SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________________ FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 0-17085 PEREGRINE PHARMACEUTICALS, INC. (Exact name of Registrant as specified in its charter) Delaware 95-3698422 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 14272 Franklin Avenue, Suite 100, Tustin, California 92780-7017 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (714) 508-6000 NOT APPLICABLE (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED, SINCE LAST REPORT) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ]. APPLICABLE ONLY TO CORPORATE ISSUERS: (INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.) 137,712,714 shares of common stock as of December 10, 2003 PEREGRINE PHARMACEUTICALS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED OCTOBER 31, 2003 TABLE OF CONTENTS THE TERMS "WE", "US", "OUR," AND "THE COMPANY" AS USED IN THIS FORM ON 10-Q REFERS TO PEREGRINE PHARMACEUTICALS, INC. AND ITS WHOLLY-OWNED SUBSIDIARIES, AVID BIOSERVICES, INC. AND VASCULAR TARGETING TECHNOLOGIES, INC. PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements: Consolidated Balance Sheets at October 31, 2003 and April 30, 2003 ....... 1 Consolidated Statements of Operations for the three and six months ended October 31, 2003 and 2002 ........................................ 3 Consolidated Statement of Stockholders' Equity for the six months ended October 31, 2003.................................................. 4 Consolidated Statements of Cash Flows for the six months ended October 31, 2003 and 2002............................................... 5 Notes to Consolidated Financial Statements ............................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................. 19 Company Overview ......................................................... 19 Risk Factors of Our Company .............................................. 25 Item 3. Quantitative and Qualitative Disclosures About Market Risk ............... 25 Item 4. Controls and Procedures .................................................. 25 PART II OTHER INFORMATION Item 1. Legal Proceedings......................................................... 26 Item 2. Changes in Securities and Use of Proceeds ................................ 26 Item 3. Defaults Upon Senior Securities .......................................... 26 Item 4. Submission of Matters to a Vote of Security Holders ...................... 26 Item 5. Other Information ......................................................... 27 Item 6. Exhibits and Reports on Form 8-K........................................... 27 Signatures................................................................. 28 i PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PEREGRINE PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS AT OCTOBER 31, 2003 AND APRIL 30, 2003 - ---------------------------------------------------------------------------------------------
OCTOBER 31, APRIL 30, 2003 2003 ------------- ------------- UNAUDITED ASSETS CURRENT ASSETS: Cash and cash equivalents $ 11,276,000 $ 3,137,000 Trade and other receivables, net of allowance for doubtful accounts of $62,000 (October) and $59,000 (April) 374,000 245,000 Short-term investment -- 242,000 Inventories 566,000 376,000 Prepaid expenses and other current assets 389,000 257,000 ------------ ------------ Total current assets 12,605,000 4,257,000 PROPERTY: Leasehold improvements 387,000 291,000 Laboratory equipment 2,077,000 1,936,000 Furniture, fixtures and computer equipment 706,000 724,000 ------------- ------------- 3,170,000 2,951,000 Less accumulated depreciation and amortization (2,266,000) (2,115,000) ------------- ------------- Property, net 904,000 836,000 OTHER ASSETS: Note receivable, net of allowance of $1,614,000 (October) and $1,645,000 (April) -- -- Debt issuance costs, net 23,000 176,000 Other 130,000 130,000 ------------- ------------- Total other assets 153,000 306,000 ------------- ------------- TOTAL ASSETS $ 13,662,000 $ 5,399,000 ============= ============= PEREGRINE PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS AT OCTOBER 31, 2003 AND APRIL 30, 2003 (CONTINUED) - ----------------------------------------------------------------------------------------------
OCTOBER 31, APRIL 30, 2003 2003 -------------- -------------- UNAUDITED LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 674,000 $ 560,000 Accrued clinical trial site fees 22,000 260,000 Accrued legal and accounting fees 239,000 194,000 Accrued royalties and license fees 127,000 149,000 Accrued payroll and related costs 388,000 314,000 Other current liabilities 281,000 300,000 Deferred revenue 492,000 531,000 -------------- -------------- Total current liabilities 2,223,000 2,308,000 CONVERTIBLE DEBT, net of discount 33,000 760,000 DEFERRED REVENUE 163,000 200,000 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock-$.001 par value; authorized 200,000,000 shares; outstanding - 135,532,464 (October); 119,600,501 (April) 136,000 120,000 Additional paid-in capital 158,224,000 142,274,000 Deferred stock compensation (85,000) (257,000) Accumulated deficit (147,032,000) (140,006,000) -------------- -------------- Total stockholders' equity 11,243,000 2,131,000 -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,662,000 $ 5,399,000 ============== ============== See accompanying notes to consolidated financial statements 2 PEREGRINE PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2003 AND 2002 (UNAUDITED) - -------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------- ------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2003 2002 2003 2002 -------------- -------------- -------------- -------------- REVENUES: Contract manufacturing revenue $ 839,000 $ 621,000 $ 1,192,000 $ 1,095,000 License revenue 19,000 -- 38,000 -- -------------- -------------- -------------- -------------- Total revenues 858,000 621,000 1,230,000 1,095,000 COST AND EXPENSES: Cost of contract manufacturing 666,000 711,000 984,000 1,031,000 Research and development 1,975,000 2,097,000 3,847,000 5,449,000 Selling, general and administrative 1,109,000 813,000 2,128,000 1,523,000 -------------- -------------- -------------- -------------- Total cost and expenses 3,750,000 3,621,000 6,959,000 8,003,000 -------------- -------------- -------------- -------------- LOSS FROM OPERATIONS (2,892,000) (3,000,000) (5,729,000) (6,908,000) -------------- -------------- -------------- -------------- OTHER INCOME (EXPENSE): Interest and other income 64,000 81,000 149,000 139,000 Interest and other expense (87,000) (271,000) (1,446,000) (272,000) -------------- -------------- -------------- -------------- NET LOSS $ (2,915,000) $ (3,190,000) $ (7,026,000) $ (7,041,000) ============== ============== ============== ============== WEIGHTED AVERAGE SHARES OUTSTANDING: Basic and Diluted 133,873,106 117,283,070 129,303,349 113,779,139 ============== ============== ============== ============== BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.02) $ (0.03) $ (0.05) $ (0.06) ============== ============== ============== ============== See accompanying notes to consolidated financial statements 3 PEREGRINE PHARMACEUTICALS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL DEFERRED TOTAL COMMON STOCK PAID-IN STOCK ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY -------------- -------------- -------------- -------------- -------------- -------------- BALANCES - May 1, 2003 119,600,501 $ 120,000 $ 142,274,000 $ (257,000) $(140,006,000) $ 2,131,000 Common stock issued for cash under June 6, 2003 Common Stock Purchase Agreement, net of issuance costs of $104,000 2,412,448 2,000 1,969,000 -- -- 1,971,000 Common stock issued for cash under June 26, 2003 Common Stock Purchase Agreement, net of issuance costs of $101,000 1,599,997 2,000 1,737,000 -- -- 1,739,000 Common stock issued for cash under option granted under June 26, 2003 Common Stock Purchase Agreement, net of issuance costs of $54,000 1,510,412 1,000 1,682,000 -- -- 1,683,000 Common stock issued for cash under July 24, 2003 Common Stock Purchase Agreement, net of issuance costs of $13,000 2,000,000 2,000 2,885,000 -- -- 2,887,000 Common stock issued for cash under September 18, 2003 Common Stock Purchase Agreement, net of issuance costs of $19,000 1,540,000 2,000 2,779,000 -- -- 2,781,000 Common stock issued upon conversion of convertible debt 2,347,057 2,000 1,993,000 -- -- 1,995,000 Common stock issued upon exercise of options and warrants, net of issuance costs of $132,000 4,522,049 5,000 2,957,000 -- -- 2,962,000 Reversal of deferred stock compensation associated with the cancellation of unvested options -- -- (52,000) 28,000 -- (24,000) Stock-based compensation -- -- -- 144,000 -- 144,000 Net loss -- -- -- -- (7,026,000) (7,026,000) -------------- -------------- -------------- -------------- -------------- -------------- BALANCES - October 31, 2003 135,532,464 $ 136,000 $ 158,224,000 $ (85,000) $(147,032,000) $ 11,243,000 ============= ============= ============= ============= ============= ============= See accompanying notes to consolidated financial statements 4 PEREGRINE PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 AND 2002 (UNAUDITED) - -----------------------------------------------------------------------------------------------
SIX MONTHS ENDED OCTOBER 31, 2003 2002 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (7,026,000) $ (7,041,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 180,000 186,000 Stock-based compensation 120,000 283,000 Amortization of discount on convertible debt and debt issuance costs 1,421,000 208,000 Gain on sale of property -- (1,000) Changes in operating assets and liabilities: Trade and other receivables (129,000) (389,000) Short-term investment 242,000 -- Inventories (190,000) (578,000) Prepaid expenses and other current assets (132,000) (143,000) Accounts payable 114,000 (395,000) Deferred revenue (76,000) 668,000 Accrued clinical trial site fees (238,000) (130,000) Other accrued expenses and current liabilities 78,000 (21,000) ------------- ------------- Net cash used in operating activities (5,636,000) (7,353,000) CASH FLOWS FROM INVESTING ACTIVITIES: Property acquisitions (248,000) (173,000) Proceeds from sale of property -- 11,000 Decrease in other assets -- 4,000 ------------- ------------- Net cash used in investing activities (248,000) (158,000) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net of issuance costs of $423,000 14,023,000 4,719,000 Proceeds from issuance of convertible debt, net of issuance costs of $363,000 -- 3,387,000 Principal payments on notes payable -- (42,000) ------------- ------------- Net cash provided by financing activities 14,023,000 8,064,000 ------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 8,139,000 553,000 CASH AND CASH EQUIVALENTS, beginning of period 3,137,000 6,072,000 ------------- ------------- CASH AND CASH EQUIVALENTS, end of period $ 11,276,000 $ 6,625,000 ============= ============= NON-CASH INVESTING AND FINANCING ACTIVITIES: Property acquired in exchange for note payable $ -- $ 82,000 ============= ============= See accompanying notes to consolidated financial statements 5 PEREGRINE PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Peregrine Pharmaceuticals, Inc. ("Peregrine") and its wholly-owned subsidiaries, Avid Bioservices, Inc. ("Avid"), and Vascular Targeting Technologies, Inc. (collectively the "Company"). All intercompany balances and transactions have been eliminated. As of October 31, 2003, the Company had $11,276,000 in cash and cash equivalents on hand. The Company has expended substantial funds on the development of its product candidates and for clinical trials and it has incurred negative cash flows from operations for the majority of its years since inception. The Company expects negative cash flows from operations to continue until it is able to generate sufficient revenue from the contract manufacturing services provided by Avid and/or from the sale and/or licensing of its products under development. Revenues earned by Avid during the six months ended October 31, 2003 amounted to $1,192,000. The Company expects that Avid will continue to generate revenues which should lower consolidated cash flows used in operations, although the Company expects those near term revenues will be insufficient to cover consolidated cash flows used in operations. As such, the Company will continue to raise additional capital to provide for its operations, including the anticipated development and clinical trial costs of Cotara(TM), the anticipated development costs associated with Vasopermeation Enhancement Agents ("VEA's") and Vascular Targeting Agents ("VTA's"), and the potential expansion of the Company's manufacturing capabilities. Assuming the Company does not raise any additional capital from financing activities or from the sale or licensing of its technologies, the Company believes it has sufficient cash on hand to meet its obligations on a timely basis through at least the next twelve months. In addition to equity financing, the Company is actively exploring various other sources of cash by leveraging its various assets. The transactions being explored by the Company for its technologies include licensing, partnering or the sale of Cotara(TM), Oncolym(R), or various portions of its VTA and VEA technologies that it does not plan on developing internally. In addition to the potential licensing, partnering or sale of the Company's technologies to raise capital, the Company is also exploring a possible strategic transaction related to its subsidiary, Avid. In this regard, the Company is exploring the possibility of partnering, or a complete sale of Avid as a means of raising additional capital. The Company has not classified the related assets as held for sale in accordance with Statement of Financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, since the Company is strictly exploring the possibility of a partnering or sale arrangement and the partnering or sale of the asset is not currently probable under Statement of Financial Accounting Standards No. 5, ACCOUNTING FOR CONTINGENCIES. 6 PEREGRINE PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- There can be no assurances that the Company will be successful in raising sufficient capital on terms acceptable to it, or at all (from either debt, equity or the licensing, partnering or sale of technology assets and/or the sale of all or a portion of Avid), or that sufficient additional revenues will be generated from Avid or under potential licensing agreements to sustain its operations beyond the next twelve months. The accompanying interim consolidated financial statements are unaudited; however they contain all adjustments (consisting of only normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company at October 31, 2003, and the consolidated results of its operations and its consolidated cash flows for the six-month periods ended October 31, 2003 and 2002. Although the Company believes that the disclosures in the financial statements are adequate to make the information presented herein not misleading, certain information and footnote disclosures normally included in the consolidated financial statements have been condensed or omitted pursuant to Article 10 of Regulation S-X of the Securities Exchange Act of 1934. The consolidated financial statements included herein should be read in conjunction with the consolidated financial statements of the Company, included in the Company's Annual Report on Form 10-K for the year ended April 30, 2003, which was filed with the Securities and Exchange Commission on July 29, 2003. Results of operations for the interim periods covered by this Quarterly Report may not necessarily be indicative of results of operations for the full fiscal year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS - The Company considers all highly liquid, short-term investments with an initial maturity of three months or less to be cash equivalents. SHORT-TERM INVESTMENTS - The Company classifies its short-term investments as trading securities under the requirements of Statement of Financial Accounting Standards No. 115 ("SFAS No. 115"), ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. SFAS No. 115 considers trading securities as securities that are bought with the intention of being sold in the near term for the general purpose of realizing profits. Trading securities are recorded at fair market value and gains and losses on trading securities are included in interest and other income in the accompanying consolidated financial statements. INVENTORIES - Inventories are stated at the lower of cost or market and primarily includes raw materials, direct labor and overhead costs associated with the services provided by our wholly-owned subsidiary, Avid. Inventories consist of the following at October 31, 2003 and April 30, 2003: OCTOBER 31, APRIL 30, 2003 2003 ------------- ------------- Raw materials $ 187,000 $ 205,000 Work-in-process 379,000 171,000 ------------- ------------- Total Inventories $ 