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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
/ / REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
OR
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _________________
Commission file number 0-29574
ALTAREX CORP.
(Exact name of Registrant as specified in its charter)
Province of Alberta, Canada
(Jurisdiction of incorporation or organization)
Campus Tower, Suite 300, 8625 - 112 Street, Edmonton, Alberta, Canada, T6G 1K8
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each Class Name of each exchange on which registered
None
- --------------------------------------------------------------------------------
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares without par value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None
(Title of Class)
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Number of outstanding shares of each of the Company's classes of capital or
common stock as of June 1, 1999: 55,612,613 Common Shares
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 which financial statement item the registrant has elected
to follow.
Item 17 X Item 18
--- ---
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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TABLE OF CONTENTS
<TABLE>
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GLOSSARY OF TERMS ......................................................... vi
PART I .................................................................... 1
ITEM 1 - DESCRIPTION OF THE BUSINESS ...................................... 1
Overview ............................................................ 1
Corporate Structure ................................................. 2
History ............................................................. 2
Business Strategy ................................................... 3
Plan of Operation For Fiscal 1999 ................................... 4
Market for Cancer Therapeutics ...................................... 4
Approaches to Cancer Therapy ........................................ 5
The Company's AIT(R) Technology ..................................... 7
The Company's Products .............................................. 10
Regulatory Approval Process ......................................... 15
Strategic Alliances and License Agreements .......................... 18
Manufacturing ....................................................... 22
Human Resources ..................................................... 22
Competition ......................................................... 22
Proprietary Protection .............................................. 23
Clinical Advisory Board ............................................. 25
Risk Factors ........................................................ 26
ITEM 2 - DESCRIPTION OF PROPERTY .......................................... 36
ITEM 3 - LEGAL PROCEEDINGS ................................................ 37
ITEM 4 - CONTROL OF REGISTRANT ............................................ 39
ITEM 5 - NATURE OF TRADING MARKET ......................................... 40
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
SECURITY HOLDERS .................................................... 41
ITEM 7 - TAXATION ......................................................... 43
ITEM 8 - SELECTED FINANCIAL DATA .......................................... 51
ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ................................. 52
Overview ............................................................ 52
Acquisition and Amalgamation ........................................ 53
Results of Operations ............................................... 53
Quantitative and Qualitative Disclosures About Market Risk .......... 55
Foreign Currency Exposure ........................................... 55
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Impact of the Year 2000 Issue ....................................... 55
Liquidity and Capital Resources ..................................... 56
ITEM 9A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK ................................................................ 58
ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT AS OF JUNE 1, 1999 ......... 59
ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS .......................... 61
Compensation of Executive Officers .................................. 61
Stock Options ....................................................... 63
Compensation of Directors ........................................... 64
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
SUBSIDIARIES ........................................................ 65
ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS .................. 66
PART II ................................................................... 67
ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED ..................... 67
PART III .................................................................. 67
ITEM 15 - DEFAULTS UPON SENIOR SECURITIES ................................ 67
ITEM 16 - CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR
REGISTERED SECURITIES ............................................... 67
PART IV ................................................................... 67
ITEM 17 - FINANCIAL STATEMENTS ............................................ 67
ITEM 18 - FINANCIAL STATEMENTS ............................................ 68
ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS ............................... 68
SIGNATURE ................................................................. 69
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Note Regarding Forward Looking Statements
Certain statements in this document constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the current litigation between the Company and Biomira Inc.; the Company's
dependence on licensed technology; the Company's history of operating losses and
uncertainty of future profitability; uncertainty of access to capital; the
Company's dependence on strategic partners and key personnel; uncertainty of the
regulatory approval for the Company's products; competition and the risk
associated with new products. See "Item 1.
Description of the Business - Risk Factors."
Exchange Rate Information
In this Registration Statement, unless otherwise specified, all monetary amounts
are expressed in Canadian dollars ("$" or "cdn. $"). The following table sets
out the exchange rates, based on the noon buying rates in New York City for
cable transfers in foreign currencies as certified for customs purposes by The
Federal Reserve Bank of New York, for the conversion of Canadian dollars into
United States dollars in effect at the end of the following periods, and the
average exchange rates (based on the average of the exchange rates on the last
day of each month in such periods) and the range of high and low exchange rates
for such periods.
<TABLE>
<CAPTION>
U.S. Dollars Per Canadian Dollar
----------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
End of Period ................ .6504 0.698 0.730 0.732 0.7128
High for the period .......... .7092 0.748 0.751 0.752 0.7632
Low for the period ........... .6341 0.695 0.723 0.702 0.7103
Average for the period ....... .6740 0.722 0.732 0.730 0.73
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The information set forth in this Registration Statement is as at December 31,
1998 unless an earlier or later date is indicated. On June 1, 1999, the noon
rate of exchange, as reported by the Federal Reserve Bank of New York for the
conversion of United States dollars into Canadian dollars, as U.S. $.6743 U.S.
$1.00 = Cdn. $1.4830.
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GLOSSARY OF TERMS
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Adjuvant: An immunogenic substance administered with a
vaccine to increase the immune response.
Amino Acids: The basic molecules that form proteins.
Antibody: A protein agent developed in response to, and
binding specifically with, an antigen.
Anti-idiotype Induction An immunotherapeutic antibody approach that
Therapy or AIT(R) Technology induces the human immune system to produce its
or AIT(R): own anti-tumor response through several immune
pathways.
Anti-idiotype Cascade or An in vivo immune response characterized by
Network: antibodies to antibodies resulting in antigen mimics
and secondarily by native antibodies reactive to the
same antigen as the antibody inducing the cascade.
Antigen: A substance which elicits a specific immune
response.
Ascites-derived material: Obtained from the fluid of the abdominal cavity of
mice that have been implanted with cells that secrete
the desired substance (antibody).
B-cell: A form of immune cell that produces
antibodies and is a precursor to a plasma
cell.
Cell culture-derived material: Obtained from the secretion of cells grown in
artificial media, often in flasks or tanks.
Cellular response: An immune system response mediated by immune
cells, often cytotoxic and antigen specific.
current Good Manufacturing Government promulgated guidelines governing the
Practices or cGMP: manufacture of human and animal drugs and
biologicals.
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Chemotherapy or Generally, the use of drugs in the treatment of
chemotherapeutic: disease. Specifically the use of cytotoxic drugs to
treat cancer.
Cytokine: Low molecular weight proteins that can either
stimulate or inhibit the proliferation or function of
immune cells.
Cytotoxic T-cells: Immune system cells capable of killing other cells.
Epitope: Specific region on an antigen which is recognized by
a specific antibody or T-cell.
European Medicines The agency responsible for drug product approval in
Evaluation Agency or the European Economic Community.
EMEA:
First line chemotherapy The administration of one or more of a combination
(in ovarian cancer): of chemotherapeutic agents usually consisting of a
platinum-based drug and paclitaxel.
Gene: The basic unit of heredity. Genes are
nucleic acid sequences encoding specific
proteins that occupy a specific location on
a chromosome and are self-producing,
submicroscopic structures capable under
certain circumstances of giving rise to a
new character.
Health Protection Branch or The government department responsible for
HPB: supervising the drug development and approval
process in Canada.
Humoral response: An immune response mediated by antibodies in the
blood.
Hybridoma cells: Any continuously growing cell line generated by
the fusion of a myeloma cell and a normal cell
and capable of producing antibodies.
Immunogenicity: The degree to which an antigen is capable of eliciting
an immune response.
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<TABLE>
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Immunotherapy: A therapeutic approach to treat diseases by
modifying the immune response against the disease.
Immunological tolerance: Characteristic state in which the immune system is
rendered unresponsive to an antigen that, under
other conditions, would provoke an immune
response.
Investigational New Drug An application to the FDA or other regulatory
Application or IND: bodies, which is submitted for approval prior to
beginning clinical trials.
IV infusion: Administration of a medication directly into a vein.
In vitro: Studies or phenomena which take place outside the
body.
In vivo: Studies or phenomena which take place in the body.
Master Cell Bank or MCB: A well characterized stock containing specific
hybridoma cells that are used in the manufacture of
antibodies.
Master Working Cell Bank: "Manufacturer's" or "Master" Working Cell Bank,
often referred to as the "Working Cell Bank" (WCB):
a bank derived from the Master Cell Bank which acts
as the starting source for (antibody) bioproduction.
