<PAGE> 1
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 JUNE 30, 1998
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: 0-24274
LA JOLLA PHARMACEUTICAL COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 33-0361285
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6455 NANCY RIDGE DRIVE 92121
SAN DIEGO, CA (Zip Code)
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (619) 452-6600
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 [ ]
The number of shares of the Registrant's common stock, $.01 par value,
outstanding at June 30, 1998 was 18,188,948.
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LA JOLLA PHARMACEUTICAL COMPANY
FORM 10-Q
QUARTERLY REPORT
INDEX
<TABLE>
<S> <C>
COVER PAGE....................................................................................... 1
INDEX ........................................................................................... 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets as of June 30, 1998 (Unaudited) and December 31, 1997 ...................... 3
Statements of Operations (Unaudited) for the three months and six months ended
June 30, 1998 and 1997 .................................................................. 4
Statements of Cash Flows (Unaudited) for the six months ended June 30, 1998 and 1997...... 5
Notes to Financial Statements (Unaudited) ................................................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................................ 7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ....................... *
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ................................................................ *
ITEM 2. Changes in Securities ............................................................ *
ITEM 3. Defaults upon Senior Securities .................................................. *
ITEM 4. Submission of Matters to a Vote of Security Holders .............................. 10
ITEM 5. Other information ................................................................ *
ITEM 6. Exhibits and Reports on Form 8-K ................................................. 10
SIGNATURE ....................................................................................... 12
</TABLE>
* No information provided due to inapplicability of item.
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LA JOLLA PHARMACEUTICAL COMPANY
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 15,708 $ 11,999
Short-term investments .......................................... 6,902 14,979
Other current assets............................................. 507 658
-------- --------
Total current assets ....................................... 23,117 27,636
Property and equipment, net ........................................... 665 946
Patent costs and other assets, net .................................... 1,219 1,064
-------- --------
Total assets ............................................... $ 25,001 $ 29,646
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 385 $ 1,256
Accrued expenses ................................................ 513 880
Accrued payroll and related expenses ............................ 440 377
Deferred revenue - related party ................................ 1,907 1,277
Current portion of obligations under capital leases ............. 37 133
-------- --------
Total current liabilities .................................. 3,282 3,923
Noncurrent portion of obligations under capital leases ................ -- 8
Commitments
Stockholders' equity:
Common stock .................................................... 182 182
Additional paid-in capital ...................................... 80,368 80,304
Deferred compensation ........................................... (5) (30)
Accumulated deficit ............................................. (58,826) (54,741)
-------- --------
Total stockholders' equity ................................. 21,719 25,715
-------- --------
Total liabilities and stockholders' equity ................. $ 25,001 $ 29,646
======== ========
</TABLE>
Note: The balance sheet at December 31, 1997 has been derived from audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
3
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LA JOLLA PHARMACEUTICAL COMPANY
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue from collaborative agreement -
related party ............................................... $ 2,263 $ 2,130 $ 4,166 $ 4,494
Expenses:
Research and development .................................... 3,721 3,337 7,245 6,474
General and administrative .................................. 933 766 1,651 1,546
-------- -------- -------- --------
Total expenses .......................................... 4,654 4,103 8,896 8,020
-------- -------- -------- --------
Loss from operations .......................................... (2,391) (1,973) (4,730) (3,526)
Interest expense .............................................. (2) (16) (5) (40)
Interest income ............................................... 299 355 650 710
-------- -------- -------- --------
Net loss and comprehensive net loss ........................... $ (2,094) $ (1,634) $ (4,085) $ (2,856)
======== ======== ======== ========
Basic and diluted net loss per share .......................... $ (.12) $ (.09) $ (.22) $ (.17)
======== ======== ======== ========
Shares used in computing basic and
diluted net loss per share .................................... 18,169 17,284 18,165 17,284
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
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LA JOLLA PHARMACEUTICAL COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss .................................................................... $ (4,085) $ (2,856)
Adjustments to reconcile net loss to net cash (used
for) provided by operating activities:
Depreciation and amortization ........................................... 202 321
Deferred compensation amortization ...................................... 17 65
Change in operating assets and liabilities:
Receivable - related party .......................................... -- 4,000
Other current assets ................................................ 151 352
Accounts payable and accrued expenses ............................... (1,238) (1,886)
Accrued payroll and related expenses ................................ 63 119
Deferred revenue - related party .................................... 630 2,547
-------- --------
Net cash (used for) provided by operating activities ........................ (4,260) 2,662
INVESTING ACTIVITIES
Decrease (increase) in short-term investments ............................... 8,077 (32)
Deletions (additions) to property and equipment ............................. 96 (38)
Increase in patent costs and other assets.................................... (172) (152)
-------- --------
Net cash provided by (used for) investing activities ........................ 8,001 (222)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock .................................. 72 58
Payments on obligations under capital leases................................. (104) (478)
-------- --------
Net cash used for financing activities ...................................... (32) (420)
Net increase in cash and cash equivalents ................................... 3,709 2,020
Cash and cash equivalents at beginning of period ............................ 11,999 6,613
-------- --------
Cash and cash equivalents at end of period .................................. $ 15,708 $ 8,633
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ............................................................... $ 5 $ 40
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Adjustment to deferred compensation for terminations ........................ $ 8 $ 16
======== ========
</TABLE>
See accompanying notes.
5
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LA JOLLA PHARMACEUTICAL COMPANY
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of La Jolla Pharmaceutical
Company (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six months ended June 30, 1998 are not necessarily indicative of the
results that may be expected for other quarters or the year ended December 31,
1998. For more complete financial information, these financial statements, and
the notes thereto, should be read in conjunction with the audited financial
statements for the year ended December 31, 1997 included in the Company's Form
10-K filed with the Securities and Exchange Commission.
2. ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and disclosures made in
the accompanying notes to the financial statements. Actual results could differ
from those estimates.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standard No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
requires that all components of comprehensive income, including net income, be
reported in the financial statements in the period in which they are recognized.
Comprehensive income is defined as the change in equity during the period from
transactions and other events and circumstances from non-owner sources. Net
income and other comprehensive income, including unrealized gains and losses on
investments, shall be reported, net of their related tax effect, to arrive at
comprehensive income. The Company's comprehensive net loss and net loss are the
same and therefore the adoption of SFAS 130 did not have an impact on the
financial statements.
SEGMENT INFORMATION
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standard No. 131, "Segment Information" ("SFAS 131"). SFAS 131 redefines
segments and requires companies to report financial and descriptive information
about their operating segments. The Company has determined that it operates in
one business segment and therefore the adoption of SFAS 131 did not affect the
Company's financial statements.