566,000 $ 376,000 ============= ============= 7 PEREGRINE PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- CONCENTRATIONS OF CREDIT RISK - The majority of trade and other receivables are from customers in the United States, Europe and Israel. Most contracts require up-front payments and installment payments as the contract progresses. The Company performs periodic credit evaluations of its ongoing customers and generally does not require collateral, but can terminate the contract if a material default occurs. Reserves are maintained for potential credit losses, and such losses have been minimal and within management's estimates. DEFERRED REVENUE - Deferred revenue primarily consists of up-front contract fees and installment payments received prior to the recognition of revenues under contract manufacturing and development agreements and up-front license fees received under technology license agreements. Deferred revenue is generally recognized once the service has been provided, all obligations have been met and/or upon shipment of the product to the customer. REVENUE RECOGNITION - The Company currently derives revenues primarily from licensing agreements associated with Peregrine's technologies under development and from contract manufacturing services provided by Avid. The Company recognizes revenues pursuant to Staff Accounting Bulletin No. 101 ("SAB No. 101"), REVENUE RECOGNITION. The bulletin draws on existing accounting rules and provides specific guidance on how those accounting rules should be applied. Revenue is generally realized or realizable and earned when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller's price to the buyer is fixed or determinable, and (iv) collectibility is reasonably assured. Revenues associated with licensing agreements primarily consist of nonrefundable up-front license fees and milestone payments. Revenues under licensing agreements are recognized based on the performance requirements of the agreement. Nonrefundable up-front license fees received under license agreements, whereby continued performance or future obligations are considered inconsequential to the relevant licensed technology, are generally recognized as revenue upon delivery of the technology. Nonrefundable up-front license fees, whereby ongoing involvement or performance obligations exist, are generally recorded as deferred revenue and generally recognized as revenue over the term of the performance obligation or relevant agreement. Under some license agreements, the obligation period may not be contractually defined. Under these circumstances, the Company exercises judgment in estimating the period of time over which certain deliverables will be provided to enable the licensee to practice the license. Contract manufacturing revenues are generally recognized once the service has been provided and/or upon shipment of the product to the customer. The Company also records a provision for estimated contract losses, if any, in the period in which they are determined. 8 PEREGRINE PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- In July 2000, the Emerging Issues Task Force ("EITF") released Issue 99-19 ("EITF 99-19"), REPORTING REVENUE GROSS AS A PRINCIPAL VERSUS NET AS AN AGENT. EITF 99-19 summarized the EITF's views on when revenue should be recorded at the gross amount billed to a customer because it has earned revenue from the sale of goods or services, or the net amount retained (the amount billed to the customer less the amount paid to a supplier) because it has earned a fee or commission. In addition, the EITF released Issue 00-10 ("EITF 00-10"), ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS, and Issue 01-14 ("EITF 01-14"), INCOME STATEMENT CHARACTERIZATION OF REIMBURSEMENTS RECEIVED FOR "OUT-OF-POCKET" EXPENSES INCURRED. EITF 00-10 summarized the EITF's views on how the seller of goods should classify in the income statement amounts billed to a customer for shipping and handling and the costs associated with shipping and handling. EITF 01-14 summarized the EITF's views on when the reimbursement of out-of-pocket expenses should be characterized as revenue or as a reduction of expenses incurred. The Company's revenue recognition policies are in compliance with EITF 99-19, EITF 00-10 and EITF 01-14 whereby the Company records revenue for the gross amount billed to customers (the cost of raw materials, supplies, and shipping, plus the related handling mark-up fee) and records the cost of the amounts billed as cost of sales as the Company acts as a principal in these transactions. RESEARCH AND DEVELOPMENT - Research and development costs are charged to expense when incurred in accordance with Statement of Financial Accounting Standards No. 2, ACCOUNTING FOR RESEARCH AND DEVELOPMENT COSTS. Research and development expenses primarily include (i) payroll and related costs associated with research and development personnel, (ii) costs related to clinical and pre-clinical testing of the Company's technologies under development, (iii) the costs to manufacture the product candidates, including raw materials and supplies, (iv) expenses for research and services rendered under outside contracts, including sponsored research funding, and (v) facilities expenses. BASIC AND DILUTIVE NET LOSS PER COMMON SHARE - Basic and dilutive net loss per common share is calculated in accordance with Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE. Basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period and excludes the dilutive effects of options, warrants and convertible instruments. Diluted net loss per common share is computed by dividing the net loss by the sum of the weighted average number of common shares outstanding during the period plus the potential dilutive effects of options, warrants, and convertible debt outstanding during the period. Potentially dilutive common shares consist of stock options and warrants calculated in accordance with the treasury stock method, but are excluded if their effect is antidilutive. The potential dilutive effect of convertible debt was calculated using the if-converted method assuming the conversion of the convertible debt as of the earliest period reported or at the date of issuance, if later. Because the impact of options, warrants, and other convertible instruments are antidilutive, there was no difference between basic and diluted loss per share amounts for the three and six months ended October 31, 2003 and October 31, 2002. The Company has excluded the dilutive effect of the following shares issuable upon the exercise of options, warrants, and convertible debt outstanding during the period because their effect was antidilutive since the Company reported a net loss in the periods presented: 9 PEREGRINE PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) (CONTINUED) - --------------------------------------------------------------------------------------
Weighted average outstanding options and warrants to purchase up to 7,111,931 and 7,743,116 shares of common stock for the three and six months ended October 31, 2003, respectively, were also excluded from the calculation of diluted earnings per common share because their exercise prices were greater than the average market price during the period. Weighted average outstanding options and warrants to purchase up to 24,158,950 and 15,455,772 shares of common stock for the three and six months ended October 31, 2002, respectively, were also excluded from the calculation of diluted earnings per common share because their exercise prices were greater than the average market price during the period. From November 1, 2003 through December 10, 2003, the Company received gross proceeds of $4,409,000 in exchange for the issuance of 2,160,000 shares of its common stock (Note 10), which numbers have been excluded from basic and dilutive net loss per common share for the three and six months ended October 31, 2003. STOCK-BASED COMPENSATION - In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148 ("SFAS No. 148"), ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE, which the Company adopted on February 1, 2003. SFAS No. 148 amends SFAS No. 123 ("SFAS No. 123"), ACCOUNTING FOR STOCK-BASED COMPENSATION, and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has not adopted a method under SFAS No. 148 to expense stock options but rather continues to apply the provisions of SFAS No. 123. As SFAS No. 123 permits, the Company elected to continue accounting for its employee stock options in accordance with Accounting Principles Board Opinion No. 25 ("APB No. 25"), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related Interpretations. APB No. 25 requires compensation expense to be recognized for stock options when the market price of the underlying stock exceeds the exercise price of the stock option on the date of the grant. 10THREE MONTHS ENDED SIX MONTHS ENDED ------------------------ ------------------------ OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Common stock equivalent shares assuming issuance of shares represented by outstanding stock options and warrants utilizing the treasury stock method 10,927,926 1,986,519 10,174,146 4,680,013 Common stock equivalent shares assuming issuance of shares upon conversion of convertible debt utilizing the if-converted method 493,608 3,980,179 951,188 1,990,090 ----------- ----------- ----------- ----------- Total 11,421,534 5,966,698 11,125,334 6,670,103 =========== =========== =========== =========== PEREGRINE PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- The Company utilizes the guidelines in APB No. 25 for measurement of stock-based transactions for employees and, accordingly no compensation expense has been recognized for the options in the accompanying consolidated financial statements for the three and six months ended October 31, 2003 and October 31, 2002. Had the Company used a fair value model for measurement of stock-based transactions for employees under SFAS No. 123 and amortized the expense over the vesting period, pro forma information would be as follows: Stock-based compensation expense recorded during each of the three and six months ended October 31, 2003 and October 31, 2002 primarily relates to stock option grants made to consultants and has been measured utilizing the Black-Scholes option valuation model. Stock-based compensation expense recorded during the three and six months ended October 31, 2003 amounted to $43,000 and $120,000, respectively. Stock-based compensation expense recorded during the three and six months ended October 31, 2002 amounted to $132,000 and $283,000, respectively. Stock-based compensation expense is being amortized over the estimated period of service or related vesting period. RECENT ACCOUNTING PRONOUNCEMENTS. In August 2001, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 143 ("SFAS No. 143"), ASSET RETIREMENT OBLIGATIONS. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002. The Company adopted SFAS No.143 on May 1, 2003, which had no material impact on its consolidated financial position and results of operations. 11
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------- ------------------------------- OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2003 2002 2003 2002 -------------- -------------- -------------- -------------- Net loss, as reported $ (2,915,000) $ (3,190,000) $ (7,026,000) $ (7,041,000) Stock-based employee compensation cost that would have been included in the determination of net loss if the fair value based method had been applied to all awards (245,000) (824,000) (454,000) (1,290,000) -------------- -------------- -------------- -------------- Pro forma net loss as if the fair value based method had been applied to all awards $ (3,160,000) $ (4,014,000) $ (7,480,000) $ (8,331,000) ============== ============== ============== ============== Basic and diluted net loss per share, as reported $ (0.02) $ (0.03) $ (0.05) $ (0.06) ============== ============== ============== ============== Basic and diluted net loss per share, pro forma $ (0.02) $ (0.03) $ (0.06) $ (0.07) ============== ============== ============== ============== PEREGRINE PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- In January 2003, the FASB issued Interpretation No. 46 ("FIN No. 46"), CONSOLIDATION OF VARIABLE INTEREST ENTITIES, an Interpretation of Accounting Principles Board No. 50. FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN No. 46 are required to be adopted in periods ending after December 15, 2003. The adoption of FIN No. 46 is not expected to have a material impact on the Company's consolidated financial position and results of operations. In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, ("SFAS No. 150"), ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted SFAS No. 150 on August 1, 2003, which had no material impact on its consolidated financial position and results of operations. 3. SHORT-TERM INVESTMENT During March 2003, the Company received 61,653 shares of SuperGen, Inc. common stock under a license agreement with SuperGen, Inc. dated February 13, 2001. The Company accounts for its short-term investment at fair value as trading securities in accordance with SFAS No. 115. The cost basis of the common stock was $200,000. During the quarter ended July 31, 2003, the Company sold all 61,653 shares of common stock of SuperGen, Inc. for gross proceeds of $271,000. The realized gain of $71,000 related to the short-term investment is included in interest and other income in the accompanying consolidated financial statements for the six months ended October 31, 2003. 4. NOTE RECEIVABLE During December 1998, the Company completed the sale and subsequent leaseback of its two facilities and recorded an initial note receivable from the buyer of $1,925,000. In accordance with the related lease agreement, if the Company defaults under the lease agreement, including but not limited to, filing a petition for bankruptcy or failure to pay the basic rent within five (5) days of being due, the note receivable shall be deemed to be immediately satisfied in full and the buyer shall have no further obligation to the Company for such note receivable. Although the Company has made all payments under the lease agreement and has not filed for protection under the laws of bankruptcy, during the quarter ended October 31, 1999, the Company did not have sufficient cash on hand to meet its obligations on a timely 12 PEREGRINE PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- basis and was operating at significantly reduced levels. In addition, at that time, if the Company could not raise additional cash by December 31, 1999, the Company may have had to file for protection under the laws of bankruptcy. Due to the uncertainty of the Company's ability to pay its lease obligations on a timely basis, the Company established a 100% reserve for the note receivable in the amount of $1,887,000 as of October 31, 1999. The Company reduces the reserve as payments are received and records the reduction as interest and other income in the accompanying consolidated statements of operations. Due to the uncertainty of the Company's capital resources beyond the next twelve months, the carrying value of the note receivable approximates its fair value at October 31, 2003. The Company has received all payments through December 2003. The following represents a rollforward of the allowance of the Company's note receivable for the six months ended October 31, 2003: Allowance balance, April 30, 2003 $ 1,705,000 Principal payments received (29,000) ------------- Allowance balance, October 31, 2003 $ 1,676,000 ============= 5. CONVERTIBLE DEBT On August 9, 2002, the Company entered into a private placement with four investors under a Securities Purchase Agreement ("Debt SPA"), whereby the Company issued Convertible Debentures ("Debenture") for gross proceeds of $3,750,000. The Debenture earns interest at a rate of 6% per annum payable in cash semi-annually each June 30th and December 31st, and mature in August 2005. Under the terms of the Debenture, the principal amount is convertible, at the option of the holder, into a number of shares of common stock of the Company calculated by dividing the unpaid principal amount of the Debenture by the initial conversion price of $0.85 per share ("Conversion Price"). If the Company enters into any financing transaction before March 9, 2004 at a per share price less than the Conversion Price, the Conversion Price will be reset to the lower price for all outstanding Debentures. If the Company defaults under the provisions of the Debt SPA, as defined in the agreement, which includes but is not limited to, the default of an interest payment, the principal amount of the Debenture becomes immediately due and payable. In accordance with EITF 00-27, APPLICATION OF ISSUE NO. 98-5 TO CERTAIN CONVERTIBLE INSTRUMENTS, the Company initially recorded its convertible debt net of discount of (i) the relative fair value of the warrants issued in the amount of $1,321,000 and (ii) the intrinsic value of the embedded