10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 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: 0-24274

LA JOLLA PHARMACEUTICAL COMPANY

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	33-0361285 (I.R.S. Employer Identification No.)
6455 Nancy Ridge Drive San Diego, CA (Address of Principal Executive Offices)	92121 (Zip Code)

Registrant’s Telephone Number, Including Area Code: (858) 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 [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X]  No [   ]

The number of shares of the registrant’s common stock, $0.01 par value per share, outstanding at July 31, 2003 was 42,658,694.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		Balance Sheets
		Statements of Operations
		Statements of Cash Flows
		Notes to Financial Statements
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
INDEX TO EXHIBITS
EXHIBIT 10.11
EXHIBIT 10.37
EXHIBIT 10.38
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.0

LA JOLLA PHARMACEUTICAL COMPANY
FORM 10-Q
QUARTERLY REPORT

INDEX

PART I. FINANCIAL INFORMATION
	ITEM 1. Financial Statements
		Balance Sheets as of June 30, 2003 (Unaudited) and December 31, 2002	1
		Statements of Operations (Unaudited) for the three and six months ended June 30, 2003 and 2002	2
		Statements of Cash Flows (Unaudited) for the six months ended June 30, 2003 and 2002	3
		Notes to Financial Statements (Unaudited)	4
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		7
	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk		11
	ITEM 4. Controls and Procedures		11
PART II. OTHER INFORMATION
	ITEM 4. Submission of Matters to a Vote of Security Holders		11
	ITEM 6. Exhibits and Reports on Form 8-K		12
SIGNATURES			14

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LA JOLLA PHARMACEUTICAL COMPANY

Balance Sheets
(in thousands)

			June 30,			December 31,
			2003			2002
			(Unaudited)			(See Note)
ASSETS
Current assets:
	Cash and cash equivalents		$	8,668		$	5,610
	Short-term investments			17,355			47,115
	Other current assets			1,332			719
		Total current assets		27,355			53,444
Property and equipment, net				6,471			6,034
Patent costs and other assets, net				2,694			2,386
		Total assets	$	36,520		$	61,864
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	998		$	1,846
	Accrued clinical expenses			865			2,454
	Accrued pre-marketing expenses			—			191
	Accrued expenses			953			637
	Accrued payroll and related expenses			925			1,332
	Obligations under capital leases			54			60
	Current portion of notes payable			663			434
		Total current liabilities		4,458			6,954
Noncurrent portion of notes payable				1,538			1,111
Commitments
Stockholders’ equity:
	Common stock			427			425
	Additional paid-in capital			207,126			206,905
	Other comprehensive income			2			36
	Accumulated deficit			(177,031	)		(153,567	)
		Total stockholders’ equity		30,524			53,799
		Total liabilities and stockholders’ equity	$	36,520		$	61,864

Note: The balance sheet at December 31, 2002 has been derived from the audited financial statements as of that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States.

See accompanying notes.

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LA JOLLA PHARMACEUTICAL COMPANY

Statements of Operations
(Unaudited)
(in thousands, except per share amounts)

			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2003			2002			2003			2002
Expenses:
	Research and development		$	8,417		$	9,661		$	20,337		$	16,905
	General and administrative			1,598			1,788			3,399			3,201
		Total expenses		10,015			11,449			23,736			20,106
Loss from operations				(10,015	)		(11,449	)		(23,736	)		(20,106	)
Interest expense				(50	)		(9	)		(93	)		(15	)
Interest income				142			100			365			648
Net loss			$	(9,923	)	$	(11,358	)	$	(23,464	)	$	(19,473	)
Basic and diluted net loss per share			$	(.23	)	$	(.27	)	$	(.55	)	$	(.47	)
Shares used in computing basic and diluted net loss per share				42,569			42,356			42,565			41,671

See accompanying notes.

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LA JOLLA PHARMACEUTICAL COMPANY

Statements of Cash Flows
(Unaudited)
(in thousands)

				Six Months Ended
				June 30,
				2003			2002
Operating activities:
Net loss				$	(23,464	)	$	(19,473	)
Adjustments to reconcile net loss to net cash used for operating activities:
	Depreciation and amortization				956			656
	Accretion of interest income				74			452
	Change in operating assets and liabilities:
		Other current assets			(613	)		(790	)
		Accounts payable and accrued expenses			(532	)		570
		Accrued clinical expenses			(1,589	)		468
		Accrued pre-marketing expenses			(191	)		(207	)
		Accrued payroll and related expenses			(407	)		97
			Net cash used for operating activities		(25,766	)		(18,227	)
Investing activities:
Purchases of short-term investments					(24,868	)		(15,785	)
Sales of short-term investments					48,933			1,502
Maturities of short-term investments					5,587			25,074
Additions to property and equipment					(1,279	)		(1,537	)
Increase in patent costs and other assets					(363	)		(160	)
			Net cash provided by investing activities		28,010			9,094
Financing activities:
Net proceeds from issuance of common stock					223			48,584
Payments on obligations under capital leases					(65	)		(181	)
Proceeds from issuance of notes payable					928			—
Payments on notes payable					(272	)		—
			Net cash provided by financing activities		814			48,403
Net increase in cash and cash equivalents					3,058			39,270
Cash and cash equivalents at beginning of period					5,610			9,932
Cash and cash equivalents at end of period				$	8,668		$	49,202
Supplemental disclosure of cash flow information:
Interest paid				$	93		$	15
Supplemental schedule of noncash investing and financing activities:
Capital lease obligations incurred for property and equipment				$	59		$	116
Net unrealized losses on available-for-sale investments				$	(34	)	$	(109	)

See accompanying notes.

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LA JOLLA PHARMACEUTICAL COMPANY

Notes to Financial Statements
(Unaudited)

June 30, 2003

1. Basis of Presentation

The accompanying unaudited financial statements of La Jolla Pharmaceutical Company (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States 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, 2003 are not necessarily indicative of the results that may be expected for other quarters or the year ended December 31, 2003. 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, 2002 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 accounting principles generally accepted in the United States 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 materially from those estimates.

Reclassification

Certain amounts in the 2002 financial statements have been reclassified to conform to the 2003 presentation.

Stock-Based Compensation

As allowed under Statement of Financial Accounting Standard No. 123, Accounting and Disclosure of Stock-Based Compensation (“SFAS 123”), the Company has elected to continue to account for stock option grants in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”), and related interpretations. The Company generally grants stock options for a fixed number of shares to employees and directors with an exercise price equal to the fair value of the shares at the date of grant and therefore, under APB 25, it recognizes no compensation expense for such stock option grants.

Pro forma information regarding net loss and net loss per share is required by SFAS 123. SFAS 123 requires that the information be determined as if the Company has accounted for its employee stock plans granted after December 31, 1994 under the fair value method prescribed by SFAS 123. The fair value of the options granted was estimated at the date of grant using a Black-Scholes option pricing model.

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For purposes of pro forma disclosures, the estimated fair value of the options is expensed over the options’ vesting period. The Company’s pro forma information follows (in thousands except for net loss per share information):

	Three Months Ended June 30,						Six Months Ended June 30,
	2003			2002			2003			2002
Pro forma net loss	$	(11,569	)	$	(12,515	)	$	(26,774	)	$	(21,699	)
Pro forma basic and diluted net loss per share	$	(0.27	)	$	(0.30	)	$	(0.63	)	$	(0.52	)

The effects of applying SFAS 123 for either recognizing compensation expense or providing pro forma disclosures may not be representative of the effects on reported net loss for future quarters or years.

Net Loss Per Share

Basic and diluted net loss per share is computed using the weighted-average number of common shares outstanding during the periods in accordance with Statement of Financial Accounting Standard No. 128, Earnings per Share. As the Company has incurred a net loss for all periods presented in the Statements of Operations, stock options are not included in the computation of diluted net loss per share because their effect is anti-dilutive.

Comprehensive Loss

In accordance with Statement of Financial Accounting Standard No. 130, Reporting Comprehensive Income (Loss), unrealized gains and losses on available-for-sale securities are included in other comprehensive income (loss). The Company’s comprehensive net loss totaled $9,947,000 and $11,201,000 for the three-month periods and $23,498,000 and $19,582,000 for the six-month periods ended June 30, 2003 and 2002, respectively.

3.     Recently Issued Accounting Standards

In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS 146”). SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) (“EITF 94-3”). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF 94-3 previously recognized the liability at the commitment date to an exit plan. SFAS 146 is effective for exit or disposal activities initiated after December 31, 2002. The adoption of this statement had an impact on the Company’s financial statements for the three and six months ended June 30, 2003. See footnote 5 for further details.

In December 2002, FASB issued Statement of Financial Accounting Standard No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB Statement No. 123 (“SFAS 148”). SFAS 148 amends SFAS 123 to provide alternative methods of voluntarily transitioning to the fair value based method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure requirements of SFAS 123 to require prominent disclosure in both the annual and interim financial statements about the method used to account for stock-based employee compensation and the effect of the method on reported results. SFAS 148 does not permit the use of the original SFAS 123 prospective method of transition for changes to the fair value based method made in fiscal years beginning after December 15, 2003. The Company has not yet completed the final evaluation of transitioning options presented by SFAS 148. However, during 2003, the Company expects to reach a determination of whether and, if so, when to change its existing accounting for stock-based compensation

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to the fair value method in accordance with the transition alternatives of SFAS 148.

In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables (“EITF 00-21”). EITF 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. EITF 00-21 is effective for revenue arrangements entered into on or after June 15, 2003. The adoption of this statement had no impact on the Company’s financial statements.

In January 2003, FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting and Research Bulletin No. 51 (“FIN 46”). FIN 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 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 46 must be applied for the first interim or annual period beginning after June 15, 2003. The adoption of this statement had no impact on the Company’s financial statements.

In April 2003, FASB issued Statement of Financial Accounting Standard No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (“SFAS 149”). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Company does not expect the adoption of this statement to have an impact on the Company’s results of operations or financial condition.

In May 2003, FASB issued Statement of Financial Accounting Standard No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of such instruments were previously classified as equity. SFAS 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 adoption of this statement had no impact on the Company’s financial statements.

4.     Notes Payable

The Company entered into a note payable for $583,000 in April 2003 and one for $345,000 in June 2003 to finance certain purchases of its property and equipment. Both notes are secured by the financed property and equipment, bear interest at 9.70% per annum, and are payable in monthly installments of principal and interest of approximately $17,000 for the first 36 months and $11,000 for the remaining six months, in the case of the April 2003 note, and approximately $10,000 for the first 36 months and $6,000 for the remaining six months, in the case of the June 2003 note.

5.     Restructuring Charges

In May 2003, the Company restructured its operations in order to reduce expenses and focus its resources on the further development of Riquent™. In accordance with SFAS 146, as of June 30, 2003, the Company recorded total restructuring charges of approximately $458,000 in connection with the termination of 24 employees. Approximately $305,000 of the total restructuring charges is included in research and development expense and approximately $153,000 is included in general and administrative expense. As of June 30, 2003, the Company has paid approximately $308,000 of the total restructuring charges, and the remaining $150,000 is expected to be paid by October 2003.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

     Except for historical statements, this report contains forward-looking statements involving significant risks and uncertainties, and a number of factors, both foreseen and unforeseen, could cause actual results to differ materially from our current expectations. Forward-looking statements include those which express a plan, belief, expectation, estimation, anticipation, intent, contingency, future development or similar expression. Although we plan to submit a New Drug Application (“NDA”) for Riquent™, there is no guarantee that regulatory authorities will approve Riquent in a timely manner, or at all. Our analyses of clinical results of Riquent, previously known as LJP 394, our drug candidate for the treatment of systemic lupus erythematosus (“lupus”), and LJP 1082, our drug candidate for the treatment of antibody-mediated thrombosis (“thrombosis”), are ongoing and could result in a finding that these drug candidates are not effective in large patient populations, do not provide a meaningful clinical benefit, or may reveal a potential safety issue requiring us to develop new candidates. The analysis of the data from our Phase 3 trial of Riquent has shown that the trial did not reach statistical significance with respect to its primary endpoint, time to renal flare. Although we plan to submit an NDA for Riquent, the results from our clinical trials of Riquent may not ultimately be sufficient to obtain regulatory clearance to market Riquent either in the U.S. or Europe, and we may be required to conduct additional clinical studies to demonstrate the safety and efficacy of Riquent to obtain marketing approval. There is no guarantee, however, that we will have the necessary resources to complete any additional trial, that we will elect to conduct an additional trial, or that any additional trial will sufficiently demonstrate the safety and efficacy of Riquent. Our blood test to measure the binding affinity for Riquent is experimental, has not been validated by independent laboratories, may require regulatory approval, and will likely be necessary for the approval and the commercialization of Riquent. Our other potential drug candidates are at earlier stages of development and involve comparable risks. Analysis of our clinical trials could have negative or inconclusive results. Any positive results observed to date may not be indicative of future results. In any event, regulatory authorities may require additional clinical trials, or may not approve our drugs. Our ability to develop and sell our products in the future may be affected by the intellectual property rights of third parties. Additional risk factors include the uncertainty and timing of: obtaining required regulatory approvals, including delays associated with any approvals that we may obtain; the clear need for additional financing; FDA approval of our manufacturing facilities and processes; the increase in capacity of our manufacturing capabilities for possible commercialization; successfully marketing and selling our products; our lack of manufacturing, marketing, and sales experience; generating future revenue from product sales or other sources such as collaborative relationships; future profitability; and our dependence on patents and other proprietary rights. Readers are cautioned to not place undue reliance upon forward-looking statements, which speak only as of the date hereof, and we undertake 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 in our Annual Report on Form 10-K for the year ended December 31, 2002, and in other reports and registration statements that we file with the Securities and Exchange Commission from time to time.

Recent Developments

     On February 18, 2003, we announced initial results from our Phase 3 clinical trial of Riquent, our clinical drug candidate for the treatment of lupus renal disease. Although the trial did not reach statistical significance for its primary endpoint, time to renal flare, the Phase 3 trial results demonstrated that lupus patients treated with Riquent had significantly lower levels of antibodies to double-stranded DNA (dsDNA) than patients treated with a placebo. Data from the Phase 3 and Phase 2/3 studies demonstrated that lupus patients with sustained reductions in antibodies to dsDNA experienced fewer renal flares. In these two studies, two and four times as many Riquent-treated patients had sustained reductions compared with placebo-treated patients. This information was presented at the Biomarkers for the Assessment of Systemic Lupus Erythematosus Conference on March 31, 2003.

     On May 5, 2003, we announced that, based upon our discussions with the United States Food and Drug Administration (the “FDA”), we plan to complete an NDA for Riquent around the end of 2003.

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Further discussions with the FDA will be needed to clarify whether any additional supportive information or studies will be required to support the approval of the NDA. We also are currently meeting with European regulatory authorities to discuss potential next steps for Riquent in Europe. There can be no guarantee that meetings with the regulatory agencies can be held in a timely manner, or at all, or that our meetings with them will result in our being able to continue to develop Riquent in an economically viable manner. If for any reason our development efforts as to Riquent are terminated, it would have a material adverse effect on our business and future prospects.

     In addition to closing our Riquent-related clinical trials, in May 2003 we reduced the size of our organization by 24 positions, including certain management positions. We expect to realize the cost savings from these actions beginning in the third quarter of 2003.

     On June 16, 2003, we announced the health-related quality of life (HRQOL) results from our Phase 3 clinical trial of Riquent which demonstrated that lupus patients with sustained reductions in antibodies to dsDNA reported improved HRQOL and had a lower risk of Major SLE flare compared with patients who did not have sustained reductions. Major SLE flare includes new or increased treatment with high-dose corticosteroids and/or cyclophosphamide (HDCC) or other immunosuppressive drugs, hospitalization, or death due to lupus. Similar results were also seen in our Phase 2/3 trial. These results support the pathogenicity or disease-causing ability of antibodies to dsDNA in lupus patients.

     On July 24, 2003, we announced that, based upon recent discussions with the FDA, we may pursue an accelerated approval for Riquent under the Subpart H regulation. Under Subpart H, drugs in development for serious, life-threatening diseases with an unmet medical need can be approved on an accelerated basis if the FDA determines that the effect of the drug on a surrogate endpoint is reasonably likely to predict clinical benefit and that a post-marketing clinical trial can be successfully completed following drug approval which confirms the clinical benefit. A post-marketing clinical trial may need to be initiated prior to approval, but under Subpart H, such a trial would not need to be completed until after approval. The Company is currently in discussions with the FDA about the design and timing of a post-marketing clinical trial. The FDA will make the determination of approvability and the conditions of the approval after it has reviewed our NDA.

Overview

     Since our inception in May 1989, we have devoted substantially all of our resources to the research and development of technology and potential drugs to treat antibody-mediated diseases. As of December 31, 2002, we owned 98 issued patents and had 93 pending patent applications covering our various technologies and drug candidates, including our Tolerance Technology®, our lupus and antibody-mediated thrombosis drug candidates, and our platform and linkage technologies for our Toleragens®.