Monoclonal antibody or Antibody produced by hybridoma cells, which is
MAb: homogeneous in structure and specificity.
MUC1: A mucinous antigen associated with breast and other
cancers.
Multi-epitopic response: Immune response to an antigen that
is directed to multiple regions on the
antigen recognized by antibodies or T-cells.
Multiple myeloma: A haematologic malignancy or blood cancer
related to leukemia and lymphoma characterized
by over-production of abnormal plasma cells in
the bone marrow.
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<TABLE>
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Murine: Of mouse origin.
Myeloma cell: An immortal tumor cell originating or derived
from the bone marrow.
New Drug Application or A document submitted to the FDA or other
NDA: regulatory bodies containing all the pre-clinical and
clinical data collected on a drug to obtain approval
for marketing.
New Drug Submission or A document submitted to the HPB which is the
NDS: Canadian counterpart to the NDA.
Peptide: A molecule containing several amino acids linked
together.
Pharmacodynamic: The biological response to a drug.
Pharmacokinetic: The description of absorption, distribution,
metabolism and excretion of drugs by the body.
Plasma cell: A mature B-cell.
Potentially pivotal: A term used to describe clinical trials that
would form the basis for a submission seeking
marketing approval from regulatory authorities
if the statistical goals of the trial are met.
Primary end point: The primary clinical outcome which forms the a priori
basis of the statistical hypothesis (including sample
size estimation) of a well controlled clinical trial. A
fully successful study confirms a treatment effect of
the magnitude sufficient to provide a statistically
significant demonstration of the "primary end point"
for regulatory approval of a product.
Product License Application The application submitted to the FDA to qualify
or PLA: biological drug products for sale in the United States.
PSA: An antigen associated with prostate cancer.
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Sera: The fluid component of blood after separation of
cellular components.
Secondary end point: Secondary clinical or biological outcomes that
can be assessed in analysis of a clinical trial.
Although supportive and potentially important,
these endpoints are not the a priori primary
experimental question proposed for a clinical
protocol.
Second-line chemotherapy Any one of a combination of drugs consisting of
(in ovarian cancer): Paclitaxel, Etoposide, CAP (cyclophosphamide,
adriamycin, cis-platin) or HCAP
(hexamethylmelamine and CAP) or other drugs
administered into patients, who are either
partial or non-responders to first line
chemotherapy.
Surrogate endpoint: A laboratory or physical sign that is used
in clinical trials as a substitute for a
clinically meaningful endpoint that is a
direct measure of how a patient feels,
functions, or survives and that is
reasonably likely to predict the effect of
therapy.
Surrogate marker: A laboratory measurement of biological
activity within the body that indirectly
indicates the effect of treatment on disease
state.
T-cell: A form of immune cell that mediates humoral
and cellular immune responses.
Tumor: An abnormal proliferation of malignant cells.
Tumor antigen or tumor An antigen that is predominantly expressed in tumor
associated antigen or TAA: tissues and may be released into the blood stream in
association with the tumor.
Tumor marker: A biological product (protein or other) that
is expressed on tumor cells and secreted
usually into the serum, such that presence
or activity of the tumor can be measured
indirectly through measurement of the
marker.
United States Food and Drug The regulatory body that oversees the drug
Administration or FDA: development and approval process in the United
States.
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PART I
ITEM 1 - DESCRIPTION OF THE BUSINESS
OVERVIEW
AltaRex is a development stage biotechnology company focused on the research,
development and commercialization of unique antibody-based immunotherapeutics
for the treatment of certain late-stage cancers. The Company's products are
based on its unique proprietary platform technology, Anti-idiotype Induction
Therapy or AIT(R) Technology. Based upon research and clinical studies to date,
AltaRex believes that its AIT(R) Technology enhances the ability of the human
immune system to produce its own anti-tumor response. The Company has filed five
patent applications for its AIT(R) Technology in the United States. Four of
these patents have been or will be the subject of international patent
applications. See "- Proprietary Protection" and "Legal Proceedings".
AltaRex's products are modified murine monoclonal antibodies or MAbs developed
by the Company's scientists or licensed to the Company. The Company believes
that these MAbs may be used effectively to complement and/or supplement
conventional cancer therapies.
OvaRex(TM) MAb, the Company's lead product, targets a tumor associated antigen
known as CA 125 which has been found to be over-expressed in the majority of
ovarian (and certain other) cancer patients. The Company believes that when
administered to patients in low dosages by IV infusion OvaRex(TM) MAb acts by
inducing or amplifying, through multiple mechanisms, the body's immune response
against ovarian cancer. In the first quarter of 1997, the Company initiated a
potentially pivotal North American Phase IIb clinical trial with OvaRex(TM) MAb
in Canada with time to disease progression as the primary end point.
Administration of the drug to patients in the United States under this trial
began in the second quarter of 1998. This placebo controlled trial will enroll
280 patients by late 1999 and is expected to be completed in 2001 for primary
analysis. A second potentially pivotal Phase IIb clinical trial was initiated in
December 1998 also with time to disease progression as its primary end point,
and will address an ovarian cancer patient population with a more advanced stage
of disease than the initial Phase IIb trial. This placebo controlled trial will
enroll 102 patients in the United States and is also scheduled for completion by
2001. AltaRex is also conducting open Phase II trials in the United States and
Canada. In consultation with regulatory authorities, the Company is generating
cell culture-derived antibody which will be studied in comparability trials with
the Company's current ascites-derived materials.
The Company has received Orphan Drug status and Fast Track designation from the
FDA for OvaRex(TM) MAb. Orphan Drug status and Fast Track designation, as well
as
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the applicability of certain provisions of the FDA Modernization Act of 1997
("FDAMA") relating to surrogate measures of efficacy form the Company's
regulatory approval strategy in the United States. The Company's Phase IIb
trials each have primary end points of time to disease progression as well as
secondary end points, including survival and quality of life, any of which can
form the basis for regulatory approval. See "- The Company's Products".
AltaRex is also developing additional antibody-based immunotherapeutics from its
AIT(R) Technology platform for the treatment of tumors expressing the MUC1
(BrevaRex(TM) MAb), PSA (ProstaRex(TM) MAb) and CA19.9 (GivaRex(TM) MAb) tumor
associated antigens. The Company commenced a Phase I clinical trial of
BrevaRex(TM) MAb in December 1998.
On May 12, 1999, the Company entered into two equity investment agreements (the
"Equity Investment Agreements") and an option agreement (the "Purdue Option")
with Purdue Pharma L.P. and certain of its associated entities (together,
"Purdue").
Pursuant to the Purdue Option, the Company granted to Purdue the option to
acquire worldwide exclusive rights to license and commercialize OvaRex(TM) MAb
and BrevaRex(TM) MAb. The Purdue Option may be exercised by Purdue at any time
up to and including November 12, 1999. During this period, the Company has
agreed not to discuss or negotiate with other parties with respect to the rights
which are the subject of the Purdue Option. In the event that Purdue exercises
the Purdue Option, Purdue has agreed to assume certain research and development
expenses of the Company, make certain additional payments to the Company upon
the Company's achieving certain milestones and to make various royalty payments
to the Company based upon sales of the Company's products.
CORPORATE STRUCTURE
AltaRex Corp. ("AltaRex" or the "Company") was established on May 31, 1997 under
the laws of the Province of Alberta by the amalgamation of AltaRex Corp.
(formerly known as Allrich Energy Group Inc. ("Allrich")) and AltaRex Inc. Prior
to such amalgamation, Allrich, an inactive public company, acquired all of the
outstanding shares of AltaRex Inc. resulting in AltaRex Inc.'s shareholders
holding a controlling interest in Allrich. On June 27, 1997 articles of
amendment were filed to provide that meetings of shareholders may be held at any
place within Canada and the United States. The registered office of AltaRex is
located at Campus Tower, Suite 300, 8625 - 112 Street, Edmonton, Alberta T6G
2E1. The principal business and administrative offices of AltaRex are located at
Suite 125, 303 Wyman Street, Waltham, Massachusetts 02451.
AltaRex US, Corp. ("AltaRex US"), the Company's only subsidiary, was
incorporated under the laws of the State of Delaware and is wholly-owned by the
Company.
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With offices located in Waltham, Massachusetts, AltaRex US directs the business
development, clinical, regulatory, development, manufacturing and investor
relations efforts of the Company.