conversion feature in the amount of $1,143,000. The relative fair value of the warrants was determined in accordance with the Black-Scholes valuation model based on the warrant terms. The debt discount associated with unconverted debentures and warrants are amortized as non-cash interest expense on a straight-line basis over the term of the Debenture and related warrants, which approximates the effective interest method, and the amortization is recorded as interest and other expense in the accompanying consolidated statements of operations. Upon conversion of any debentures and/or warrants, the entire unamortized debt discount remaining at the date of conversion that is associated with the converted debentures and/or warrants are immediately recognized as interest and other expense in the accompanying consolidated financial statements. During the three and six months ended October 31, 2003, the Company recognized $68,000 and $1,268,000, respectively, in non-cash interest expense associated with 13 PEREGRINE PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- the conversion of convertible debt and related warrants, which amount was included in interest and other expense in the accompanying consolidated statements of operations. From August 9, 2002 (date of issuance) through October 31, 2002, the Company recognized $181,000 in non-cash interest expense associated with the convertible debt and related warrants, which amount was included in interest and other expense in the accompanying consolidated statements of operations The convertible debt balance, net of discount, of $33,000 at October 31, 2003, was calculated as follows: Principal Balance of Convertible Debt ------------------------------------- Convertible Debentures, April 30, 2003 $ 2,395,000 Conversions, six months ended October 31, 2003 (1,995,000) -------------- Convertible Debentures, October 31, 2003 400,000 -------------- Discount on Convertible Debt ---------------------------- Convertible debt discount, April 30, 2003 1,635,000 Discount amortized, six months ended October 31, 2003 (1,268,000) -------------- Convertible debt discount, October 31, 2003 367,000 -------------- Convertible debt, net of discount, October 31, 2003 $ 33,000 ============== During the six months ended October 31, 2003, debenture holders elected to convert an aggregate principal amount of $1,995,000 of the outstanding convertible debt in exchange for 2,347,057 shares of common stock at the conversion price of $0.85 per share. Under the Debt SPA, each Debenture holder was granted a detachable warrant equal to 75% of the quotient obtained by dividing the principal amount of the Debentures by the Conversion Price or an aggregate of 3,308,827 warrants. The detachable warrants have a 4-year term with an exercise price of $0.75 per share (Note 9). In connection with the convertible debentures issued on August 9, 2002, the Company incurred approximately $363,000 in debt issuance costs, including placement agent fees of $318,000, which are being amortized on a straight-line basis over the life of the Debentures, which approximates the effective interest method. Upon conversion of any debentures, the unamortized debt issuance costs remaining at the date of conversion which were allocated to the converted debentures is immediately recognized as non-cash interest expense. During the three and six months ended October 31, 2003, the Company expensed $13,000 and $153,000, respectively, in debt issuance costs included in interest and other expense in the accompanying consolidated statements of operations. At October 31, 2003, the unamortized balance of debt issuance costs of $23,000 was included in other assets in the accompanying consolidated financial statements. 14 PEREGRINE PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- 6. LICENSING During December 2002, the Company granted the exclusive rights for the development of diagnostic and imaging agents in the field of oncology to Schering A.G. under its Vascular Targeting Agent ("VTA") technology. Under the terms of the agreement, the Company received an up-front payment of $300,000, of which, $237,000 was included in deferred revenue at October 31, 2003, in accordance with SAB No. 101. Deferred license revenue is amortized over the estimated term of the remaining obligations as stated in the agreement. In addition, the Company could also receive future milestone payments and a royalty on net sales, as defined in the agreement. Under the same agreement, the Company granted Schering A.G. an option to obtain certain non-exclusive rights to the VTA technology with predetermined up-front fees and milestone payments as defined in the agreement. 7. SEGMENT REPORTING The Company's business is organized into two reportable operating segments (i) Peregrine, the parent company, is engaged in the research and development of cancer therapeutics and cancer diagnostics through a series of proprietary platform technologies using monoclonal antibodies, and (ii) Avid, is engaged in providing contract manufacturing and development of biologics to biopharmaceutical and biotechnology businesses. The Company primarily evaluates the performance of its segments based on net revenues and gross profit or loss. The Company has no intersegment revenues and does not segregate assets at the segment level as such information is not used by management. Net revenues and gross profit information for the Company's segments for the three months ended October 31, 2003 and 2002 consisted of the following: For the three months ended October 31, 2003, one customer located in the U.S. accounted for 76% of reported net revenues and one customer located in Israel accounted for 18% of reported net revenues. For the three months ended October 31, 2002, one customer located in the U.S. accounted for 68% of reported net revenues and one customer located in the Europe accounted for 31% of reported net revenues. 15
THREE MONTHS ENDED OCTOBER 31, ----------------------------- 2003 2002 ------------- ------------- NET REVENUES: Research and development of cancer therapeutics $ 19,000 $ -- Contract manufacturing and development of biologics 839,000 621,000 ------------- ------------- Total net revenues $ 858,000 $ 621,000 ============= ============= GROSS PROFIT (LOSS): Research and development of cancer therapeutics $ 19,000 $ -- Contract manufacturing and development of biologics 173,000 (90,000) ------------- ------------- Total gross profit (loss) $ 192,000 $ (90,000) ============= ============= PEREGRINE PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- Net revenues and gross profit information for the Company's segments for the six months ended October 31, 2003 and 2002 consisted of the following: For the six months ended October 31, 2003, one customer located in the U.S. accounted for 58% of reported net revenues and one customer located in Israel accounted for 32% of reported net revenues. For the six months ended October 31, 2002, one customer located in the U.S. accounted for 41% of reported net revenues and one customer located in Europe accounted for 57% of reported net revenues. 8. STOCKHOLDERS' EQUITY FINANCING UNDER SHELF REGISTRATION STATEMENT ON FORM S-3, FILE NUMBER 333-71086 On November 14, 2001, the Company filed a registration statement on Form S-3, File Number 333-71086 (the "November 2001 Shelf") which was declared effective by the Securities and Exchange Commission, allowing the Company to issue, from time to time, in one or more offerings, (i) up to 10,000,000 shares of its common stock, and (ii) warrants to purchase up to 2,000,000 shares of its common stock. On June 6, 2003, the Company received gross proceeds of $355,000 under a Common Stock Purchase Agreement in exchange for approximately 412,445 shares of its common stock. In connection with the offering, the Company paid a fee to the placement agent equal to five percent (5%) of the gross proceeds, or $18,000. As of October 31, 2003, 87,555 shares of common stock were available for issuance under the November 2001 Shelf. All warrants were issued under the November 2001 Shelf as of October 31, 2003. FINANCING UNDER SHELF REGISTRATION STATEMENT ON FORM S-3, FILE NUMBER 333-103965 On March 21, 2003, the Company filed a registration statement on Form S-3, File Number 333-103965 which was declared effective by the Securities and Exchange Commission, allowing the Company to issue, from time to time, in one or more offerings, up to 10,000,000 shares of its common stock ("March 2003 Shelf"). 16
SIX MONTHS ENDED OCTOBER 31, ----------------------------- 2003 2002 ------------- ------------- NET REVENUES: Research and development of cancer therapeutics $ 38,000 $ -- Contract manufacturing and development of biologics 1,192,000 1,095,000 ------------- ------------- Total net revenues $ 1,230,000 $ 1,095,000 ============= ============= GROSS PROFIT: Research and development of cancer therapeutics $ 38,000 $ -- Contract manufacturing and development of biologics 208,000 64,000 ------------- ------------- Total gross profit $ 246,000 $ 64,000 ============= ============= PEREGRINE PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- On June 6, 2003, the Company received gross proceeds of $1,720,000 under a Common Stock Purchase Agreement in exchange for 2,000,003 shares of its common stock and warrants to purchase up to 150,000 shares of common stock at an exercise price of $0.86 per share ("June 6, 2003 Financing"). The warrants have a four year term and are exercisable at an exercise price of $0.86 per share. The fair value of the warrants were recorded as a cost of equity based on a Black-Scholes valuation model after considering the terms in the related warrant agreement. The warrants were issued under the November 2001 Shelf. In connection with the offering, the Company paid a fee to the placement agent equal to five percent (5%) of the gross proceeds, or $86,000. On June 26, 2003, the Company received gross proceeds of $1,840,000 under a Common Stock Purchase Agreement in exchange for 1,599,997 shares of its common stock ("June 26, 2003 Financing"). Under the same arrangement, the Company granted the investors a six-month option to purchase up to 1,599,997 additional shares of common stock from the Company under the same terms as this offering. The fair value of the option was recorded as a cost of equity based on a Black-Scholes valuation model after considering terms in the related agreement. In connection with the offering, the Company paid a fee to the placement agent equal to five percent (5%) of the gross proceeds, or $92,000. During the six months ended October 31, 2003, investors elected to purchase 1,510,412 shares of the Company's common stock under the six-month option in exchange for gross proceeds of $1,737,000. As of December 10, 2003, 89,585 shares of the Company's common stock were reserved for issuance under the six-month option. On July 24, 2003, the Company entered into a Common Stock Purchase Agreement with one institutional investor whereby the Company agreed to sell from time to time, at the Company's option, up to an aggregate of 2,000,000 shares of the Company's common stock at the per share price of $1.45 ("July 24, 2003 Financing"). As of October 31, 2003, the Company sold and issued all 2,000,000 shares of its common stock under the July 24, 2003 Financing to the institutional investor for gross proceeds of $2,900,000. The Company paid no commissions in connection with this offering. On September 18, 2003, the Company entered into a Common Stock Purchase Agreement with one institutional investor whereby the Company agreed to sell from time to time, at the Company's option, up to an aggregate of 2,800,000 shares of the Company's common stock at predetermined per share prices based upon the average closing price of its common stock for the prior three trading days ("September 18, 2003 Financing"). During the quarter ended October 31, 2003, the Company issued 1,540,000 shares of its common stock to the institutional investor in exchange for gross proceeds of $2,800,000. During November 2003, the Company received gross proceeds of $2,492,000 in exchange for the issuance of the remaining 1,260,000 shares of the Company's common stock under the September 18, 2003 Financing. The Company paid no commissions in connection with this offering. As of December 10, 2003, 89,588 shares of common stock were available and reserved for issuance under the March 2003 Shelf. 17 PEREGRINE PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 2003 (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- FINANCING UNDER SHELF REGISTRATION STATEMENT ON FORM S-3, FILE NUMBER 333-109982 On October 24, 2003, the Company filed a registration statement on Form S-3, File Number 333-109982 which was declared effective by the Securities and Exchange Commission on November 5, 2003, allowing the Company to issue, from time to time, in one or more offerings, up to 12,000,000 shares of its common stock ("October 2003 Shelf"). As of October 31, 2003, all 12,000,000 shares of common stock were available for issuance under the October 2003 Shelf. On November 17, 2003, the Company entered into a Common Stock Purchase Agreement with one institutional investor whereby the Company agreed to sell from time to time, at the Company's option, up to an aggregate of 2,000,000 shares of the Company's common stock at predetermined per share prices based upon the average closing price of its common stock for the prior three trading days ("November 17, 2003 Financing"). From November 1, 2003 to December 10, 2003, the Company received aggregate gross proceeds of $1,917,000 in exchange for the issuance of 900,000 shares of its common stock to the institutional investor. As of December 10, 2003, 1,100,000 shares of common stock were available for issuance under the November 17, 2003 Financing. The Company paid no commissions in connection with this offering. As of December 10, 2003, 11,100,000 shares of common stock were available for issuance under the October 2003 Shelf. 9. OPTIONS AND WARRANTS During the six months ended October 31, 2003, the Company received net proceeds of $441,000 upon the exercise of 766,157 options. As of October 31, 2003, options to purchase 11,811,325 shares of the Company's common stock were issued and outstanding. During the six months ended October 31, 2003, the Company received net proceeds of $2,521,000 upon the exercise of 3,780,512 warrants on a combined cash and cashless basis in exchange for the issuance of 3,755,892 shares of the Company's common stock, including the 2,244,120 warrants exercised under the Debt SPA (Note 5). As of October 31, 2003, warrants to purchase 16,309,207 were issued and outstanding. 10. SUBSEQUENT EVENTS From November 1, 2003 through December 10, 2003, the Company received gross proceeds of $4,409,000 in exchange for 2,160,000 shares of its common stock under the following transactions: During November 2003, the Company received gross proceeds of $2,492,000 under the September 18, 2003 Financing in exchange for 1,260,000 shares of its common stock at various predetermined purchase prices per share pursuant to the terms of the Common Stock Purchase Agreement (Note 8). From November 1, 2003 to December 10, 2003, the Company received gross proceeds of $1,917,000 under the November 17, 2003 Financing in exchange for 900,000 shares of its common stock at a predetermined purchase price of $2.13 per share (Note 8). 