     We have never generated any revenue from product sales and have relied upon private and public investors, revenue from collaborative agreements, equipment financings and interest income on invested cash balances for our working capital. Depending on the outcome of our further discussions with the FDA and other regulatory agencies and our continuing analysis of the data from the Phase 3 clinical trial of Riquent, our research and development expenses may increase significantly in the future if we are required to conduct additional clinical studies to demonstrate the safety and efficacy of Riquent or if we increase our commercialization activities of Riquent, development activities of LJP 1082, or efforts to develop additional drug candidates. Our activities to date are not as broad in depth or scope as the activities we expect to undertake in the future, and our historical operations and the financial information included in this report are not necessarily indicative of our future operating results or financial condition.

     We expect our net loss to fluctuate from quarter to quarter as a result of the timing of expenses incurred and revenues earned from any potential collaborative arrangements we may establish. Some of these fluctuations may be significant. As of June 30, 2003, our accumulated deficit was approximately $177.0 million.

Results of Operations

     For the three months ended June 30, 2003, research and development expenses decreased to $8.4 million from $9.7 million for the same period in 2002 primarily due to a decrease in expenses related to the enrollment of patients in the Phase 3 clinical trial of Riquent, which ceased enrollment in October 2002, as well as a decrease in expenses associated with the Phase 1/2 clinical trial of LJP 1082 which

8

was completed in October 2002. These decreases were partially offset by an increase in salaries and wage expense as a result of the restructuring charges recorded in May 2003 of $0.3 million for 19 research and development employees. For the six month period ended June 30, 2003, research and development expenses increased to $20.3 million from $16.9 million for the same period in 2002 primarily due to expenses associated with concluding our Phase 3 clinical trial of Riquent and analyzing the resulting data, as well as expenses incurred in connection with our other related clinical studies, including the open-label follow-on clinical trial of Riquent, which was initiated in July 2002 and closed in April 2003. These expenses were primarily incurred during the first quarter of 2003. The increase was also the result of an increase in salaries and wage expense due to the restructuring charges recorded in May 2003. These increases were partially offset by the decreases in expenses discussed above.

     Research and development expense of $8.4 million for the three months ended June 30, 2003 consisted of $7.0 million for lupus research and development related expense, $0.9 million for thrombosis research and development related expense and $0.5 million for other research and development related expense. Research and development expense of $20.3 million for the six months ended June 30, 2003 consisted of $17.5 million for lupus research and development related expense, $1.8 million for thrombosis research and development related expense and $1.0 million for other research and development related expense. For the three and six months ended June 30, 2003, total lupus research and development expense consisted primarily of clinical research organization fees, investigator fees, salaries and other costs related to research, manufacturing and clinical personnel, fees for consulting and professional outside services and raw materials for the production of Riquent for clinical trials. For the three and six months ended June 30, 2003, total thrombosis research and development expense consisted primarily of salaries for research and development personnel and research supplies. For the three and six months ended June 30, 2003, total other research and development expense primarily consisted of salaries for research and development personnel, facilities expense and fees for consulting and professional outside services.

     We expect recent cost saving activities, such as the closure of the Phase 3 clinical trial for Riquent and other related clinical studies, including the open-label follow-on clinical trial for Riquent, and the reduction of our organization by 19 research and development positions, to reduce our research and development expenses beginning in the third quarter of this year. Nonetheless, our research and development expenses may increase significantly in the future if we are required or choose to conduct additional clinical trials, initiate commercialization activities for Riquent, increase our development activities of LJP 1082, or intensify our development of additional drug candidates.

     General and administrative expenses decreased to $1.6 million for the three months ended June 30, 2003 from $1.8 million for the same period in 2002. The decrease was primarily due to a decrease in fees for consultants and professional outside services related to pre-marketing activities during the second quarter of 2003 partially offset by an increase in salaries and wage expense as a result of the restructuring charges recorded in May 2003 of $0.2 million for 5 administrative employees. General and administrative expenses increased to $3.4 million for the six-month period ended June 30, 2003 from $3.2 million for the same period in 2002 primarily due to an increase in salaries and wage expense due to the restructuring charges recorded in May 2003 and an increase in depreciation expense related to the software and equipment for our new financial and materials management systems implemented in January 2003. These increases were partially offset by a decrease in fees for consultants and professional outside services related to pre-marketing activities during the second quarter of 2003. If and to the extent that we increase our commercialization, clinical trial, manufacturing or research and development activities in the future, general and administrative expense will increase to support those activities.

     Interest income increased to $142,000 for the three months ended June 30, 2003, from $100,000 for the same period in 2002 primarily due to higher average interest rates on our investments partially offset by lower average investment balances. Interest income decreased to $365,000 for the six months ended June 30, 2003 from $648,000 for the same period in 2002 primarily due to lower average investment balances. For the three and six months ended June 30, 2003, interest expense increased to $50,000 and $93,000, respectively, from $9,000 and $15,000 for the same periods in 2002. The increase in interest expense was due to an increase in our notes payable obligations.

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Liquidity and Capital Resources

     From inception through June 30, 2003, we have incurred a cumulative net loss of approximately $177.0 million and have financed our operations through private and public offerings of securities, revenues from collaborative agreements, equipment financings, and interest income on invested cash balances. From inception through June 30, 2003, we raised approximately $206.7 million in net proceeds from sales of equity securities.

     At June 30, 2003, we had $26.0 million in cash, cash equivalents and short-term investments, as compared to $52.7 million at December 31, 2002. Our working capital at June 30, 2003 was $22.9 million, as compared to $46.5 million at December 31, 2002. The decrease in cash, cash equivalents and short-term investments and working capital resulted from the use of our financial resources to fund our clinical trials, research and development efforts, manufacturing activities and other general corporate purposes. We invest our cash in corporate and United States Government-backed debt instruments. We classified all of our cash investments as available-for-sale securities as of June 30, 2003, as we expect to sell them in order to support our current operations regardless of their maturity dates. As of June 30, 2003, available-for-sale securities of $11.8 million have stated maturity dates of one year or less and $13.0 million have maturity dates of more than one year.

     As of June 30, 2003, we had acquired an aggregate of $12.9 million in property and equipment, of which approximately $0.1 million is financed under capital leases and $2.7 million is financed under notes payable obligations. In addition, we lease our office and laboratory facilities and certain equipment under operating leases. We have also entered into a $1.4 million purchase commitment with a potential third party manufacturer of materials for Riquent. The purpose of the agreement is to qualify the manufacturer as a manufacturer who could be used by us in the commercial production of Riquent if we obtain regulatory approval. The agreement includes a cancellation fee of $0.4 million. We intend to use our current financial resources to fund our obligation under this purchase commitment. In the future, we may have additional increases to our investments in property and equipment if we expand our research and development and manufacturing facilities and capabilities.

     We intend to use our financial resources to fund our research and development efforts, to fund possible further clinical trials, manufacturing and commercialization activities of Riquent, 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 outcome of our meetings with regulatory authorities, the timing of any regulatory applications and approvals, the continued analysis of the Phase 3 clinical trial data, results from future clinical trials, and technology developments. Expenditures also will depend upon the establishment and progress of collaborative arrangements and contract research as well as the availability of other funding or financings. There can be no assurance that future funds will be available on acceptable terms, if at all.

     We anticipate that our existing cash and cash investments and interest earned thereon will be sufficient to fund our operations as currently planned into the second quarter of 2004, assuming we do not engage in any significant clinical trial or commercialization activities. Our future capital requirements will depend upon many factors, including the outcome of meetings with regulatory authorities, the time and costs involved in applying for any regulatory approvals, the continued analysis of data from the Phase 3 clinical trial for lupus and the Phase 1/2 clinical trial for thrombosis, the scope and results of future clinical trials, continued scientific progress in our research and development programs, the size and complexity of these programs, the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims, competing technological and market developments, our ability to establish and maintain collaborative relationships, and the cost of possible manufacturing and commercialization activities. We expect to incur significant net operating losses each year for at least the next several years as we continue our current research and development efforts, including possible additional clinical trials, manufacturing and commercialization activities of Riquent, and incur general and administrative expenses to support these efforts. It is possible that our cash requirements will exceed current projections and that we will therefore need additional financing sooner than currently expected.

     We have no current means of generating cash flow from operations. Our lead drug candidate,

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Riquent, will not generate revenues, if at all, until it has received regulatory approval and has been successfully commercialized. This process, if completed, could take several years. Our other drug candidates are much less developed than Riquent. There can be no assurance that our product development efforts with respect to Riquent 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, we must continue to rely upon outside sources of financing to meet our capital needs for the foreseeable future.

     We will continue to seek capital through any appropriate means, including issuance of our securities and establishment of collaborative arrangements. However, there can be no assurance that additional financing will be available on acceptable terms, if it all, and our negotiating position in capital-raising efforts may worsen as we continue to use existing resources or if the development of Riquent is delayed or terminated. There is also no assurance that we will be able to enter into further collaborative relationships.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We invest our excess cash in interest-bearing investment-grade securities which we may sell from time to time to support our current operations. We do not utilize derivative financial instruments, derivative commodity instruments or other market-risk-sensitive instruments, positions or transactions in any material fashion. Accordingly, we believe that, while the investment-grade securities we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from the maturity dates of the debt instruments that we hold or changes in interest rates, foreign currency exchange rates, commodity prices or other market changes that affect market-risk-sensitive instruments.

ITEM 4. CONTROLS AND PROCEDURES

     Our principal executive officer and principal financial officer have carried out an evaluation of the effectiveness of our “disclosure controls and procedures” as of June 30, 2003 (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15(d) – 15(e)). Based on that evaluation, these officers have concluded that, as of June 30, 2003, our disclosure controls and procedures were effective. During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Our Annual Meeting of Stockholders was held on May 16, 2003. All of the directors nominated for election by our board of directors, as set forth in our Definitive Proxy Statement, were elected as follows:

Director Nominee	Term	Votes in Favor		Votes Withheld
Thomas H. Adams, Ph.D.	Three years		30,416,464		1,176,068
Steven B. Engle	Three years		30,230,664		1,361,868

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     In addition, William Engbers, Robert Fildes, Stephen Martin, William Ringo and W. Leigh Thompson continued to serve on our board of directors after the Annual Meeting. All of our proposals, as set forth in our Definitive Proxy Statement, were approved as follows:

							Broker
Proposal Description	Votes in Favor		Votes Against		Abstaining		Non-Votes
Amendment to the La Jolla Pharmaceutical Company 1994 Stock Incentive Plan to increase by 1,100,000 the number of shares of common stock available under the plan		28,712,923		2,855,424		24,184		1
Ratify the appointment of Ernst & Young LLP as our independent auditor for the fiscal year ending December 31, 2003		30,910,614		665,456		16,462		—

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

          (a)     Exhibits

Exhibit
Number	Description
3.1	Intentionally omitted
3.2	Amended and Restated Bylaws of the Company (1)
3.3	Amended and Restated Certificate of Incorporation of the Company (2)
4.0	Rights Agreement dated as of December 3, 1998 between the Company and American Stock Transfer & Trust Company (3)
4.1	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock of the Company (4)
4.2	Amendment to Rights Agreement, effective as of July 21, 2000, between the Company and American Stock Transfer & Trust Company (5)
10.11	La Jolla Pharmaceutical Company 1994 Stock Incentive Plan (Amended and Restated as of May 16, 2003)*
10.36	Promissory Note, dated as of April 23, 2003, between the Company and General Electric Capital Corporation (6)
10.37	Promissory Note, dated as of June 27, 2003, between the Company and General Electric Capital Corporation
10.38	Amendment No. 3 to Steven B. Engle Employment Agreement*
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.0	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	This exhibit is a management contract or compensatory plan or arrangement.
(1)	Previously filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 and incorporated by reference herein.
(2)	Previously filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended

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	September 30, 1999 and incorporated by reference herein.
(3)	Previously filed with the Company’s Registration Statement on Form 8-A (No. 000-24274) as filed with the Securities and Exchange Commission on December 4, 1998 and incorporated by reference herein.
(4)	Previously filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 and incorporated by reference herein.
(5)	Previously filed with the Company’s Current Report on Form 8-K filed on January 26, 2001 and incorporated by reference herein. The changes effected by the Amendment are also reflected in the Amendment to Application for Registration on Form 8-A/A filed on January 26, 2001.
(6)	Previously filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 and incorporated by reference herein.

(b)     Reports on Form 8-K

On April 1, 2003, we filed a current report on Form 8-K to report that Matthew Linnik, Ph.D., our Chief Scientific Officer and Executive Vice President of Research, had presented at the Biomarkers for the Assessment of Systemic Lupus Erythematosus Conference. On April 10, 2003, we filed a current report on Form 8-K to report the closure of our open-label safety study of Riquent. On May 5, 2003, we filed a current report on Form 8-K to report that, based upon discussions with the United States Food and Drug Administration (FDA), we plan to submit a New Drug Application with the FDA for Riquent. On May 12, 2003, we furnished a current report on Form 8-K that contained a release regarding our first quarter financial results for 2003. On June 3, 2003, we filed a current report on Form 8-K to report that Steven B. Engle, our Chief Executive Officer, would present at the Needham Biotechnology Conference. On June 17, 2003, we filed a current report on Form 8-K to report, among other matters, the health-related quality of life results from the Riquent Phase 3 trial. On June 19, 2003, we filed a current report on Form 8-K to report that Dr. Mario Cardiel, one of La Jolla Pharmaceutical Company’s principal investigators, reviewed previously released data from our Phase 3 trial of Riquent at the EULAR Conference. On July 24, 2003, we filed a current report on Form 8-K to report that, based upon recent discussions with the FDA, we may pursue an accelerated approval for Riquent under the FDA’s Subpart H regulation. On August 1, 2003, we filed an amendment to a current report on Form 8-K/A to correct certain information contained in our current report on Form 8-K, filed on June 17, 2003. On August 4, 2003, we furnished a current report on Form 8-K that contained a release regarding our second quarter financial results for 2003.

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SIGNATURES

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 5, 2003	/s/ Steven B. Engle
	Steven B. Engle Chairman and Chief Executive Officer On behalf of the Registrant
	/s/ Gail A. Sloan
	Gail A. Sloan Senior Director of Finance, Controller and Secretary As Principal Financial and Accounting Officer

