Company Name: La Jolla Pharmaceutical Co., Inc.
Public Availability Date: 02-18-1997
[INQUIRY LETTER 1]
ORIGINAL TEXT ILLEGIBLE, DUNN & CRUTCHER LLP
JAMBOREE CENTER
4 PARK PLAZA
IRVINE, CALIFORNIA 92614-8557
TELEPHONE(714) 451-3800 January 10, 1997 Office of Chief Counsel
Division of Corporation Finance
U.S. Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549 Re: Stockholder Proposal Submitted to La Jolla Pharmaceutical Company by Ralph
T. Forr Dear Sir or Madam: La Jolla Pharmaceutical Company, Inc. (the "Company"), a Delaware corporation
engaged in researching and developing drugs to fight antibody-mediated diseases,
has received a stockholder proposal from Mr. Ralph T. Forr. Mr. Forr wishes to
have his proposal included in the Company's proxy statement for its 1997 annual
meeting of stockholders to be held in late April or May. As counsel to the Company, we believe the Company may properly exclude Mr.
Forr's proposal from its 1997 proxy statement and form of proxy for the
following reasons: (1) The Proposal deals with a matter relating to the conduct of the ordinary
business operations of the registrant and is therefore excludable under Rule
14a-8(c)(7). (2) The Proposal relates to operations which account for less than 5 percent of
the registrant's total assets at the end of its most recent fiscal year, and for
less than 5 percent of its net earnings and gross sales for the most recent
fiscal year, and is not otherwise significantly related to the registrant's
business and is therefore excludable under Rule 14a-8(c)(5). (3) The Proposal is contrary to the Commission's proxy rules and regulations
prohibiting false or misleading statements in proxy soliciting materials, and
relates to personal anti-abortion interests of the proponent not shared by the
Company's stockholders at large, and is therefore excludable under Rules
14a-8(c)(3) and (4). (4) The Proposal is not a proper subject for action by security holders under
state law and is therefore excludable under Rule 14a-8(c)(1). A more complete explanation of our reasoning is set forth below. Pursuant to
Rule 14a-8(d), six copies of this letter and of Mr. Forr's proposal and
supporting statement (collectively referred to as the "Proposal") are included
herewith. We are also forwarding a copy of this letter to Mr. Forr, who has been
notified by way of a separate letter of the Company's intention to exclude his
proposal from its 1997 proxy materials. A. The Proposal Relates to the Ordinary Business Operations of the Company. The Company believes that it may omit the Proposal from the 1997 proxy materials
pursuant to Rule 14a-8(c)(7), which provides for the exclusion of a stockholder
proposal that "deals with a matter relating to the conduct of the ordinary
business operations of the registrant." The Company's business is pharmaceutical research and development, and the staff
has on several occasions identified decisions related to the conduct of research
and development activities as "ordinary business." These include decisions on
what products to develop, manufacture and distribute (Eli Lilly and Company,
available February 8, 1990), the amount and location of research and development
activities (Arizona Public Service Company, available February 27, 1984), and
the allocation of money towards research (General Dynamics Corporations.