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for historical information contained herein, this Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. In light of the important factors that can materially affect results, including those set forth elsewhere in this Form 10-Q, the inclusion of forward-looking information should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. When used in this Form 10-Q, the words "may," "should," "plans," "believe," "anticipate," "estimate," "expect," their opposites and similar expressions are intended to identify forward-looking statements. The Company cautions readers that such statements are not guarantees of future performance or events and are subject to a number of factors that may tend to influence the accuracy of the statements. The following discussion is included to describe the Company's financial position and results of operations for the three and six months ended October 31, 2003 compared to the same period in the prior year. The consolidated financial statements and notes thereto contain detailed information that should be referred to in conjunction with this discussion. In addition, the consolidated financial statements included herein should be read in conjunction with the consolidated financial statements of the Company, included in the Company's Annual Report on Form 10-K for the year ended April 30, 2003, which was filed with the Securities and Exchange Commission on July 29, 2003. Results of operations for the interim periods covered by this Quarterly Report may not necessarily be indicative of results of operations for the full fiscal year. COMPANY OVERVIEW Peregrine Pharmaceuticals, Inc., located in Tustin, California, is a biotechnology company engaged in the research and development and commercialization of cancer therapeutics and cancer diagnostics through a series of proprietary platform technologies using monoclonal antibodies. In January 2002, we formed our wholly-owned subsidiary, Avid Bioservices, Inc. ("Avid"), to provide an array of contract manufacturing services, including contract manufacturing of antibodies and proteins, cell culture development, process development, and testing of biologics for biopharmaceutical and biotechnology companies under current Good Manufacturing Practices. Avid's manufacturing facility is located in Tustin, California, adjacent to our offices. Our business is now organized into two reportable operating segments: (i) Peregrine, the parent company, is engaged in the research and development of therapeutics primarily in the area of cancer through a series of proprietary platform technologies using monoclonal antibodies, and (ii) Avid, is engaged in providing contract manufacturing and development of biologics to biopharmaceutical and biotechnology businesses. Peregrine's main focus is on the development of its collateral targeting agent technologies. Collateral targeting agents typically use antibodies that bind to or target components found in or on most solid tumors. An antibody is a molecule that humans and other animals create in response to disease. In pre-clinical and/or clinical studies, some of Peregrine's collateral targeting antibodies have been shown to directly inhibit solid tumor growth. The collateral targeting antibodies can also be used to deliver therapeutic agents that kill cancerous tumor cells. We currently have exclusive rights to over 80 issued U.S. and foreign patents protecting various aspects of our technology and have additional pending patent applications that we believe will further strengthen our patent position. Our three collateral targeting technologies are known as Tumor Necrosis Therapy ("TNT"), Vascular Targeting Agents ("VTA's") and Vasopermeation Enhancement Agents ("VEA's"). Our first TNT-based product, Cotara(TM), is currently in a Phase I clinical study at Stanford University Medical Center primarily for the treatment of colorectal cancer. In addition, during February 2003, we received protocol approval from the U.S. Food and Drug Administration ("FDA") to initiate a registration clinical study using Cotara(TM) for the treatment of brain cancer. We do not anticipate initiating the approved registration clinical study without a development or funding partner for the Cotara(TM) program. 19 Our VTA and VEA technologies are currently in preclinical development. Peregrine is currently focused on VTA development activities associated with one of its anti-phospholipid antibody clinical candidates. Peregrine expects to file an Investigational New Drug application for the compound in calendar 2004. RESULTS OF OPERATIONS The decrease in our reported net loss of $275,000 for the three months ended October 31, 2003 compared to the same period in the prior year is due to an increase in total revenues of $237,000 combined with a decrease in interest and other expense of $184,000. These amounts were offset by an increase in total cost and expenses of $129,000 and a $17,000 decrease in interest and other income. The decrease in our reported net loss of $15,000 for the six months ended October 31, 2003 compared to the same period in the prior year is due to an increase in total revenues of $135,000, an increase in interest and other income of $10,000 and a decrease in total cost and expenses of $1,044,000. These amounts were offset by an increase in interest and other expense of $1,174,000 primarily related to the non-cash interest expense associated with the amortization of the convertible debt discount and debt issuance costs related to the conversions of convertible debt during the quarter ended July 31, 2003.
NET LOSS: - --------- THREE MONTHS ENDED SIX MONTHS ENDED OCTOBER 31, OCTOBER 31, -------------------------------------------- --------------------------------------------- 2003 2002 $ CHANGE 2003 2002 $ CHANGE ----------- ----------- ------------- ------------- ----------- ------------ (in thousands) NET LOSS ($ 2,915) ($ 3,190) ($ 275) ($ 7,026) ($ 7,041) ($ 15) The increase in total revenues of $237,000 during the three months ended October 31, 2003 compared to the same period in the prior year is due to an increase in contract manufacturing revenue of $218,000 combined with an increase in license revenue of $19,000. The increase in total revenues of $135,000 during the six months ended October 31, 2003 compared to the same period in the prior year is due to an increase in contract manufacturing revenue of $97,000 combined with an increase in license revenue of $38,000. The increase in contract manufacturing revenue of $218,000 and $97,000 during the three and six months ended October 31, 2003, respectively, compared to the same periods in the prior year is primarily due to the completion and delivery of two production lots of clinical product to one customer during the quarter ended October 31, 2003 by our wholly-owned subsidiary, Avid Bioservices, Inc. ("Avid"). We expect contract manufacturing revenue to increase during the remainder of the current fiscal year based on the anticipated completion of projects under our current contract manufacturing agreements and the additional contracts Avid entered into subsequent to the current quarter. In addition to our current contract manufacturing agreements, Avid currently has numerous outstanding project proposals with various potential customers, however, we cannot estimate nor can we determine the likelihood that we will be successful in converting any of these proposals into definitive agreements during the remainder of the current fiscal year. 20
TOTAL REVENUES: - --------------- THREE MONTHS ENDED SIX MONTHS ENDED OCTOBER 31, OCTOBER 31, -------------------------------------------- --------------------------------------------- 2003 2002 $ CHANGE 2003 2002 $ CHANGE ----------- ----------- ------------- ------------- ----------- ------------ (in thousands) TOTAL REVENUES $ 858 $ 621 $ 237 $ 1,230 $ 1,095 $ 135 The increase in license revenue of $19,000 and $38,000 during the three and six months ended October 31, 2003, respectively, compared to the same periods in the prior year is due to the amortization of deferred license revenue associated with the up-front license fee of $300,000 received under a license agreement we entered into with Schering A.G. during fiscal year 2003. Although we are in various pre-contract stages of licensing discussions with third parties for our technologies under development, we cannot estimate nor can we determine the likelihood that we will be successful in entering into any definitive license agreements during the remainder of the current fiscal year. The increase in total cost and expenses of $129,000 during the three months ended October 31, 2003 compared to the same prior year period is due to an increase in selling, general and administrative expenses of $296,000 offset by a decrease in research and development expenses of $122,000 and decrease in the cost of contract manufacturing of $45,000. The decrease in total cost and expenses of $1,044,000 during the six months ended October 31, 2003 compared to the same prior year period is due to a decrease in research and development expenses of $1,602,000 combined with a decrease in the cost of contract manufacturing of $47,000. These amounts were offset by a $605,000 increase in selling, general and administrative expenses.
TOTAL COST AND EXPENSES: - ------------------------ THREE MONTHS ENDED SIX MONTHS ENDED OCTOBER 31, OCTOBER 31, -------------------------------------------- --------------------------------------------- 2003 2002 $ CHANGE 2003 2002 $ CHANGE ----------- ----------- ------------- ------------- ----------- ------------ (in thousands) TOTAL COST AND EXPENSES $ 3,750 $ 3,621 $ 129 $ 6,959 $ 8,003 ($ 1,044) The decrease in research and development expenses of $122,000 during the three months ended October 31, 2003 compared to the same period in the prior year was primarily due to a decrease in clinical trial program expenses associated with the treatment of colorectal and brain cancer patients using Cotara(TM). The decrease in clinical trial program expenses was offset by an increase in patent legal fees and drug development expenses associated with the pre-clinical development of our Vascular Targeting Agent Technologies. The decrease in research and development expenses of $1,602,000 during the six months ended October 31, 2003 compared to the same period in the prior year was primarily due to a decrease in clinical trial program expenses and the allocation of labor and overhead expenses to cost of sales and inventories in relation to contract manufacturing services provided by Avid to outside customers. The reduction in clinical trial expenses is related to our focused efforts on licensing our products under development during the current six-month period ended October 31, 2003. 21
RESEARCH AND DEVELOPMENT EXPENSES: - ---------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED OCTOBER 31, OCTOBER 31, -------------------------------------------- --------------------------------------------- 2003 2002 $ CHANGE 2003 2002 $ CHANGE ----------- ----------- ------------- ------------- ----------- ------------ (in thousands) RESEARCH AND DEVELOPMENT $ 1,975 $ 2,097 ($ 122) $ 3,847 $ 5,449 ($ 1,602) The following represents the research and development expenses ("R&D Expenses") we have incurred by each major platform technology under development: R&D EXPENSES- R&D EXPENSES- PLATFORM TECHNOLOGY QUARTER ENDED MAY 1, 1998 TO UNDER DEVELOPMENT OCTOBER 31, 2003 OCTOBER 31, 2003 ---------------------------- ---------------- ---------------- TNT development (Cotara(TM)) $ 703,000 $ 24,878,000 VEA development 209,000 3,932,000 VTA development 1,043,000 7,213,000 Oncolym(R)development 20,000 13,249,000 ---------------- ---------------- Total research and development $ 1,975,000 $ 49,272,000 ================ ================ From inception to April 1998, we have expensed $20,898,000 on research and development of our product candidates, with the costs primarily being closely split between the TNT and Oncolym(R) technologies. In addition to the above costs, we have expensed an aggregate of $32,004,000 for the acquisition of our TNT and VTA technologies, which were acquired during fiscal years 1995 and 1997, respectively. Looking beyond the next twelve months, it is extremely difficult for us to reasonably estimate all future research and development costs associated with each of our technologies due to the number of unknowns and uncertainties associated with pre-clinical and clinical trial development. These unknown variables and uncertainties include, but are not limited to: o The uncertainty of our capital resources to fund research, development and clinical studies beyond the current fiscal year; o The uncertainty of future costs associated with our pre-clinical candidates, Vasopermeation Enhancement Agents and Vascular Targeting Agents, which costs are dependent on the success of pre-clinical development. We are uncertain whether or not these product candidates will be successful and we are uncertain whether or not we will incur any additional costs beyond pre-clinical development; o The uncertainty of future clinical trial results; o The uncertainty of the number of patients to be treated in any clinical trial; o The uncertainty of the Food and Drug Administration allowing our studies to move forward from Phase I clinical studies to Phase II and Phase III clinical studies; o The uncertainty of the rate at which patients are enrolled into any current or future study. Any delays in clinical trials could significantly increase the cost of the study and would extend the estimated completion dates. o The uncertainty of terms related to potential future partnering or licensing arrangements; and o The uncertainty of protocol changes and modifications in the design of our clinical trial studies, which may increase or decrease our future costs. We or our potential partners will need to do additional development and clinical testing prior to seeking any regulatory approval for commercialization of our product candidates as all of our products are in clinical and pre-clinical development. Testing, manufacturing, commercialization, advertising, promotion, exporting and marketing, among other things, of our proposed products are subject to extensive regulation by governmental authorities in the United States and other countries. The testing and approval process requires substantial time, effort and financial resources, and we cannot guarantee that any approval will be granted on a timely basis, if at all. 22 Companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in conducting advanced human clinical trials, even after obtaining promising results in earlier trials. Furthermore, the United States Food and Drug Administration may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. Even if regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which it may be marketed. Accordingly, we or our potential partners may experience difficulties and delays in obtaining necessary governmental clearances and approvals to market our products, and we or our potential partners may not be able to obtain all necessary governmental clearances and approvals to market our products. The increase in selling, general and administrative expenses of $296,000 and $605,000 during the three and six months ended October 31, 2003, respectively, compared to the same periods in the prior year is primarily due to an increase in director fees associated with increased oversight responsibilities mandated by the Sarbanes-Oxley Act of 2002. Prior to the current fiscal year, directors did not receive any cash compensation other than the reimbursement of expenses. The increase in selling, general and administrative expenses was further supplemented by an increase in consulting and business development activities associated with Avid and our efforts to license our technologies under development combined with an increase in salary and related expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: - --------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED OCTOBER 31, OCTOBER 31, ------------------------------------------ -------------------------------------------- 2003 2002 $ CHANGE 2003 2002 $ CHANGE ----------- ----------- ------------ ------------ ----------- ------------ (in thousands) SELLING, GENERAL AND ADMINISTRATIVE $ 1,109 $ 813 $ 296 $ 2,128 $ 1,523 $ 605 The decrease in interest and other expense of $184,000 during the three months ended October 31, 2003 compared to the same period in the prior year is primarily due to a decrease in interest expense associated with the convertible debt issued in August 2002 as a result of a lower average convertible debt balance during the current quarter compared to the prior year. The increase in interest and other expense of $1,174,000 during the six months ended October 31, 2003 compared to the same period in the prior year is primarily due to an increase in non-cash interest expense associated with the amortization of the convertible debt discount and debt issuance costs related to the conversions of convertible debt primarily during the quarter ended July 31, 2003. 23