14

LA JOLLA PHARMACEUTICAL COMPANY

INDEX TO EXHIBITS

Exhibit
Number		Description
	10.11	La Jolla Pharmaceutical Company 1994 Stock Incentive Plan (Amended and Restated as of May 16, 2003)
	10.37	Promissory Note, dated as of June 27, 2003, between the Company and General Electric Capital Corporation
	10.38	Amendment No. 3 to Steven B. Engle Employment Agreement
	31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.0	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-10.11 3 a92032exv10w11.txt EXHIBIT 10.11 EXHIBIT 10.11 LA JOLLA PHARMACEUTICAL COMPANY 1994 STOCK INCENTIVE PLAN ARTICLE I GENERAL PROVISIONS 1.01 PURPOSE OF THE PLAN. La Jolla Pharmaceutical Company (the "COMPANY"), by action of its Board of Directors and with the consent of its stockholders, has adopted this La Jolla Pharmaceutical Company Stock Incentive Plan (the "PLAN") effective as of June 10, 1994 to advance the interests of the Company and its stockholders by (a) providing Eligible Persons with financial incentives to promote the success of the Company's business objectives, and to increase their proprietary interest in the success of the Company, and (b) giving the Company a means to attract and retain directors of appropriate experience and stature. 1.02 DEFINITIONS. Terms used herein and not otherwise defined shall have the meanings set forth below: (a) "AWARD" means an Incentive Award or a Nonemployee Director's Option. (b) "BOARD" means the Board of Directors of the Company. (c) "CODE" means the Internal Revenue Code of 1986, as amended. Where the context so requires, a reference to a particular Code section shall also refer to any successor provision of the Code to such section. (d) "COMMISSION" means the Securities and Exchange Commission. (e) "COMMITTEE" means the committee appointed by the Board to administer the Plan. The Committee shall be composed entirely of members who meet the requirements of Section 1.04(a). (f) "COMMON STOCK" means the common stock of the Company, $0.01 par value. (g) "DIVIDEND EQUIVALENT" means a right granted by the Company under Section 2.07 to a holder of a Stock Option, Stock Appreciation Right, or other Incentive Award denominated in shares of Common Stock to receive from the Company during the Applicable Dividend Period (as defined in Section 2.07) payments equivalent to the amount of dividends payable to holders of the number of shares of Common Stock underlying such Stock Option, Stock Appreciation Right, or other Incentive Award. (h) "ELIGIBLE PERSON" means any director, officer or key employee, consultant, or advisor of the Company (as determined by the Committee) including Nonemployee Directors and members of the Committee. (i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. Where the context so requires, a reference to a particular section of the Exchange Act or rule thereunder shall also refer to any successor provision to such section or rule. (j) "FAIR MARKET VALUE" of capital stock of the Company shall be determined with reference to the closing price of such stock on the day in question (or, if such day is not a trading day in the U.S. securities markets, on the nearest preceding trading day), as reported with respect to the principal market or trading system on which such stock is then traded; or, if no such closing prices are reported, the mean between the high bid and low asked prices that day on the principal market or national quotation system on which such shares are then quoted; provided, however, that when appropriate, the Committee in determining Fair Market Value of capital stock of the Company may take into account such other factors as may be deemed appropriate under the circumstances. Notwithstanding the foregoing, the Fair Market Value of capital stock for purposes of grants of Incentive Stock Options shall be determined in compliance with applicable provisions of the Code. The Fair Market Value of rights or property other than capital stock of the Company means the fair market value thereof as determined by the Committee on the basis of such factors as it may deem appropriate. (k) "INCENTIVE AWARD" means any Stock Option, Restricted Stock, Stock Appreciation Right, Stock Payment, Performance Award or Dividend Equivalent granted or sold to an Eligible Person under this Plan, but not a Nonemployee Director's Option. (l) "INCENTIVE STOCK OPTION" means a Stock Option that qualifies as an incentive stock option under Section 422 (or any successor section) of the Code and the regulations thereunder. (m) "JUST CAUSE DISMISSAL" shall mean a termination of a Recipient's employment for any of the following reasons: (i) the Recipient violates any reasonable rule or regulation of the Board or the Recipient's superiors or the Chief Executive Officer or President of the Company that results in damage to the Company or which, after written notice to do so, the Recipient fails to correct within a reasonable time; (ii) any willful misconduct or gross negligence by the Recipient in the responsibilities assigned to him or her; (iii) any willful failure to perform his or her job as required to meet Company objectives; (iv) any wrongful conduct of a Recipient which has an adverse impact on the Company or which constitutes a misappropriation of Company assets; (v) the Recipient's performing services for any other person or entity which competes with the Company while he or she is employed by the Company, without the written approval of the Chief Executive Officer or President of the Company; or (vi) any other conduct that the Board or Committee determines constitutes Just Cause for Dismissal. (n) "NONEMPLOYEE DIRECTOR" means a director of the Company who qualifies as a "Nonemployee Director" under Rule 16b-3 under the Exchange Act. (o) "NONEMPLOYEE DIRECTOR'S OPTION" means a Stock Option granted to a Nonemployee Director pursuant to Article III of the Plan. (p) "NONQUALIFIED STOCK OPTION" means a Stock Option other than an Incentive Stock Option. (q) "OPTION" or "STOCK OPTION" means a right to purchase stock of the Company granted under this Plan, and can be an Incentive Stock Option or a Nonqualified Stock Option. (r) "PAYMENT EVENT" means the event or events giving rise to the right to payment of a Performance Award. (s) "PERFORMANCE AWARD" means an award, payable in cash, Common Stock or a combination thereof, which vests and becomes payable over a period of time upon attainment of performance criteria established in connection with the grant of the award. (t) "PERFORMANCE-BASED COMPENSATION" means performance-based compensation as described in Section 162(m) of the Code and the regulations thereunder. If the amount of compensation an Eligible Person will receive under any Incentive Award is not based solely on an increase in the value of Common Stock after the date of grant or award, the Committee, in order to qualify an Incentive Award as performance-based compensation under Section 162(m) of the Code and the regulations thereunder, can condition the grant, award, vesting, or exercisability of such an award on the attainment of a preestablished, objective performance goal. For this purpose, a preestablished, objective 2 performance goal may include one or more of the following performance criteria: (i) cash flow, (ii) earnings per share (including earnings before interest, taxes, and amortization), (iii) return on equity, (iv) total stockholder return, (v) return on capital, (vi) return on assets or net assets, (vii) income or net income, (viii) operating margin, (ix) return on operating revenue, (x) attainment of stated goals related to the Company's research and development or clinical trials programs, (xi) attainment of stated goals related to the Company's capitalization, costs, financial condition, or results of operations, and (xii) any other similar performance criteria contemplated by the regulations under Section 162(m). (u) "PERMANENT DISABILITY" shall mean that the Recipient becomes physically or mentally incapacitated or disabled so that he or she is unable to perform substantially the same services as he or she performed prior to incurring such incapacity or disability (the Company, at its option and expense, being entitled to retain a physician to confirm the existence of such incapacity or disability, and the determination of such physician to be binding upon the Company and the Recipient), and such incapacity or disability continues for a period of three consecutive months or six months in any twelve-month period or such other period(s) as may be determined by the Committee with respect to any Option. (v) "PURCHASE PRICE" means the purchase price (if any) to be paid by a Recipient for Restricted Stock as determined by the Committee (which price shall be at least equal to the minimum price required under applicable laws and regulations for the issuance of Common Stock which is nontransferable and subject to a substantial risk of forfeiture until specific conditions are met). (w) "RECIPIENT" means a person who has received an Award hereunder. (x) "RESTRICTED STOCK" means Common Stock that is the subject of an award made under Section 2.04 and which is nontransferable and subject to a substantial risk of forfeiture until specific conditions are met as set forth in this Plan and in any statement evidencing the grant of such Incentive Award. (y) "SECURITIES ACT" means the Securities Act of 1933, as amended. (z) "STOCK APPRECIATION RIGHT" or "SAR" means a right granted under Section 2.05 to receive a payment that is measured with reference to the amount by which the Fair Market Value of a specified number of shares of Common Stock appreciates from a specified date, such as the date of grant of the SAR, to the date of exercise. (aa) "STOCK PAYMENT" means a payment in shares of the Company's Common Stock to replace all or any portion of the compensation (other than base salary) that would otherwise become payable to a Recipient. 1.03 COMMON STOCK SUBJECT TO THE PLAN. (a) Number of Shares. Subject to Section 1.05(b), the maximum number of shares of Common Stock that may be issued pursuant to Awards under the Plan shall be 8,200,000. (b) Source of Shares. The Common Stock to be issued under this Plan will be made available, at the discretion of the Board or the Committee, either from authorized but unissued shares of Common Stock or from previously issued shares of Common Stock reacquired by the Company, including shares purchased on the open market. (c) Availability of Unused Shares. Shares of Common Stock subject to unexercised portions of any Award granted under this Plan that expire, terminate or are cancelled, and shares of Common Stock issued pursuant to an Award under this Plan that are reacquired by the Company pursuant to the terms of the Award under which such shares were issued, will again become available for the grant of further Awards under this Plan. 3 (d) Grant Limits. Notwithstanding any other provision of this Plan, no Eligible Person shall be granted Awards with respect to more than 600,000 shares of Common Stock in any one calendar year; provided, however, that this limitation shall not apply if it is not required in order for the compensation attributable to Incentive Awards hereunder to qualify as Performance-Based Compensation. The limitation set forth in this Section 1.03(d) shall be subject to adjustment as provided in Section 1.05(b), but only to the extent such adjustment would not affect the status of compensation attributable to Awards hereunder as Performance-Based Compensation. 1.04 ADMINISTRATION OF THE PLAN. (a) The Committee. The Plan will be administered by the Committee, which will consist of two or more members of the Board each of whom must be a Nonemployee Director; provided, however, that the number of members of the Committee may be reduced or increased from time to time by the Board. In addition, if Awards are to be made to persons subject to Section 162(m) of the Code and such awards are intended to constitute Performance-Based Compensation, then each of the Committee's members must also be an "outside director," as such term is defined in the regulations under Section 162(m) of the Code. Notwithstanding the foregoing or any provision of the Plan to the contrary, the Board may, in lieu of the Committee, exercise any authority granted to the Committee pursuant to the provisions of the Plan. (b) Authority of the Committee. The Committee has authority in its discretion to select the Eligible Persons to whom, and the time or times at which, Incentive Awards shall be granted or sold, the nature of each Incentive Award, the number of shares of Common Stock or the number of rights that make up or underlie each Incentive Award, the period for the exercise of each Incentive Award, the performance criteria (which need not be identical) utilized to measure the value of Performance Awards, and such other terms and conditions applicable to each individual Incentive Award as the Committee shall determine. The Committee may grant at any time new Incentive Awards to an Eligible Person who has previously received Incentive Awards or other grants (including other stock options) whether such prior Incentive Awards or such other grants are still outstanding, have previously been exercised in whole or in part, or are cancelled in connection with the issuance of new Incentive Awards. The Committee may grant Incentive Awards singly or in combination or in tandem with other Incentive Awards as it determines in its discretion. The purchase price or initial value and any and all other terms and conditions of the Incentive Awards may be established by the Committee without regard to existing Incentive Awards or other grants. Further, the Committee may, with the consent of an Eligible Person, amend in a manner not inconsistent with the Plan the terms of any existing Incentive Award previously granted to such Eligible Person, provided that neither the Board nor the Committee shall reduce the Exercise Price of any outstanding Option without stockholder approval. (c) Plan Interpretation. Subject to the express provisions of the Plan, the Committee has the authority to interpret the Plan and any agreements defining the rights and obligations of the Company and Recipients, to determine the terms and conditions of Incentive Awards and to make all other determinations necessary or advisable for the administration of the Plan. The Committee has authority to prescribe, amend and rescind rules and regulations relating to the Plan. All interpretations, determinations and actions by the Committee shall be final, conclusive and binding upon all parties. Any action of the Committee with respect to the administration of the Plan shall be taken pursuant to a majority vote or by the unanimous written consent of its members. (d) Special Rules Regarding Article III. Notwithstanding anything herein to the contrary, the Committee shall have no authority or discretion as to the selection of persons eligible to receive Nonemployee Directors' Options granted under the Plan, the number of shares covered by Nonemployee Directors' Options granted under the Plan, the timing of such grants, or the exercise price of Nonemployee Directors' Options granted under the Plan, which matters are specifically governed by the provisions of the Plan. 4 (e) No Liability. No member of the Board or the Committee or any designee thereof will be liable for any action or determination made in good faith by the Board or the Committee with respect to the Plan or any transaction arising under the Plan. 1.05 OTHER PROVISIONS. (a) Documentation. Each Award granted under the Plan shall be evidenced by an award agreement duly executed on behalf of the Company and by the Recipient or, in the Committee's discretion, a confirming memorandum issued by the Company to the Recipient (in either case an "AWARD DOCUMENT") evidencing the Award and setting forth such terms and conditions applicable to the Award as the Committee may in its discretion determine consistent with the Plan, provided that the Committee shall exercise no discretion with respect to Nonemployee Directors' Options, which shall reflect only the terms of the Award as set forth in Article III and certain administrative matters dictated by the Plan. Award Documents shall comply with and be subject to the terms and conditions of the Plan. A copy of the Plan shall be delivered to each Award Recipient together with the Award Document, and shall constitute a part thereof. In case of any conflict between the Plan and any Award Document, the Plan shall control. Various Award Documents covering the same types of Awards may but need not be identical. (b) Adjustment Provisions. If (1) the outstanding shares of Common Stock of the Company are increased, decreased or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed in respect of such shares of Common Stock (or any stock or securities received with respect to such Common Stock), through merger, consolidation, sale or exchange of all or substantially all of the properties of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, spin-off or other distribution with respect to such shares of Common Stock (or any stock or securities received with respect to such Common Stock), or (2) the value of the outstanding shares of Common Stock of the Company is reduced by reason of an extraordinary cash dividend, an appropriate and proportionate adjustment may be made in (x) the maximum number and kind of shares subject to the Plan as provided in Section 1.03, (y) the number and kind of shares or other securities subject to then outstanding Awards, and (z) the price for each share or other unit of any other securities subject to then outstanding Awards. No fractional interests will be issued under the Plan resulting from any such adjustments. (c) Continuation of Employment. (i) Nothing contained in this Plan (or in Award Documents or in any other documents related to this Plan or to Awards granted hereunder) shall confer upon any Eligible Person or Recipient any right to continue in the employ of the Company or constitute any contract or agreement of employment or engagement, or interfere in any way with the right of the Company to reduce such person's compensation or other benefits or to terminate the employment of such Eligible Person or Recipient, with or without cause. Except as expressly provided in the Plan or in any statement evidencing the grant of an Award pursuant to the Plan, the Company shall have the right to deal with each Recipient in the same manner as if the Plan and any such statement evidencing the grant of an Award pursuant to the Plan did not exist, including, without limitation, with respect to all matters related to the hiring, discharge, compensation and conditions of the employment or engagement of the Recipient. (ii) Any question(s) as to whether and when there has been a termination of a Recipient's employment, the reason (if any) for such termination, and/or the consequences thereof under the terms of the Plan or any statement evidencing the grant of an Award pursuant to the Plan shall be determined by the Committee and the Committee's determination thereof shall be final and binding. (d) Restrictions. All Awards granted under the Plan shall be subject to the requirement that, if at any time the Company shall determine, in its discretion, that the listing, registration or qualification of the shares subject to Awards granted under the Plan upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is 5 necessary or desirable as a condition of, or in connection with, the granting of such an Award or the issuance, if any, or purchase of shares in connection therewith, such Award may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company. Unless the shares of stock to be issued upon exercise of an Award granted under the Plan have been effectively registered under the Securities Act, the Company shall be under no obligation to issue any shares of stock covered by any Award unless the person who exercises such Award, in whole or in part, shall give a written representation and undertaking to the Company satisfactory in form and scope to counsel to the Company and upon which, in the opinion of such counsel, the Company may reasonably rely, that he or she is acquiring the shares of stock issued to him or her pursuant to such exercise of the Award for his or her own account as an investment and not with a view to, or for sale in connection with, the distribution of any such shares of stock, and that he or she will make no transfer of the same except in compliance with any rules and regulations in force at the time of such transfer under the Securities Act, or any other applicable law, and that if shares of stock are issued without such registration, a legend to this effect may be endorsed upon the securities so issued. (e) Additional Conditions. Any Incentive Award may also be subject to such other provisions (whether or not applicable to any other Award or Recipient) as the Committee determines appropriate including, without limitation, provisions to assist the Recipient in financing the purchase of Common Stock through the exercise of Stock Options, provisions for the forfeiture of or restrictions on resale or other disposition of shares of Common Stock acquired under any form of benefit, provisions giving the Company the right to repurchase shares of Common Stock acquired under any form of benefit in the event the Recipient elects to dispose of such shares, and provisions to comply with federal and state securities laws and federal and state income tax withholding requirements. (f) Privileges of Stock Ownership. Except as otherwise set forth herein, a Recipient or a permitted transferee of an Award shall have no rights as a shareholder with respect to any shares issuable or issued in connection with the Award until the date of the receipt by the Company of all amounts payable in connection with exercise of the Award and performance by the Recipient of all obligations thereunder. Status as an Eligible Person shall not be construed as a commitment that any Award will be granted under this Plan to an Eligible Person or to Eligible Persons generally. No person shall have any right, title or interest in any fund or in any specific asset (including shares of capital stock) of the Company by reason of any Award granted hereunder. Neither this Plan (or any documents related hereto) nor any action taken pursuant hereto shall be construed to create a trust of any kind or a fiduciary relationship between the Company and any person. To the extent that any person acquires a right to receive an Award hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company. (g) Amendment and Termination of Plan: Amendment of Incentive Awards. (i) The Board or the Committee may, insofar as permitted by law, from time to time suspend or discontinue the Plan or revise or amend it in any respect except that no such amendment shall alter or impair or diminish any rights or obligations under any Award theretofore granted under the Plan without the consent of the person to whom such Award was granted, and except that such amendments shall be subject to stockholder approval to the extent (A) required to comply with the listing requirements imposed by any exchange or trading system upon which the Company's securities trade or applicable provisions of or rules under the Code, or (B) the Board determines in good faith that such amendments are material to stockholders. (ii) The Committee may from time to time, with the consent of a Recipient, make such modifications in the terms and conditions of an Incentive Award as it deems advisable, including to accelerate or extend the vesting or exercise period of any Incentive Award, provided that performance conditions to vesting of Restricted Stock shall not be waived, and provided further that neither the Board nor the Committee shall reduce the Exercise Price of any outstanding Option without stockholder approval. 6 (iii) Except as otherwise provided in this Plan or in the applicable Award Document, no amendment, suspension or termination of the Plan will, without the consent of the Recipient, alter, terminate, impair or adversely affect any right or obligation under any Award previously granted under the Plan. (h) Nonassignability. No Award granted under the Plan shall be assignable or transferable except (i) by will or by the laws of descent and distribution, or (ii) subject to the final sentence of this subsection (h), upon dissolution of marriage pursuant to a qualified domestic relations order or, in the discretion of the Committee and under circumstances that would not adversely affect the interests of the Company. During the lifetime of a Recipient, an Award granted to him or her shall be exercisable only by the Recipient (or the Recipient's permitted transferee) or his or her guardian or legal representative. Notwithstanding the foregoing, Incentive Stock Options (or other Awards subject to transfer restrictions under the Code) may not be assigned or transferred in violation of Section 422(b)(5) of the Code (or any comparable or successor provision) or the Treasury Regulations thereunder, and nothing herein is intended to allow such assignment or transfer. (i) Other Compensation Plans. The adoption of the Plan shall not affect any other stock option, incentive or other compensation plans in effect for the Company, and the Plan shall not preclude the Company from establishing any other forms of incentive or other compensation for employees, directors, or advisors of the Company. (j) Plan Binding on Successors. The Plan shall be binding upon the successors and assigns of the Company. (k) Participation By Foreign Employees. Notwithstanding anything to the contrary herein, the Committee may, in order to fulfill the purposes of the Plan, modify grants of Incentive Awards to Recipients who are foreign nationals or employed outside of the United States to recognize differences in applicable law, tax policy or local custom. (l) Effective Date And Duration of Plan. Awards may be granted under the Plan until the tenth anniversary of the effective date of the Plan, whereupon the Plan shall terminate. No Awards may be granted during any suspension of this Plan or after its termination. Notwithstanding the foregoing, each Award properly granted under the Plan shall remain in effect until such Award has been exercised or terminated in accordance with its terms and the terms of the Plan. ARTICLE II INCENTIVE AWARDS 2.01 GRANTS OF INCENTIVE AWARDS. Subject to the express provisions of this Plan, the Committee may from time to time in its discretion select from the class of Eligible Persons those individuals to whom Incentive Awards may be granted pursuant to its authority as set forth in Section 1.04(b). Each Incentive Award shall be subject to the terms and conditions of the Plan and such other terms and conditions established by the Committee as are not inconsistent with the purpose and provisions of the Plan. One or more Incentive Awards may be granted to any Eligible Person. 