HISTORY
AltaRex was founded in November 1995 by Dr. Antoine Noujaim and a team of
collaborators to commence a business engaged in the discovery and development of
anti-cancer immunotherapeutics. Prior to founding AltaRex, Dr. Noujaim was
President of Biomira Research Inc. ("Biomira Research"), a wholly-owned
subsidiary of Biomira Inc. ("Biomira"). The Company believes that in 1995
Biomira decided to discontinue funding the operations of Biomira Research. Dr.
Noujaim and other collaborators believed that the B43 antibody research project
undertaken by Biomira Research (known as the OvaRex(TM) MAb Program) had the
potential to be further developed into a commercial product. As a result, in
November 1995, AltaRex acquired certain components of the OvaRex(TM) MAb Program
and the OvaRex(TM) MAb tradename and trademark from Biomira and Biomira Research
and entered into an exclusive licensing agreement with Biomira pursuant to which
it acquired the exclusive worldwide right to use, develop, manufacture and
commercialize (for anti- idiotype induction therapy applications) products based
on the B43 antibody. See "Strategic Alliances and License Agreements - Biomira
License Agreement" and "Legal Proceedings".
BUSINESS STRATEGY
The Company's strategy is to focus its antibody development expertise to produce
unique, patent protected, antibody-based immunotherapeutics based on its AIT(R)
Technology platform for commercialization primarily by pharmaceutical partners.
The key elements of the Company's strategy are to:
- Focus exclusively on antibodies for immunotherapy;
- Access research regarding antibodies and disease targets from
key academic institutions, particularly in Canada and the
United States;
- Employ the AIT(R) Technology and related proprietary
technology of the Company to generate highly specific immune
responses to MAbs associated with TAAs;
- Coordinate further research and conduct preclinical and
clinical trials to enable the Company to pursue regulatory
approval for the products and to build value for strategic
partnering; and
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- Realize value through strategic partnerships with
pharmaceutical companies.
The Company believes that this strategy will enable it to achieve the
patent-protected commercialization of antibody-based immunotherapeutics to treat
various cancers and other disease areas including autoimmune and infectious
diseases.
PLAN OF OPERATION FOR FISCAL 1999
AltaRex's plan of operation for the year ending December 31, 1999 is to continue
to develop and conduct clinical trials for antibody-based immunotherapy
products. During this period, the Company plans to complete enrollment in the
first OvaRex(TM) MAb Phase IIb clinical trial in North America and to achieve
significant progress in enrolling patients in the second Phase IIb clinical
trial. The Company also intends to substantially complete the OvaRex(TM) MAb
open Phase II trials in the United States and Canada and the BrevaRex(TM) MAb
Phase I clinical trial in the United States. Additionally, the Company plans to
continue product development programs for ProstaRex(TM) MAb and GivaRex(TM) MAb
by conducting further exploratory research.
See "- Regulatory Approval Process".
In cooperation with Lonza Biologics plc ("Lonza Biologics"), the Company is in
the process of scaling-up commercial production of cell culture-derived antibody
to be used in comparability testing with the Company's current ascites-derived
material. The Company is also working with Lonza Biologics to begin scaling-up
its BrevaRex(TM) MAb cell culture material to a commercial level. Scaling-up
production of these antibodies will enable the Company to further pursue
regulatory approval and commercialization of the Company's products. Such
regulatory approval and commercialization is dependent upon the ability of the
Company to achieve such production. See "- Risk Factors".
MARKET FOR CANCER THERAPEUTICS
Cancer is a disease characterized by uncontrolled growth and spread of abnormal
cells. The disease is believed to occur as a result of a number of factors such
as genetic predisposition and external (chemicals, radiation) and internal
(immune status, hormones) causes.
Overall, the annual costs for cancer in the Untied States are estimated at U.S.
$107 billion which includes U.S. $37 billion for direct medical costs, U.S. $11
billion for morbidity costs (loss of productivity) and U.S. $59 billion for
mortality cases. The world market for cancer therapeutics was U.S. $11.7 billion
in 1997 and is expected to reach U.S. $14.7 billion by 2000. (SCRIP Reports -
The Complete Guide to Cancer - Second Edition, 1998). North America
(predominantly the United States) represents 47% of the worldwide anti-cancer
drug market.
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The majority of cancer patients are people over the age of 65 and it is
anticipated that as the population continues to age, cancer treatment will
likely become the single largest health care expenditure in the United States
and other industrialized nations (Frost and Sullivan, World Cancer Therapeutic
Markets, August 1996).
APPROACHES TO CANCER THERAPY
Conventional approaches for the treatment of cancer have been based on a
combination of surgery, radiation and chemotherapy. Despite increasing resources
to develop new therapies for cancer, survival rates for cancer patients have not
materially improved over the last 15 years (American Cancer Society, 1998 Cancer
Facts & Figures). This ongoing inability to significantly improve survival or
quality of life for cancer patients creates a compelling need for alternative
medical strategies.
The potential market for antibody-based therapies in the management of advanced
cancer has rapidly expanded, as evidenced by the acceptance of IDEC
Pharmaceuticals Corp.'s ("IDEC") Rituxan(R) (rituximab) for the treatment of
non- Hodgkin's lymphoma and the recent FDA approval of Genentech Inc.'s
("Genentech") Herceptin(R) (trastuzumab) for the treatment of certain breast
cancers.
Immunotherapeutic Approaches to Cancer
The immunological approach to cancer therapy is based on the principle that the
human immune system is capable of recognizing and eliminating cancer cells. In
cancer patients, the immune system has failed, for unknown reasons, to respond
to the presence of cancer cells. Immunotherapeutic approaches attempt to
stimulate and enhance an anti-cancer response by the patient's own immune
system.
The immunotherapeutic approach has inherent advantages in comparison to current
conventional treatment practices, which are often radical in nature and
associated with severe side effects and toxicity, thereby compromising the
patient's quality of life. In addition, tumors treated conventionally often
re-emerge in more aggressive and treatment-resistant forms. Immunotherapy, which
can be utilized in combination with conventional treatments or as a single
treatment, can be substantially less toxic than chemotherapy and therefore may
improve the patient's quality of life.
There are currently four widely accepted immunological approaches to cancer
therapy. They can be classified as either tumor associated antigen dependent
(e.g., passive immunization or active specific immunization) or independent
(e.g., adoptive cell-based or non-specific). The primary difference between
immunotherapeutic approaches is the method in which the immune system is
stimulated and the nature of the subsequent immune responses.
Conventional Immunotherapeutic Approaches
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Independent Immunological Approaches
Adoptive Immunotherapy
This form of therapy consists of the separation and stimulation of T-cells, then
exposing those cells to immunostimulates in vitro in order to augment the immune
system's response to tumor cells. The treated cells are then expanded in numbers
and reinjected into patients. Each patient serves as the donor and recipient of
his or her own T-cells. While efforts are being conducted to make this therapy
more effective, wide application remains difficult due to the individual nature
of the treatment.
Non-Specific Immunotherapy
In general, this approach may be described as a method by which the immune
system is non-specifically stimulated in order to destroy the tumor. The
principal approach has been through the use of cytokines; however, while
effective in some indications, side effects have limited their use.
TAA Immunological Approaches
Tumor associated antigens or TAAs are located on the surface of cancer cells,
circulate in a patient's blood or sera and are associated with the presence of
specific cancer types. The antigens have single or multiple binding sites or
epitopes. There are two types of TAA immunotherapy, passive and active specific.
Passive Immunization
This approach consists of the administration of certain immune molecules, such
as antibodies, to patients who do not produce them on their own. These
antibodies are generally administered in large quantities and, while targeting
the cancer cells, can also be designed to act on other cell types and molecules
which are necessary for tumor growth. For example, antibodies can be designed to
affect the tumor's blood supply, thereby inhibiting the tumor's expansion.
Alternatively, certain antibodies can act directly on the tumor by activating a
cellular system to attack the tumor after the antibody is attached to it. The
underlying assumption is that the antibody will recognize and bind to a
cancer-specific antigen which is not expressed on normal cells. Unfortunately,
some of the cancer antigens are also found on normal cells, which might also be
damaged at the same time.