6
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LA JOLLA PHARMACEUTICAL COMPANY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion below includes forward-looking statements, including
without limitation those dealing with the Company's drug development plans and
clinical trials, its relationship with Abbott Laboratories ("Abbott"), and other
matters described in terms of the Company's plans and expectations. The
forward-looking statements involve risks and uncertainties and a number of
factors, both foreseen and unforeseen, could cause actual results to differ from
the Company's current expectations. The Company's ongoing Phase II/III clinical
trial of LJP 394, the Company's drug candidate for the treatment of lupus, could
result in a finding that LJP 394 is not effective in producing a sustained
reduction of dsDNA antibodies in large patient populations or does not provide a
meaningful clinical benefit. The Company's other potential drug candidates are
at earlier stages of development and involve comparable risks. Payments by
Abbott to the Company are contingent upon progress of clinical trials and the
Company's achievement of certain other milestones that might not be met. The
relationship with Abbott could be terminated by either party for various
reasons. Clinical trials could be delayed and could have negative or
inconclusive results. Additional risk factors include the uncertainty of future
revenue from product sales or other sources such as collaborative relationships,
the uncertainty of future profitability, the Company's dependence on patents and
other proprietary rights, the Company's limited manufacturing capabilities and
the Company's lack of marketing experience. Readers are cautioned not to place
undue reliance upon forward-looking statements, which speak only as of the date
hereof, and the Company undertakes no obligation to update forward-looking
statements to reflect events or circumstances occurring after the date hereof.
Interested parties are urged to review the risks described below and in other
reports and registration statements of the Company filed with the SEC from time
to time.
OVERVIEW
Since its inception in May 1989, the Company has devoted substantially
all of its resources to the research and development of technology and potential
drugs to treat antibody-mediated diseases. The Company has never generated any
revenue from product sales and has relied upon private and public investors,
revenues from collaborative agreements, equipment lease financings and interest
income on invested cash balances for its working capital. The Company has been
unprofitable since inception and expects to incur substantial additional
operating losses for at least the next several years as it increases
expenditures on research and development and allocates significant and
increasing resources to its manufacturing, clinical trials, and marketing
activities. The Company's activities to date are not as broad in depth or scope
as the activities it must undertake in the future, and the Company's historical
operations and the financial information reported below are not indicative of
its future operating results or financial condition.
The Company expects that losses will fluctuate from quarter to quarter
as a result of differences in the timing of expenses incurred and potential
revenues from collaborative arrangements. Some of these fluctuations may be
significant. The Company's research and development expenses are expected to
increase significantly in the future as the Company increases its development
efforts. As of June 30, 1998, the Company's accumulated deficit was
approximately $58.8 million.
The Company's business is subject to significant risks including, but
not limited to, the risks inherent in its research and development efforts,
including clinical trials, uncertainties associated with both obtaining and
enforcing its patents and with the patent rights of others, the lengthy,
expensive and uncertain process of seeking regulatory approvals, uncertainties
regarding government reforms and of product pricing and reimbursement levels,
technological change and competition, manufacturing uncertainties and dependence
on its collaborative relationship with Abbott. Even if the Company's product
7
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LA JOLLA PHARMACEUTICAL COMPANY
candidates appear promising at an early stage of development, they may not reach
the market for numerous reasons. Such reasons include the possibilities that the
products will be ineffective or unsafe during clinical trials, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on a
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties. All of the Company's
product development efforts are based upon technologies and therapeutic
approaches that are unproven. There can be no assurance that LJP 394 will
reliably induce or sustain suppression of disease-causing antibodies, or that
LJP 394 will prove to be safe or effective. Furthermore, clinical trials of LJP
394 may be viewed as a test of the Company's entire Tolerance Technology
approach. If these clinical trials are unsuccessful, the applicability of the
Company's Tolerance Technology to other antibody-mediated diseases will be
highly uncertain.
RESULTS OF OPERATIONS
The Company earned $2.3 million and $4.2 million in revenue from its
collaborative agreement with Abbott in the three and six months ended June 30,
1998, respectively, and earned $2.1 million and $4.5 million in revenue for the
same periods in 1997. Payments received in advance under the collaborative
agreement with Abbott are recorded as deferred revenue until earned. Total
revenue payments of approximately $4.8 million were received in advance under
the collaborative agreement with Abbott during the first six months of 1998, of
which approximately $2.1 million was received in the three months ended June 30,
1998. As of June 30, 1998, deferred revenue was approximately $1.9 million. The
receipt of payments and the recognition of revenue from the collaborative
agreement with Abbott may vary significantly from quarter to quarter and from
year to year depending on the level of research effort expended and the timing
of milestone payments. There can be no assurance that the Company will realize
any further revenue from the Abbott arrangement or any other collaborative
arrangement.
Research and development expenses increased to $3.7 million for the
second quarter of 1998 from $3.3 million for the same period in 1997. For the
six months ended June 30, 1998, research and development expense increased to
$7.2 million from $6.5 million for the same period in 1997. The increase was due
primarily to the expansion of the Company's research and development programs,
an increase in manufacturing scale-up activities and increased facilities
expenditures. The Company's research and development expenses are expected to
increase significantly in the future as the organization grows, efforts to
develop additional drug candidates are intensified and potential products
progress into and through clinical trials.
General and administrative expenses increased to $933,000 for the second
quarter of 1998 from $766,000 for the same period in 1997. For the six months
ended June 30, 1998, general and administrative expense increased to $1.7
million from $1.5 million for the same period in 1997. Several factors
contributed to this increase, including expanded business development and
investor relations activities. The Company expects general and administrative
expenses to increase in the future in order to support increased research and
development and manufacturing scale-up activities.
Interest income decreased to $299,000 for the second quarter of 1998
from $355,000 for the same period in 1997. For the six months ended June 30,
1998, interest income decreased to $650,000 from $710,000 for the same period in
1997. The decrease was due to lower investment balances. Interest expense
decreased to $2,000 for the second quarter of 1998 from $16,000 for the same
period in 1997. For the six months ended June 30, 1998, interest expense
decreased to $5,000 from $40,000 for the same period in 1997. The decrease was
the result of decreases in the Company's capital lease obligations as compared
to the same period in 1997.
8
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LA JOLLA PHARMACEUTICAL COMPANY
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had incurred a cumulative net loss
since inception OF approximately $58.8 million, and had financed its operations
through private and public offerings of its securities, payments under
collaborative agreements, capital and operating lease transactions, and interest
income on its invested cash balances. As of June 30, 1998, the Company had
raised $79.5 million in net proceeds since inception from sales of equity
securities.
