies. No representation is made as to the appropriateness of these companies and their CEOs for a comparison of executive compensation. |