Active Specific Immunization
Vaccines that are based on this therapeutic approach usually involve the
immunization of patients with irradiated tumor cells expressing a specific
antigen or
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by combining the antigen itself with an appropriate carrier molecule and
administering it together with an adjuvant. Modern variations to this technique,
include anti-idiotype antibody therapy, which consists of the formation and
selection of an antigen mimic in the form of an antibody that is administered in
the manner described above. While this technology holds promise, the development
of an effective vaccine is highly dependent on the accurate pre-selection of the
antigen or antigen mimic.
AltaRex's Anti-Idiotype Induction Therapy
The Company believes its AIT(R) approach to immunotherapy is fundamentally
different from the conventional approaches to immunotherapy described above.
AIT(R) Technology involves the development of a murine antibody specific to a
tumor associated antigen. This antibody is subsequently modified by a
proprietary technique and, after appropriate processing, is injected by IV
infusion into a patient. This results in the formation of a complex between the
antibody and the patient's own circulating tumor antigens. The tumor antigen is
thereby targeted for an immune response. Multiple immunological pathways are
then invoked. Mechanistic studies have demonstrated the induction of the
anti-idiotype network or cascade and, more particularly, of a reconformation of
the TAA presentation and humoral and cellular response to multiple epitopes of
the TAA. It is the Company's belief that this in turn results in an immune
response having unique characteristics, mobilizing both cellular and humoral
pathways against the TAA and the tumor cells, triggered by a tumor antigen
specific modified murine monoclonal antibody.
THE COMPANY'S AIT(R) TECHNOLOGY
Overview
The development of the Company's AIT(R) Technology and related products has been
facilitated by advances in the field of oncology that have demonstrated the
existence of cellular components known as tumor associated antigens.
The AIT(R) Technology is the process by which the Company produces, selects,
modifies and administers unique murine MAbs that can selectively bind to TAAs
that are highly associated with certain types of cancers. The Company has found
that the selective binding of MAbs to TAAs can induce a number of specific
anti-tumor immune responses in a cancer patient.
The Company believes that it has developed a method to isolate groups of TAAs
associated with specific cancers. The Company develops murine MAbs having a high
degree of specificity to a particular TAA. The Company has shown that the MAb
B43, the primary component of OvaRex(TM) MAb, has a high degree of specificity
to the TAA CA 125, an antigen over-expressed by the majority of ovarian cancer
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patients. The Company has developed murine MAbs that have specificity for TAAs
associated with seven of the ten most lethal forms of cancer in the United
States.
The Company believes that its AIT(R) approach to immunotherapy may provide the
following advantages over conventional approaches to immunotherapy:
- The AIT(R) immunotherapeutic induction approach uses a foreign
(murine) antibody to a single epitope of a multi-epitopic TAA
that induces the immune system to mount its own generalized
anti-tumor response to multiple epitopes of the TAA. The
technology mobilizes an immune response that is not restricted
by selection of idiotype or vaccine fragment;
- The AIT(R) immunotherapeutic approach has demonstrated the
stimulation of both a humoral and cellular immune response;
- The AIT(R) immunotherapeutic approach utilizes low dose and
intravenous infusion of antibody, minimizing the risk of
toxicity and lowering the cost of the product and the
treatment; and
- The use of a murine MAb induces a potent immune response that
would not be seen with humanized antibodies.
The AIT(R) Technology is the subject of several patent applications filed by the
Company with the United States and other patent agencies around the world. See
"Proprietary Protection". The Company's lead product, OvaRex(TM) MAb," is based
on a murine MAb that was licensed to the Company from Biomira. See "- The
Company's Products - OvaRex(TM) MAb", "- Strategic Alliances and License
Agreements - Biomira License Agreement" and "Legal Proceedings". AltaRex may
license or develop (as it has for BrevaRex(TM), GivaRex(TM), and ProstaRex(TM)
MAbs) other MAbs for future AIT(R) products.
The Company has not completed the clinical trials necessary to confirm the
efficacy of its AIT(R) Technology. As a result, while the preliminary results
from other trials on its OvaRex(TM) MAb product are encouraging, there can be no
assurance that the Company's products will demonstrate sufficient therapeutic
benefit in the treatment of cancer patients that would lead to obtaining
regulatory approval. See "Risk Factors - Uncertainty Associated with Preclinical
and Clinical Testing".
Mechanism of Action of the AIT(R) Technology
The mechanism of action of the Company's AIT(R) Technology is based on what the
Company believes is the ability of the human immune system to generate a tumor
specific immune response to MAbs associated with specific TAAs. The Company
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believes that certain murine MAbs may, upon administration to a cancer patient,
induce both a humoral and a cellular response by the patient's immune system.
There are four basic steps in the AIT(R) Technology process:
Step 1 - Identification of the Tumor Associated Antigen
AltaRex has isolated specific antigens that have a high association with
particular cancers. To date, TAAs have been identified and isolated for ovarian,
breast, prostate, lung, pancreatic, colorectal and stomach cancers.
Step 2 - Development of the Monoclonal Antibody (Ab1)
AltaRex uses the identified antigens to develop a murine MAb known as Ab1. This
MAb is used to elicit an immune response.
Step 3 - Modification of Ab1 Monoclonal Antibody
Using the Company's proprietary technology, antibodies from step two are
modified to increase the degree to which the antibody is capable of eliciting an
immune response. This process results in a modified murine MAb (Ab1) that is
ready for use.
Step 4 - Initiation of the AIT(R) Induced Response
The Company believes that administration of the modified murine MAb into the
patient initiates a cascade characterized by at least three major events. The
uniqueness of the AIT(R) Technology may be attributed, in part, to these three
different mechanisms by which the antibody may exert its influence on tumor
cells. These mechanisms have been elucidated by the Company's detailed analysis
of the anti- idiotype network or cascade. In the first instance, the Ab1
antibody induces the production of an anti-idiotype network or cascade of
antibodies. Second, the immunogenicity of the antibody leads to a cellular
immune response. Finally, and most importantly, administration of the antibody
results in the formation of a TAA antibody complex in the blood, and a novel
presentation of the TAA to the immune system inducing a multi-epitopic response
to the TAA. The result of this cascade of events is a tumor specific humoral and
cellular response capable of killing cancer cells.
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THE COMPANY'S PRODUCTS
AltaRex has selected four tumor associated antigens for its initial therapeutic
product development. The first and most advanced of these product candidates is
OvaRex(TM) MAb (MAb B43.13) for the treatment of patients with tumors expressing
CA 125. Other products in development include BrevaRex(TM) MAb (for tumors
expressing MUC1), ProstaRex(TM) MAb (for tumors expressing PSA) and GivaRex(TM)
MAb (for tumors expressing CA 19.9). The following chart sets forth the current
development status of the Company's products.
[GRAPH WHICH ILLUSTRATES THE STAGE OF DEVELOPMENT OF EACH OF
THE COMPANY'S PRINCIPAL PRODUCTS IN DEVELOPMENT.]
OvaRex(TM) MAb
Overview
In the United States, Canada and Europe, ovarian cancer causes more deaths than
any other cancer of the female reproductive tract. It is estimated that in the
United States more than 25,400 new cases of ovarian cancer will be diagnosed and
more than 14,000 women will die from this disease annually (American Cancer
Society, 1998 Cancer Facts & Figures).
Although detection of ovarian cancer at an early stage is now associated with an
improved chance for curative treatment, survival figures have not changed
significantly over the past 15 years. This is partially due to a lack of
efficient diagnostic methods or markers for routine tests that could increase
the number of patients diagnosed at the early stage of their disease.
Consequently, in approximately three-quarters of diagnosed patients, the tumor
has already progressed to an advanced stage (Stage III or IV), making treatment
more difficult. Of these Stage III and IV patients, more than 80% express the
tumor associated antigen CA 125.
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Patients diagnosed with advanced ovarian cancer usually demonstrate a survival
time of less than two years (Hoskins et al., Journal of Clinical Oncology,
October 1992).
Prior to 1995, a research program for OvaRex(TM) MAb was initiated at Biomira
Research. In November 1995, the Company acquired from Biomira certain assets and
licensed certain technologies, including the antibody B43, which is utilized in
OvaRex(TM) MAb. Under the terms of a license agreement with Biomira, the Company
has a license to, among other things, use the antibody B43 in connection with
the development of anti-idiotype induction therapy products and applications.
See "Strategic Alliances and License Agreements - Biomira License Agreement" and
"Legal Proceedings".