At June 30, 1998, the Company had $22.6 million in cash, cash
equivalents and short-term investments, as compared to $27.0 million at December
31, 1997. The Company's working capital at June 30, 1998 was $19.8 million, as
compared to $23.7 million at December 31, 1997. The decrease in cash, cash
equivalents and short-term investments resulted from the continued use of the
Company's cash toward expenses of ongoing clinical and research and development
programs and related general and administrative expenses. The decrease in
working capital is primarily due to the use of cash for net operating expenses
in the first two quarters of 1998. The Company invests its cash in corporate and
United States government-backed debt instruments.
As of June 30, 1998, the Company had acquired an aggregate of $4.0
million in property and equipment, of which approximately $196,000 of total
fixed assets costs remains financed under capital lease obligations. In
addition, the Company leases its office and laboratory facilities and certain
property and equipment under operating leases. The Company has no material
commitments for the acquisition of property and equipment but anticipates
increasing investment in property and equipment in connection with the
enhancement of its research and development and manufacturing facilities and
capabilities.
The Company intends to use its financial resources to fund manufacturing
scale-up activities including the production of LJP 394 for clinical trials,
research and development efforts, and for working capital and other general
corporate purposes. The amounts actually expended for each purpose may vary
significantly depending upon numerous factors, including the results of clinical
trials, the timing of regulatory applications and approvals, and technological
developments. Expenditures will also depend upon the establishment and progress
of collaborative arrangements, contract research and the availability of other
financing. There can be no assurance that these funds will be available on
acceptable terms, if at all.
The Company anticipates that its existing capital and interest earned
thereon and anticipated funding from the Abbott collaboration will be sufficient
to fund the Company's operations as currently planned through 1999. The
Company's future capital requirements will depend on many factors including
continued scientific progress in its research and development programs, the size
and complexity of these programs, the scope and results of clinical trials, the
time and costs involved in applying for regulatory approvals, the costs involved
in preparing, filing, prosecuting, maintaining and enforcing patent claims,
competing technological and market developments, the ability of the Company to
maintain its collaborative arrangement with Abbott and to establish and maintain
additional collaborative relationships and the cost of manufacturing scale-up
and effective commercialization activities and arrangements. The Company expects
to incur significant net operating losses each year for at least the next
several years as it expands its current research and development programs and
increases its general and administrative expenses to support a larger, more
complex organization. It is possible that the Company's cash requirements will
exceed current projections and that the Company will therefore need additional
financing sooner than currently expected.
The Company has no current means of generating cash flow from
operations, and its lead drug candidate, LJP 394, will not generate revenues, if
at all, until it has been proven safe and effective, has received regulatory
approval, and has been successfully commercialized, a process that is expected
to take at least the next several years. The Company's other drug candidates are
much less developed than
9
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LA JOLLA PHARMACEUTICAL COMPANY
LJP 394. There can be no assurance that the Company's product development
efforts with respect to LJP 394 or any other drug candidate will be successfully
completed, that required regulatory approvals will be obtained, or that any
product, if introduced, will be successfully marketed or achieve commercial
acceptance. Accordingly, the Company must continue to rely upon outside sources
of financing to meet its capital needs for the foreseeable future.
Abbott's funding of the development costs for LJP 394 and milestone
payments are expected to continue to enhance the Company's short-term liquidity
by minimizing the expenditure of the Company's own funds on further development
of LJP 394. However, the Company anticipates increasing expenditures on the
development of other drug candidates, and over time, the Company's consumption
of cash will necessitate additional sources of financing. Furthermore, the
Company has no internal sources of liquidity, and termination of the Abbott
arrangement would have a serious adverse effect on the Company's ability to
generate sufficient cash to meet its needs.
The Company will continue to seek capital through any appropriate
means, including issuance of its securities and establishment of additional
collaborative arrangements. However, there can be no assurance that additional
financing will be available on acceptable terms, and the Company's negotiating
position in its capital-raising efforts may worsen as it continues to use its
existing resources. Financing through collaborative arrangements is uncertain
because payments under the Company's collaborative agreement with Abbott are
subject to certain termination rights, including those related to progress in
clinical trials for LJP 394, and there is no assurance that the Company will be
able to enter into further collaborative relationships.
IMPACT OF YEAR 2000
The "Year 2000 Issue" is the result of computer programs written in the
past that used two digits rather than four to define the applicable year. As a
result, these computer programs may not properly recognize calendar dates
beginning in the year 2000. This problem may cause systems to fail or
miscalculate causing disruptions of operations, including a temporary inability
to process transactions or engage in similar normal business activities.
The Company believes that its total internal Year 2000 Issue costs will
be minimal and that its Year 2000 conversion requirements will be achieved
through routine upgrades to its software programs. The Company expects these
upgrades to be completed by the end of 1998. These costs and the expected
completion date are based on management's best estimates; there can be no
assurance that these estimates will be achieved and actual results could differ
materially from those anticipated. The Company has also initiated communications
with all of its significant suppliers to determine the extent to which the
Company's systems are vulnerable to those third parties' failure to remediate
their own Year 2000 Issues. There can be no assurance that the systems of other
companies on which the Company's systems rely will be timely converted and will
not have an adverse effect on the Company's systems.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 13, 1998. All of the
Company's directors were re-elected.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10
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- ------- ----------------------------------------------------------------
Exhibit
Number Description
- ------- ----------------------------------------------------------------
3.1 Intentionally omitted
3.2 Bylaws of the Company (1)
3.3 Restated Certificate of Incorporation of the Company (2)
10.38 Master Lease Agreement No. 2 dated June 23, 1998 by and between
the Company and Transamerica Business Credit Corporation (3)
27 Financial Data Schedule (3)
- ----------------
(1) Previously filed with the Company's Registration Statement on Form S-1 (No.
33-76480) as declared effective by the Securities and Exchange Commission
on June 3, 1994.
(2) Previously filed with the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1994 and incorporated by reference herein
(3) Filed herein.
(B) REPORTS ON FORM 8-K
None
11
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LA JOLLA PHARMACEUTICAL COMPANY
SIGNATURE
JUNE 30, 1998
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
La Jolla Pharmaceutical Company
Date: August 12, 1998 By: /s/ Wood C. Erwin
-------------------------------------
Wood C. Erwin
Vice President Finance
Chief Financial Officer
Signed both on behalf of the
Registrant and as Principal
Accounting Officer.