INTEREST AND OTHER EXPENSE: - --------------------------- THREE MONTHS ENDED SIX MONTHS ENDED OCTOBER 31, OCTOBER 31, -------------------------------------------- --------------------------------------------- 2003 2002 $ CHANGE 2003 2002 $ CHANGE ----------- ----------- ------------- ------------- ----------- ------------ (in thousands) INTEREST AND OTHER EXPENSE $ 87 $ 271 ($ 184) $ 1,446 $ 272 $ 1,174 LIQUIDITY AND CAPITAL RESOURCES At October 31, 2003, we had $11,276,000 in cash and cash equivalents. From November 1, 2003 through December 10, 2003, we raised an additional $4,409,000 in gross proceeds in exchange for 2,160,000 shares of our common stock (as further explained in our notes to the consolidated financial statements contained herein). As of December 10, 2003, we had $14,321,000 in cash and cash equivalents. Since inception, we have generally financed our operations primarily through the sale of our common stock and issuance of convertible debt, which has been supplemented with payments received from various licensing collaborations and through the revenues generated by Avid. During the six months ended October 31, 2003, cash used in operating activities decreased $1,717,000 to $5,636,000 compared to $7,353,000 for the six months ended October 31, 2002. Net cash used in investing activities increased $90,000 to $248,000 for the six months ended October 31, 2003 compared to $158,000 for the six months ended October 31, 2002. Net cash provided by financing activities increased $5,959,000 to $14,023,000 for the six months ended October 31, 2003 compared to net cash provided of $8,064,000 for the same prior year period. The increase in net cash provided by financing activities was due to $14,023,000 in net proceeds received from the sale of our common stock and the exercise of options and warrants during the six months ended October 31, 2003. We have expended substantial funds on the development of our product candidates and for clinical trials and we have incurred negative cash flows from operations for the majority of our years since inception. We expect negative cash flows from operations to continue until we are able to generate sufficient revenue from the contract manufacturing services provided by Avid and/or from the licensing of Peregrine's products under development. Revenues earned by Avid during the six months ended October 31, 2003 amounted to $1,192,000. We expect that Avid will continue to generate revenues which should lower consolidated cash flows used in operations, although we expect those near term revenues will be insufficient to cover consolidated cash flows used in operations. As such, we will continue to need to raise additional capital to provide for our operations, including the anticipated development and clinical costs of Cotara(TM), the anticipated development costs associated with Vasopermeation Enhancement Agents ("VEA's") and Vascular Targeting Agents ("VTA's"), and the potential expansion of Avid's manufacturing capabilities. Assuming we do not raise any additional capital from financing activities or from the sale or licensing of our technologies, and further assuming that Avid does not generate any additional revenues beyond our current active contracts, we believe we have sufficient cash on hand to meet our obligations on a timely basis for at least the next twelve months. In addition to equity financing, we are actively exploring various other sources of cash by leveraging our many assets. The transactions being explored include licensing, partnering or the sale of Cotara(TM) and Oncolym(R), divesting all radiopharmaceutical based technologies, including Oncolym(R), Cotara(TM), and radiopharmaceutical uses of our VTA's, and licensing or partnering our various VEA and VTA based technology uses. In addition to licensing, partnering or the divestiture of some of our technologies to raise capital, we are also exploring a possible strategic transaction related to our subsidiary, Avid Bioservices, Inc. In this regard, we are exploring the possibility to partner or a complete sale of Avid as a means of raising additional capital. 24 There can be no assurances that we will be successful in raising such funds on terms acceptable to us, or at all, or that sufficient additional capital will be raised to complete the research, development, and clinical testing of our product candidates. COMMITMENTS At October 31, 2003, we had no material capital commitments, although we have significant obligations under license agreements which are contingent on clinical trial development milestones. RISK FACTORS OF OUR COMPANY The biotechnology industry includes many risks and challenges. Our challenges may include, but are not limited to: uncertainties associated with completing pre-clinical and clinical trials for our technologies; the significant costs to develop our products as all of our products are currently in development, pre-clinical studies or clinical trials and no revenue has been generated from commercial product sales; obtaining additional financing to support our operations and the development of our products; obtaining regulatory approval for our technologies; complying with governmental regulations applicable to our business; obtaining the raw materials necessary in the development of such compounds; consummating collaborative arrangements with corporate partners for product development; achieving milestones under collaborative arrangements with corporate partners; developing the capacity to manufacture, market and sell our products, either directly or indirectly with collaborative partners; developing market demand for and acceptance of such products; competing effectively with other pharmaceutical and biotechnological products; attracting and retaining key personnel; protecting proprietary rights; accurately forecasting operating and capital expenditures, other capital commitments, or clinical trial costs and general economic conditions. A more detailed discussion regarding our industry and business risk factors can be found in our Annual Report on Form 10-K for the year ended April 30, 2003, as filed with the Securities and Exchange Commission on July 29, 2003. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Changes in United States interest rates would affect the interest earned on the Company's cash and cash equivalents. Based on the Company's overall interest rate exposure at October 31, 2003, a near-term change in interest rates, based on historical movements, would not materially affect the fair value of interest rate sensitive instruments. The Company's debt instruments have fixed interest rates and terms and, therefore, a significant change in interest rates would not have a material adverse effect on the Company's financial position or results of operations. ITEM 4. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are designed to ensure that information required to be disclosed in its reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. 25 The Company carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of October 31, 2003, the end of the period covered by this Quarterly Report. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were effective at the reasonable assurance level as of October 31, 2003. There have been no changes in the Company's internal control over financial reporting, during the quarter ended October 31, 2003, that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. The following is a summary of transactions by the Company during the quarterly period of August 1, 2003 through October 31, 2003 involving issuance and sales of the Company's securities that were not registered under the Securities Act of 1933, as amended (the "Securities Act"). On August 13, 2003, a debenture holder elected to convert $150,000 of the outstanding convertible debt in exchange for 176,471 shares of common stock at the conversion price of $0.85 per share. The convertible debentures were issued in conjunction with a Securities Purchase Agreement ("SPA") entered into during August 2002. The issuances of the securities of the Company in the above transactions were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) thereof or Regulation D promulgated thereunder, as a transaction by an issuer not involving a public offering. The recipient of such securities either received adequate information about the Company or had access, through employment or other relationships with the Company, to such information. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. We held our annual meeting of stockholders' on October 14, 2003. The following represents the matters voted upon and the results of the voting. AGAINST OR ROUTINE MATTERS FOR WITHHELD ---------------- ---------------- 1) Election of Directors: Carlton M. Johnson 112,095,845 2,837,604 Steven W. King 113,082,658 1,850,791 Eric S. Swartz 112,686,169 2,247,280 Clive R. Taylor, M.D., Ph.D. 113,630,343 1,303,106 26 AGAINST OR ROUTINE MATTERS FOR WITHHELD ---------------- ---------------- 2) To ratify the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending April 30, 2004. 114,494,450 438,997 3) To approve an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of the Company's common stock by 25,000,000 shares. 110,109,290 4,824,158 4) To approve the adoption of the Company's 2003 Stock Incentive Plan 24,684,217 7,011,953 ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORT ON FORM 8-K. (a) Exhibits: 3.1 Amended and Restated Bylaws of Peregrine Pharmaceuticals, Inc. 3.5 Certificate of Amendment to Certificate of Incorporation of Peregrine Pharmaceucticals, Inc. to increase the number of authorized shares of the Company's common stock to 200,000,000 million. 10.91 Common Stock Purchase Agreement dated September 18, 2003 between Registrant and one institutional investor. 31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K: None. 27 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PEREGRINE PHARMACEUTICALS, INC. By: /s/ Steven W. King -------------------------------------- Steven W. King President & Chief Executive Officer /s/ Paul J. Lytle -------------------------------------- Paul J. Lytle Chief Financial Officer (signed both as an officer duly authorized to sign on behalf of the Registrant and principal financial officer and chief accounting officer) 28
EXHIBIT 3.1 AMENDED AND RESTATED BYLAWS OF PEREGRINE PHARAMCEUTICALS, INC., A DELAWARE CORPORATION
Page ---- ARTICLE I OFFICES............................................................................1 Section 1. Registered Office.........................................................1 Section 2. Other Offices.............................................................1 Section 3. Books.....................................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS...........................................................1 Section 1. Place of Meetings.........................................................1 Section 2. Annual Meetings...........................................................1 Section 3. Special Meetings..........................................................1 Section 4. Notification of Business to be Transacted at Meeting......................1 Section 5. Notice; Waiver of Notice..................................................2 Section 6. Quorum; Adjournment.......................................................2 Section 7. Voting....................................................................2 Section 8. Stockholder Action by Written Consent Without a Meeting...................2 Section 9. List of Stockholders Entitled to Vote.....................................3 Section 10. Stock Ledger..............................................................3 Section 11. Inspectors of Election....................................................3 Section 12. Organization..............................................................3 Section 13. Order of Business.........................................................3 ARTICLE III DIRECTORS..........................................................................3 Section 1. Powers....................................................................3 Section 2. Number and Election of Directors..........................................4 Section 3. Vacancies.................................................................4 Section 4. Time and Place of Meetings................................................4 Section 5. Annual Meeting............................................................4 Section 6. Regular Meetings..........................................................4 Section 7. Special Meetings..........................................................4 Section 8. Quorum; Vote Required for Action; Adjournment.............................5 Section 9. Action by Written Consent.................................................5 Section 10. Telephone Meetings........................................................5 Section 11. Committees................................................................5 Section 12. Compensation..............................................................6 Section 13. Interested Directors......................................................6 ARTICLE IV OFFICERS...........................................................................6 Section 1. Officers..................................................................6 Section 2. Appointment of Officers...................................................6 Section 3. Subordinate Officers......................................................7 Section 4. Removal and Resignation of Officers.......................................7 Section 5. Vacancies in Offices......................................................7 Section 6. Chairman of the Board.....................................................7 Section 7. Vice Chairman of the Board................................................7 Section 8. Chief Executive Officer...................................................7 Section 9. President.................................................................7 Section 10. Vice President............................................................8 Page ---- Section 11. Secretary.................................................................8 Section 12. Chief Financial Officer...................................................8 ARTICLE V STOCK..............................................................................8 Section 1. Form of Certificates......................................................8 Section 2. Signatures................................................................9 Section 3. Lost Certificates.........................................................9 Section 4. Transfers.................................................................9 Section 5. Record Holders............................................................9 ARTICLE VI INDEMNIFICATION....................................................................9 Section 1. Right to Indemnification..................................................9 Section 2. Right of Indemnitee to Bring Suit........................................10 Section 3. Non-Exclusivity of Rights................................................10 Section 4. Insurance................................................................10 Section 5. Indemnification of Employees or Agents of the Corporation................11 Section 6. Indemnification Contracts................................................11 Section 7. Effect of Amendment......................................................11 ARTICLE VII GENERAL PROVISIONS................................................................11 Section 1. Dividends................................................................11 Section 2. Disbursements............................................................11 Section 3. Fiscal Year..............................................................11 Section 4. Corporate Seal...........................................................11 Section 5. Record Date..............................................................11 Section 6. Voting of Stock Owned by the Corporation.................................12 Section 7. Construction and Definitions.............................................12 Section 8. Amendments...............................................................12 AMENDED AND RESTATED BYLAWS OF PEREGRINE PHARAMCEUTICALS, INC., A DELAWARE CORPORATION ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The registered office of the Corporation in the State of Delaware shall be in the City of Dover, County of Kent. SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. SECTION 3. BOOKS. The books of the Corporation may be kept within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. All meetings of stockholders for the election of directors shall be held at such place either within or without the State of Delaware as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2. ANNUAL MEETINGS. Annual meetings of stockholders shall be held at a time and date designated by the Board of Directors for the purpose of electing directors and transacting such other business as may properly be brought before the meeting. SECTION 3. SPECIAL MEETINGS. Special meetings of stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called only by the Board of Directors, pursuant to a resolution adopted by a majority of the entire Board of Directors. As used in these Bylaws, the term "entire Board of Directors" shall mean the total authorized number of directors. Such request shall state the purpose or purposes of the proposed meeting. SECTION 4. NOTIFICATION OF BUSINESS TO BE TRANSACTED AT MEETING. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder entitled to vote at the meeting. SECTION 5. NOTICE; WAIVER OF NOTICE. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by law, such notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. A written waiver of any such notice signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 6. QUORUM; ADJOURNMENT. Except as otherwise required by law, or provided by the Certificate of Incorporation or these Bylaws, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of enough votes to leave less than a quorum, if any action taken is approved by at least a majority of the required quorum to conduct that meeting. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. SECTION 7. VOTING. Except as otherwise required by law, or provided by the Certificate of Incorporation or these Bylaws, any question brought before any meeting of stockholders at which a quorum is present shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote thereat. Unless otherwise provided in the Certificate of Incorporation, each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy, but no proxy shall be voted on or after three (3) years from its date, unless such proxy provides for a longer period. Elections of directors need not be by ballot unless the Chairman of the meeting so directs or unless a stockholder demands election by ballot at the meeting and before the voting begins. SECTION 8. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Commencing September 27, 1996, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. 2 SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. SECTION 10. STOCK LEDGER. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 9 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting of stockholders, the Board of Directors may appoint one or more persons (who shall not be candidates for office) as inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not so appointed, or if an appointed inspector fails to appear or fails or refuses to act at a meeting, the Chairman of any meeting of stockholders may, and on the request of any stockholder or his proxy shall, appoint an inspector or inspectors of election at the meeting. The duties of such inspector(s) shall include: determining the number of shares outstanding and the voting power of each; the shares represented at the meeting; the existence of a quorum; the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining the result; and such acts as may be proper to conduct the election or vote with fairness to all stockholders. In the event of any dispute between or among the inspectors, the determination of the majority of the inspectors shall be binding. SECTION 12. ORGANIZATION. At each meeting of stockholders the Chairman of the Board of Directors, if one shall have been elected, (or in his absence or if one shall not have been elected, the President) shall act as Chairman of the meeting. The Secretary (or in his absence or inability to act, the person whom the Chairman of the meeting shall appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof. SECTION 13. ORDER OF BUSINESS. The order and manner of transacting business at all meetings of stockholders shall be determined by the Chairman of the meeting. ARTICLE III DIRECTORS SECTION 1. POWERS. Except as otherwise required by law or provided by the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. 3 SECTION 2. NUMBER AND ELECTION OF DIRECTORS. Subject to any limitations in the Certificate of Incorporation, the authorized number of directors of the Corporation shall be not less than four (4) nor more than nine (9) with the exact number to be four directors, until changed by resolution adopted by the Board of Directors. Directors shall be elected at each annual meeting of stockholders to replace directors whose terms then expire, and each director elected shall hold office until his successor is duly elected and qualified, or until his earlier death, resignation or removal. Any director may resign at any time effective upon giving written notice to the Board of Directors, unless the notice specifies a later time for such resignation to become effective. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor prior to such effective time to take office when such resignation becomes effective. Directors need not be stockholders. SECTION 3. VACANCIES. Subject to the limitations in the Certificate of Incorporation, vacancies in the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Each director so selected shall hold office for the remainder of the full term of office of the former director which such director replaces and until his successor is duly elected and qualified, or until his earlier death, resignation or removal. No decrease in the authorized number of directors constituting the Board of Directors shall shorten the term of any incumbent directors. SECTION 4. TIME AND PLACE OF MEETINGS. The Board of Directors shall hold its meetings at such place, either within or without the State of Delaware, and at such time as may be determined from time to time by the Board of Directors. SECTION 5. ANNUAL MEETING. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such place, either within or without the State of Delaware, on such date and at such time as shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III or in a waiver of notice thereof. SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware at such date and time as the Board of Directors may from time to time determine and, if so determined by the Board of Directors, notices thereof need not be given. SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, the Secretary or by any two or more directors. Notice of the date, time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at the director's address as it is shown on the records of the Corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. In case the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. The notice need not specify 4 the purpose of the meeting. A written waiver of any such notice signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. SECTION 8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. Except as otherwise required by law, or provided in the Certificate of Incorporation or these Bylaws, a majority of the total number of directors then holding office shall constitute a quorum for the transaction of business at all meetings of the Board of Directors and the affirmative vote of not less than a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. A meeting at which a quorum is initially present may continue to transact business, notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum to conduct that meeting. When a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Board of Directors may transact any business which might have been transacted at the original meeting. SECTION 9. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 10. TELEPHONE MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee, as the case may be, by conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section 10 shall constitute presence in person at such meeting. SECTION 11. COMMITTEES. The Board of Directors may, by resolution passed unanimously by the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any such committee, who may replace any absent or disqualified member at any meeting of the committee. In the event of absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the committee member or members present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Any committee, to the extent allowed by law and as provided in the resolution establishing such committee, shall have and may exercise all the power and authority of the Board of Directors in the management of the business and affairs of the Corporation, but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of 5 all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Each committee shall keep regular minutes of its meetings and report to the Board of Directors when required. The Board of Directors has, by resolution duly adopted, designated a Compensation Committee, which Committee shall have full authority to consider all compensation issues of this Corporation. SECTION 12. COMPENSATION. The directors may be paid such compensation for their services as the Board of Directors shall from time to time determine. SECTION 13. INTERESTED DIRECTORS. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or the committee thereof which authorizes the contract or transaction, or solely because his of their votes are counted for such purpose if: (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV OFFICERS SECTION 1. OFFICERS. The officers of the Corporation shall be a President, a Secretary and a Chief Financial Officer. The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, a Vice Chairman of the Board, a Chief Executive Officer, one or more Vice Presidents, one or more Assistant Financial Officers and Treasurers, one or more Assistant Secretaries and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article IV. SECTION 2. APPOINTMENT OF OFFICERS. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 3 or Section 5 of this Article IV, shall be appointed by the Board of Directors, and each shall serve at the pleasure of the Board, subject to the rights, if any, of an officer under any contract of employment. 6 SECTION 3. SUBORDINATE OFFICERS. The Board of Directors may appoint, and may empower the Chief Executive Officer or President to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the Bylaws or as the Board of Directors may from time to time determine. SECTION 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights of an officer under any contract, any officer may be removed at any time, with or without cause, by the Board of Directors or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights of the Corporation under any contract to which the officer is a party. SECTION 5. VACANCIES IN OFFICES. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to that office. SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer is elected, shall, if present, preside at meetings of the stockholders and of the Board of Directors. He shall, in addition, perform such other functions (if any) as may be prescribed by the Bylaws or the Board of Directors. SECTION 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if such an officer is elected, shall, in the absence or disability of the Chairman of the Board, perform all duties of the Chairman of the Board and when so acting shall have all the powers of and be subject to all of the restrictions upon the Chairman of the Board. The Vice Chairman of the Board shall have such other powers and duties as may be prescribed by the Board of Directors or the Bylaws. SECTION 8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Corporation shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and the officers of the Corporation. He shall exercise the duties usually vested in the chief executive officer of a corporation and perform such other powers and duties as may be assigned to him from time to time by the Board of Directors or prescribed by the Bylaws. In the absence of the Chairman of the Board and any Vice Chairman of the Board, the Chief Executive Officer shall preside at all meetings of the stockholders and of the Board of Directors. SECTION 9. PRESIDENT. The President of the Corporation shall, subject to the control of the Board of Directors and the Chief Executive Officer of the Corporation, if there be such an officer, have general powers and duties of management usually vested in the office of president of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or the Bylaws or the Chief Executive Officer of the Corporation. In the absence of the Chairman of the Board, Vice Chairman of the Board and Chief Executive Officer, the President shall preside at all meetings of the Board of Directors and stockholders. 7 SECTION 10. VICE PRESIDENT. In the absence or disability of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and subject to all the restrictions upon, the President. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the Bylaws, and the President, or the Chairman of the Board. SECTION 11. SECRETARY. The Secretary shall keep or cause to be kept, at the principal executive office or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of Directors, committees of Directors, and stockholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice given, the names of those present at Directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and a summary of the proceedings. The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required by the Bylaws or by law to be given, and he shall keep or cause to be kept the seal of the Corporation if one be adopted, in safe custody, and shall have such powers and perform such other duties as may be prescribed by the Board of Directors or by the Bylaws. SECTION 12. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all of his transactions as Chief Financial Officer and of the financial condition of the Corporation. The Chief Financial Officer shall also have such other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws. ARTICLE V STOCK SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of the Corporation (i) by the Chairman or Vice Chairman of the Board of Directors, or the President or a Vice President and (ii) by the Chief Financial Officer or the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such stockholder in the Corporation. 8 SECTION 2. SIGNATURES. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 3. LOST CERTIFICATES. The Corporation may issue a new certificate to be issued in place of any certificate theretofore issued by the Corporation, alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen or destroyed. The Corporation may, in the discretion of the Board of Directors and as a condition precedent to the issuance of such new certificate, require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond (or other security) sufficient to indemnify it against any claim that may be made against the Corporation (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws or in any agreement with the stockholder making the transfer. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. SECTION 5. RECORD HOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the record holder of shares to receive dividends, and to vote as such record holder, and to hold liable for calls and assessments a person registered on its books as the record holder of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law. ARTICLE VI INDEMNIFICATION SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, however, that, 9 except as provided in Section 2 of this Article VI with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such indemnitee is not entitled to be indemnified for such expenses under this Article VI or otherwise (hereinafter an "undertaking"). SECTION 2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 1 of this Article VI is not paid in full by the Corporation within forty-five (45) days after a written claim has been received by the Corporation, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or part in any such suit or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard of conduct set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified or to such advancement of expenses under this Article VI or otherwise shall be on the Corporation. SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The rights of indemnification and to the advancement of expenses conferred in this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. SECTION 4. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. 10 SECTION 5. INDEMNIFICATION OF EMPLOYEES OR AGENTS OF THE CORPORATION. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses, to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VI with respect to the indemnification and advancement of expenses of directors or officers of the Corporation. SECTION 6. INDEMNIFICATION CONTRACTS. The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this Article VI. SECTION 7. EFFECT OF AMENDMENT. Any amendment, repeal or modification of any provision of this Article VI by the stockholders or the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification. ARTICLE VII GENERAL PROVISIONS SECTION 1. DIVIDENDS. Subject to limitations contained in the General Corporation Law of the State of Delaware and the Certificate of Incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, securities of the Corporation or other property. SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 4. CORPORATE SEAL. The Corporation shall have a corporate seal in such form as shall be prescribed by the Board of Directors. SECTION 5. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record 11 date for the adjourned meeting. Stockholders on the record date are entitled to notice and to vote or to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date, except as otherwise provided by agreement or by applicable law. SECTION 6. VOTING OF STOCK OWNED BY THE CORPORATION. The Chairman of the Board, the Chief Executive Officer, the President and any other officer of the Corporation authorized by the Board of Directors shall have power, on behalf of the Corporation, to attend, vote and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock. SECTION 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction and definitions in the General Corporation Law of the State of Delaware shall govern the construction of these Bylaws. SECTION 8. AMENDMENTS. Subject to the General Corporation Law of the State of Delaware, the Certificate of Incorporation and these Bylaws, the Board of Directors may by the affirmative vote of a majority of the entire Board of Directors amend or repeal these Bylaws, or adopt other Bylaws as in their judgment may be advisable for the regulation of the conduct of the affairs of the Corporation. Unless otherwise restricted by the Certificate of Incorporation, these Bylaws may be altered, amended or repealed, and new Bylaws may be adopted, at any annual meeting of the stockholders (or at any special meeting thereof duly called for that purpose) by a majority of the combined voting power of the then outstanding shares of capital stock of all classes and series of the Corporation entitled to vote generally in the election of directors, voting as a single class, provided that, in the notice of any such special meeting, notice of such purpose shall be given. 12