OvaRex(TM) MAb uses a murine MAb having a high degree of specificity to a TAA
(CA 125) over-expressed by the majority of ovarian cancer patients. The Company
believes that the product acts as an immunotherapeutic agent by inducing or
amplifying the human body's immune response against ovarian cancer. This
response is characterized by a cascade of events involving the production of
specific antibodies and cytotoxic T-cells in the body which target the tumor
cells. The Company believes that this combination of a humoral and cellular
immune response accounts for the observed improvement in the clinical outcome of
patients receiving the OvaRex(TM) MAb.
OvaRex(TM) MAb Regulatory Approval Strategy
AltaRex has received Orphan Drug status from the FDA for OvaRex(TM) MAb for the
treatment of ovarian cancer which may result in seven years of market
exclusivity provided that the Company continues to meet certain conditions
established by the FDA. See "- Regulatory Approval Process - Orphan Drug
Status".
Generally, the FDA approves the marketing of a drug based on adequate and well-
controlled trials. The FDA also has regulations which are intended to expedite
the development, evaluation and marketing of a new drug used for the treatment
of serious diseases for which there is no other satisfactory treatment. In
appropriate circumstances, the FDA may, in its discretion, approve the marketing
of a drug based on one adequate and well-controlled trial, if supported by
information from other related adequate and well-controlled studies or if the
trial is a single multi-centre trial. Fast Track designation makes a product
eligible for consideration for a number of programs, including meeting with the
FDA to discuss research protocol design and the possibility that the marketing
of the product may be approved immediately after the conclusion of Phase II
studies. As a result of FDAMA, obtaining Fast Track designation from the FDA can
result in approval based on a surrogate endpoint that is reasonably likely to
predict clinical benefit. Such approval may be subject to the requirements that
the sponsor conduct appropriate post approval studies and submit
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all promotional materials related to the Fast Track product at several different
points in time.
The Company has received a letter from the FDA dated December 17, 1998 stating
that its Request for Fast Track designation has been reviewed and, subject to
the Company continuing to meet certain criteria, the FDA has designated
OvaRex(TM) MAb as a Fast Track Development program (for the effect of OvaRex(TM)
MAb in delaying time to recurrence in patients with Stage III or IV ovarian
cancer who have undergone standard treatment, surgery and chemotherapy, and have
minimal or no evidence of disease).
As part of the Company's regulatory approval strategy, it is conducting two
potentially pivotal Phase IIb trials based on the surrogate endpoint of time to
disease relapse. The Company has also initiated open Phase II trials that are
underway in the United States and Canada with ovarian cancer patient populations
that have already experienced disease relapse. The Company intends to treat
300-500 patients with OvaRex(TM) MAb (or an earlier radiolabelled imaging
product) prior to submission for approval by the FDA and other regulatory
agencies. The Company is also working with Lonza Biologics to scale-up cell
culture-based OvaRex(TM) MAb antibody that is expected to be studied in
comparability trials with the Company's current ascites-derived antibody
material. Scaling-up production of cell culture- derived materials will enable
the Company to further pursue regulatory approval and commercialization of
OvaRex(TM) MAb. See "- Risk Factors - Reliance on Strategic Relationships".
Clinical Experience with OvaRex(TM) MAb
An earlier formulation of OvaRex(TM) MAb was administered to more than 200
patients for imaging purposes. Of the patients that received the imaging
antibody, about 50% were evaluated for an immunological response to OvaRex(TM)
MAb. The principal investigators observed that following the administration of
the imaging antibody, particularly in those patients who received more than one
dose, the patients developed a clinical response to treatment characterized by
what appeared to be unusually long survival times.
A subsequent retrospective statistical analysis, initially prepared by an
independent statistician at the University of Dortmund in Germany, identified a
statistically significant treatment effect in the survival time of patients
receiving the earlier OvaRex(TM) MAb, when compared to a historical control
group treated with conventional chemotherapy. An additional independent analysis
by a statistician at the University of Western Ontario in Canada was undertaken
with almost identical results. The following graph illustrates the adjusted
survival curves. In this Cox Statistical Analysis, the median length of survival
was 30 months for the group treated with conventional chemotherapy and 59 months
for the group that received
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the earlier formulation of OvaRex(TM) MAb. Additionally, the five year survival
rates as determined by this analysis were 11.4% for the chemotherapy group and
40.7% for the group that received the earlier formulation of OvaRex(TM) MAb.
Cox Statistical Analysis is a statistical method of comparing two different
populations with respect to the length of survival of patients who received a
drug with those who did not, while balancing the effect of other parameters that
can also affect survival.
[GRAPH WHICH PLOTS THE SURVIVAL CURVES OF PATIENTS TREATED WITH
MAB B43 AND WITH CHEMOTHERAPY OVER A SEVEN YEAR INTERVAL]
Current Trials with OvaRex(TM) MAb
Based on the encouraging results obtained in the early retrospective analysis
and a substantial body of evidence supporting the retrospective analysis based
on immunological laboratory research, the Company has initiated a prospective
multi-centre Phase IIb North American clinical trial with ovarian cancer
patients to definitively evaluate the clinical utility of OvaRex(TM) MAb. In
Canada, the Company received approval from the HPB on October 1, 1996 to conduct
the Phase IIb clinical
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<PAGE> 25
trial. Patient enrollment commenced in a number of major cancer centres in
Canada in early 1997. In the United States, the Company received Orphan Drug
status for the OvaRex(TM) MAb drug on November 26, 1996 and received approval
from the FDA on May 23, 1997 to proceed with the Phase IIb trial. The first
patient was treated in April 1998. In 1998, the FDA approved the combination of
the Canadian and United States clinical trials into one combined, placebo
controlled, and potentially pivotal, trial that will recruit 280 patients of
which 259 patients have been enrolled as of June 11, 1999. This trial is
expected to be completed with respect to the primary endpoint in 2001.
The Company has also initiated a second potentially pivotal Phase IIb trial in
the United States with an ovarian cancer patient population with more advanced
disease. In November 1998, the Company passed the 30 day FDA Investigational New
Drug Amendment waiting period and in December 1998 began recruiting centres for
this 102 patient, randomized, controlled and multi-centre clinical trial. As of
June 11, 1999, 20 patients have been enrolled in centres in the United States in
this clinical trial. This trial is currently scheduled for completion in 2001.
The Company is also conducting additional open Phase II trials in relapsed
ovarian cancer patients in Canada and the U.S. As of June 11, 1999, the open
Phase II trial under way in Vancouver has enrolled 12 of the intended 14
patients.
BrevaRex(TM) MAb
The Company is developing a cancer immunotherapeutic based on the AIT(R)
Technology for the treatment of MUC1 expressing cancers including multiple
myeloma, lung and prostate cancer. This tumor marker, also known as CA15.3, is
mutated in 100% of individuals with multiple myeloma (Treon et. al., Blood,
1999).
Multiple myeloma is a rarely curable disease that was previously considered to
be a bone cancer. It is actually a haematological malignancy related to
leukemias and lymphomas. It accounts for about 10% of all hematologic cancers.
It was estimated that approximately 14,000 new cases would be diagnosed in the
United States in 1998 with a total of about 11,300 deaths. (American Cancer
Society, 1998 Cancer Facts & Figures). A steady increase in incidence of the
disease has been noted over the past 30 years. Although multiple myeloma is
sensitive to chemotherapy, with a median survival of three to four years, most
patients are not cured and eventually succumb to their disease.
Multiple myeloma cells express tumor associated antigens that are ideal targets
for immunotherapy. One such antigen is the core protein of MUC1. The ability of
an antibody to bind to MUC1 is largely dependent on the extent of "mutation" of
the antigen. In contrast to breast and certain other more common cancers, MUC1
in
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multiple myeloma patients is highly mutated in virtually every patient, thereby
making antibody therapy targeting the core peptide more accessible.
The combination of MUC1 antigen target and the nature of the disease in question
(i.e. a discrete population for whom there is currently no curative alternative)
makes multiple myeloma ideally suited for AltaRex's development strategy. The
Company will apply for Orphan Drug status for BrevaRex(TM) MAb and should be in
a position to petition for Fast Track designation using time to disease
progression as a surrogate end point.
The Company filed an Investigational New Drug Application or IND in late October
1998 to initiate a BrevaRex(TM) MAb Phase I clinical trial. In this trial, the
Company intends to monitor safety and surrogate markers of immunological effect.
As of June 11, 1999, the Company has enrolled 8 of the intended 15 patients in
this trial. The Company also intends to initiate a safety/efficacy trial in
multiple myeloma patients in the first half of 2000.