12
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LA JOLLA PHARMACEUTICAL COMPANY
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<S> <C>
10.38 Master Lease Agreement No. 2 dated June 23, 1998 by and between the
Company and Transamerica Business Credit Corporation
27 Financial Data Schedule
</TABLE>
13
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EXHIBIT 10.38
MASTER LEASE AGREEMENT NO. 2
Lessor: TRANSAMERICA BUSINESS CREDIT CORPORATION
RIVERWAY II
WEST OFFICE TOWER
WEST HIGGINS ROAD
ROSEMONT, ILLINOIS 60018
Lessee: LA JOLLA PHARMACEUTICAL COMPANY
6455 NANCY RIDGE DRIVE
SAN DIEGO, CALIFORNIA 92121
The lessor pursuant to this Master Lease Agreement ("Agreement") dated June 29,
1998 is Transamerica Business Credit Corporation ("Lessor"). All equipment,
together with all present and future additions, parts, accessories, attachments,
substitutions, repairs, improvements and replacements thereof or thereto, which
are the subject of a Lease (as defined in the next sentence) shall be referred
to as "Equipment." Simultaneously with the execution and delivery of this
Agreement, the parties are entering into one or more Lease Schedules (each, a
"Schedule") which refer to and incorporate by reference this Agreement, each of
which constitutes a lease (each, a "Lease") for the Equipment specified therein.
Additional details pertaining to each Lease are specified in the applicable
Schedule. Each Schedule that the parties hereafter enter into shall constitute a
Lease. Lessor has no obligation to enter into any additional leases with, or
extend any future financing to, Lessee.
1. LEASE. Subject to and upon all of the terms and conditions of
this Agreement and each Schedule, Lessor hereby agrees to lease to Lessee and
Lessee hereby agrees to lease from Lessor the Equipment for the Term (as defined
in Paragraph 2 below) thereof.
2. TERM. Each Lease shall be effective and the term of each Lease
("Term") shall commence on the commencement date specified in the applicable
Schedule and, unless sooner terminated (as hereinafter provided), shall expire
at the end of the term specified in such Schedule; provided, however, that
obligations due to be performed by the Lessee during the Term shall continue
until they have been performed in full. Schedules will only be executed after
the delivery of the Equipment to Lessee or upon completion of deliveries of
items of such Equipment with aggregate cost of not less than $50,000.00.
3. RENT. Lessee shall pay as rent to Lessor, for use of the
Equipment during the Term or Renewal Term (as defined in Paragraph 8), rental
payments equal to the sum of all rental payments including, without limitation,
security deposits, advance rents and interim rents payable in the amounts and on
the dates specified in the applicable Schedule ("Rent"). If any Rent or other
amount payable by Lessee is not paid within three days after the day on which it
becomes payable, Lessee will pay on demand, as a late charge, an amount equal to
5% of such unpaid Rent or other amount but only to the extent permitted by
applicable law. All payments provided for herein shall be payable to Lessor at
its address specified above, or at any other place designated by Lessor.
4. LEASE NOT CANCELABLE; LESSEE'S OBLIGATIONS ABSOLUTE. No Lease
may be canceled or terminated except as expressly provided herein. Lessee's
obligation to pay all Rent due or to become due hereunder shall be absolute and
unconditional and shall not be subject to any delay, reduction, set-off,
defense, counterclaim or recoupment for any reason whatsoever, including any
failure of the Equipment or any representations by the manufacturer or the
vendor thereof. If the Equipment is unsatisfactory for any reason, Lessee shall
make any claim solely against the manufacturer or the vendor thereof and shall,
nevertheless, pay Lessor all Rent payable hereunder.
<PAGE> 2
5. SELECTION AND USE OF EQUIPMENT. Lessee agrees that it shall be
responsible for the selection, use of, and results obtained from, the Equipment
and any other associated equipment or services.
6. WARRANTIES. LESSOR MAKES NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION,
THE DESIGN OR CONDITION OF THE EQUIPMENT OR ITS MERCHANTABILITY, SUITABILITY,
QUALITY OR FITNESS FOR A PARTICULAR PURPOSE, AND HEREBY DISCLAIMS ANY SUCH
WARRANTY. LESSEE SPECIFICALLY WAIVES ALL RIGHTS TO MAKE A CLAIM AGAINST LESSOR
FOR BREACH OF ANY WARRANTY WHATSOEVER. LESSEE LEASES THE EQUIPMENT "AS IS." IN
NO EVENT SHALL LESSOR HAVE ANY LIABILITY FOR, NOR SHALL LESSEE HAVE ANY REMEDY
AGAINST LESSOR FOR, ANY LIABILITY, CLAIM, LOSS, DAMAGE OR EXPENSE CAUSED
DIRECTLY OR INDIRECTLY BY THE EQUIPMENT OR ANY DEFICIENCY OR DEFECT THEREOF OR
THE OPERATION, MAINTENANCE OR REPAIR THEREOF OR ANY CONSEQUENTIAL DAMAGES AS
THAT TERM IS USED IN SECTION 2-719(3) OF THE MODEL UNIFORM COMMERCIAL CODE OR
SIMILAR STATUTE ("UCC"). Lessor grants to Lessee, for the sole purpose of
prosecuting a claim, the benefits of any and all warranties made available by
the manufacturer or the vendor of the Equipment to the extent assignable.
7. DELIVERY. Lessor hereby appoints Lessee as Lessor's agent for
the sole and limited purpose of accepting delivery of the Equipment from each
vendor thereof. Lessee shall pay any and all delivery and installation charges.
Lessor shall not be liable to Lessee for any delay in, or failure of, delivery
of the Equipment.
8. RENEWAL. So long as no Event of Default or event, which with
the giving of notice, the passage of time, or both, would constitute an Event of
Default, shall have occurred and be continuing, or the Lessee shall not have
exercised its purchase option under Paragraph 9 hereof, the Lease will
automatically renew for a term of twelve months (the "Renewal Term") on the
terms and conditions set forth in the applicable Schedule, provided, however,
that obligations due to be performed by the Lessee during the Renewal Term shall
continue until they have been performed in full. The monthly rental payments for
the Renewal Term shall be equal to 1.00% of the equipment cost plus any monthly
sales or use tax.