2.02 STOCK OPTIONS. (a) Nature of Stock Options. Stock Options may be Incentive Stock Options or Nonqualified Stock Options. (b) Option Price. The exercise price per share for each Option (other than a Nonemployee Director's Option) (the "EXERCISE PRICE") shall be determined by the Committee at the date such Option is granted and shall not be less than the Fair Market Value of a share of Common Stock (or other securities, as applicable) at the time of grant, except that the Exercise Price for a Nonqualified Stock Option may reflect a discount of up to 15% of the Fair Market Value at the time of grant if the 7 amount of such discount is expressly in lieu of a reasonable amount of salary or cash bonus. Notwithstanding the foregoing, however, in no event shall the exercise price be less than the par value of the shares of Common Stock subject to the Option, and the exercise price of an Incentive Stock Option shall be not less than such amount as is necessary to enable such Option to be treated as an "incentive stock option" within the meaning of Section 422 of the Code. (c) Option Period and Vesting. Options (other than Nonemployee Directors' Options) hereunder shall vest and may be exercised as determined by the Committee, except that exercise of such Options after termination of the Recipient's employment shall be subject to Section 2.02(g). Each Option granted hereunder (other than a Nonemployee Directors Option) and all rights or obligations thereunder shall expire on such date as shall be determined by the Committee, but not later than ten years after the date the Option is granted and shall be subject to earlier termination as herein provided. The Committee may in its discretion at any time and from time to time after the grant of an Option (other than a Nonemployee Director's Option) accelerate vesting of such Option in whole or part by increasing the number of shares then purchasable, provided that the total number of shares subject to such Option may not be increased. (d) Exercise of Options. Except as otherwise provided herein, an Option may become exercisable, in whole or in part, on the date or dates specified by the Committee (or, in the case of Nonemployee Directors' Options, the Plan) at the time the Option is granted and thereafter shall remain exercisable until the expiration or earlier termination of the Option. No Option shall be exercisable except in respect of whole shares, and fractional share interests shall be disregarded. Not less than 100 shares of stock (or such other amount as is set forth in the applicable option agreement) may be purchased at one time unless the number purchased is the total number at the time available for purchase under the terms of the Option. An Option shall be deemed to be exercised when the Secretary of the Company receives written notice of such exercise from the Recipient, together with payment of the exercise price made in accordance with Section 2.02(e). Upon proper exercise, the Company shall deliver to the person entitled to exercise the Option or his or her designee a certificate or certificates for the shares of stock for which the Option is exercised. Notwithstanding any other provision of this Plan, the Committee may impose, by rule and in option agreements, such conditions upon the exercise of Options (including, without limitation, conditions limiting the time of exercise to specified periods) as may be required to satisfy applicable regulatory requirements, including without limitation Rule 16b-3 (or any successor rule) under the Exchange Act and any applicable section of or rule under the Internal Revenue Code. (e) Exercise Price. The Exercise Price shall be payable upon the exercise of an Option by delivery of legal tender of the United States or payment of such other consideration as the Committee may from time to time deem acceptable in any particular instance, including without limitation delivery of capital stock of the Company (delivered by or on behalf of the person exercising the Option or retained by the Company from the Common Stock otherwise issuable upon exercise and valued at Fair Market Value as of the exercise date) or surrender of other Awards previously granted to the Recipient exercising the Option; provided, however, that the Committee may, in the exercise of its discretion, (i) allow exercise of an Option in a broker-assisted or similar transaction in which the Exercise Price is not received by the Company until immediately after exercise, and/or (ii) allow the Company to loan the Exercise Price to the person entitled to exercise the Option, if the exercise will be followed by an immediate sale of some or all of the underlying shares and a portion of the sales proceeds is dedicated to full payment of the Exercise Price. Any shares of Company stock or other non-cash consideration assigned and delivered to the Company in payment or partial payment of the Exercise Price will be valued at Fair Market Value on the exercise date. No fractional shares will be issued pursuant to the exercise of an Option. (f) Limitation on Exercise of Incentive Stock Options. The aggregate Fair Market Value (determined as of the respective date or dates of grant) of the Common Stock for which one or more options granted to any Recipient under the Plan (or any other option plan of the Company or any of its subsidiaries or affiliates) may for the first time become exercisable as Incentive Stock Options under the federal tax laws during any one calendar year shall not exceed $100,000. Any Options granted as 8 Incentive Stock Options pursuant to the Plan in excess of such limitation shall be treated as Nonqualified Stock Options. (g) Termination of Employment. (i) Termination for Cause. Except as otherwise provided in a written agreement between the Company and the Recipient, which may be entered into at any time before or after termination, in the event of a Just Cause Dismissal of a Recipient all of the Recipient's unexercised Options, whether or not vested, shall expire and become unexercisable as of the date of such Just Cause Dismissal. (ii) Termination Other Than For Cause. Subject to subsection (i) above and subsection (iii) below, and except as otherwise provided in a written agreement between the Company and the Recipient, which may be entered into at any time before or after termination, in the event of a Recipient's termination of employment for: (A) any reason other than for Just Cause Dismissal, death, or Permanent Disability, or normal retirement, the Recipient's Options shall, whether or not vested, expire and become unexercisable as of the earlier of (1) the date such Options would expire in accordance with their terms if the Recipient remained employed or (2) three calendar months after the date of termination in the case of Incentive Stock Options, or six months after the date of termination, in the case of Nonqualified Stock Options. (B) death or Permanent Disability, the Recipient's unexercised Options shall, whether or not vested, expire and become unexercisable as of the earlier of (1) the date such Options would expire in accordance with their terms if the Recipient remained employed or (2) twelve (12) months after the date of termination. (C) normal retirement, the Recipient's unexercised Options shall, whether or not vested, expire and become unexercisable as of the earlier of (A) the date such Options expire in accordance with their terms or (B) twenty-four (24) months after the date of retirement. (iii) Alteration of Exercise Periods. Notwithstanding anything to the contrary in subsections (i) or (ii) above, the Committee may in its discretion designate such shorter or longer periods to exercise Options (other than Nonemployee Directors' Options) following a Recipient's termination of employment; provided, however, that any shorter periods determined by the Committee shall be effective only if provided for in the instrument that evidences the grant to the Recipient of such Options or if such shorter period is agreed to in writing by the Recipient. Notwithstanding anything to the contrary herein, Options shall be exercisable by a Recipient (or his successor in interest) following such Recipient's termination of employment only to the extent that installments thereof had become exercisable on or prior to the date of such termination; provided, however, that the Committee, in its discretion, may elect to accelerate the vesting of all or any portion of any Options that had not become exercisable on or prior to the date of such termination. 2.03 PERFORMANCE AWARDS. (a) Grant of Performance Award. The Committee shall determine the performance criteria (which need not be identical and may be established on an individual or group basis) governing Performance Awards, the terms thereof, and the form and time of payment of Performance Awards. (b) Payment of Award; Limitation. Upon satisfaction of the conditions applicable to a Performance Award, payment will be made to the Recipient in cash or in shares of Common Stock valued at Fair Market Value or a combination of Common Stock and cash, as the Committee in its discretion may determine. Notwithstanding any other provision of this Plan, no Eligible Person shall be 9 paid a Performance Award in excess of $1,000,000 in any one calendar year; provided, however, that this limitation shall not apply if it is not required in order for the compensation attributable to the Performance Award hereunder to qualify as Performance-Based Compensation. (c) Expiration of Performance Award. If any Recipient's employment with the Company is terminated for any reason other than normal retirement, death, or Permanent Disability prior to the time a Performance Award or any portion thereof becomes payable, all of the Recipient's rights under the unpaid portion of the Performance Award shall expire and terminate unless otherwise determined by the Committee. In the event of termination of employment by reason of death, Permanent Disability or normal retirement, the Committee, in its discretion, may determine what portions, if any, of the Performance Award should be paid to the Recipient. 2.04 RESTRICTED STOCK. (a) Award of Restricted Stock. The Committee may grant awards of Restricted Stock to Eligible Participants. The Committee shall determine the Purchase Price (if any), the terms of payment of the Purchase Price, the restrictions upon the Restricted Stock, and when such restrictions shall lapse, provided that the restriction period shall be at least one year for performance-based grants and three years for non-performance-based grants. (b) Requirements of Restricted Stock. All shares of Restricted Stock granted or sold pursuant to the Plan will be subject to the following conditions: (i) No Transfer. The shares may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated or encumbered until the restrictions are removed or expire; (ii) Certificates. The Committee may require that the certificates representing Restricted Stock granted or sold to a Recipient pursuant to the Plan remain in the physical custody of an escrow holder or the Company until all restrictions are removed or expire; (iii) Restrictive Legends. Each certificate representing Restricted Stock granted or sold to a Recipient pursuant to the Plan will bear such legend or legends making reference to the restrictions imposed upon such Restricted Stock as the Committee in its discretion deems necessary or appropriate to enforce such restrictions; and (iv) Other Restrictions. The Committee may impose such other conditions on Restricted Stock as the Committee may deem advisable including, without limitation, restrictions under the Securities Act, under the Exchange Act, under the requirements of any stock exchange upon which such Restricted Stock or shares of the same class are then listed and under any blue sky or other securities laws applicable to such shares. (c) Rights of Recipient. Subject to the provisions of Section 2.04(b) and any restrictions imposed upon the Restricted Stock, the Recipient will have all rights of a stockholder with respect to the Restricted Stock granted or sold to such Recipient under the Plan, including the right to vote the shares and receive all dividends and other distributions paid or made with respect thereto. (d) Termination of Employment. Unless the Committee in its discretion determines otherwise, upon a Recipient's termination of employment for any reason, all of the Recipient's Restricted Stock remaining subject to restrictions imposed pursuant to the Plan on the date of such termination of employment shall be repurchased by the Company at the Purchase Price (if any). 10 2.05 STOCK APPRECIATION RIGHTS. (a) Granting of Stock Appreciation Rights. The Committee may approve the grant to Eligible Persons of Stock Appreciation Rights, related or unrelated to Options, at any time. (b) SARs Related to Options. (i) A Stock Appreciation Right granted in connection with an Option granted under this Plan will entitle the holder of the related Option, upon exercise of the Stock Appreciation Right, to surrender such Option, or any portion thereof to the extent unexercised, with respect to the number of shares as to which such Stock Appreciation Right is exercised, and to receive payment of an amount computed pursuant to Section 2.05(b)(iii). Such Option will, to the extent surrendered, then cease to be exercisable. (ii) A Stock Appreciation Right granted in connection with an Option hereunder will be exercisable at such time or times, and only to the extent that, the related Option is exercisable, and will not be transferable except to the extent that such related Option may be transferable. (iii) Upon the exercise of a Stock Appreciation Right related to an Option, the Holder will be entitled to receive payment of an amount determined by multiplying: (i) the difference obtained by subtracting the Exercise Price of a share of Common Stock specified in the related Option from the Fair Market Value of a share of Common Stock on the date of exercise of such Stock Appreciation Right (or as of such other date or as of the occurrence of such event as may have been specified in the instrument evidencing the grant of the Stock Appreciation Right), by (ii) the number of shares as to which such Stock Appreciation Right is exercised. (c) SARs Unrelated to Options. The Committee may grant Stock Appreciation Rights unrelated to Options to Eligible Persons. Section 2.05(b)(iii) shall be used to determine the amount payable at exercise under such Stock Appreciation Right, except that in lieu of the Option Exercise Price specified in the related Option the initial base amount specified in the Incentive Award shall be used. (d) Limits. Notwithstanding the foregoing, the Committee, in its discretion, may place a dollar limitation on the maximum amount that will be payable upon the exercise of a Stock Appreciation Right under the Plan. (e) Payments. Payment of the amount determined under the foregoing provisions may be made solely in whole shares of Common Stock valued at their Fair Market Value on the date of exercise of the Stock Appreciation Right or, alternatively, at the sole discretion of the Committee, in cash or in a combination of cash and shares of Common Stock as the Committee deems advisable. The Committee has full discretion to determine the form in which payment of a Stock Appreciation Right will be made and to consent to or disapprove the election of a Recipient to receive cash in full or partial settlement of a Stock Appreciation Right. If the Committee decides to make full payment in shares of Common Stock, and the amount payable results in a fractional share, payment for the fractional share will be made in cash. (f) Rule 16b-3. The Committee may, at the time a Stock Appreciation Right is granted, impose such conditions on the exercise of the Stock Appreciation Right as may be required to satisfy the requirements of Rule 16b-3 under the Exchange Act (or any other comparable provisions in effect at the time or times in question). (g) Termination of Employment. Section 2.02(g) will govern the treatment of Stock Appreciation Rights upon the termination of a Recipient's employment with the Company. 11 2.06 STOCK PAYMENTS. The Committee may approve Stock Payments of the Company's Common Stock to any Eligible Person for all or any portion of the compensation (other than base salary) or other payment that would otherwise become payable by the Company to the Eligible Person in cash. 2.07 DIVIDEND EQUIVALENTS. The Committee may grant Dividend Equivalents to any Recipient who has received a Stock Option, SAR, or other Incentive Award denominated in shares of Common Stock. Such Dividend Equivalents shall be effective and shall entitle the recipients thereof to payments during the "APPLICABLE DIVIDEND PERIOD," which shall be (i) the period between the date the Dividend Equivalent is granted and the date the related Stock Option, SAR, or other Incentive Award is exercised, terminates, or is converted to Common Stock, or (ii) such other time as the Committee may specify in the written instrument evidencing the grant of the Dividend Equivalent. Dividend Equivalents may be paid in cash, Common Stock, or other Incentive Awards; the amount of Dividend Equivalents paid other than in cash shall be determined by the Committee by application of such formula as the Committee may deem appropriate to translate the cash value of dividends paid to the alternative form of payment of the Dividend Equivalent. Dividend Equivalents shall be computed as of each dividend record date and shall be payable to recipients thereof at such time as the Committee may determine. Notwithstanding the foregoing, if it is intended that an Incentive Award qualify as Performance-Based Compensation and the amount of the compensation the Eligible Person could receive under the award is based solely on an increase in value of the underlying stock after the date of grant or award (i.e., the grant, vesting, or exercisability of the award is not conditioned upon the attainment of a preestablished, objective performance goal described in Section 1.02(t)), then the payment of any Dividend Equivalents related to the award shall not be made contingent on the exercise of the award. ARTICLE III NONEMPLOYEE DIRECTOR'S OPTIONS 3.01 GRANTS OF INITIAL OPTIONS. Each Nonemployee Director shall, upon first becoming a Nonemployee Director, receive a one-time grant of a Nonemployee Director's Option to purchase up to 40,000 shares of the Company's Common Stock at an exercise price per share equal to the Fair Market Value of the Company's Common Stock on the date of grant, subject to (i) vesting as set forth in Section 3.04, and (ii) adjustment as set forth in Section 1.05(b). Options granted under this Section 3.01 are "INITIAL OPTIONS" for purposes hereof. 3.02 GRANTS OF ADDITIONAL OPTIONS. Immediately following the annual meeting of stockholders of the Company next following a Nonemployee Director becoming such, and immediately following each subsequent annual meeting of stockholders of the Company, in each case if the Nonemployee Director has served as a director since his or her election or appointment and has been re-elected as a director at such annual meeting or is continuing as a director without being re-elected due to the classification of the Board, such Nonemployee Director shall automatically receive an option to purchase up to 10,000 shares of the Company's Common Stock at an exercise price per share equal to the Fair Market Value of the Company's Common Stock on the date of grant, subject to (a) vesting as set forth in Section 3.04, and (b) adjustment as set forth in Section 1.05(b). Options granted under this Section 3.02 are "ADDITIONAL OPTIONS" for purposes hereof. 12 3.03 EXERCISE PRICE. The exercise price for Nonemployee Directors' Options shall be payable as set forth in Section 2.02(e). Neither the Board nor the Committee shall reduce the exercise price of any outstanding Initial Option or Additional Option without stockholder approval. 3.04 VESTING AND EXERCISE. Initial Options shall vest and become exercisable with respect to 25% of the underlying shares on the grant date and with respect to an additional 25% of the underlying shares on the dates of each of the first three annual meetings of the Company's stockholders following the grant date, but only if on the date of each such annual meeting, the Recipient is continuing as a director of the Company for the ensuing year, provided, however, that if the grant date is within six months of the ensuing annual meeting of the Company's stockholders, then after vesting of the Option with respect to 25% of the underlying shares on the grant date, the Option will vest with respect to an additional 25% of the underlying shares on the dates of each of the second, third, and fourth annual meetings of the Company's stockholders following the grant date, but only if, on the date of each such annual meeting, the Recipient is continuing as a director for the ensuing year. Additional Options shall vest and become exercisable upon the earlier of (a) the first anniversary of the grant date or (b) immediately prior to the annual meeting of stockholders of the Company next following the grant date, if the optionee has remained a director for the entire period from the date of grant to such earlier date. Notwithstanding the foregoing, however, Initial Options and Additional Options that have not vested and become exercisable at the time the optionee ceases to be a director shall terminate. 3.05 TERM OF OPTIONS AND EFFECT OF TERMINATION. No Nonemployee Directors' Option shall be exercisable after the expiration of ten years from the effective date of its grant. In the event that the Recipient of a Nonemployee Director's Option shall cease to be a director of the Company, all Nonemployee Directors' Options granted to such Recipient shall be exercisable, to the extent already exercisable at the date such Recipient ceases to be a director and regardless of the reason the Recipient ceases to be a director, for a period of five (5) years after that date (or, if sooner, until the expiration of the option according to its terms). In the event of the death of a Recipient of a Nonemployee Director's Option while such Recipient is a director of the Company or within the period after termination of such status during which he or she is permitted to exercise such Option, such Option may be exercised by any person or persons designated by the Recipient on a Beneficiary Designation Form adopted by the Company for such purpose or, if there is no effective Beneficiary Designation Form on file with the Company, by the executors or administrators of the Recipient's estate or by any person or persons who shall have acquired the option directly from the Recipient by his or her will or the applicable laws of descent and distribution. ARTICLE IV RECAPITALIZATIONS AND REORGANIZATIONS 4.01 CORPORATE TRANSACTIONS. If the Company shall be the surviving corporation in any merger or consolidation, each outstanding Option shall pertain and apply to the securities to which a holder of the same number of shares of Common Stock that are subject to that Option would have been entitled. In the event of a Change in Control (as defined below), all Nonemployee Directors' Options and any Incentive Awards specified by the Committee or the Board shall immediately vest and become exercisable, and all conditions thereto shall be deemed to have been met. For purposes hereof, a "Change in Control" means the following and shall be deemed to occur if any of the following events occur: (i) Except as provided by subsection (iii) hereof, the acquisition (other than from the Company) by any person, entity or "group," within the meaning of 13 Section 13(d)(3) or 14(d)(2) of the Exchange Act (excluding, for this purpose, the Company or its subsidiaries, or any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of the Company), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of forty percent (40%) or more of either the then outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; or (ii) Individuals who, as of the effective date of the Plan, constitute the Board of Directors of the Company (the "INCUMBENT BOARD") cease for any reason to constitute at least a majority of the Board of Directors of the Company, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, is or was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (iii) Approval by the stockholders of the Company of a reorganization, merger or consolidation with any other person, entity or corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of another entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company and such other entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires forty percent (40%) or more of the combined voting power of the Company's then outstanding voting securities; or (iv) Approval by the stockholders of the Company of a plan of complete liquidation of the Company or an agreement for the sale or other disposition by the Company of all or substantially all of the Company's assets. Notwithstanding the preceding provisions of this Section 4.01, a Change in Control shall not be deemed to have occurred (l) if the "person" described in the preceding provisions of this Section 4.01 is an underwriter or underwriting syndicate that has acquired the ownership of 50% or more of the combined voting power of the Company's then outstanding voting securities solely in connection with a public offering of the Company's securities, or (2) if the "person" described in the preceding provisions of this Paragraph is an employee stock ownership plan or other employee benefit plan maintained by the Company that is qualified under the provisions of the Employee Retirement Income Security Act of 1974, as amended. 4.02 DETERMINATION BY THE COMMITTEE. To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all of any part of its business or assets. 14 EX-10.37 4 a92032exv10w37.txt EXHIBIT 10.37 EXHIBIT 10.37 PROMISSORY NOTE JUNE 27, 2003 FOR VALUE RECEIVED, LA JOLLA PHARMACEUTICAL COMPANY a corporation located at the address stated below ("MAKER") promises, jointly and severally if more than one, to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION or any subsequent holder hereof (each, a "PAYEE") at its office located at 401 MERRITT 7 SUITE 23, NORWALK, CT 06851-1177 or at such other place as Payee or the holder hereof may designate, the principal sum of THREE HUNDRED FORTY-FIVE THOUSAND TWO HUNDRED THIRTY-NINE AND 47/100 DOLLARS ($345, 239.47), with interest on the unpaid principal balance, from the date hereof through and including the dates of payment, at a fixed interest rate of Nine and Seventy Hundreths percent (9.70%) per annum, to be paid in lawful money of the United States, in Fourty Two (42) consecutive monthly installments of principal and interest as follows:

Periodic Installment Amount ----------- ------ Thirty-Six (36) $10,140.33 Five (5) $ 6,146.05

each ("Periodic Installment") and a final installment which shall be in the amount of the total outstanding principal and interest. The first Periodic Installment shall be due and payable on July 1, 2003 and the following Periodic Installments and the final installment shall be due and payable on the same day of each succeeding month (each, a "Payment Date"). Such installments have been calculated on the basis of a 360 day year of twelve 30-day months. Each payment may, at the option of the Payee, be calculated and applied on an assumption that such payment would be made on its due date. The acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee's right to receive payment in full at such time or at any prior or subsequent time. The Maker hereby expressly authorizes the Payee to insert the date value is actually given in the blank space on the face hereof and on all related documents pertaining hereto. This Note may be secured by a security agreement, chattel mortgage, pledge agreement or like instrument (each of which is hereinafter called a "SECURITY AGREEMENT"). Time is of the essence hereof. If any installment or any other sum due under this Note or any Security Agreement is not received within ten (10) days after its due date, the Maker agrees to pay, in addition to the amount of each such installment or other sum, a late payment charge of five percent (5%) of the amount of said installment or other sum, but not exceeding any lawful maximum. If (i) Maker fails to make payment of any amount due hereunder within ten (10) days after the same becomes due and payable; or (ii) Maker is in default under, or fails to perform under any term or condition contained in any Security Agreement, then the entire principal sum remaining unpaid, together with all accrued interest thereon and any other sum payable under this Note or any Security Agreement, at the election of Payee, shall immediately become due and payable, with interest thereon at the lesser of eighteen percent (18%) per annum or the highest rate not prohibited by applicable law from the date of such accelerated maturity until paid (both before and after any judgment). Notwithstanding anything to tire contrary contained herein or in the Security Agreement, Maker may not prepay in full or in part any indebtedness hereunder without the express written consent of Payee in its sole discretion. It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Note or any Security Agreement, in no event shall this Note or any Security Agreement require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Note or any Security Agreement, or if all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Note or any Security Agreement on the principal balance shall exceed the maximum amount of interest permitted by applicable law, then in such event (a) the provisions of this paragraph shall govern and control, (b) neither Maker nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (c) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Maker, at the option of the Payee, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for charged or received under this Note or any Security Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise by Payee in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for the Payee to receive a greater interest per annum rate than is presently allowed, the Maker agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America. The Maker and all sureties, endorsers, guarantors or any others (each such person, other than the Maker, an "OBLIGOR") who may at any time become liable for the payment hereof jointly and severally consent hereby to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of any party primarily or secondarily liable on this Note or any Security Agreement or any term and provision of either, which may be made granted or consented to by Payee, and agree that suit may be brought and maintained against any one or more of them, at the election of Payee without joinder of any other as a party thereto, and that Payee shall not be required first to foreclose, proceed against, or exhaust any security hereof in order to enforce payment of this Note. The Maker and each Obligor hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in collecting this Note or enforcing any of the security hereof, and agrees to pay (if permitted by law) all expenses incurred in collection, including Payee's actual attorneys' fees. Maker and each Obligor agrees that fees not in excess of twenty percent (20%) of the amount then due shall be deemed reasonable. THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. This Note and any Security Agreement constitute the entire agreement of the Maker and Payee with respect to the subject matter hereof and supercedes all prior understandings, agreements and representations, express or implied. No variation or modification of this Note, or any waiver of any of its provisions or conditions, shall be valid unless in writing and signed by an authorized representative of Maker and Payee. Any such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given. Any provision in this Note or any Security Agreement which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. LA JOLLA PHARMACEUTICAL COMPANY /s/ Lisa Peraza By: /s/ Gail A. Sloan - --------------- ----------------- Lisa Peraza (Witness) Gail A. Sloan 6455 Nancy Ridge Drive Senior Director of Finance and Controller San Diego, CA 92121 Federal Tax ID #: 330361285 Address: 6455 Nancy Ridge Drive San Diego, CA 92121 EX-10.38 5 a92032exv10w38.txt EXHIBIT 10.38 EXHIBIT 10.38 AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT This Amendment No. 3 to Employment Agreement (this "Amendment No. 3") is made effective as of July 23, 2003, by and between La Jolla Pharmaceutical Company, a Delaware corporation (the "Company"), and Steven B. Engle ("Executive"). WHEREAS, Executive and the Company are parties to that certain Employment Agreement dated as of December 30, 1993 (the "Original Employment Agreement"), as amended by Amendment No. 1 to Employment Agreement, dated as of June 26, 1997 ("Amendment No. 1"), and Amendment No. 2 to Employment Agreement, dated as of September 16, 1999 ("Amendment No. 2"), and pursuant to which Executive is employed by the Company (the Original Employment Agreement, Amendment No. 1, and Amendment No. 2, being collectively referred to herein as the "Agreement"); and WHEREAS, Executive and the Company desire to amend the Agreement as set forth herein in consideration of Executive's ongoing employment. NOW, THEREFORE, the Company and Executive hereby agree as follows: 1. Section 4(a)(i) of Amendment No. 2 shall be deleted in its entirety and replaced with the following: "(i) the Company (or its successor, as the case may be) shall pay to Executive a severance payment (the "Severance Payment") equal to the then-current Base Salary for a period of twenty-four (24) full calendar months from the date of termination of Executive's employment (the "Termination Date"); and" 2. Section 4(a)(ii) of Amendment No. 2 shall be deleted in its entirety and replaced with the following: "(ii) the Company (or its successor, as the case may be) shall continue, at its sole expense, all medical, dental and life insurance coverage for Executive and his family on similar terms until the earlier of (A) twenty-four (24) full calendar months from the Termination Date, or (B) such time as Executive receives similar paid coverage from another employer; and" 3. Nothing in this Amendment No. 3 shall be construed to limit benefits to which Executive is entitled under the Agreement. Except as expressly amended hereby, the Agreement remains in full force and effect as written. 4. This Amendment No. 3 may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, Executive and the Company have entered into this Amendment No. 3 as of the date written above. LA JOLLA PHARMACEUTICAL COMPANY EXECUTIVE By: /s/ Gail A. Sloan /s/ Steven B. Engle ----------------- ------------------- Gail A. Sloan Steven B. Engle Senior Director of Finance, Controller, and Secretary EX-31.1 6 a92032exv31w1.txt EXHIBIT 31.1 EXHIBIT 31.1 SECTION 302 CERTIFICATION I, Steven B. Engle, certify that: 1. I have reviewed this quarterly report on Form 10-Q of La Jolla Pharmaceutical Company; 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 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. Date: August 5, 2003 /s/ Steven B. Engle ------------------- Steven B. Engle Chairman and Chief Executive Officer EX-31.2 7 a92032exv31w2.txt EXHIBIT 31.2 EXHIBIT 31.2 SECTION 302 CERTIFICATION I, Gail A. Sloan, certify that: 1. I have reviewed this report on Form 10-Q of La Jolla Pharmaceutical Company; 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 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. Date: August 5, 2003 /s/ Gail A. Sloan ----------------- Gail A. Sloan Senior Director of Finance, Controller and Secretary EX-32.0 8 a92032exv32w0.txt EXHIBIT 32.0 EXHIBIT 32.0 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, in his or her capacity as an officer of La Jolla Pharmaceutical Company (the "Registrant"), hereby certifies, for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: - the quarterly report of the Registrant on Form 10-Q for the quarter ended June 30, 2003 (the "Report"), which accompanies this certification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and - the information contained in the Report fairly presents, in all material respects, the financial condition of the Registrant at the end of such quarter and the results of operations of the Registrant of such quarter. Dated: August 5, 2003 /s/ Steven B. Engle ------------------- Steven B. Engle Chairman and Chief Executive Officer /s/ Gail A. Sloan ----------------- Gail A. Sloan Senior Director of Finance, Controller and Secretary Note: A signed original of this written statement required by Section 906 has been provided to La Jolla Pharmaceutical Company and will be retained by La Jolla Pharmaceutical Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.11

                                                                   EXHIBIT 10.11

                         LA JOLLA PHARMACEUTICAL COMPANY
                            1994 STOCK INCENTIVE PLAN

                                    ARTICLE I
                               GENERAL PROVISIONS

         1.01     PURPOSE OF THE PLAN.

                  La Jolla Pharmaceutical Company (the "COMPANY"), by action of
its Board of Directors and with the consent of its stockholders, has adopted
this La Jolla Pharmaceutical Company Stock Incentive Plan (the "PLAN") effective
as of June 10, 1994 to advance the interests of the Company and its stockholders
by (a) providing Eligible Persons with financial incentives to promote the
success of the Company's business objectives, and to increase their proprietary
interest in the success of the Company, and (b) giving the Company a means to
attract and retain directors of appropriate experience and stature.

         1.02     DEFINITIONS.

                   Terms used herein and not otherwise defined shall have the
meanings set forth below:

                  (a)      "AWARD" means an Incentive Award or a Nonemployee
Director's Option.

                  (b)      "BOARD" means the Board of Directors of the Company.

                  (c)      "CODE" means the Internal Revenue Code of 1986, as
amended. Where the context so requires, a reference to a particular Code section
shall also refer to any successor provision of the Code to such section.

                  (d)      "COMMISSION" means the Securities and Exchange
Commission.

                  (e)      "COMMITTEE" means the committee appointed by the
Board to administer the Plan. The Committee shall be composed entirely of
members who meet the requirements of Section 1.04(a).

                  (f)      "COMMON STOCK" means the common stock of the Company,
$0.01 par value.

                  (g)      "DIVIDEND EQUIVALENT" means a right granted by the
Company under Section 2.07 to a holder of a Stock Option, Stock Appreciation
Right, or other Incentive Award denominated in shares of Common Stock to receive
from the Company during the Applicable Dividend Period (as defined in Section
2.07) payments equivalent to the amount of dividends payable to holders of the
number of shares of Common Stock underlying such Stock Option, Stock
Appreciation Right, or other Incentive Award.

                  (h)      "ELIGIBLE PERSON" means any director, officer or key
employee, consultant, or advisor of the Company (as determined by the Committee)
including Nonemployee Directors and members of the Committee.

                  (i)      "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended. Where the context so requires, a reference to a particular
section of the Exchange Act or rule thereunder shall also refer to any successor
provision to such section or rule.

                  (j)      "FAIR MARKET VALUE" of capital stock of the Company
shall be determined with reference to the closing price of such stock on the day
in question (or, if such day is not a trading day in the U.S. securities
markets, on the nearest preceding trading day), as reported with respect to the



principal market or trading system on which such stock is then traded; or, if no
such closing prices are reported, the mean between the high bid and low asked
prices that day on the principal market or national quotation system on which
such shares are then quoted; provided, however, that when appropriate, the
Committee in determining Fair Market Value of capital stock of the Company may
take into account such other factors as may be deemed appropriate under the
circumstances. Notwithstanding the foregoing, the Fair Market Value of capital
stock for purposes of grants of Incentive Stock Options shall be determined in
compliance with applicable provisions of the Code. The Fair Market Value of
rights or property other than capital stock of the Company means the fair market
value thereof as determined by the Committee on the basis of such factors as it
may deem appropriate.

                  (k)      "INCENTIVE AWARD" means any Stock Option, Restricted
Stock, Stock Appreciation Right, Stock Payment, Performance Award or Dividend
Equivalent granted or sold to an Eligible Person under this Plan, but not a
Nonemployee Director's Option.

                  (l)      "INCENTIVE STOCK OPTION" means a Stock Option that
qualifies as an incentive stock option under Section 422 (or any successor
section) of the Code and the regulations thereunder.

                  (m)      "JUST CAUSE DISMISSAL" shall mean a termination of a
Recipient's employment for any of the following reasons: (i) the Recipient
violates any reasonable rule or regulation of the Board or the Recipient's
superiors or the Chief Executive Officer or President of the Company that
results in damage to the Company or which, after written notice to do so, the
Recipient fails to correct within a reasonable time; (ii) any willful misconduct
or gross negligence by the Recipient in the responsibilities assigned to him or
her; (iii) any willful failure to perform his or her job as required to meet
Company objectives; (iv) any wrongful conduct of a Recipient which has an
adverse impact on the Company or which constitutes a misappropriation of Company
assets; (v) the Recipient's performing services for any other person or entity
which competes with the Company while he or she is employed by the Company,
without the written approval of the Chief Executive Officer or President of the
Company; or (vi) any other conduct that the Board or Committee determines
constitutes Just Cause for Dismissal.

                  (n)      "NONEMPLOYEE DIRECTOR" means a director of the
Company who qualifies as a "Nonemployee Director" under Rule 16b-3 under the
Exchange Act.

                  (o)      "NONEMPLOYEE DIRECTOR'S OPTION" means a Stock Option
granted to a Nonemployee Director pursuant to Article III of the Plan.