Other AIT(R) Technology Indications and Products
In addition to ovarian cancer and multiple myeloma, OvaRex(TM) MAb and
BrevaRex(TM) MAb may have applicability to other tumors expressing the target
antigens. In the case of OvaRex(TM) MAb, this would include endometrial, breast
and non-small cell lung cancer and in respect of BrevaRex(TM) MAb would include
breast, prostate and non-small cell lung cancer. The Company believes that a
strategic partner may wish to pursue these other potentially more lucrative, but
difficult to study, disease targets. The Company has commenced further
exploratory research and early preclinical work on two additional antibodies
specific to the tumor associated antigens PSA and CA19.9 for two other potential
products, ProstaRex(TM) MAb and GivaRex(TM) MAb, respectively.
A component of the Company's strategy is to continue to engage in research
activities and to develop new technologies for antibody-based immunotherapeutics
to treat diseases in addition to cancer. The Company has early work under way in
autoimmune diseases and infectious diseases and the Company also believes its
AIT(R) approach could be applicable to other diseases.
REGULATORY APPROVAL PROCESS
Regulatory Requirements
Regulations imposed by governmental authorities in Canada and the United States,
as well as their counterparts in other countries, are a significant factor in
the conduct of the research, development, manufacturing and eventual marketing
activities for the Company's proposed products. In Canada, these activities are
regulated by the Food
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and Drug Act (Canada) and the rules and regulations promulgated thereunder,
which are enforced by the Therapeutic Products Programme of the Health
Protection Branch of Health Canada. Drugs and biological products are subject to
rigorous regulation by the FDA in the United States and by the European
Medicines Evaluation Agency or EMEA in Europe. The regulatory processes in
Canada, the United States and Europe follow similar essential steps although
timing and results may be different.
The regulatory process for the development and approval of a new drug includes
the conduct of pre-clinical and clinical trials. The duration of those trials
and number of subjects required to meet the requirements of the various
authorities may vary according to, among other things, the disease studied, the
seriousness of the side effects, whether there is any current or conventional
therapy, the size of the target population, and the nature of the proposed
treatment.
Pre-Clinical Evaluation
The purpose of pre-clinical evaluation is essentially to determine the safety,
pharmacokinetics and efficacy of a new drug in animals before it is administered
to humans. The data collected during pre-clinical studies must be presented in
the form of an IND application to the regulatory authorities in the country
where clinical trials will be conducted. In the United States, unless otherwise
notified, clinical trials may begin 30 days after the IND application is filed,
whereas in Canada, clinical trials may not begin until 60 days after the
application is submitted and upon receipt of a "no objection" letter.
Clinical Trials
Phase I Clinical Trials
Phase I clinical trials are commonly performed in healthy human subjects or,
more rarely, in selected patients with the targeted disease or disorder. The
objective of these trials is to study the pharmacokinetics and pharmacodynamics
of the drug, as well as the toxicity of the treatment and the patient's
tolerance to it. Data regarding the absorption, distribution, metabolism and
excretion of the drug is also compiled in Phase I clinical trials.
Phase II Clinical Trials
In Phase II clinical trials, preliminary evidence is sought regarding the
pharmacological effects of the drug and the desired therapeutic efficacy with a
small number of patients with the targeted disease. At this stage, efforts are
made to evaluate the effects of various dosages and to establish an optimal
dosage level and dosage schedule. Additional safety data may also be compiled
from these trials.
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Phase IIb (sometimes called Phase II/III) trials can be undertaken for serious
or fatal diseases and consist of well-controlled trials to evaluate efficacy
(and safety) in patients with the disease or condition to be treated, diagnosed
or prevented which may be deemed to be pivotol. Phase IIb trials can lead to
expedited review and accelerated approval by the FDA of the product for
commercial sale conditional upon the completion of subsequent Phase III
post-market information studies. Phase IIb trials incorporate certain design and
control features of Phase III trials. If data collected from Phase IIb trials is
statistically significant, authorization for accelerated approval may be sought
from the FDA.
Phase III Clinical Trials
The Phase III clinical development program generally consists of expanded,
large-scale studies of patients with the targeted disease or disorder so as to
obtain definitive statistical evidence of the efficacy and safety of the
proposed product and dosing regimen in comparison with standard therapy.
After an appropriate analysis, the HPB, FDA or EMEA may interrupt clinical
trials at any stage if the drug has a clear efficacy advantage or,
alternatively, if the health of the subjects is threatened or the side effects
are not compensated for by the drug's benefits.
Regulatory Approval
Once Phase III clinical trials have been completed, the applicant will compile
all results, as well as all information concerning the product and its
composition, synthesis, manufacture, packaging and labelling methods, for the
purpose of obtaining approval to market the product. This application is known
as a New Drug Application or NDA or either a Biologics License Application or
BLA for a well- characterized biologic, such as a monoclonal antibody, or a
combination of a Product License Application or PLA and an Establishment License
Application or ELA for all other biologicals in the United States and as a New
Drug Submission or NDS in Canada. Government authorities may require that
additional trials be performed after the product is marketed to assess its
long-term effects.
Since drug manufacturing is also regulated, the applicant is required to ensure
that it complies with cGMP's, which are quality standards that require the
control of production activities, raw-material procurement, complaint
management, product recalls, labelling and promotional material. In addition to
these standards, which are common to all drugs, certain biologics are subject to
ELA's and lot by lot release agreed by FDA to ensure batch to batch
comparability.
In certain circumstances, the FDA may expedite the development, evaluation and
marketing of new drugs used for the treatment of serious diseases for which
there is
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no other satisfactory treatment by granting such programs a Fast Track
designation. See "- The Company's Products - OvaRex(TM) MAb".
Orphan Drug Status
Orphan Drug designation is designed to facilitate the introduction of drugs into
the market in the United States for use in treating rare diseases or conditions.
The disease must affect fewer than 200,000 patients in the United States. Upon
obtaining marketing approval for the drug, the FDA will grant a period of seven
years during which no approval will be given to a subsequent sponsor of the same
drug product for the same indication. The only exception to this is if a
competitor can show superiority of a second product which generally requires a
head to head comparison. Written application for Orphan Drug status must be
submitted to the Office of Orphan Drug Products Development of the FDA and must
include documentation supporting the request for the particular indication.
Orphan Drug designation also allows the manufacturer to apply for grants from
the United States government to help defray the cost of the clinical testing of
the drug in the United States and may allow for faster review of pending United
States patent applications filed with the United States Patent and Trademark
Office.
AltaRex has received Orphan Drug status for OvaRex(TM) MAb for ovarian cancer
and expects to file similar applications for its other antibodies. See "- The
Company's Products - OvaRex(TM) MAb- OvaRex(TM) MAb Regulatory Approval
Strategy".
STRATEGIC ALLIANCES AND LICENSE AGREEMENTS
As part of its business strategy the Company plans to license the products it
develops to strategic partners. These partners would participate in the later
stage clinical development as required by the FDA, HPB, EMEA and other
international drug regulatory agencies. The partners would then have the
opportunity to market the Company's products in return for payment to the
Company of up-front licensing fees, milestone payments and royalties. The major
objectives in seeking to license products to strategic partners include:
- Minimizing development expenditures through cost sharing
programs;
- Arranging for access to the resources and experience of large
multinational pharmaceutical corporations; and
- Maximizing long term revenue streams from royalties on the
sale of the Company's products.
The Company has no current plans for developing in-house manufacturing (beyond
the pilot phase), marketing or sales capabilities. The Company believes that the
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biopharmaceutical industry has adequate manufacturing, marketing and sales
capacity, which the Company believes it may access through contractual or
partnership arrangements.
The Company's current alliances and collaborative partnerships are described
below.
Purdue Pharma L.P.
On May 12, 1999, the Company entered into two equity investment agreements (the
"Equity Investment Agreements") and an option agreement (the "Purdue Option")
with Purdue Pharma L.P. and certain of its associated entities (together,
"Purdue").
Pursuant to the Equity Investment Agreements, Purdue, through two associated
entities, purchased 10,000,000 Common Shares in the public offering conducted by
the Company ("Public Offering") of the Company's Common Shares for an aggregate
Purchase Price of $5.0 million on June 1, 1999.