9. PURCHASE OPTION. So long as no Event of Default or event
which, with the giving of notice, the passage of time, or both, would constitute
an Event of Default, shall have occurred and be continuing, Lessee may, upon
written notice to Lessor received at least one hundred eighty days before the
expiration of a Term, purchase all, but not less than all, the Equipment covered
by the applicable Lease on the date specified therefor in the applicable
Schedule ("Purchase Date"). The purchase price for such Equipment shall be its
fair market value on an "In-place, In-use" basis, as mutually agreed by Lessor
and Lessee, or, if they cannot agree, as determined by an independent appraiser
selected by Lessor and approved by Lessee, which approval will not be
unreasonably delayed or withheld. Lessee shall pay the cost of any such
appraisal. Notwithstanding the generality of the foregoing, Lessor and Lessee
agree that on the Purchase Date, the fair market value of the Equipment shall
not be less than 10% of equipment cost. So long as no Event of Default or event
which, with the giving of notice, the passage of time, or both, would constitute
an Event of Default, shall have occurred and be continuing, Lessee may, upon
written notice to Lessor received at least one hundred eighty days prior to the
expiration of the Renewal Term, purchase all, but not less than all, the
Equipment covered by the applicable Schedule by the date specified therein (the
"Second Purchase Date") at a purchase price equal to its then fair market value
on an "In-place, In- use" basis. On the Purchase Date or the Second Purchase
Date, as the case may be, for any Equipment, Lessee shall pay to Lessor the
applicable purchase price, together with all sales and other taxes applicable to
the transfer of such Equipment and any other amount payable hereunder, in
immediately available funds, whereupon Lessor shall transfer to Lessee, without
recourse or warranty of any kind, express or implied, all of the Lessor's right,
title and interest in and to such Equipment on an "As Is, Where Is" basis.
10. OWNERSHIP; INSPECTION; MARKING; FINANCING STATEMENTS. Lessee
shall affix to the Equipment any labels supplied by Lessor indicating ownership
of such Equipment. The Equipment is and shall be the sole property of Lessor.
Lessee shall have no right, title or interest therein, except as lessee under a
Lease. The Equipment is and shall at all times be and remain personal property
and shall not become a fixture,
2
<PAGE> 3
other than Equipment cosisting of tenant improvements. Lessee shall obtain and
record such instruments and take such steps as may be necessary to prevent any
Person from acquiring any rights in the Equipment, other than Equipment
consisting of tenant improvements, by reason of the Equipment being claimed or
deemed to be real property. Upon request by Lessor, Lessee shall obtain and
deliver to Lessor valid and effective waivers, in recordable form, by the
owners, landlords and mortgagees of the real property upon which the Equipment
is located or certificates of Lessee that it is the owner of such real property
or that such real property is neither leased nor mortgaged. Lessee shall make
the Equipment and its maintenance records available for inspection by Lessor at
reasonable times and upon reasonable notice. Lessee shall execute and deliver to
Lessor for filing any UCC financing statements or similar documents Lessor may
request.
11. EQUIPMENT USE. Lessee agrees that the Equipment will be
operated by competent, qualified personnel in connection with Lessee's business
for the purpose for which the Equipment was designed and in accordance with
applicable operating instructions, laws and government regulations, and that
Lessee shall use every reasonable precaution to prevent loss or damage to the
Equipment from fire and other hazards. Lessee shall procure and maintain in
effect all orders, licenses, certificates, permits, approvals and consents
required by federal, state or local laws or by any governmental body, agency or
authority in connection with the delivery, installation, use and operation of
the Equipment.
12. MAINTENANCE. Lessee, at its sole cost and expense, shall keep
the Equipment in a suitable environment as specified by the manufacturer's
guidelines or the equivalent and meet all recertification requirements, and
shall maintain the Equipment in its original condition and working order,
ordinary wear and tear excepted. At the request of Lessor, Lessee shall furnish
all proof of maintenance.
13. ALTERATION; MODIFICATIONS; PARTS. Lessee may alter or modify
the Equipment only with the prior written consent of Lessor. Any alteration
shall be removed and the Equipment restored to its normal, unaltered condition
at Lessee's expense (without damaging the Equipment's originally intended
function or its value) prior to its return to Lessor. Any part installed in
connection with warranty or maintenance service or which cannot be removed in
accordance with the preceding sentence shall be the property of Lessor.
14. RETURN OF EQUIPMENT. Except for Equipment that has suffered a
Casualty Loss (as defined in Paragraph 15 below) and is not required to be
repaired pursuant to Paragraph 15 below or Equipment purchased by Lessee
pursuant to Paragraph 9 above, upon expiration or termination of the Term or the
Renewal Term of a Lease, or upon demand by Lessor pursuant to Paragraph 22
below, Lessee shall contact Lessor for shipping instructions and, at Lessee's
own risk, immediately return the Equipment, freight prepaid, to a location in
the continental United States specified by Lessor. At the time of such return to
Lessor, the Equipment shall (i) be in the operating order, repair and condition
as required by or specified in the original specifications and warranties of
each manufacturer and vendor thereof, ordinary wear and tear excepted, and meet
all recertification requirements and (ii) be capable of being immediately
assembled and operated by a third party purchaser or third party lessee without
further repair, replacement, alterations or improvements, and in accordance and
compliance with any and all statutes, laws, ordinances, rules and regulations of
any governmental authority or any political subdivision thereof applicable to
the use and operation of the Equipment. Except as otherwise provided under
Paragraph 9 hereof, at least one hundred eighty days before the expiration of
the Renewal Term, Lessee shall give Lessor notice of its intent to return the
Equipment at the end of such Renewal Term. During the one hundred eighty-day
period prior to the end of a Term or the Renewal Term, Lessor and its
prospective purchasers or lessees shall have the right of access to the premises
on which the Equipment is located to inspect the Equipment, and Lessee shall
cooperate in all other respects with Lessor's remarketing of the Equipment. The
provisions of this Paragraph 14 are of the essence of the Lease, and upon
application to any court of equity having jurisdiction in the premises, Lessor
shall be entitled to a decree against Lessee requiring specific performance of
the covenants of Lessee set forth in this Paragraph 14. If Lessee fails to
return Equipment when required, the terms and conditions of the Lease shall
continue to be applicable and Lessee shall continue to pay Rent until the
Equipment is received by Lessor.
15. CASUALTY INSURANCE; LOSS OR DAMAGE. Lessee will maintain, at
its own expense, liability and property damage insurance relating to the
Equipment, insuring against such risks as are
3
<PAGE> 4
customarily insured against on the type of equipment leased hereunder by
businesses in which Lessee is engaged in such amounts, in such form, and with
insurers satisfactory to Lessor; provided, however, that the amount of insurance
against damage or loss shall not be less than the greater of (a) the replacement
value of the Equipment and (b) the stipulated loss value of the Equipment
specified in the applicable Schedule ("Stipulated Loss Value"). Each liability
insurance policy shall provide coverage (including contractual and personal
injury coverage) of not less than $1,000,000 for each occurrence, name Lessor as
an additional insured and be primary as respects of any other insurance. Each
property damage policy shall name Lessor as sole loss payee and all policies
shall contain a clause requiring the insurer to give Lessor at least thirty days
prior written notice of any alteration in the terms or cancellation of the
policy. Lessee shall furnish a copy of each insurance policy (with endorsements)
or other evidence satisfactory to Lessor that the required insurance coverage is
in effect; provided, however, Lessor shall have no duty to ascertain the
existence of or to examine the insurance policies to advise Lessee if the
insurance coverage does not comply with the requirements of this Paragraph. If
Lessee fails to insure the Equipment as required, Lessor shall have the right
but not the obligation to obtain such insurance, and the cost of the insurance
shall be for the account of Lessee due as part of the next due Rent. Lessee
consents to Lessor's release, upon its failure to obtain appropriate insurance
coverage, of any and all information necessary to obtain insurance with respect
to the Equipment or Lessor's interest therein.