EXHIBIT 3.5 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF PEREGRINE PHARMACEUTICALS, INC. A DELAWARE CORPORATION PEREGRINE PHARMACEUTICALS, Inc, a corporation organized and existing under and by virtue of the Delaware General Corporation Law (hereinafter referred to as the "Corporation"), hereby certifies as follows: 1. That at a meeting of the Board of Directors of the Corporation resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and directing said amendment to be submitted to the stockholders of the Corporation at a special meeting. The resolutions setting forth the proposed amendment is as follows: "RESOLVED, that the Certificate of Incorporation of the Corporation, as amended, be hereby further amended by changing the first sentence of ARTICLE 4 so that it shall read as follows: "The total number of shares of all classes of stock which the Corporation shall have authority to issue is 205,000,000, of which (i) 200,000,000 shares shall be designated "Common Stock" and shall have a par value of $0.001 per share; and (ii) 5,000,000 shares shall be designated "Preferred Stock" and shall have a par value of $0.001 per share." 2. That thereafter, pursuant to resolution of the Board of Directors, an Annual Meeting of the stockholders of the Corporation was duly called and held, upon notice in accordance with Section 222 of the Delaware General Corporation Law, at which Annual Meeting the necessary number of shares as required by statute were voted in favor of the amendment. 3. That said amendment was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed by Steven W. King, its President & CEO, and attested to by Paul J. Lytle, its Secretary, this 14th day of October, 2003. PEREGRINE PHARMACEUTICALS, INC. a Delaware corporation By: /S/STEVEN W. KING --------------------------------- Steven W. King, President & CEO ATTEST: /S/ PAUL J. LYTLE - --------------------------------- Paul J. Lytle, Secretary
EXHIBIT 10.91 PEREGRINE PHARMACEUTICALS, INC. COMMON STOCK PURCHASE AGREEMENT UP TO 2,800,000 SHARES OF COMMON STOCK SEPTEMBER 18, 2003 COMMON STOCK PURCHASE AGREEMENT ------------------------------- This Common Stock Purchase Agreement (this "Agreement") is made and entered into as of September 18, 2003, by and between Peregrine Pharmaceuticals, Inc., a Delaware corporation (the "Company"), and Melton Management, Ltd. (the "Investor"). RECITALS -------- WHEREAS, the Company has filed with the Securities and Exchange Commission ("SEC") a Shelf Registration Statement on Form S-3 No. 333-103965, which was declared effective by the SEC on March 31, 2003 (the "Form S-3"). WHEREAS, pursuant to the Form S-3, the Company may offer to the public from time to time up to 10,000,000 shares of common stock, par value $0.001 per share (the "Common Stock"). WHEREAS, in accordance with the parties' term sheet dated September 18, 2003 (the "Term Sheet"), the Company desires to sell and issue to the Investor under the Form S-3 up to an aggregate of Two Million Eight Hundred Thousand (2,800,000) shares of Common Stock, all in the manner described below. NOW, THEREFORE, in consideration of the covenants, agreements and considerations herein contained, the Company and Investor agree as follows: 1. PURCHASE AND SALE OF SHARES 1.1 PUT OF SHARES. Subject to the terms and conditions hereof, for a period of six (6) months commencing on the date hereof, the Company shall have the right to put (each a "Put") to the Investor, by way of one or more Puts, up to an aggregate of Two Million Eight Hundred Thousand (2,800,000) shares (the "Put Limit") of Common Stock (the "Shares"), by delivering to the Investor a written notice (the "Put Notice") by 6:30 p.m. Eastern Time specifying the number of Shares to be put and sold to the Investor on such date, and the per share purchase price. The form of Put Notice is attached hereto as Exhibit I. The date that the Put Notice is delivered is referred to as the "Put Date." 1 1.2 PURCHASE PRICE. As full consideration for the sale of the Shares to Investor in connection with each Put, the Investor shall deliver to the Company within three (3) business days after receipt of the Put Notice (the "Put Closing Date"), the purchase price for such Shares by wire transfer of immediately available funds to such account as the Company shall designate. Unless otherwise agreed in writing under Exhibit II, the per share purchase price applicable for each Put shall based upon the following: -------------------------------------- ----------------------------------- AVERAGE CLOSING PRICE OF COMMON STOCK FOR 3 CONSECUTIVE TRADING DAYS ENDING PER SHARE PURCHASE PRICE ON THE DAY PRIOR TO THE PUT DATE FOR PUT -------------------------------------- ----------------------------------- $1.40 to $1.54 $1.25 $1.55 to $1.69 $1.38 $1.70 to 1.84 $150 $1.85 to $1.99 $1.63 $2.00 to $2.24 $1.75 $2.25 to $2.49 $1.95 $2.50 to $2.74 $2.13 $2.75 and greater $2.34 -------------------------------------- ----------------------------------- Within three (3) business days following the Put Closing Date, the Company shall deliver to the Investor or its designee the shares via DWAC or a stock certificate representing the Shares purchased in the Put. The Shares shall be delivered free of restrictive legends and stop transfer instructions. 1.3 PUT LIMITATIONS. Unless the parties agree by mutually signing the Put Notice, the Company (i) may not deliver a Put Notice on any day in which the Company's Common Stock closes on the prior day, at a price below $1.40 per share, and (ii) may not deliver a Put Notice for a number of shares in excess of fifteen percent (15%) of the aggregate trading volume for the three (3) consecutive trading days prior to the Put Date. 1.4 TERMINATION OF PUT RIGHT. The Company's right to deliver a Put Notice pursuant to this Agreement shall terminate on the first to occur of (i) the date that is six (6) months from the date hereof, and (ii) the Investor having acquired pursuant to Puts a number of Shares equal to the Put Limit. Notwithstanding the termination of the Put Right pursuant to clause (i), the Investor shall be obligated to complete any Put delivered on or before such date. 2. TERMINATION This Agreement may be terminated by either party, upon written notice having immediate effect, if the other party (i) defaults in any material respect in the performance of any of its obligations or any of its representations or warranties under this Agreement or otherwise commits any material breach of this Agreement and such default is not cured within ten (10) days after written notice specifying in reasonable detail the nature of such default. The Company may terminate this Agreement immediately upon written notice to the Investor. 2 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth below, the Company makes no representations or warranties of any nature or kind. 3.1 ORGANIZATION, STANDING AND POWER. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the corporate power to own its properties and to carry on its business as now being conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified would have a material adverse effect on the business, assets or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole. 3.2 CAPITALIZATION. The authorized capital stock of the Company consists of 175,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share, of which, as of September 15, 2003, there were approximately 133,732,000 shares of common stock and nil shares of preferred stock, issued and outstanding. The Company is not a party to any voting trust agreements or understandings with respect to the voting common stock of the Company. There are no preemptive or similar rights to purchase or otherwise acquire shares of capital stock of the Company pursuant to any provision of law, the Certificate of Incorporation, the bylaws of the Company or any agreement to which the Company is a party. 3.3 AUTHORIZATION. 3.3.1 The Company has full legal right, power and capacity to enter into, execute, deliver and perform this Agreement and all attendant documents and instruments contemplated hereby. 3.3.2 This Agreement has been duly executed and delivered and constitutes the legal, valid and binding obligation of the Company and is enforceable with respect to the Company in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, priority or other laws or court decisions relating to or affecting generally the enforcement of creditors' rights or affecting generally the availability of equitable remedies. 3.3.3 The execution and delivery of this Agreement by the Company, and the consummation of the transactions contemplated hereby by the Company in accordance with the terms hereof shall not conflict with or result in a breach of, violation of, or default under (or constitute an event that with notice, lapse of time, or both, would constitute a breach or default under), or result in the termination of, or accelerate the performance required by, or result in the creation of any liens or other encumbrances upon any of the properties or assets of the Company under any of the terms, conditions or provisions of the Certificate of Incorporation or Bylaws, any provision of the laws of the State of California or the State of Delaware, or any note, bond, mortgage, indenture, deed of trust, license, lease, credit agreement or other agreement, document, instrument or obligation to which the Company is a party or by which any of its assets or properties are bound. 3.3.4 Neither the execution and delivery of this Agreement by the Company, nor the consummation of the transactions, contemplated hereunder by the Company will violate or conflict with any judgment, order, decree, statute, rule or regulation applicable to the Company or its assets or properties. 3 3.4 VALID ISSUANCE OF COMMON STOCK. 3.4.1 The Shares being purchased by the Investor hereunder, when issued, sold and delivered in accordance with the terms hereof or thereof, for the consideration expressed herein or therein, will be duly and validly issued, fully paid and nonassessble and will be issued in compliance with all applicable federal and state securities laws. 3.4.2 The outstanding shares of Common Stock are all duly and validly authorized and issued, fully paid and nonassessable, and were issued in compliance with all applicable federal and state securities laws. 3.4.3 The Company has full power, right and authority to transfer, convey and sell to the Investors on the Closing Date the Shares and upon consummation of the transactions contemplated by this Agreement, each Investor will have acquired good and marketable title to the Shares purchased by such Investor, free and clear of claims, liens, restrictions on transfer or voting or encumbrances. 3.4.4 The Company has taken the requisite action to cause the Shares to be listed on the Nasdaq SmallCap Market. 3.5 LITIGATION. Except as referred to in the SEC Documents, as defined below, the Form S-3, or as disclosed in Schedule 3.5, there are no claims, suits, actions or proceedings pending or, to the knowledge of the Company, threatened against, relating to or affecting the Company or any of its subsidiaries, before any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator that would reasonably be expected, either alone or in the aggregate with all such claims, actions or proceedings, to have a material adverse effect on the Company's business or financial condition or the transactions contemplated hereunder. Except as referred to in the Company's SEC Documents, neither the Company nor any of its subsidiaries is subject to any judgment, decree, injunction, rule or order of any court, governmental department, commission, agency, instrumentality or authority, or any arbitrator which prohibits or restricts the consummation of the transactions contemplated hereby or would have a material adverse effect on the Company's business or financial condition or the transactions contemplated hereunder. 3.6 SEC DOCUMENTS; THE COMPANY'S FINANCIAL STATEMENTS. The Company is a reporting company under the Securities Exchange Act of 1934 (the "Exchange Act"), and files annual and periodic reports (the "SEC Documents") with the Securities and Exchange Commission (the "SEC"). As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended, applicable to the Company and to the knowledge of the Company none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a subsequently filed document with the SEC. The SEC Documents contain an audited consolidated balance sheet of the Company as of the end of the last completed fiscal year (the "Balance Sheet") and the related 4 audited consolidated statements of income and cash flow for the year then ended (collectively, the "Financials"). The Financials have been prepared in accordance with GAAP applied on a basis consistent through the periods indicated and consistent with each other. The Financials present fairly the consolidated financial condition and operating results and cash flows of the Company and its subsidiaries as of the dates and during the periods indicated therein. Since the date of the Balance Sheet and until the date of this Agreement, there has not occurred any material adverse change in the business, assets or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole, which has not been reflected in the SEC Documents. 3.7 FORM S-3. The Company has delivered to each Investor a copy of the Form S-3. The Company represents and warrants that the Form S-3 has been declared effective by the SEC and is not subject to any stop order. The Company is not aware of any event, fact or circumstance, which would cause the Form S-3 to contain a material misstatement or require the filing of an amendment thereto. The Company at the time of the initial filing of the Form S-3 met the SEC's eligibility requirements for use of a Form S-3 in connection with a primary offering. The Company agrees to timely file all periodic reports required to be filed under the Exchange Act in order to keep the S-3 in effect, and to promptly file any amendments, if necessary, and deliver to the Investor a copy of any such amendment. 3.8 DISCLOSURE. Neither this Agreement, nor any of the schedules, attachments, or certificates attached to this Agreement or delivered by the Company on the Closing Date, contains any untrue statements of material fact or omits a material fact necessary to make the statements contained herein or therein not misleading. There is no fact which the Company has not disclosed to the Investor, orally or in writing, and of which any of the Company's directors or officers are aware, which could reasonably be anticipated to have a material adverse effect, upon the financial condition, operating results or assets, of the Company. Notwithstanding the foregoing, certain information provided by the Company to the Investor contained statements that are forward-looking, which are covered by the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future, and accordingly, such results may differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. 3.9 NO CONSENTS. The execution, delivery and performance by the Company of this Agreement and the offer, issuance and sale of the Shares require no consent of, action by or in respect of, or filing with, any individual or entity, governmental body, agency, or official other than filings that have been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws which the Company undertakes to file within the applicable time periods. 3.10 REGULATORY COMPLIANCE. The Company is not in violation of any applicable law, regulation, judgment, order or consent decree (of any governmental or non-governmental regulatory or self-regulatory agency or any organized exchange, including without limitation, the SEC, any state or local securities or insurance regulatory body, or the Internal Revenue Service), which violation is likely to have a material adverse effect on the Company's business, financial condition, or this transaction. 5 3.11 REGULATORY PROCEEDINGS, INVESTIGATIONS AND INQUIRIES. The Company has not been the subject of any material regulatory proceeding, examination, investigation or inquiry (known to the Company), including any pending or threatened regulatory proceeding, investigation or inquiry (known to the Company) (including without limitation any by governmental or non-governmental regulatory or self-regulatory agency or any organized exchange) relating to the Company. 