                  (p)      "NONQUALIFIED STOCK OPTION" means a Stock Option
other than an Incentive Stock Option.

                  (q)      "OPTION" or "STOCK OPTION" means a right to purchase
stock of the Company granted under this Plan, and can be an Incentive Stock
Option or a Nonqualified Stock Option.

                  (r)      "PAYMENT EVENT" means the event or events giving rise
to the right to payment of a Performance Award.

                  (s)      "PERFORMANCE AWARD" means an award, payable in cash,
Common Stock or a combination thereof, which vests and becomes payable over a
period of time upon attainment of performance criteria established in connection
with the grant of the award.

                  (t)      "PERFORMANCE-BASED COMPENSATION" means
performance-based compensation as described in Section 162(m) of the Code and
the regulations thereunder. If the amount of compensation an Eligible Person
will receive under any Incentive Award is not based solely on an increase in the
value of Common Stock after the date of grant or award, the Committee, in order
to qualify an Incentive Award as performance-based compensation under Section
162(m) of the Code and the regulations thereunder, can condition the grant,
award, vesting, or exercisability of such an award on the attainment of a
preestablished, objective performance goal. For this purpose, a preestablished,
objective

                                       2



performance goal may include one or more of the following performance criteria:
(i) cash flow, (ii) earnings per share (including earnings before interest,
taxes, and amortization), (iii) return on equity, (iv) total stockholder return,
(v) return on capital, (vi) return on assets or net assets, (vii) income or net
income, (viii) operating margin, (ix) return on operating revenue, (x)
attainment of stated goals related to the Company's research and development or
clinical trials programs, (xi) attainment of stated goals related to the
Company's capitalization, costs, financial condition, or results of operations,
and (xii) any other similar performance criteria contemplated by the regulations
under Section 162(m).

                  (u)      "PERMANENT DISABILITY" shall mean that the Recipient
becomes physically or mentally incapacitated or disabled so that he or she is
unable to perform substantially the same services as he or she performed prior
to incurring such incapacity or disability (the Company, at its option and
expense, being entitled to retain a physician to confirm the existence of such
incapacity or disability, and the determination of such physician to be binding
upon the Company and the Recipient), and such incapacity or disability continues
for a period of three consecutive months or six months in any twelve-month
period or such other period(s) as may be determined by the Committee with
respect to any Option.

                  (v)      "PURCHASE PRICE" means the purchase price (if any) to
be paid by a Recipient for Restricted Stock as determined by the Committee
(which price shall be at least equal to the minimum price required under
applicable laws and regulations for the issuance of Common Stock which is
nontransferable and subject to a substantial risk of forfeiture until specific
conditions are met).

                  (w)      "RECIPIENT" means a person who has received an Award
hereunder.

                  (x)      "RESTRICTED STOCK" means Common Stock that is the
subject of an award made under Section 2.04 and which is nontransferable and
subject to a substantial risk of forfeiture until specific conditions are met as
set forth in this Plan and in any statement evidencing the grant of such
Incentive Award.

                  (y)      "SECURITIES ACT" means the Securities Act of 1933, as
amended.

                  (z)      "STOCK APPRECIATION RIGHT" or "SAR" means a right
granted under Section 2.05 to receive a payment that is measured with reference
to the amount by which the Fair Market Value of a specified number of shares of
Common Stock appreciates from a specified date, such as the date of grant of the
SAR, to the date of exercise.

                  (aa)     "STOCK PAYMENT" means a payment in shares of the
Company's Common Stock to replace all or any portion of the compensation (other
than base salary) that would otherwise become payable to a Recipient.

         1.03     COMMON STOCK SUBJECT TO THE PLAN.

                  (a)      Number of Shares. Subject to Section 1.05(b), the
maximum number of shares of Common Stock that may be issued pursuant to Awards
under the Plan shall be 8,200,000.

                  (b)      Source of Shares. The Common Stock to be issued under
this Plan will be made available, at the discretion of the Board or the
Committee, either from authorized but unissued shares of Common Stock or from
previously issued shares of Common Stock reacquired by the Company, including
shares purchased on the open market.

                  (c)      Availability of Unused Shares. Shares of Common Stock
subject to unexercised portions of any Award granted under this Plan that
expire, terminate or are cancelled, and shares of Common Stock issued pursuant
to an Award under this Plan that are reacquired by the Company pursuant to the
terms of the Award under which such shares were issued, will again become
available for the grant of further Awards under this Plan.

                                       3



                  (d)      Grant Limits. Notwithstanding any other provision of
this Plan, no Eligible Person shall be granted Awards with respect to more than
600,000 shares of Common Stock in any one calendar year; provided, however, that
this limitation shall not apply if it is not required in order for the
compensation attributable to Incentive Awards hereunder to qualify as
Performance-Based Compensation. The limitation set forth in this Section 1.03(d)
shall be subject to adjustment as provided in Section 1.05(b), but only to the
extent such adjustment would not affect the status of compensation attributable
to Awards hereunder as Performance-Based Compensation.

         1.04     ADMINISTRATION OF THE PLAN.

                  (a)      The Committee. The Plan will be administered by the
Committee, which will consist of two or more members of the Board each of whom
must be a Nonemployee Director; provided, however, that the number of members of
the Committee may be reduced or increased from time to time by the Board. In
addition, if Awards are to be made to persons subject to Section 162(m) of the
Code and such awards are intended to constitute Performance-Based Compensation,
then each of the Committee's members must also be an "outside director," as such
term is defined in the regulations under Section 162(m) of the Code.
Notwithstanding the foregoing or any provision of the Plan to the contrary, the
Board may, in lieu of the Committee, exercise any authority granted to the
Committee pursuant to the provisions of the Plan.

                  (b)      Authority of the Committee. The Committee has
authority in its discretion to select the Eligible Persons to whom, and the time
or times at which, Incentive Awards shall be granted or sold, the nature of each
Incentive Award, the number of shares of Common Stock or the number of rights
that make up or underlie each Incentive Award, the period for the exercise of
each Incentive Award, the performance criteria (which need not be identical)
utilized to measure the value of Performance Awards, and such other terms and
conditions applicable to each individual Incentive Award as the Committee shall
determine. The Committee may grant at any time new Incentive Awards to an
Eligible Person who has previously received Incentive Awards or other grants
(including other stock options) whether such prior Incentive Awards or such
other grants are still outstanding, have previously been exercised in whole or
in part, or are cancelled in connection with the issuance of new Incentive
Awards. The Committee may grant Incentive Awards singly or in combination or in
tandem with other Incentive Awards as it determines in its discretion. The
purchase price or initial value and any and all other terms and conditions of
the Incentive Awards may be established by the Committee without regard to
existing Incentive Awards or other grants. Further, the Committee may, with the
consent of an Eligible Person, amend in a manner not inconsistent with the Plan
the terms of any existing Incentive Award previously granted to such Eligible
Person, provided that neither the Board nor the Committee shall reduce the
Exercise Price of any outstanding Option without stockholder approval.

                  (c)      Plan Interpretation. Subject to the express
provisions of the Plan, the Committee has the authority to interpret the Plan
and any agreements defining the rights and obligations of the Company and
Recipients, to determine the terms and conditions of Incentive Awards and to
make all other determinations necessary or advisable for the administration of
the Plan. The Committee has authority to prescribe, amend and rescind rules and
regulations relating to the Plan. All interpretations, determinations and
actions by the Committee shall be final, conclusive and binding upon all
parties. Any action of the Committee with respect to the administration of the
Plan shall be taken pursuant to a majority vote or by the unanimous written
consent of its members.

                  (d)      Special Rules Regarding Article III. Notwithstanding
anything herein to the contrary, the Committee shall have no authority or
discretion as to the selection of persons eligible to receive Nonemployee
Directors' Options granted under the Plan, the number of shares covered by
Nonemployee Directors' Options granted under the Plan, the timing of such
grants, or the exercise price of Nonemployee Directors' Options granted under
the Plan, which matters are specifically governed by the provisions of the Plan.

                                       4



                  (e)      No Liability. No member of the Board or the Committee
or any designee thereof will be liable for any action or determination made in
good faith by the Board or the Committee with respect to the Plan or any
transaction arising under the Plan.

         1.05     OTHER PROVISIONS.

                  (a)      Documentation. Each Award granted under the Plan
shall be evidenced by an award agreement duly executed on behalf of the Company
and by the Recipient or, in the Committee's discretion, a confirming memorandum
issued by the Company to the Recipient (in either case an "AWARD DOCUMENT")
evidencing the Award and setting forth such terms and conditions applicable to
the Award as the Committee may in its discretion determine consistent with the
Plan, provided that the Committee shall exercise no discretion with respect to
Nonemployee Directors' Options, which shall reflect only the terms of the Award
as set forth in Article III and certain administrative matters dictated by the
Plan. Award Documents shall comply with and be subject to the terms and
conditions of the Plan. A copy of the Plan shall be delivered to each Award
Recipient together with the Award Document, and shall constitute a part thereof.
In case of any conflict between the Plan and any Award Document, the Plan shall
control. Various Award Documents covering the same types of Awards may but need
not be identical.

                  (b)      Adjustment Provisions.

                   If (1) the outstanding shares of Common Stock of the Company
are increased, decreased or exchanged for a different number or kind of shares
or other securities, or if additional shares or new or different shares or other
securities are distributed in respect of such shares of Common Stock (or any
stock or securities received with respect to such Common Stock), through merger,
consolidation, sale or exchange of all or substantially all of the properties of
the Company, reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split, spin-off or other distribution with respect to
such shares of Common Stock (or any stock or securities received with respect to
such Common Stock), or (2) the value of the outstanding shares of Common Stock
of the Company is reduced by reason of an extraordinary cash dividend, an
appropriate and proportionate adjustment may be made in (x) the maximum number
and kind of shares subject to the Plan as provided in Section 1.03, (y) the
number and kind of shares or other securities subject to then outstanding
Awards, and (z) the price for each share or other unit of any other securities
subject to then outstanding Awards. No fractional interests will be issued under
the Plan resulting from any such adjustments.

                  (c)      Continuation of Employment.

                           (i)      Nothing contained in this Plan (or in Award
Documents or in any other documents related to this Plan or to Awards granted
hereunder) shall confer upon any Eligible Person or Recipient any right to
continue in the employ of the Company or constitute any contract or agreement of
employment or engagement, or interfere in any way with the right of the Company
to reduce such person's compensation or other benefits or to terminate the
employment of such Eligible Person or Recipient, with or without cause. Except
as expressly provided in the Plan or in any statement evidencing the grant of an
Award pursuant to the Plan, the Company shall have the right to deal with each
Recipient in the same manner as if the Plan and any such statement evidencing
the grant of an Award pursuant to the Plan did not exist, including, without
limitation, with respect to all matters related to the hiring, discharge,
compensation and conditions of the employment or engagement of the Recipient.

                           (ii)     Any question(s) as to whether and when there
has been a termination of a Recipient's employment, the reason (if any) for such
termination, and/or the consequences thereof under the terms of the Plan or any
statement evidencing the grant of an Award pursuant to the Plan shall be
determined by the Committee and the Committee's determination thereof shall be
final and binding.

                  (d)      Restrictions. All Awards granted under the Plan shall
be subject to the requirement that, if at any time the Company shall determine,
in its discretion, that the listing, registration or qualification of the shares
subject to Awards granted under the Plan upon any securities exchange or under
any state or federal law, or the consent or approval of any government
regulatory body, is

                                       5



necessary or desirable as a condition of, or in connection with, the granting of
such an Award or the issuance, if any, or purchase of shares in connection
therewith, such Award may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
Unless the shares of stock to be issued upon exercise of an Award granted under
the Plan have been effectively registered under the Securities Act, the Company
shall be under no obligation to issue any shares of stock covered by any Award
unless the person who exercises such Award, in whole or in part, shall give a
written representation and undertaking to the Company satisfactory in form and
scope to counsel to the Company and upon which, in the opinion of such counsel,
the Company may reasonably rely, that he or she is acquiring the shares of stock
issued to him or her pursuant to such exercise of the Award for his or her own
account as an investment and not with a view to, or for sale in connection with,
the distribution of any such shares of stock, and that he or she will make no
transfer of the same except in compliance with any rules and regulations in
force at the time of such transfer under the Securities Act, or any other
applicable law, and that if shares of stock are issued without such
registration, a legend to this effect may be endorsed upon the securities so
issued.

                  (e)      Additional Conditions. Any Incentive Award may also
be subject to such other provisions (whether or not applicable to any other
Award or Recipient) as the Committee determines appropriate including, without
limitation, provisions to assist the Recipient in financing the purchase of
Common Stock through the exercise of Stock Options, provisions for the
forfeiture of or restrictions on resale or other disposition of shares of Common
Stock acquired under any form of benefit, provisions giving the Company the
right to repurchase shares of Common Stock acquired under any form of benefit in
the event the Recipient elects to dispose of such shares, and provisions to
comply with federal and state securities laws and federal and state income tax
withholding requirements.

                  (f)      Privileges of Stock Ownership. Except as otherwise
set forth herein, a Recipient or a permitted transferee of an Award shall have
no rights as a shareholder with respect to any shares issuable or issued in
connection with the Award until the date of the receipt by the Company of all
amounts payable in connection with exercise of the Award and performance by the
Recipient of all obligations thereunder. Status as an Eligible Person shall not
be construed as a commitment that any Award will be granted under this Plan to
an Eligible Person or to Eligible Persons generally. No person shall have any
right, title or interest in any fund or in any specific asset (including shares
of capital stock) of the Company by reason of any Award granted hereunder.
Neither this Plan (or any documents related hereto) nor any action taken
pursuant hereto shall be construed to create a trust of any kind or a fiduciary
relationship between the Company and any person. To the extent that any person
acquires a right to receive an Award hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Company.

                  (g)      Amendment and Termination of Plan: Amendment of
Incentive Awards.

                           (i)      The Board or the Committee may, insofar as
permitted by law, from time to time suspend or discontinue the Plan or revise or
amend it in any respect except that no such amendment shall alter or impair or
diminish any rights or obligations under any Award theretofore granted under the
Plan without the consent of the person to whom such Award was granted, and
except that such amendments shall be subject to stockholder approval to the
extent (A) required to comply with the listing requirements imposed by any
exchange or trading system upon which the Company's securities trade or
applicable provisions of or rules under the Code, or (B) the Board determines in
good faith that such amendments are material to stockholders.

                           (ii)     The Committee may from time to time, with
the consent of a Recipient, make such modifications in the terms and conditions
of an Incentive Award as it deems advisable, including to accelerate or extend
the vesting or exercise period of any Incentive Award, provided that performance
conditions to vesting of Restricted Stock shall not be waived, and provided
further that neither the Board nor the Committee shall reduce the Exercise Price
of any outstanding Option without stockholder approval.

                                       6



                           (iii)    Except as otherwise provided in this Plan or
in the applicable Award Document, no amendment, suspension or termination of the
Plan will, without the consent of the Recipient, alter, terminate, impair or
adversely affect any right or obligation under any Award previously granted
under the Plan.

                  (h)      Nonassignability. No Award granted under the Plan
shall be assignable or transferable except (i) by will or by the laws of descent
and distribution, or (ii) subject to the final sentence of this subsection (h),
upon dissolution of marriage pursuant to a qualified domestic relations order
or, in the discretion of the Committee and under circumstances that would not
adversely affect the interests of the Company. During the lifetime of a
Recipient, an Award granted to him or her shall be exercisable only by the
Recipient (or the Recipient's permitted transferee) or his or her guardian or
legal representative. Notwithstanding the foregoing, Incentive Stock Options (or
other Awards subject to transfer restrictions under the Code) may not be
assigned or transferred in violation of Section 422(b)(5) of the Code (or any
comparable or successor provision) or the Treasury Regulations thereunder, and
nothing herein is intended to allow such assignment or transfer.

                  (i)      Other Compensation Plans. The adoption of the Plan
shall not affect any other stock option, incentive or other compensation plans
in effect for the Company, and the Plan shall not preclude the Company from
establishing any other forms of incentive or other compensation for employees,
directors, or advisors of the Company.

                  (j)      Plan Binding on Successors. The Plan shall be binding
upon the successors and assigns of the Company.

                  (k)      Participation By Foreign Employees. Notwithstanding
anything to the contrary herein, the Committee may, in order to fulfill the
purposes of the Plan, modify grants of Incentive Awards to Recipients who are
foreign nationals or employed outside of the United States to recognize
differences in applicable law, tax policy or local custom.

                  (l)      Effective Date And Duration of Plan. Awards may be
granted under the Plan until the tenth anniversary of the effective date of the
Plan, whereupon the Plan shall terminate. No Awards may be granted during any
suspension of this Plan or after its termination. Notwithstanding the foregoing,
each Award properly granted under the Plan shall remain in effect until such
Award has been exercised or terminated in accordance with its terms and the
terms of the Plan.

                                   ARTICLE II
                                INCENTIVE AWARDS

         2.01     GRANTS OF INCENTIVE AWARDS. Subject to the express provisions
of this Plan, the Committee may from time to time in its discretion select from
the class of Eligible Persons those individuals to whom Incentive Awards may be
granted pursuant to its authority as set forth in Section 1.04(b). Each
Incentive Award shall be subject to the terms and conditions of the Plan and
such other terms and conditions established by the Committee as are not
inconsistent with the purpose and provisions of the Plan. One or more Incentive
Awards may be granted to any Eligible Person.