Until the Equipment is returned to and received by Lessor as
provided in Paragraph 14 above, Lessee shall bear the entire risk of theft or
destruction of, or damage to, the Equipment including, without limitation, any
condemnation, seizure or requisition of title or use ("Casualty Loss"). No
Casualty Loss shall relieve Lessee from its obligations to pay Rent except as
provided in clause (b) below. When any Casualty Loss occurs, Lessee shall
immediately notify Lessor and, at the option of Lessor, shall promptly (a) place
such Equipment in good repair and working order; or (b) pay Lessor an amount
equal to the Stipulated Loss Value of such Equipment and all other amounts
(excluding Rent) payable by Lessee hereunder, together with a late charge on
such amounts at a rate per annum equal to the rate imputed in the Rent payments
hereunder (as reasonably determined by Lessor) from the date of the Casualty
Loss through the date of payment of such amounts , whereupon Lessor shall
transfer to Lessee, without recourse or warranty (express or implied), all of
Lessor's interest, if any, in and to such Equipment on an "AS IS, WHERE IS"
basis. The proceeds of any insurance payable with respect to the Equipment shall
be applied, at the option of Lessor, either towards (i) repair of the Equipment
or (ii) payment of any of Lessee's obligations hereunder. Lessee hereby appoints
Lessor as Lessee's attorney-in-fact to make claim for, receive payment of, and
execute and endorse all documents, checks or drafts issued with respect to any
Casualty Loss under any insurance policy relating to the Equipment.
16. TAXES. Lessee shall pay when due, and indemnify and hold
Lessor harmless from, all sales, use, excise and other taxes, charges, and fees
(including, without limitation, income, franchise, business and occupation,
gross receipts, sales, use, licensing, registration, titling, personal property,
stamp and interest equalization taxes, levies, imposts, duties, charges or
withholdings of any nature), and any fines, penalties or interest thereon,
imposed or levied by any governmental body, agency or tax authority upon or in
connection with the Equipment, its purchase, ownership, delivery, leasing,
possession, use or relocation of the Equipment or otherwise in connection with
the transactions contemplated by each Lease or the Rent thereunder, excluding
taxes on or measured by the net income of Lessor. Upon request, Lessee will
provide proof of payment. Unless Lessor elects otherwise, Lessor will pay all
property taxes on the Equipment for which Lessee shall reimburse Lessor promptly
upon request. Lessee shall timely prepare and file all reports and returns which
are required to be made with respect to any obligation of Lessee under this
Paragraph 16. Lessee shall, to the extent permitted by law, cause all billings
of such fees, taxes, levies, imposts, duties, withholdings and governmental
charges to be made to Lessor in care of Lessee. Upon request, Lessee will
provide Lessor with copies of all such billings.
17. LESSOR'S PAYMENT. If Lessee fails to perform its obligations
under Paragraph 15 or 16 above, or Paragraph 23 below, Lessor shall have the
right to substitute performance, in which case, Lessee shall immediately
reimburse Lessor therefor.
18. GENERAL INDEMNITY. Each Lease is a net lease. Therefore,
Lessee shall indemnify Lessor and its successors and assigns against, and hold
Lessor and its successors and assigns harmless from, any and
4
<PAGE> 5
all claims, actions, damages, obligations, liabilities and all costs and
expenses, including, without limitation, legal fees, incurred by Lessor or its
successors and assigns arising out of each Lease including, without limitation,
the purchase, ownership, delivery, lease, possession, maintenance, condition,
use or return of the Equipment, or arising by operation of law. Lessee agrees
that upon written notice by Lessor of the assertion of any claim, action,
damage, obligation, liability or lien, Lessee shall assume full responsibility
for the defense thereof. Any payment pursuant to this Paragraph (except for any
payment of Rent) shall be of such amount as shall be necessary so that, after
payment of any taxes required to be paid thereon by Lessor, including taxes on
or measured by the net income of Lessor, the balance will equal the amount due
hereunder. The provisions of this Paragraph with regard to matters arising
during a Lease shall survive the expiration or termination of such Lease.
19. ASSIGNMENT BY LESSEE. Lessee shall not, without the prior
written consent of Lessor, (a) assign, transfer, pledge or otherwise dispose of
any Lease or Equipment, or any interest therein; (b) sublease or lend any
Equipment or permit it to be used by anyone other than Lessee and its employees;
or (c) move any Equipment from the location specified for it in the applicable
Schedule, except that Lessee may move Equipment to another location within the
United States provided that Lessee has delivered to Lessor (A) prior written
notice thereof and (B) duly executed financing statements and other agreements
and instruments (all in form and substance satisfactory to Lessor) necessary or,
in the opinion of the Lessor, desirable to protect Lessor's interest in such
Equipment. Notwithstanding anything to the contrary in the immediately preceding
sentence, Lessee may keep any Equipment consisting of motor vehicles or rolling
stock at any location in the United States.
20. ASSIGNMENT BY LESSOR. Lessor may assign its interest or grant
a security interest in any Lease and the Equipment individually or together, in
whole or in part. If Lessee is given written notice of any such assignment, it
shall immediately make all payments of Rent and other amounts hereunder directly
to such assignee. Each such assignee shall have all of the rights of Lessor
under each Lease assigned to it. Lessee shall not assert against any such
assignee any set-off, defense or counterclaim that Lessee may have against
Lessor or any other person.