3.12 REGISTRATION STATEMENT. The Company's Registration Statement on Form S-3 (the "Registration Statement") was declared effective by the SEC on March 31, 2003. The Registration Statement is effective on the date hereof and the Company has not received notice that the SEC has issued or intends to issue a stop order with respect to such Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened in writing to do so. The Registration Statement (including the information or documents incorporated by reference therein), as of the time it was declared effective, and any amendments or supplements thereto, each as of the time of filing, did not contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. With respect to each completed Put, the Company hereby agrees to file with the SEC, as required, either an amendment or a prospectus supplement in accordance with the required timelines as prescribed under Rule 424(b)(2) of the Securities Act. The issuance of the Shares to the Investor is registered by the Registration Statement and, when issued to the Investor, the Shares shall be freely tradeable by the Investor. 3.13 COMPLIANCE WITH NASDAQ CONTINUED LISTING REQUIREMENTS. The Company is in compliance with applicable Nasdaq SmallCap Market continued listing requirements. There are no proceedings pending or, to the Company's knowledge, threatened against the Company relating to the continued listing of the Common Stock on the Nasdaq SmallCap Market and the Company has not received any currently effective notice of, nor to the Company's knowledge is there any basis for, the delisting of the Common Stock from the Nasdaq SmallCap Market. 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR The Investor hereby represents and warrants to the Company the following: 4.1 AUTHORITY. Investor has full legal right, power and capacity to enter into, execute, deliver and perform this Agreement and all attendant documents and instruments contemplated hereby. This Agreement has been duly executed and delivered and constitutes the legal, valid and binding obligation of Investor and is enforceable with respect to Investor in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, priority or other laws or court decisions relating to or affecting generally the enforcement of creditors' rights or affecting generally the availability of equitable remedies. 4.2 NO VIOLATION OF AGREEMENTS. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereunder by Investor will violate or conflict with any judgment, order, decree, statute, rule or regulation applicable to Investor or its assets or properties. 6 4.3 DISCLOSURE OF INFORMATION. Subject in part to the truth and accuracy of the representations and warranties of the Company, the Investor believes that it has received all the information that it considers necessary or appropriate for deciding whether to purchase the Shares. The Investor further represents that it has had an opportunity to review the SEC Documents and the Form S-3, and had sufficient opportunity to ask questions and receive answers from the Company and its directors and officers regarding the terms and conditions of the offering of the Shares and the business and operations of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 3 of this Agreement or the right of the Investor to rely thereon. 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY The obligations of the Company to consummate each Put contemplated by this Agreement shall be subject to the satisfaction of each of the conditions set forth below, any or all of which may be waived by the Company in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by the Company of any other condition or of any of the Company's rights or remedies, at law or in equity, if the Investor shall be in default or breach of any of its representations, warranties or agreements under this Agreement: 5.1 PURCHASE PRICE. Investor shall deliver the applicable Put purchase price on the date specified in Section 1.2. 5.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Investor contained in this Agreement shall be accurate and complete on and as of each Put Closing Date with the same effect as though such representations and warranties had been made on or as of such date. 5.3 PERFORMANCE OF AGREEMENTS. Each and all of the conditions precedent and agreements of the Investor subject to satisfaction on or before the Put Closing Date pursuant to the terms of this Agreement shall have been performed or satisfied. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF INVESTOR The obligations of the Investor to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction of each of the conditions set forth below, any or all of which may be waived by each Investor in whole or in part without prior notice; provided, however, that no such waiver of a condition shall constitute a waiver by such Investor of any other condition or of any of the Investor's rights or remedies, at law or in equity, if the Company shall be in default or breach of any of its representations, warranties or agreements under this Agreement: 6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company contained in this Agreement shall be accurate and complete on and as of the Put with the same effect as though such representations and warranties had been made on or as of such date. 7 6.2 PERFORMANCE OF AGREEMENTS. Each and all of the conditions precedent and agreements of the Company subject to satisfaction on or before the Put Closing Date pursuant to the terms of this Agreement shall have been performed or satisfied. 6.3 NO ADVERSE EVENTS. Between the date hereof and the Put Closing Date, neither the business, assets or condition, financial or otherwise, of the Company taken as a whole shall have been materially adversely affected in any manner. 6.4 NO DELINQUENT SHARES. The Company shall not then be delinquent its obligation to deliver Shares in accordance with Section 1.2 with respect to prior Puts. 7. INDEMNIFICATION 7.1 To the extent permitted by law, the Company will indemnify and hold harmless, the Investor, the directors and officers, if any, of the Investor, and each person, if any, who controls the Investor within the meaning of the Securities Act or the Exchange Act (each, an "Indemnified Person"), against any losses, claims, damages, liabilities or expenses (joint or several) incurred (collectively, "Claims") to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced in respect thereof) arise out of or are based upon: (i) any untrue statement or untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or untrue statement of a material fact contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or omission to state therein any material fact necessary to make the statements made therein, in the light of the circumstances under which the statements therein were made, not misleading or (iii) any violation or violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation under the Securities Act, the Exchange Act or any state securities law (the matters in the foregoing clauses (i) through (iii) being collectively referred to as "Violations"). The Company shall reimburse the Investor, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 7 shall not (i) apply to any Claims arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, (ii) be available to the extent such Claim is based on a failure of the Investor to deliver or cause to be delivered the prospectus made available by the Company; or (iii) apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. The Investor will indemnify the Company, its officers, directors and agents (including legal counsel) (each an "Indemnified Person") against any claims 8 arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company, by or on behalf of the Investor, expressly for use in connection with the preparation of the Registration Statement, subject to such limitations and conditions set forth in this Section 7. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person or Indemnified Party, and shall survive the sale of the Shares by the Subscriber. 7.2 Promptly after receipt by an Indemnified Person under this Section of notice of the commencement of any action (including any governmental action), such Indemnified Person shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person, as the case may be; PROVIDED, HOWEVER, that an Indemnified Person shall have the right to retain its own counsel with the reasonable fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person under this Section except to the extent that the indemnifying party is prejudiced in its ability to defend such action. The indemnification required by this Section shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. 7.3 To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 7 to the fullest extent permitted by law. 8. MISCELLANEOUS 8.1 EXPENSES, COMMISSIONS AND TAXES. Each party shall bear and pay its own expenses, including legal, accounting and other professional fees, and taxes incurred in connection with the transactions referred to in this Agreement. The party responsible under applicable law shall bear and pay in their entirety all other taxes and registration and transfer fees, if any, payable by reason of the sale and conveyance of the Shares. 8.2 ENTIRE AGREEMENT; MODIFICATIONS; WAIVER. This Agreement, together with the related agreements or certificates referenced herein, constitutes the final, exclusive and complete understanding of the parties with respect to the subject matter hereof and supersedes any and all prior understandings and discussions with respect thereto. No variation or modification of this Agreement and no waiver of any provision or condition hereof, or granting of any consent contemplated hereby, shall be valid unless in writing and signed by the party against whom enforcement of any such variation, modification, waiver or consent is sought. 9 8.3 FURTHER ASSURANCES. The parties hereto shall use their best efforts, and shall cooperate with one another, to secure all necessary consents, approvals, authorizations, exemptions and waivers from third parties as shall be required in order to consummate the transactions contemplated hereby, and shall otherwise use their best efforts to cause such transactions to be consummated in accordance with the terms and conditions hereof. At any time or from time to time after the Closing Date, each party hereto, shall execute and deliver any further instruments or documents and take all such further action as such requesting party may reasonably request in order to consummate and document the transactions contemplated hereby. 8.4 CAPTIONS. The captions in this Agreement are for convenience only and shall not be considered a part of or affect the constructing or interpretation of any provision of this Agreement. 8.5 SECTION REFERENCES. Unless otherwise noted, all section references herein are to sections of this Agreement. 8.6 COUNTERPARTS. This Agreement may be executed in any number of counterparts, including electronically transmitted counterparts, each of which when so executed shall constitute an original copy hereof, but all of which together shall constitute one agreement. 8.7 SUCCESSORS AND ASSIGNS. Neither party shall have the right to assign this Agreement. 8.8 PARTIES IN INTEREST. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the parties to it and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action over against any party to this Agreement. 8.9 NOTICES. All notices, requests, demands and other communications hereunder ("Notices") shall be in writing and shall be deemed to have been duly given if delivered by hand or by registered or certified mail or upon fax notice with confirmation of receipt, as follows: If to Investor: Melton Management, Ltd. Jerusalem, Israel Attention: Mr. Breitkope Fax: 011-972-2-652-1063 with copies to: Wall & Broad Equities Mr. Howard Bash Fax: 718-972-6803 If to the Company: Peregrine Pharmaceutical, Inc. 14272 Franklin Avenue, Suite 100 Tustin, California 92780 Attn.: President Fax: 714-838-5817 10 with copy to: Falk, Shaff & Ziebell Mr. Mark Ziebell Fax: 949-660-7799 or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. All Notices shall be deemed received on the date of delivery or, if mailed, on the date appearing on the return receipt therefor. 8.10 LAW GOVERNING. This Agreement shall be governed by, and construed and enforced in accordance with the laws of the State of California, without regard to its choice-of-laws or conflicts-of-law rules. 8.11 SURVIVAL. The representations and warranties contained in this Agreement shall survive the Closing Date indefinitely. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of date first above written. "The Company" Peregrine Pharmaceuticals, Inc., a Delaware corporation By: /s/ Paul J. Lytle -------------------------------- Name: Paul Lytle Title: CFO "Investor" Melton Management, Ltd By: /s/ Y. Breitkope -------------------------------- Name: Y Breitkope Title: Director 11 EXHIBIT I PUT NOTICE PEREGRINE PHARMACEUTICALS, INC. (the "Company") pursuant to the terms of the Common Stock Purchase Agreement dated September 18, 2003 (the "Purchase Agreement") hereby intends, subject to the Put Limit (as defined in the Purchase Agreement), to elect to exercise a Put to sell the number of shares of Common Stock of the Company specified below at a price per share specified below, to Melton Management, Ltd., the Investor, as of the Put Closing Date written below. Date of Put Notice: __________________ Intended Put Date: __________________ Intended Put Share Amount: __________________ Per Share Purchase Price: __________________ Aggregate Purchase Price: __________________ The undersigned executive officer of the Company, hereby certifies that the representations and warranties in the Purchase Agreement are true and correct in all material respects as of the date hereof. By: ________________________________ Name: ______________________________ Title: _____________________________ AGREED AND ACCEPTED BY "INVESTOR" - -------------------------------------------------------------------------------- "Investor" Melton Management, Ltd By: ______________________________ Date: ______________________ Name: ____________________________ Title: _____________________ 12 EXHIBIT II PUT NOTICE PEREGRINE PHARMACEUTICALS, INC. (the "Company") pursuant to the terms of the Common Stock Purchase Agreement dated September 18, 2003 (the "Purchase Agreement") hereby intends, subject to the Put Limit (as defined in the Purchase Agreement), to elect to exercise a Put to sell the number of shares of Common Stock of the Company specified below at a price per share specified below, to Melton Management, Ltd., the Investor, as of the Put Closing Date written below. Date of Put Notice: __________________ Intended Put Date: __________________ Intended Put Share Amount: __________________ Per Share Purchase Price(1): __________________ Aggregate Purchase Price: __________________ (1) The above purchase price differs from that Price otherwise determinable pursuant to Section 1.2. By signing below, each party agrees to the revise purchase price. The undersigned executive officer of the Company, hereby certifies that the representations and warranties in the Purchase Agreement are true and correct in all material respects as of the date hereof. By: ________________________________ Name: ______________________________ Title: _____________________________ AGREED AND ACCEPTED BY "INVESTOR" - -------------------------------------------------------------------------------- "Investor" Melton Management, Ltd By: ______________________________ Date: ______________________ Name: ____________________________ Title: _____________________ 13
EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven W. King, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Peregrine Pharmaceuticals, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: December 12, 2003 Signed: /s/ Steven W. King ------------------------------------- Steven W. King PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Paul J. Lytle, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Peregrine Pharmaceuticals, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: December 12, 2003 Signed: /s/ Paul J. Lytle -------------------------------- Paul J. Lytle CHIEF FINANCIAL OFFICER
EXHIBIT 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Each of the undersigned hereby certifies, in his capacity as an officer of Peregrine Pharmaceuticals, Inc. (the "Company"), for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge: (1) the Quarterly Report of the Company on Form 10-Q for the period ended October 31, 2003 fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: December 12, 2003 ------------------ /s/ Steven W. King - ------------------------------------- Steven W. King PRESIDENT AND CHIEF EXECUTIVE OFFICER /s/ Paul J. Lytle - ------------------------------------ Paul J. Lytle CHIEF FINANCIAL OFFICER A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO PEREGRINE PHARMACEUTICALS, INC. AND WILL BE RETAINED BY PEREGRINE PHARMACEUTICALS, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.