Pursuant to the Purdue Option, the Company granted to Purdue the option to
acquire worldwide exclusive rights to license and commercialize OvaRex(TM) MAb
and BrevaRex(TM) MAb. The Purdue Option may be exercised by Purdue at any time
up to and including November 12, 1999. During this period, the Company has
agreed not to discuss or negotiate with other parties with respect to the rights
which are the subject of the Purdue Option. In the event that Purdue exercises
the Purdue Option, Purdue has agreed to assume certain research and development
expenses of the Company, make certain additional payments to the Company upon
the Company's achieving certain milestones and to make various royalty payments
to the Company based upon sales of the Company's products.
The aggregate amount of the payments to be made by Purdue pursuant to the
arrangements described above (excluding royalty payments), could exceed U.S.
$100 million over a period of three years, assuming all milestones are achieved
(including receipt of applicable regulatory approvals).
Draximage Inc.
The Company is a party to an alliance agreement with Frosst Radiopharmaceuticals
(a division of Merck Frosst Canada Inc.) dated February 20, 1996 and assigned to
Draximage Inc. ("Draximage"), a wholly owned subsidiary of Draxis Health Inc.
("Draxis Health"), by agreement dated August 1, 1997 (the "Draxis Alliance
Agreement"). Under the Draxis Alliance Agreement, the Company and Draximage have
agreed to collaborate on the manufacture of pilot and scale-up batches of
OvaRex(TM) MAb. Draximage has agreed to manufacture (fill/finish) vials of
OvaRex(TM) MAb for clinical trials at a fixed price per vial and may have
certain contingent rights with respect to the manufacture and/or marketing of
the OvaRex(TM)
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MAb drug for commercial purposes. There are various conditions to be fulfilled
by the parties before such manufacturing and/or marketing can commence.
University of Alberta & Noujaim Institute
In 1998, the Company entered into a collaborative research agreement (the "NI
Research Agreement") with the University of Alberta and its Noujaim Institute
for Pharmaceutical Oncology Research (the "Noujaim Institute") which expires in
March, 2000. Under the NI Research Agreement the Noujaim Institute performs
research on behalf of and at the direction of the Company in the development of
tumor binding agents and therapeutic compositions. During the term of the NI
Research Agreement the Company compensates the University for services rendered
in an amount not to exceed $300,000 per year. The Company will also owe to the
University a royalty of one percent on any net sales (as defined in the NI
Research Agreement) derived from a prostate cancer immunotherapeutic composition
developed under the NI Research Agreement.
Alberta Heritage Foundation Agreement
The Alberta Heritage Foundation for Medical Research ("AHFMR") is a foundation
established by the Government of the Province of Alberta to support medical
research in the Province of Alberta. The AHFMR contributed $500,000 to the
funding of the current Canadian Phase IIb trial of OvaRex(TM) MAb pursuant to an
agreement dated March 1, 1997 (the "AHFMR Agreement"). Commencing upon 12 months
following the earlier of the regulatory approval of OvaRex(TM) MAb and March 1,
2001 the Company shall pay to AHFMR on an annual basis an amount equal to the
lesser of 5% of the gross product sales (as defined in the AHFMR Agreement)
received from commercialization of OvaRex(TM) MAb and $100,000. Total payments
by the Company under the AHFMR Agreement shall not exceed $1 million. In
addition, in connection with AHFMR Agreement the Company granted to the AHFMR
warrants to purchase 41,667 Common Shares at an exercise price of $12.00 per
share which expire on March 1, 2000.
Biomira License Agreement
The Company holds an exclusive worldwide license from Biomira for the use of the
murine working hybridoma cell bank and murine antibody MAb B43 (the "B43
Technology") for all anti-idiotype induction applications and products, as well
as for the use of such related experimental and clinical data for anti-idiotype
induction applications and products until November 30, 2010. MAb B43 is the
functional component of the OvaRex(TM) MAb product.
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The Company obtained the license from Biomira pursuant to a license agreement
dated November 24, 1995 (the "Biomira License Agreement"). Under the terms of
the Biomira License Agreement:
- The Company paid an up-front fee of $150,000;
- The Company agreed to use its best efforts to commercialize
the B43 Technology;
- The Company agreed to spend a minimum of $3,000,000 to develop
the B43 Technology from December 1, 1995 to December 1, 1999;
and
- The Company agreed to pay a royalty to Biomira on the sale of
any products developed using the B43 Technology at various
rates as set out in the Biomira License Agreement for a period
of ten years from December 1, 1995 to November 30, 2005.
The Biomira License Agreement only pertains to the products that will
potentially use MAb B43 or a derivative thereof. Products developed by the
Company which do not incorporate the B43 Technology are not subject to the
Biomira License Agreement.
Under certain funding arrangements (the "ISTC Funding Arrangements") between
Biomira and the Minister of Industry, Science and Technology Canada ("ISTC"),
Biomira is required to obtain the consent of ISTC to any license relating to
technology developed pursuant to the ISTC Funding Arrangements, including the
B43 Technology. The Company understands that Biomira has failed to obtain such
consent with respect to the license of the B43 Technology granted to the Company
under the Biomira License Agreement. In the past, the Company has had
discussions with ISTC and Biomira in this regard. In the event of a breach of a
term or condition of the ISTC Funding Arrangements, ISTC may direct Biomira to
transfer to ISTC clear title to, among other things, the B43 Technology. In such
event, the Company may need to obtain a license from ISTC to use the B43
Technology which may affect the Company's rights granted under the Biomira
License Agreement. To the knowledge of the Company, ISTC has not, to date, taken
any such action. See "- Risk Factors Reliance on Strategic Relationships" and "-
Risk Factors - Proprietary Rights and Patent Protection".
Biomira has given the Company written notice alleging that the Company is in
default of certain reporting obligations under the Biomira License Agreement and
that Biomira would terminate such agreement on June 1, 1999 unless such alleged
defaults were fully cured on or before such date. As of the date of this
document, Biomira has not given any notice to the Company of termination of the
Biomira License Agreement. Biomira had previously given notice to the Company on
March 16, 1999 of the alleged default and that such agreement would terminate on
April 15,
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1999. The Company believes that it has taken all such actions to ensure that it
is currently in compliance with all of the terms of the Biomira License
Agreement and intends to take all such actions as may be necessary to prevent
any attempt by Biomira to terminate the Biomira License Agreement.
Biomira and the Company are currently engaged in respective legal actions
against each other, including an action by the Company relating to the Biomira
License Agreement. See "- Legal Proceedings".
Canada-Israel Industrial Research and Development Foundation
The Company is a party to a co-operation and project funding agreement with each
of the Canada-Israel Industrial Research and Development Foundation and Orgenics
Ltd. (the "Canada-Israel Agreement") dated February 3, 1997. A total of $300,000
in funding is available to the Company under the Canada-Israel Agreement over
the three year term. The Company has received $100,000 in funding to date under
the Canada-Israel Agreement, all in 1997. The Company is not currently
conducting research pursuant to the contract. The funds are re-payable pursuant
to a royalty based upon gross sales (as defined in the Canada-Israel Agreement)
of products relating to research conducted thereunder. The research conducted
under the Canada-Israel Agreement does not relate to the Company's AIT(R)
Technology-related products.
MANUFACTURING
The Company does not currently manufacture any of its products and it has no
immediate plans to establish manufacturing facilities for commercial production
of its therapeutic products. Instead, the Company's strategy, beyond the pilot
phase, is to manufacture and commercialize its products through strategic
alliances and licensing agreements with major pharmaceutical companies.
HUMAN RESOURCES
As at May 31, 1999, the Company had 35 employees, 20 of whom were located at the
Company's locations in Edmonton, Alberta and 15 of whom were located at the
Company's executive office in Waltham, Massachusetts. There were 20 employees
working in research and development and 15 working in administration and
corporate affairs. Four of the research and development employees hold Ph.D.s
and two are M.D.s.
None of the employees are governed by a collective bargaining agreement. The
Company believes that working relationships with its employees are excellent.
COMPETITION
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The biopharmaceutical industry is intensely competitive. Many companies,
including other biopharmaceutical companies and biotechnology companies, are
actively engaged in activities similar to those of the Company, including
research and development of drugs for the treatment of cancer. More
specifically, competitors for the development of new therapeutic products to
treat cancer focus on MAb based cancer therapeutics, cancer vaccines and other
approaches that are based on either stimulation of the body's own immune
response or on MAbs. Many of these companies have substantially greater
financial and other resources, larger research and development capabilities and
more extensive marketing and manufacturing organizations than the Company. In
addition, some such companies have considerable experience in pre-clinical
testing, clinical trials and other regulatory approval procedures. There are
also academic institutions, governmental agencies and other research
organizations which are conducting research in areas in which the Company is
working; they may also market commercial products, either on their own or
through collaborative efforts.