available March 16, 1983). The Proposal would interfere with the Company's fundamental business activities
by giving stockholders direct authority over aspects of the Company's research
and development programs, which in turn could dictate or impact in a significant
way the types of products that the Company might be able to develop and what
types of research the Company may conduct. We are aware that some proponents have argued that broad social policy concerns
override Rule 14a-8(c)(7), and it seems clear that the real agenda of the
proponent and the target of the Proposal is abortion. The staff has previously
given no-action advice with respect to exclusion of stockholder proposals
relating to abortion when they relate to the conduct of the corporation's
ordinary business operations. Some examples can be found in the staff's letters
to International Business Machines Corporation (available February 19, 1992)
relating to employee benefit payments for abortions, American Express Company
(available February 28, 1992), Enron Corporation (available February 28, 1992),
and U.S. West, Inc. (available February 25, 1992) relating to payments to
organizations that support abortion, and Minnesota Mining and Manufacturing
Company (available January 3, 1996) relating to charitable contributions and the
content of corporate literature and advertising. The Company believes that these
precedents support its exclusion of the Proposal from its proxy materials
pursuant to Rule 14a-8(c)(7). Additional no-action letters addressed to Eli Lilly and Company (available
February 8, 1990) and Hospital Corporation of America (available February 12,
1986) are of particular relevance here. In Eli Lilly and Company, a stockholder
submitted a proposal requesting Eli Lilly to investigate the feasibility and
profitability of manufacturing and distributing RU-486, widely known as "the
abortion pill," a drug capable of terminating certain pregnancies. The Staff
recognized the proposal as a stockholder attempt to influence manufacturing
decisions, which the board of directors usually controls, and allowed Eli Lilly
to apply the (c)(7) exception. Notwithstanding the policy questions raised by
the underlying abortion issue, the proposal was excludable because it related to
Lilly's ordinary business operations, i.e. "the choice of products to develop,
manufacture and distribute." Our situation is analogous not only because the
Proposal would affect the Company's ordinary research activities, but also
because the Proposal could affect the Company's ability to develop, manufacture
and distribute various drugs by dictating the types of research methods that the
Company may use. In Hospital Corporation of America, the Staff determined that a stockholder
proposal calling for the prohibition of abortion services at facilities owned by
Hospital Corp. was excludable based on Rule 14a-8(c)(7). The Staff agreed that
"the determination of medical procedures to be performed in the company's
facilities" was within the ordinary business of the company. Analogously, the
Company believes that because determinations about research procedures are
within the scope of the Company's ordinary business of pharmaceutical research
and development, the Proposal should be excluded from the Company's proxy
materials. B. The Proposal Deals with a Practice Insignificant to the Company's Business. The Company also believes that it may exclude the Proposal according to Rule
14a-8(c)(5) because it relates to matters that account for less than 5 percent
of the Company's total assets, net earnings and gross sales for the most recent
fiscal year, and is not otherwise significantly related to the registrant's
business. The Company does not use fetal tissue or body parts from intentionally
aborted fetuses, so the Proposal not only falls below the economic threshold
articulated in Rule 14a-8(c)(5), it does not bear "a significant relationship to
the corporation's business as demonstrated on the face of the resolution or
supporting statement," as required by the standards articulated in '34 Act
Release No. 19,135, (1982) (emphasis added). Lovenheim v. Iroquois Brands, Ltd., 618 F. Supp. 554 (D.D.C. 1985) provides
authority for the proposition that even socially significant proposals may be
excluded if they lack a sufficient nexus to the registrant's actual business. In
that case, the proposal sought a study of the production methods used by the
corporation's supplier of pate de fois gras to determine whether inhumane force
feeding methods were being used on the supplier's geese. The court noted that,
while issues of social or ethical significance could be includable in the
registrant's proxy materials even if below 5 percent economic threshold, "the
result would, of course, be different if plaintiff's proposal was ethically
significant in the abstract but had no meaningful relationship to the business
of the corporation as the corporation was not engaged in the business of
importing pate de foie gras." Id. at 561 n. 16. Therefore, even if the staff
determines that fetal tissue research or voluntary abortions are ethically
significant issues, the fact that the Company does not use fetal tissue or body
parts from intentionally aborted fetuses should support the Company's position
that the Proposal relates to matters insignificant to the Company's business and
is therefore excludable under Rule 14a-8(c)(5). C. The Proposal Contains False or Misleading Statements and Reflects Personal
Interests. Rule 14a-8(c)(3) provides that a registrant may properly omit a stockholder
proposal from its proxy material if "the proposal or the supporting statement is
contrary to any . . . proxy rules and regulations, including Rule 14a-9 . . .,
which prohibits false or misleading statements in proxy soliciting materials."
The note to Rule 14a-9 provides that charges of immorality that lack factual
foundation are misleading. Furthermore, Rule 14a-8(c)(4) allows a registrant to
omit a stockholder proposal that is designed to further a personal interest not
shared with the registrant's stockholders at large. The Proposal suggests that the use of any product of an intentional abortion is
unethical and would encourage abortion, and the proponent's supporting statement
claims that such a practice would be "akin to the type of experimentation
performed during World War II by scientists working for the Nazis in Germany."