21. DEFAULT; NO WAIVER. Lessee or any guarantor of any or all of
the obligations of Lessee hereunder (together with Lessee, the "Lease Parties")
shall be in default under each Lease upon the occurrence of any of the following
events (each, an "Event of Default"): (a) Lessee fails to pay when due any
amount required to be paid by Lessee under or in connection with any Lease; (b)
any of the Lease Parties fails to perform any other provisions under or in
connection with a Lease or violates any of the covenants or agreements of such
Lease Party under or in connection with a Lease; (c) any representation made or
financial information delivered or furnished by any of the Lease Parties under
or in connection with a Lease shall prove to have been inaccurate in any
material respect when made; (d) any of the Lease Parties makes an assignment for
the benefit of creditors, whether voluntary or involuntary, or consents to the
appointment of a trustee or receiver, or if either shall be appointed for any of
the Lease Parties or for a substantial part of its property without its consent
and, in the case of any such involuntary proceeding, such proceeding remains
undismissed or unstayed for forty-five days following the commencement thereof;
(e) any petition or proceeding is filed by or against any of the Lease Parties
under any Federal or State bankruptcy or insolvency code or similar law and, in
the case of any such involuntary petition or proceeding, such petition or
proceeding remains undismissed or unstayed for forty-five days following the
filing or commencement thereof, or any of the Lease Parties takes any action
authorizing any such petition or proceeding; (f) any of the Lease Parties fails
to pay when due any indebtedness for borrowed money or under conditional sales
or installment sales contracts or similar agreements, leases or obligations
evidenced by bonds, debentures, notes or other similar agreements or instruments
to any creditor (including Lessor under any other agreement) after any and all
applicable cure periods therefor shall have elapsed; (g) any judgment shall be
rendered against any of the Lease Parties which shall remain unpaid or unstayed
for a period of sixty days; (h) any of the Lease Parties shall dissolve,
liquidate, wind up or cease its business, sell or otherwise dispose of all or
substantially all of its assets, make any material change in its capital
structure or lines of business, amend or modify its name, merge or consolidate
with any other entity, suffer any loss or suspension of any license, permit or
other right or asset necessary to the profitable conduct of its business, fail
to pay its debts as they mature, or call a meeting for purposes of compromising
its debts; (i) any of the Lease Parties shall deny or disaffirm its obligations
hereunder or under any of the documents delivered in connection herewith; (j)
there is a change in the ownership of any equity or ownership interest of any of
the Lease Parties or any such interest becomes subject to any contractual,
judicial or statutory lien,
5
<PAGE> 6
charge, security interest or encumbrance; or (k) Lessor, in its reasonable
judgment, shall deem itself insecure.
22. REMEDIES. Upon the occurrence and continuation of an Event of
Default, Lessor shall have the right, in its sole discretion, to exercise any
one or more of the following remedies: (a) terminate each Lease; (b) declare any
and all Rent and other amounts then due and any and all Rent and other amounts
to become due under each Lease immediately due and payable; (c) take possession
of any or all items of Equipment, wherever located, without demand, notice,
court order or other process of law, and without liability for entry to Lessee's
premises, for damage to Lessee's property or otherwise; (d) demand that Lessee
return any or all Equipment to Lessor in accordance with Paragraph 14 above,
and, for each day that Lessee shall fail to return any item of Equipment, Lessor
may demand an amount equal to the Rent payable for such Equipment in accordance
with Paragraph 14 above; (e) lease, sell or otherwise dispose of the Equipment
in a commercially reasonable manner, with or without notice and on public or
private bid; (f) recover the following amounts from the Lessee (as damages,
including reimbursement of costs and expenses, liquidated for all purposes and
not as a penalty): (i) all costs and expenses of Lessor reimbursable to it
hereunder, including, without limitation, expenses of disposition of the
Equipment, legal fees and all other amounts specified in Paragraph 23 below;
(ii) an amount equal to the sum of (A) any accrued and unpaid Rent through the
later of (1) the date of the applicable default or (2) the date that Lessor has
obtained possession of the Equipment or such other date as Lessee has made an
effective tender of possession of the Equipment to Lessor (the "Default Date")
and (B) if Lessor resells or re-lets the Equipment, Rent at the periodic rate
provided for in each Lease for the additional period that it takes Lessor to
resell or re-let all of the Equipment; (iii) the present value of all future
Rent reserved in the Leases and contracted to be paid over the unexpired Term of
the Leases discounted at five percent simple interest per annum; (iv) the
residual value of the Equipment as of the expiration of the Term of the
applicable Lease, which the parties agree to be twenty-five percent (25%) of the
original cost of the Equipment; and (v) any indebtedness for Lessee's indemnity
under Paragraph 18 above, plus a late charge at the rate specified in Paragraph
3 above, less the amount received by Lessor, if any, upon sale or re-let of the
Equipment; and (g) exercise any other right or remedy to recover damages or
enforce the terms of the Leases. Lessor may pursue any other rights or remedies
available at law or in equity, including, without limitation, rights or remedies
seeking damages, specific performance and injunctive relief. Any failure of
Lessor to require strict performance by Lessee, or any waiver by Lessor of any
provision hereunder or under any Schedule, shall not be construed as a consent
or waiver of any other breach of the same or of any other provision. Any
amendment or waiver of any provision hereof or under any Schedule or consent to
any departure by Lessee herefrom or therefrom shall be in writing and signed by
Lessor.
No right or remedy is exclusive of any other provided herein or
permitted by law or equity. All such rights and remedies shall be cumulative and
may be enforced concurrently or individually from time to time.
23. LESSOR'S EXPENSE. Lessee shall pay Lessor on demand all and
expenses in protecting and enforcing Lessor's rights and interests in each Lease
and the Equipment, including, without limitation, legal, collection and
remarketing fees and expenses incurred by Lessor in enforcing the terms,
conditions or provisions of each Lease upon the occurrence and continuation of
an Event of Default.
24. LESSEE'S WAIVERS. To the extent permitted by applicable law,
Lessee hereby waives any and all rights and remedies conferred upon a lessee by
Sections 2A-508 through 2A-522 of the UCC. To the extent permitted by applicable
law, Lessee also hereby waives any rights now or hereafter conferred by statute
or otherwise which may require Lessor to sell, lease or otherwise use any
Equipment in mitigation of Lessor's damages as set forth in Paragraph 22 above
or which may otherwise limit or modify any of Lessor's rights or remedies under
Paragraph 22. Any action by Lessee against Lessor for any default by Lessor
under any Lease shall be commenced within one year after any such cause of
action accrues.
25. NOTICES; ADMINISTRATION. Except as otherwise provided herein,
all notices, approvals, consents, correspondence or other communications
required or desired to be given hereunder shall be given in writing and shall be
delivered by overnight courier, hand delivery or certified or registered mail,
postage prepaid, if to Lessor, then to Technology Finance Division, 406
Farmington Avenue, Farmington, Connecticut 06032, Attention: Assistant Vice
President, Lease Administration, with a copy to Lessor at Riverway II, West
Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, Attention: Legal
Department, if to Lessee, then
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<PAGE> 7
to La Jolla Pharmaceutical Company, 6455 Nancy Ridge Drive, San Diego,
California 92121, Attention: Vice President and Chief Financial Officer or such
other address as shall be designated by Lessee or Lessor to the other party. All
such notices and correspondence shall be effective when received.