         2.02     STOCK OPTIONS.

                  (a)      Nature of Stock Options. Stock Options may be
Incentive Stock Options or Nonqualified Stock Options.

                  (b)      Option Price. The exercise price per share for each
Option (other than a Nonemployee Director's Option) (the "EXERCISE PRICE") shall
be determined by the Committee at the date such Option is granted and shall not
be less than the Fair Market Value of a share of Common Stock (or other
securities, as applicable) at the time of grant, except that the Exercise Price
for a Nonqualified Stock Option may reflect a discount of up to 15% of the Fair
Market Value at the time of grant if the

                                       7



amount of such discount is expressly in lieu of a reasonable amount of salary or
cash bonus. Notwithstanding the foregoing, however, in no event shall the
exercise price be less than the par value of the shares of Common Stock subject
to the Option, and the exercise price of an Incentive Stock Option shall be not
less than such amount as is necessary to enable such Option to be treated as an
"incentive stock option" within the meaning of Section 422 of the Code.

                  (c)      Option Period and Vesting. Options (other than
Nonemployee Directors' Options) hereunder shall vest and may be exercised as
determined by the Committee, except that exercise of such Options after
termination of the Recipient's employment shall be subject to Section 2.02(g).
Each Option granted hereunder (other than a Nonemployee Directors Option) and
all rights or obligations thereunder shall expire on such date as shall be
determined by the Committee, but not later than ten years after the date the
Option is granted and shall be subject to earlier termination as herein
provided. The Committee may in its discretion at any time and from time to time
after the grant of an Option (other than a Nonemployee Director's Option)
accelerate vesting of such Option in whole or part by increasing the number of
shares then purchasable, provided that the total number of shares subject to
such Option may not be increased.

                  (d)      Exercise of Options. Except as otherwise provided
herein, an Option may become exercisable, in whole or in part, on the date or
dates specified by the Committee (or, in the case of Nonemployee Directors'
Options, the Plan) at the time the Option is granted and thereafter shall remain
exercisable until the expiration or earlier termination of the Option. No Option
shall be exercisable except in respect of whole shares, and fractional share
interests shall be disregarded. Not less than 100 shares of stock (or such other
amount as is set forth in the applicable option agreement) may be purchased at
one time unless the number purchased is the total number at the time available
for purchase under the terms of the Option. An Option shall be deemed to be
exercised when the Secretary of the Company receives written notice of such
exercise from the Recipient, together with payment of the exercise price made in
accordance with Section 2.02(e). Upon proper exercise, the Company shall deliver
to the person entitled to exercise the Option or his or her designee a
certificate or certificates for the shares of stock for which the Option is
exercised. Notwithstanding any other provision of this Plan, the Committee may
impose, by rule and in option agreements, such conditions upon the exercise of
Options (including, without limitation, conditions limiting the time of exercise
to specified periods) as may be required to satisfy applicable regulatory
requirements, including without limitation Rule 16b-3 (or any successor rule)
under the Exchange Act and any applicable section of or rule under the Internal
Revenue Code.

                  (e)      Exercise Price. The Exercise Price shall be payable
upon the exercise of an Option by delivery of legal tender of the United States
or payment of such other consideration as the Committee may from time to time
deem acceptable in any particular instance, including without limitation
delivery of capital stock of the Company (delivered by or on behalf of the
person exercising the Option or retained by the Company from the Common Stock
otherwise issuable upon exercise and valued at Fair Market Value as of the
exercise date) or surrender of other Awards previously granted to the Recipient
exercising the Option; provided, however, that the Committee may, in the
exercise of its discretion, (i) allow exercise of an Option in a broker-assisted
or similar transaction in which the Exercise Price is not received by the
Company until immediately after exercise, and/or (ii) allow the Company to loan
the Exercise Price to the person entitled to exercise the Option, if the
exercise will be followed by an immediate sale of some or all of the underlying
shares and a portion of the sales proceeds is dedicated to full payment of the
Exercise Price. Any shares of Company stock or other non-cash consideration
assigned and delivered to the Company in payment or partial payment of the
Exercise Price will be valued at Fair Market Value on the exercise date. No
fractional shares will be issued pursuant to the exercise of an Option.

                  (f)      Limitation on Exercise of Incentive Stock Options.
The aggregate Fair Market Value (determined as of the respective date or dates
of grant) of the Common Stock for which one or more options granted to any
Recipient under the Plan (or any other option plan of the Company or any of its
subsidiaries or affiliates) may for the first time become exercisable as
Incentive Stock Options under the federal tax laws during any one calendar year
shall not exceed $100,000. Any Options granted as

                                       8



Incentive Stock Options pursuant to the Plan in excess of such limitation shall
be treated as Nonqualified Stock Options.

                  (g)      Termination of Employment.

                           (i)      Termination for Cause. Except as otherwise
provided in a written agreement between the Company and the Recipient, which may
be entered into at any time before or after termination, in the event of a Just
Cause Dismissal of a Recipient all of the Recipient's unexercised Options,
whether or not vested, shall expire and become unexercisable as of the date of
such Just Cause Dismissal.

                           (ii)     Termination Other Than For Cause. Subject to
subsection (i) above and subsection (iii) below, and except as otherwise
provided in a written agreement between the Company and the Recipient, which may
be entered into at any time before or after termination, in the event of a
Recipient's termination of employment for:

                                    (A)      any reason other than for Just
         Cause Dismissal, death, or Permanent Disability, or normal retirement,
         the Recipient's Options shall, whether or not vested, expire and become
         unexercisable as of the earlier of (1) the date such Options would
         expire in accordance with their terms if the Recipient remained
         employed or (2) three calendar months after the date of termination in
         the case of Incentive Stock Options, or six months after the date of
         termination, in the case of Nonqualified Stock Options.

                                    (B)      death or Permanent Disability, the
         Recipient's unexercised Options shall, whether or not vested, expire
         and become unexercisable as of the earlier of (1) the date such Options
         would expire in accordance with their terms if the Recipient remained
         employed or (2) twelve (12) months after the date of termination.

                                    (C)      normal retirement, the Recipient's
         unexercised Options shall, whether or not vested, expire and become
         unexercisable as of the earlier of (A) the date such Options expire in
         accordance with their terms or (B) twenty-four (24) months after the
         date of retirement.

                           (iii)    Alteration of Exercise Periods.
Notwithstanding anything to the contrary in subsections (i) or (ii) above, the
Committee may in its discretion designate such shorter or longer periods to
exercise Options (other than Nonemployee Directors' Options) following a
Recipient's termination of employment; provided, however, that any shorter
periods determined by the Committee shall be effective only if provided for in
the instrument that evidences the grant to the Recipient of such Options or if
such shorter period is agreed to in writing by the Recipient. Notwithstanding
anything to the contrary herein, Options shall be exercisable by a Recipient (or
his successor in interest) following such Recipient's termination of employment
only to the extent that installments thereof had become exercisable on or prior
to the date of such termination; provided, however, that the Committee, in its
discretion, may elect to accelerate the vesting of all or any portion of any
Options that had not become exercisable on or prior to the date of such
termination.

         2.03     PERFORMANCE AWARDS.

                  (a)      Grant of Performance Award. The Committee shall
determine the performance criteria (which need not be identical and may be
established on an individual or group basis) governing Performance Awards, the
terms thereof, and the form and time of payment of Performance Awards.

                  (b)      Payment of Award; Limitation. Upon satisfaction of
the conditions applicable to a Performance Award, payment will be made to the
Recipient in cash or in shares of Common Stock valued at Fair Market Value or a
combination of Common Stock and cash, as the Committee in its discretion may
determine. Notwithstanding any other provision of this Plan, no Eligible Person
shall be

                                       9



paid a Performance Award in excess of $1,000,000 in any one calendar year;
provided, however, that this limitation shall not apply if it is not required in
order for the compensation attributable to the Performance Award hereunder to
qualify as Performance-Based Compensation.

                  (c)      Expiration of Performance Award. If any Recipient's
employment with the Company is terminated for any reason other than normal
retirement, death, or Permanent Disability prior to the time a Performance Award
or any portion thereof becomes payable, all of the Recipient's rights under the
unpaid portion of the Performance Award shall expire and terminate unless
otherwise determined by the Committee. In the event of termination of employment
by reason of death, Permanent Disability or normal retirement, the Committee, in
its discretion, may determine what portions, if any, of the Performance Award
should be paid to the Recipient.

         2.04     RESTRICTED STOCK.

                  (a)      Award of Restricted Stock. The Committee may grant
awards of Restricted Stock to Eligible Participants. The Committee shall
determine the Purchase Price (if any), the terms of payment of the Purchase
Price, the restrictions upon the Restricted Stock, and when such restrictions
shall lapse, provided that the restriction period shall be at least one year for
performance-based grants and three years for non-performance-based grants.

                  (b)      Requirements of Restricted Stock. All shares of
Restricted Stock granted or sold pursuant to the Plan will be subject to the
following conditions:

                           (i)      No Transfer. The shares may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, alienated
or encumbered until the restrictions are removed or expire;

                           (ii)     Certificates. The Committee may require that
the certificates representing Restricted Stock granted or sold to a Recipient
pursuant to the Plan remain in the physical custody of an escrow holder or the
Company until all restrictions are removed or expire;

                           (iii)    Restrictive Legends. Each certificate
representing Restricted Stock granted or sold to a Recipient pursuant to the
Plan will bear such legend or legends making reference to the restrictions
imposed upon such Restricted Stock as the Committee in its discretion deems
necessary or appropriate to enforce such restrictions; and

                           (iv)     Other Restrictions. The Committee may impose
such other conditions on Restricted Stock as the Committee may deem advisable
including, without limitation, restrictions under the Securities Act, under the
Exchange Act, under the requirements of any stock exchange upon which such
Restricted Stock or shares of the same class are then listed and under any blue
sky or other securities laws applicable to such shares.

                  (c)      Rights of Recipient. Subject to the provisions of
Section 2.04(b) and any restrictions imposed upon the Restricted Stock, the
Recipient will have all rights of a stockholder with respect to the Restricted
Stock granted or sold to such Recipient under the Plan, including the right to
vote the shares and receive all dividends and other distributions paid or made
with respect thereto.

                  (d)      Termination of Employment. Unless the Committee in
its discretion determines otherwise, upon a Recipient's termination of
employment for any reason, all of the Recipient's Restricted Stock remaining
subject to restrictions imposed pursuant to the Plan on the date of such
termination of employment shall be repurchased by the Company at the Purchase
Price (if any).

                                       10



         2.05     STOCK APPRECIATION RIGHTS.

                  (a)      Granting of Stock Appreciation Rights. The Committee
may approve the grant to Eligible Persons of Stock Appreciation Rights, related
or unrelated to Options, at any time.

                  (b)      SARs Related to Options.

                           (i)      A Stock Appreciation Right granted in
connection with an Option granted under this Plan will entitle the holder of the
related Option, upon exercise of the Stock Appreciation Right, to surrender such
Option, or any portion thereof to the extent unexercised, with respect to the
number of shares as to which such Stock Appreciation Right is exercised, and to
receive payment of an amount computed pursuant to Section 2.05(b)(iii). Such
Option will, to the extent surrendered, then cease to be exercisable.

                           (ii)     A Stock Appreciation Right granted in
connection with an Option hereunder will be exercisable at such time or times,
and only to the extent that, the related Option is exercisable, and will not be
transferable except to the extent that such related Option may be transferable.

                           (iii)    Upon the exercise of a Stock Appreciation
Right related to an Option, the Holder will be entitled to receive payment of an
amount determined by multiplying: (i) the difference obtained by subtracting the
Exercise Price of a share of Common Stock specified in the related Option from
the Fair Market Value of a share of Common Stock on the date of exercise of such
Stock Appreciation Right (or as of such other date or as of the occurrence of
such event as may have been specified in the instrument evidencing the grant of
the Stock Appreciation Right), by (ii) the number of shares as to which such
Stock Appreciation Right is exercised.

                  (c)      SARs Unrelated to Options. The Committee may grant
Stock Appreciation Rights unrelated to Options to Eligible Persons. Section
2.05(b)(iii) shall be used to determine the amount payable at exercise under
such Stock Appreciation Right, except that in lieu of the Option Exercise Price
specified in the related Option the initial base amount specified in the
Incentive Award shall be used.

                  (d)      Limits. Notwithstanding the foregoing, the Committee,
in its discretion, may place a dollar limitation on the maximum amount that will
be payable upon the exercise of a Stock Appreciation Right under the Plan.

                  (e)      Payments. Payment of the amount determined under the
foregoing provisions may be made solely in whole shares of Common Stock valued
at their Fair Market Value on the date of exercise of the Stock Appreciation
Right or, alternatively, at the sole discretion of the Committee, in cash or in
a combination of cash and shares of Common Stock as the Committee deems
advisable. The Committee has full discretion to determine the form in which
payment of a Stock Appreciation Right will be made and to consent to or
disapprove the election of a Recipient to receive cash in full or partial
settlement of a Stock Appreciation Right. If the Committee decides to make full
payment in shares of Common Stock, and the amount payable results in a
fractional share, payment for the fractional share will be made in cash.

                  (f)      Rule 16b-3. The Committee may, at the time a Stock
Appreciation Right is granted, impose such conditions on the exercise of the
Stock Appreciation Right as may be required to satisfy the requirements of Rule
16b-3 under the Exchange Act (or any other comparable provisions in effect at
the time or times in question).

                  (g)      Termination of Employment. Section 2.02(g) will
govern the treatment of Stock Appreciation Rights upon the termination of a
Recipient's employment with the Company.

                                       11



         2.06     STOCK PAYMENTS.

                   The Committee may approve Stock Payments of the Company's
Common Stock to any Eligible Person for all or any portion of the compensation
(other than base salary) or other payment that would otherwise become payable by
the Company to the Eligible Person in cash.

         2.07     DIVIDEND EQUIVALENTS.

                   The Committee may grant Dividend Equivalents to any Recipient
who has received a Stock Option, SAR, or other Incentive Award denominated in
shares of Common Stock. Such Dividend Equivalents shall be effective and shall
entitle the recipients thereof to payments during the "APPLICABLE DIVIDEND
PERIOD," which shall be (i) the period between the date the Dividend Equivalent
is granted and the date the related Stock Option, SAR, or other Incentive Award
is exercised, terminates, or is converted to Common Stock, or (ii) such other
time as the Committee may specify in the written instrument evidencing the grant
of the Dividend Equivalent. Dividend Equivalents may be paid in cash, Common
Stock, or other Incentive Awards; the amount of Dividend Equivalents paid other
than in cash shall be determined by the Committee by application of such formula
as the Committee may deem appropriate to translate the cash value of dividends
paid to the alternative form of payment of the Dividend Equivalent. Dividend
Equivalents shall be computed as of each dividend record date and shall be
payable to recipients thereof at such time as the Committee may determine.
Notwithstanding the foregoing, if it is intended that an Incentive Award qualify
as Performance-Based Compensation and the amount of the compensation the
Eligible Person could receive under the award is based solely on an increase in
value of the underlying stock after the date of grant or award (i.e., the grant,
vesting, or exercisability of the award is not conditioned upon the attainment
of a preestablished, objective performance goal described in Section 1.02(t)),
then the payment of any Dividend Equivalents related to the award shall not be
made contingent on the exercise of the award.

                                   ARTICLE III
                         NONEMPLOYEE DIRECTOR'S OPTIONS

         3.01     GRANTS OF INITIAL OPTIONS.

                   Each Nonemployee Director shall, upon first becoming a
Nonemployee Director, receive a one-time grant of a Nonemployee Director's
Option to purchase up to 40,000 shares of the Company's Common Stock at an
exercise price per share equal to the Fair Market Value of the Company's Common
Stock on the date of grant, subject to (i) vesting as set forth in Section 3.04,
and (ii) adjustment as set forth in Section 1.05(b). Options granted under this
Section 3.01 are "INITIAL OPTIONS" for purposes hereof.

         3.02     GRANTS OF ADDITIONAL OPTIONS.

                   Immediately following the annual meeting of stockholders of
the Company next following a Nonemployee Director becoming such, and immediately
following each subsequent annual meeting of stockholders of the Company, in each
case if the Nonemployee Director has served as a director since his or her
election or appointment and has been re-elected as a director at such annual
meeting or is continuing as a director without being re-elected due to the
classification of the Board, such Nonemployee Director shall automatically
receive an option to purchase up to 10,000 shares of the Company's Common Stock
at an exercise price per share equal to the Fair Market Value of the Company's
Common Stock on the date of grant, subject to (a) vesting as set forth in
Section 3.04, and (b) adjustment as set forth in Section 1.05(b). Options
granted under this Section 3.02 are "ADDITIONAL OPTIONS" for purposes hereof.

                                       12



         3.03     EXERCISE PRICE.

                   The exercise price for Nonemployee Directors' Options shall
be payable as set forth in Section 2.02(e). Neither the Board nor the Committee
shall reduce the exercise price of any outstanding Initial Option or Additional
Option without stockholder approval.