However, the proponent provides no evidence that the use of fetal tissue would
increase the current rate of abortion and the relevant moral issues remain open
to debate. In addition, the statement regarding Nazi experimentation is
misleading and inflammatory. Finally, the Proposal appears intended to be
motivated by Mr. Forr's personal anti-abortion views, and there is no evidence
that the interests of the Company to its stockholders at large are implicated by
these views. D. The Proposal Requires Action by Stockholders that is Improper Under Delaware
Law. Rule 14a-8(c)(1) states that a proposal may be excluded if, according to "the
laws of the registrant's domicile, it is not a proper subject for action by
security holders." Under Section 141 of the Delaware General Corporation Law,
the board of directors of a Delaware Corporation is responsible for managing the
corporation's business and affairs. The Proposal states: "Be it resolved that La
Jolla Pharmaceutical will refrain from using any fetal tissue or human body
parts . . ." As such, the Proposal relates to the Company's business and
affairs, and if approved by stockholders it would replace the board's management
and discretion in this area with a stockholder directive. Consequently, we are
of the opinion that the Proposal may properly be omitted from the Company's 1997
proxy materials. We believe the Staff's no-action letters to OnBanCorp, Inc.
(available February 15, 1996), Tandem Computers, Inc. (available November 8,
1995), and Columbia Gas System, Inc. (available January 16, 1996) support this
opinion. E. Conclusion For the reasons set forth herein, the Company submits that the Proposal may
properly be omitted from its 1997 proxy materials in accordance with Rule 14a-8. We appreciate your time and attention in considering this matter. In the event
that the Staff has any questions regarding this letter, please feel free to
contact the undersigned. Very truly yours, Brian W. Copple BWC/ABT/slt cc: Ralph T. Forr
Wood C. Erwin
[INQUIRY LETTER 2]
SULLIVAN, FURR, STOKAN & ORIGINAL TEXT ILLEGIBLE
1701 FIFTH AVENUE
ALTOONA, PA 16602-2319
TELEPHONE(814) 946-4316 April 17, 1996 La Jolla Pharmaceutical Company
6455 Nancy Ridge Drive
San Diego, CA 92121 ATTENTION: MR. WOOD C. ERWIN, SECRETARY STOCKHOLDER'S PROPOSAL Dear Mr. Erwin: As a stockholder and owner of 300 shares of La Jolla Pharmaceutical Company, I
would submit the following proposal for consideration at the 1997 Annual Meeting
of Stockholders: Be it resolved that La Jolla Pharmaceutical will refrain from using any fetal
tissue or human body parts obtained from any intentionally aborted unborn
children. My purpose in submitting this proposal is to insure that any company that I own
stock in does not participate in the use of fetal tissue or body parts obtained
from intentionally aborted children. It is respectfully submitted that the use
of such body parts, tissue or materials obtained from an intentionally aborted
child would be unethical and akin to the type of experimentation performed
during World War II by scientists working for the Nazis in Germany. It is
further respectfully submitted that the use of such tissue, body tissue, or
materials encourages abortion when the obvious and real goal of the products
being developed by La Jolla Pharmaceutical are for the enhancement and
betterment of life and are not in any manner connected with its destruction. Accordingly, this proposal is being submitted to insure that La Jolla
Pharmaceutical Company does not engage in activities which would encourage or
condone abortions. Respectfully submitted, Ralph T. Forr, Jr., a/k/a
R. Thomas Forr, Jr. RTF/dm
Home Address: 2715 3rd Street
Altoona, PA 16601
[STAFF REPLY LETTER]
February 18, 1997 RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE Re: La Jolla Pharmaceutical Company (the "Company")
Incoming letter dated January 10, 1997 The proposal requires the Company to refrain from using fetal tissue or human
body parts obtained from any intentionally aborted unborn children. There appears to be some basis for your view that the proposal may be excluded
pursuant to Rule 14a-8(c)(5). In arriving at a position, the staff particularly
notes that the Company does not use fetal tissue or body parts from
intentionally aborted fetuses. Under the circumstances, this Division will not
recommend enforcement action to the Commission if the Company omits the proposal
from its proxy materials in reliance on Rule 14a-8(c)(5). In reaching a
position, the staff has not found it necessary to address the alternative bases
for omission upon which the Company relies. Sincerely, Amy M. Trombly
Attorney Advisor
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