26. REPRESENTATIONS. Lessee represents and warrants to Lessor
that (a) Lessee is duly organized, validly existing and in good standing under
the laws of the State of its incorporation; (b) the execution, delivery and
performance by Lessee of this Agreement are within Lessee's powers, have been
duly authorized by all necessary action, and do not contravene (i) Lessee's
organizational documents or (ii) any law or contractual restriction binding on
or affecting Lessee; (c) no authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by Lessee of this
Agreement; and (d) each Lease constitutes the legal, valid and binding
obligations of Lessee enforceable against Lessee in accordance with its terms.
27. FURTHER ASSURANCES. Lessee, upon the request of Lessor, will
execute, acknowledge, record or file, as the case may be, such further documents
and do such further acts as may be reasonably necessary, desirable or proper to
carry out more effectively the purposes of this Agreement. Lessee hereby
appoints Lessor as its attorney-in-fact to execute on behalf of Lessee and
authorizes Lessor to file without Lessee's signature any UCC financing
statements and amendments Lessor deems advisable.
28. FINANCIAL STATEMENTS. Lessee shall deliver to Lessor: (a) as
soon as available, but not later than 120 days after the end of each fiscal year
of Lessee and its consolidated subsidiaries, the consolidated balance sheet,
income statement and statements of cash flows and shareholders equity for Lessee
and its consolidated subsidiaries (the "Financial Statements") for such year,
reported on by independent certified public accountants without an adverse
qualification; and (b) as soon as available, but not later than 60 days after
the end of each of the first three fiscal quarters in any fiscal year of Lessee
and its consolidated subsidiaries, the Financial Statements for such fiscal
quarter, together with a certification duly executed by a responsible officer of
Lessee that such Financial Statements have been prepared in accordance with
generally accepted accounting principles and are fairly stated in all material
respects (subject to normal year-end audit adjustments).
29. CONSENT TO JURISDICTION. Lessee irrevocably submits to the
jurisdiction of any Illinois state or federal court sitting in Illinois for any
action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby, and Lessee irrevocably agrees that all claims
in respect of any such action or proceeding may be heard and determined in such
Illinois state or federal court.
30. WAIVER OF JURY TRIAL. LESSEE AND LESSOR IRREVOCABLY WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
31. FINANCE LEASE. Lessee and Lessor agree that each Lease is a
"Finance Lease" as defined by Section 2A-103(g) of the UCC. Lessee acknowledges
that Lessee has reviewed and approved each written Supply Contract (as defined
by UCC 2A-103(y)) covering Equipment purchased from each "Supplier" (as defined
by UCC 2A-103(x)) thereof.
32. NO AGENCY. Lessee acknowledges and agrees that neither the
manufacturer or supplier, nor any salesman, representative or other agent of the
manufacturer or supplier, is an agent of Lessor. No salesman, representative or
agent of the manufacturer or supplier is authorized to waive or alter any term
or condition of this Agreement or any Schedule and no representation as to the
Equipment or any other matter by the manufacturer or supplier shall in any way
affect Lessee's duty to pay Rent and perform its other obligations as set forth
in this Agreement or any Schedule.
33. SPECIAL TAX INDEMNIFICATION. Lessee acknowledges that Lessor,
in determining the Rent due hereunder, has assumed that certain tax benefits as
are provided to an owner of property under the Internal Revenue Code of 1986, as
amended (the "Code"), and under applicable state tax law, including, without
limitation, depreciation deductions under Section 168(b) of the Code, and
deductions under Section 163 of
7
<PAGE> 8
the Code in an amount at least equal to the amount of interest paid or accrued
by lessor with respect to any indebtedness incurred by Lessor in financing its
purchase of the Equipment, are available to Lessor as a result of the lease of
the Equipment. In the event Lessor is unable to obtain such tax benefits for any
reason, is required to include in income any amount other than the Rent or is
required to recognize income in respect of the Rent earlier than anticipated
pursuant to this Agreement, Lessee shall pay Lessor additional rent ("Additional
Rent") in a lump sum in an amount needed to provide Lessor with the same
after-tax yield and after-tax cash flow as would have been realized by Lessor
had Lessor (i) been able to obtain such tax benefits, (ii) not been required to
include any amount in income other than the Rent and (iii) not been required to
recognize income in respect of the Rent earlier than anticipated pursuant to
this Agreement. The Additional Rent shall be computed by Lessor, which
computation shall be binding on Lessee. The Additional Rent shall be due
immediately upon written notice by Lessor to Lessee of Lessor's inability to
obtain tax benefits, the inclusion of any amount in income other than the rent
or the recognition of income in respect of the Rent earlier than anticipated
pursuant to this Agreement. The provisions of this Paragraph 33 shall survive
the termination of this Agreement.
34. GOVERNING LAW; SEVERABILITY. EACH LEASE SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF ILLINOIS. IF ANY PROVISION SHALL BE HELD TO BE INVALID
OR UNENFORCEABLE, THE VALIDITY AND ENFORCEABILITY OF THE REMAINING PROVISIONS
SHALL NOT IN ANY WAY BE AFFECTED OR IMPAIRED.
LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THIS AGREEMENT AND THE SCHEDULE HERETO,
UNDERSTANDS THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND CONDITIONS. FURTHER,
LESSEE AND LESSOR AGREE THAT THIS AGREEMENT AND THE SCHEDULES DELIVERED IN
CONNECTION HEREWITH FROM TIME TO TIME ARE THE COMPLETE AND EXCLUSIVE STATEMENT
OF THE AGREEMENT BETWEEN THE PARTIES, SUPERSEDING ALL PROPOSALS OR PRIOR
AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES
RELATING TO THE SUBJECT MATTER HEREOF.
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Master Lease Agreement to be duly executed by their duly authorized
officers as of this 23 day of June, 1998.
LA JOLLA PHARMACEUTICAL COMPANY
By: /s/ Wood C. Erwin
--------------------------------------
Name: Wood C. Erwin
Title: Vice President and
Chief Financial Officer
FED ID NO. ###-##-####
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Gary P. Moro
--------------------------------------
Name: Gary P. Moro
Title: Vice President
8
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000920465
<NAME> LA JOLLA PHARMACEUTICAL COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 15,708
<SECURITIES> 6,902
<RECEIVABLES> 0
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0
0
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</TABLE>