         3.04     VESTING AND EXERCISE.

                   Initial Options shall vest and become exercisable with
respect to 25% of the underlying shares on the grant date and with respect to an
additional 25% of the underlying shares on the dates of each of the first three
annual meetings of the Company's stockholders following the grant date, but only
if on the date of each such annual meeting, the Recipient is continuing as a
director of the Company for the ensuing year, provided, however, that if the
grant date is within six months of the ensuing annual meeting of the Company's
stockholders, then after vesting of the Option with respect to 25% of the
underlying shares on the grant date, the Option will vest with respect to an
additional 25% of the underlying shares on the dates of each of the second,
third, and fourth annual meetings of the Company's stockholders following the
grant date, but only if, on the date of each such annual meeting, the Recipient
is continuing as a director for the ensuing year. Additional Options shall vest
and become exercisable upon the earlier of (a) the first anniversary of the
grant date or (b) immediately prior to the annual meeting of stockholders of the
Company next following the grant date, if the optionee has remained a director
for the entire period from the date of grant to such earlier date.
Notwithstanding the foregoing, however, Initial Options and Additional Options
that have not vested and become exercisable at the time the optionee ceases to
be a director shall terminate.

         3.05     TERM OF OPTIONS AND EFFECT OF TERMINATION.

                   No Nonemployee Directors' Option shall be exercisable after
the expiration of ten years from the effective date of its grant. In the event
that the Recipient of a Nonemployee Director's Option shall cease to be a
director of the Company, all Nonemployee Directors' Options granted to such
Recipient shall be exercisable, to the extent already exercisable at the date
such Recipient ceases to be a director and regardless of the reason the
Recipient ceases to be a director, for a period of five (5) years after that
date (or, if sooner, until the expiration of the option according to its terms).
In the event of the death of a Recipient of a Nonemployee Director's Option
while such Recipient is a director of the Company or within the period after
termination of such status during which he or she is permitted to exercise such
Option, such Option may be exercised by any person or persons designated by the
Recipient on a Beneficiary Designation Form adopted by the Company for such
purpose or, if there is no effective Beneficiary Designation Form on file with
the Company, by the executors or administrators of the Recipient's estate or by
any person or persons who shall have acquired the option directly from the
Recipient by his or her will or the applicable laws of descent and distribution.

                                   ARTICLE IV
                      RECAPITALIZATIONS AND REORGANIZATIONS

         4.01     CORPORATE TRANSACTIONS.

                   If the Company shall be the surviving corporation in any
merger or consolidation, each outstanding Option shall pertain and apply to the
securities to which a holder of the same number of shares of Common Stock that
are subject to that Option would have been entitled. In the event of a Change in
Control (as defined below), all Nonemployee Directors' Options and any Incentive
Awards specified by the Committee or the Board shall immediately vest and become
exercisable, and all conditions thereto shall be deemed to have been met. For
purposes hereof, a "Change in Control" means the following and shall be deemed
to occur if any of the following events occur:

                           (i) Except as provided by subsection (iii) hereof,
                  the acquisition (other than from the Company) by any person,
                  entity or "group," within the meaning of

                                       13



                  Section 13(d)(3) or 14(d)(2) of the Exchange Act (excluding,
                  for this purpose, the Company or its subsidiaries, or any
                  employee benefit plan of the Company or its subsidiaries which
                  acquires beneficial ownership of voting securities of the
                  Company), of beneficial ownership (within the meaning of Rule
                  13d-3 promulgated under the Exchange Act) of forty percent
                  (40%) or more of either the then outstanding shares of Common
                  Stock or the combined voting power of the Company's then
                  outstanding voting securities entitled to vote generally in
                  the election of directors; or

                           (ii) Individuals who, as of the effective date of the
                  Plan, constitute the Board of Directors of the Company (the
                  "INCUMBENT BOARD") cease for any reason to constitute at least
                  a majority of the Board of Directors of the Company, provided
                  that any person becoming a director subsequent to the date
                  hereof whose election, or nomination for election by the
                  Company's shareholders, is or was approved by a vote of at
                  least a majority of the directors then comprising the
                  Incumbent Board (other than an election or nomination of an
                  individual whose initial assumption of office is in connection
                  with an actual or threatened election contest relating to the
                  election of the directors of the Company, as such terms are
                  used in Rule 14a-11 of Regulation 14A promulgated under the
                  Exchange Act) shall be, for purposes of this Agreement,
                  considered as though such person were a member of the
                  Incumbent Board; or

                           (iii) Approval by the stockholders of the Company of
                  a reorganization, merger or consolidation with any other
                  person, entity or corporation, other than

                                    (A) a merger or consolidation which would
                           result in the voting securities of the Company
                           outstanding immediately prior thereto continuing to
                           represent (either by remaining outstanding or by
                           being converted into voting securities of another
                           entity) more than fifty percent (50%) of the combined
                           voting power of the voting securities of the Company
                           and such other entity outstanding immediately after
                           such merger or consolidation, or

                                    (B) a merger or consolidation effected to
                           implement a recapitalization of the Company (or
                           similar transaction) in which no person acquires
                           forty percent (40%) or more of the combined voting
                           power of the Company's then outstanding voting
                           securities; or

                           (iv) Approval by the stockholders of the Company of a
                  plan of complete liquidation of the Company or an agreement
                  for the sale or other disposition by the Company of all or
                  substantially all of the Company's assets.

Notwithstanding the preceding provisions of this Section 4.01, a Change in
Control shall not be deemed to have occurred (l) if the "person" described in
the preceding provisions of this Section 4.01 is an underwriter or underwriting
syndicate that has acquired the ownership of 50% or more of the combined voting
power of the Company's then outstanding voting securities solely in connection
with a public offering of the Company's securities, or (2) if the "person"
described in the preceding provisions of this Paragraph is an employee stock
ownership plan or other employee benefit plan maintained by the Company that is
qualified under the provisions of the Employee Retirement Income Security Act of
1974, as amended.

         4.02     DETERMINATION BY THE COMMITTEE.

                   To the extent that the foregoing adjustments relate to stock
or securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive. The
grant of an Option pursuant to the Plan shall not affect in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge or to consolidate or
to dissolve, liquidate or sell, or transfer all of any part of its business or
assets.

                                       14

EX-10.37

                                                                   EXHIBIT 10.37

                                 PROMISSORY NOTE
                                  JUNE 27, 2003

FOR VALUE RECEIVED, LA JOLLA PHARMACEUTICAL COMPANY a corporation located at the
address stated below ("MAKER") promises, jointly and severally if more than one,
to pay to the order of GENERAL ELECTRIC CAPITAL CORPORATION or any subsequent
holder hereof (each, a "PAYEE") at its office located at 401 MERRITT 7 SUITE 23,
NORWALK, CT 06851-1177 or at such other place as Payee or the holder hereof may
designate, the principal sum of THREE HUNDRED FORTY-FIVE THOUSAND TWO HUNDRED
THIRTY-NINE AND 47/100 DOLLARS ($345, 239.47), with interest on the unpaid
principal balance, from the date hereof through and including the dates of
payment, at a fixed interest rate of Nine and Seventy Hundreths percent (9.70%)
per annum, to be paid in lawful money of the United States, in Fourty Two (42)
consecutive monthly installments of principal and interest as follows:



   Periodic
  Installment         Amount
  -----------         ------
                 
Thirty-Six (36)     $10,140.33
Five (5)            $ 6,146.05


each ("Periodic Installment") and a final installment which shall be in the
amount of the total outstanding principal and interest. The first Periodic
Installment shall be due and payable on July 1, 2003 and the following Periodic
Installments and the final installment shall be due and payable on the same day
of each succeeding month (each, a "Payment Date"). Such installments have been
calculated on the basis of a 360 day year of twelve 30-day months. Each payment
may, at the option of the Payee, be calculated and applied on an assumption that
such payment would be made on its due date.

The acceptance by Payee of any payment which is less than payment in full of all
amounts due and owing at such time shall not constitute a waiver of Payee's
right to receive payment in full at such time or at any prior or subsequent
time.

The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof and on all related
documents pertaining hereto.

This Note may be secured by a security agreement, chattel mortgage, pledge
agreement or like instrument (each of which is hereinafter called a "SECURITY
AGREEMENT").

Time is of the essence hereof. If any installment or any other sum due under
this Note or any Security Agreement is not received within ten (10) days after
its due date, the Maker agrees to pay, in addition to the amount of each such
installment or other sum, a late payment charge of five percent (5%) of the
amount of said installment or other sum, but not exceeding any lawful maximum.
If (i) Maker fails to make payment of any amount due hereunder within ten (10)
days after the same becomes due and payable; or (ii) Maker is in default under,
or fails to perform under any term or condition contained in any Security
Agreement, then the entire principal sum remaining unpaid, together with all
accrued interest thereon and any other sum payable under this Note or any
Security Agreement, at the election of Payee, shall immediately become due and
payable, with interest thereon at the lesser of eighteen percent (18%) per annum
or the highest rate not prohibited by applicable law from the date of such
accelerated maturity until paid (both before and after any judgment).

Notwithstanding anything to tire contrary contained herein or in the Security
Agreement, Maker may not prepay in full or in part any indebtedness hereunder
without the express written consent of Payee in its sole discretion.

It is the intention of the parties hereto to comply with the applicable usury
laws; accordingly, it is agreed that, notwithstanding any provision to the
contrary in this Note or any Security Agreement, in no event shall this Note or
any Security Agreement require the payment or permit the collection of interest
in excess of the maximum amount permitted by applicable law. If any such excess
interest is contracted for, charged or received under this Note or any Security
Agreement, or if all of the principal balance shall be prepaid, so that under
any of such circumstances the amount of interest contracted for, charged or
received under this Note or any Security Agreement on the principal balance
shall exceed the maximum amount of interest permitted by applicable law, then in
such event (a) the provisions of this paragraph shall govern and control, (b)
neither Maker nor any other person or entity now or hereafter



liable for the payment hereof shall be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount of interest
permitted by applicable law, (c) any such excess which may have been collected
shall be either applied as a credit against the then unpaid principal balance or
refunded to Maker, at the option of the Payee, and (d) the effective rate of
interest shall be automatically reduced to the maximum lawful contract rate
allowed under applicable law as now or hereafter construed by the courts having
jurisdiction thereof. It is further agreed that without limitation of the
foregoing, all calculations of the rate of interest contracted for charged or
received under this Note or any Security Agreement which are made for the
purpose of determining whether such rate exceeds the maximum lawful contract
rate, shall be made, to the extent permitted by applicable law, by amortizing,
prorating, allocating and spreading in equal parts during the period of the full
stated term of the indebtedness evidenced hereby, all interest at any time
contracted for, charged or received from Maker or otherwise by Payee in
connection with such indebtedness; provided, however, that if any applicable
state law is amended or the law of the United States of America preempts any
applicable state law, so that it becomes lawful for the Payee to receive a
greater interest per annum rate than is presently allowed, the Maker agrees
that, on the effective date of such amendment or preemption, as the case may be,
the lawful maximum hereunder shall be increased to the maximum interest per
annum rate allowed by the amended state law or the law of the United States of
America.

The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "OBLIGOR") who may at any time become liable
for the payment hereof jointly and severally consent hereby to any and all
extensions of time, renewals, waivers or modifications of, and all substitutions
or releases of, security or of any party primarily or secondarily liable on this
Note or any Security Agreement or any term and provision of either, which may be
made granted or consented to by Payee, and agree that suit may be brought and
maintained against any one or more of them, at the election of Payee without
joinder of any other as a party thereto, and that Payee shall not be required
first to foreclose, proceed against, or exhaust any security hereof in order to
enforce payment of this Note. The Maker and each Obligor hereby waives
presentment, demand for payment, notice of nonpayment, protest, notice of
protest, notice of dishonor, and all other notices in connection herewith, as
well as filing of suit (if permitted by law) and diligence in collecting this
Note or enforcing any of the security hereof, and agrees to pay (if permitted by
law) all expenses incurred in collection, including Payee's actual attorneys'
fees. Maker and each Obligor agrees that fees not in excess of twenty percent
(20%) of the amount then due shall be deemed reasonable.

THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS
NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE
SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR
TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.

This Note and any Security Agreement constitute the entire agreement of the
Maker and Payee with respect to the subject matter hereof and supercedes all
prior understandings, agreements and representations, express or implied.

No variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and for
the specific purpose given.



Any provision in this Note or any Security Agreement which is in conflict with
any statute, law or applicable rule shall be deemed omitted, modified or altered
to conform thereto.

                                  LA JOLLA PHARMACEUTICAL COMPANY

/s/ Lisa Peraza                   By: /s/ Gail A. Sloan
- ---------------                       -----------------
Lisa Peraza (Witness)                 Gail A. Sloan
6455 Nancy Ridge Drive                Senior Director of Finance and Controller
San Diego, CA 92121
                                      Federal Tax ID #: 330361285
                                      Address: 6455 Nancy Ridge Drive
                                      San Diego, CA 92121

EX-10.38

                                                                   EXHIBIT 10.38

                     AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT

         This Amendment No. 3 to Employment Agreement (this "Amendment No. 3")
is made effective as of July 23, 2003, by and between La Jolla Pharmaceutical
Company, a Delaware corporation (the "Company"), and Steven B. Engle
("Executive").

         WHEREAS, Executive and the Company are parties to that certain
Employment Agreement dated as of December 30, 1993 (the "Original Employment
Agreement"), as amended by Amendment No. 1 to Employment Agreement, dated as of
June 26, 1997 ("Amendment No. 1"), and Amendment No. 2 to Employment Agreement,
dated as of September 16, 1999 ("Amendment No. 2"), and pursuant to which
Executive is employed by the Company (the Original Employment Agreement,
Amendment No. 1, and Amendment No. 2, being collectively referred to herein as
the "Agreement"); and

         WHEREAS, Executive and the Company desire to amend the Agreement as set
forth herein in consideration of Executive's ongoing employment.

         NOW, THEREFORE, the Company and Executive hereby agree as follows:

         1.       Section 4(a)(i) of Amendment No. 2 shall be deleted in its
entirety and replaced with the following:

                  "(i) the Company (or its successor, as the case may be) shall
                  pay to Executive a severance payment (the "Severance Payment")
                  equal to the then-current Base Salary for a period of
                  twenty-four (24) full calendar months from the date of
                  termination of Executive's employment (the "Termination
                  Date"); and"

         2.       Section 4(a)(ii) of Amendment No. 2 shall be deleted in its
entirety and replaced with the following:

                  "(ii) the Company (or its successor, as the case may be) shall
                  continue, at its sole expense, all medical, dental and life
                  insurance coverage for Executive and his family on similar
                  terms until the earlier of (A) twenty-four (24) full calendar
                  months from the Termination Date, or (B) such time as
                  Executive receives similar paid coverage from another
                  employer; and"

         3.       Nothing in this Amendment No. 3 shall be construed to limit
benefits to which Executive is entitled under the Agreement. Except as expressly
amended hereby, the Agreement remains in full force and effect as written.

         4.       This Amendment No. 3 may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.



         IN WITNESS WHEREOF, Executive and the Company have entered into this
Amendment No. 3 as of the date written above.

LA JOLLA PHARMACEUTICAL COMPANY                                      EXECUTIVE

By: /s/ Gail A. Sloan                                        /s/ Steven B. Engle
    -----------------                                        -------------------
    Gail A. Sloan                                            Steven B. Engle
    Senior Director of Finance, Controller, and Secretary

EX-31.1

                                                                    EXHIBIT 31.1

                            SECTION 302 CERTIFICATION

I, Steven B. Engle, certify that:

         1.       I have reviewed this quarterly report on Form 10-Q of La Jolla
                  Pharmaceutical Company;

         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 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.

         Date: August 5, 2003                       /s/ Steven B. Engle
                                                    -------------------
                                                    Steven B. Engle
                                                    Chairman and Chief Executive
                                                    Officer

EX-31.2

                                                                    EXHIBIT 31.2

                            SECTION 302 CERTIFICATION

I, Gail A. Sloan, certify that:

         1.       I have reviewed this report on Form 10-Q of La Jolla
                  Pharmaceutical Company;

         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 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.

         Date: August 5, 2003                     /s/ Gail A. Sloan
                                                  -----------------
                                                  Gail A. Sloan
                                                  Senior Director of Finance,
                                                  Controller and Secretary

EX-32.0

                                                                    EXHIBIT 32.0

                            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, in his or her capacity as an officer of La Jolla
Pharmaceutical Company (the "Registrant"), hereby certifies, for purposes of 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:

         -        the quarterly report of the Registrant on Form 10-Q for the
                  quarter ended June 30, 2003 (the "Report"), which accompanies
                  this certification, fully complies with the requirements of
                  Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
                  and

         -        the information contained in the Report fairly presents, in
                  all material respects, the financial condition of the
                  Registrant at the end of such quarter and the results of
                  operations of the Registrant of such quarter.

Dated: August 5, 2003

                                                   /s/ Steven B. Engle
                                                   -------------------
                                                   Steven B. Engle
                                                   Chairman and Chief Executive
                                                   Officer

                                                   /s/ Gail A. Sloan
                                                   -----------------
                                                   Gail A. Sloan
                                                   Senior Director of Finance,
                                                   Controller and Secretary

Note: A signed original of this written statement required by Section 906 has
      been provided to La Jolla Pharmaceutical Company and will be retained by
      La Jolla Pharmaceutical Company and furnished to the Securities and
      Exchange Commission or its staff upon request.