The Company expects to encounter significant competition for the pharmaceutical
products it plans to develop. Companies that complete clinical trials, obtain
required regulatory approvals and commence commercial sales of their products
before their competitors may achieve a significant competitive advantage. In
addition, certain pharmaceutical and biotechnology firms, including major
pharmaceutical companies and specialized structure-based drug design companies,
have announced efforts in the field of immunological therapy that exploit the
presence of TAAs, and the Company is aware that other companies or institutions
are pursuing development of new drugs and technologies directly targeted at
applications for which the Company is developing its biopharmaceutical products.
Based on its review of the industry, the Company is not aware of any other
company that is focusing on anti-idiotype induction therapy as practiced by the
Company. There are a number of companies however, that focus on the broader use
of antibodies to treat various diseases. These companies include Centocor Inc.,
Coulter Pharmaceuticals Inc., Genentech, IDEC, Medarex Inc. and Immunex Corp,
among others. The Company expects that its platform AIT(R) Technology will
attract significant additional competitors over time. In order to compete
successfully, the Company's goal is to develop proprietary positions in patented
drugs for therapeutic markets which have not been satisfactorily addressed by
conventional research strategies and, in the process, extend its expertise in
biopharmaceutical products design. See "Risk Factors - Competition".
PROPRIETARY PROTECTION
The Company vigorously pursues a policy of seeking patent protection to preserve
its proprietary technology and its right to capitalize on the results of its
research and development activities and, to the extent it may be necessary or
advisable, to exclude
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<PAGE> 35
others from appropriating its proprietary technology. The Company also relies
upon trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position. The Company
plans to prosecute and defend its intellectual property, including any patents
that may issue, and proprietary technology. The Company regularly searches for
third-party patents in its fields of endeavor, both to shape its own patent
strategy as effectively as possible and to identify licensing opportunities.
Patents
In general, the Company pursues a policy of obtaining patent protection both in
the United States and in selected foreign countries for subject matter
considered patentable and important to its business. In addition, a portion of
the Company's proprietary position is based upon technology and products the
Company has licensed from others, including MAb B43 that binds to an ovarian
cancer antigen, and was licensed from Biomira under the Biomaria License
Agreement. This license agreement generally requires the Company to pay
royalties upon commercialization of products covered by the licensed technology.
The Company owns five pending United States patent applications for its
therapeutic products and processes. Worldwide, the Company owns three pending
international applications and 15 pending national applications covering the
same technology. These patent applications cover various aspects of the
Company's core technology, products, processes, and the methods for their
production and use. These patent applications include both broad and specific
claims to various tumor therapies. The Company will continue to aggressively
protect its technology with new patent filings with the intent of further
extending its patent coverage.
Biomira has recently commenced a legal action against, among others, the Company
seeking, among other things, an order stating that Biomira is the sole owner of
an invention disclosed in a PCT application filed by the Company in respect of,
among other things, the Company's lead product and an injunction prohibiting the
Company from using the invention referred to therein. See "Risk Factors-Biomira
Litigation" and "Legal Proceedings".
Trademarks and Trade Names
The Company also relies upon trademarks and tradenames to protect its
technology. The Company has a registered trademark for its AIT(R) mark in the
United States and Canada and owns a Canadian registration for the trade-mark
IRT(R) . As well, the Company has pending applications to register trademarks in
various countries for the AltaRex name as well as for the brand names
(OvaRex(TM), BrevaRex(TM), GivaRex(TM), and ProstaRex(TM) MAb) relating to its
developing products.
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Trade Secrets
The Company also relies in part on trade secrets, unpatented know-how and
continuing technological advancements to maintain its competitive position. It
is the practice of the Company to enter into confidentiality agreements with
employees, consultants and corporate sponsors. There can be no assurance,
however, that these measures will prevent the unauthorized disclosure or use of
the Company's trade secrets and know-how.
CLINICAL ADVISORY BOARD
The Company maintains a Clinical Advisory Board (the "Advisory Board") composed
of outside internationally recognized clinicians and scientists. The Advisory
Board meets periodically to review the operational aspects of the Company's
clinical program and make appropriate recommendations with regard to the
perceived trends and direction of other companies. The members of the Advisory
Board have no rights to the Company's technology and each member has signed a
confidentiality agreement with the Company. Advisory Board members receive an
honorarium of U.S. $15,000 per year. The current composition of the Advisory
Board is:
<TABLE>
<CAPTION>
Name Institution
- ---- -----------
<S> <C>
Robert Ozols, M.D., Ph. D. Fox Chase Cancer Center, United States
Roger Cohen, M.D. University of Virginia, United States
Richard Margolese, M.D. McGill University, Canada
Daniel Von Hoff, M.D. Cancer Therapy and Research Center, United States,
James Holland, M.D. Mount Sinai School of Medicine, New York, United
States.
</TABLE>
ROBERT OZOLS, M.D. AND PH.D is Senior Vice President for Medical Science at Fox
Chase Cancer Center, Philadelphia. Dr. Ozol serves as Chairman of the Advisory
Board and is also Medical Director at the Hospital of the Fox Chase Cancer
Center and Professor of Medicine at Temple University. He is currently serving
on the Oncologic Drugs Advisory Committee of the FDA. The recipient of the 1990
Cancer Research Award from the Milken Medical Foundation, Dr. Ozols has also
been elected to the American Society for Clinical Investigation. Dr. Ozols
received his medical degree and a Ph.D. in Biochemistry at the University of
Rochester in New York.
ROGER COHEN, M.D. is Associate Professor at the University of Virginia,
Department of Medicine, Division of Haematology-Oncology and Director of the
Clinical Trials Office. Dr. Cohen is also currently an advisor and consultant to
the FDA at the Center for Biologics Evaluation and Research. Dr. Cohen received
his medical degree
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at Harvard Medical School and is the recipient of several awards including the
FDA Special Recognition Award.
RICHARD MARGOLESE, M.D. is a Professor in the Department of Oncology, and
Herbert Black Chair in Surgical Oncology, McGill University. Dr. Margolese is
also Associate Director of Research at Lady Davis Institute, past President of
the National Cancer Institute of Canada and past Co-Chairman of the Management
Committee of the Canadian Breast Cancer Research Initiative. Dr. Margolese
received his medical degree at McGill University and was awarded the Order of
Canada in 1997 - Canada's highest honour for lifetime achievement.
DANIEL VON HOFF, M.D. is Director of the Institute for Drug Development at the
Cancer Therapy and Research Center in San Antonio, Texas. Dr. Von Hoff is
President-Elect of the American Association for Cancer Research and recipient of
the Richard and Hinda Rosenthal Award for clinical investigation. He is also a
Professor for the Department of Cellular and Structural Biology and a Clinical
Professor in the Division of Medical Oncology at The University of Texas Health
Science Center. Dr. Von Hoff received his medical degree from Columbia College
of Physicians and Surgeons in New York.
JAMES HOLLAND, M.D. is Distinguished Professor of Neoplastic Diseases,
Department of Medicine, Mount Sinai School of Medicine, New York. Dr. Holland
holds both a Medical Doctorate degree from Columbia University and a Doctor of
Science degree from State University of New York. He is past-President of both
the American Society of Clinical Oncology and the American Association of Cancer
Research and has contributed to over 590 scientific publications.
RISK FACTORS
The following risk factors and other information included in this document
should be carefully considered. The risks and uncertainties described below are
not the only ones the Company faces. Additional risks and uncertainties not
presently known to the Company or that the Company currently deems immaterial
also may impair its business operations. If any of the following risks actually
occur, the Company's business, financial condition and operating results could
be materially adversely affected.
Biomira Litigation
On February 26, 1999, Biomira commenced legal action in the Province of Alberta
against AltaRex, the founder of AltaRex and certain other individuals affiliated
with AltaRex, claiming ownership of an invention disclosed in an international
patent application filed by AltaRex relating to certain aspects of AltaRex's
core technology, products, processes and their production. In the action,
Biomira is seeking, among
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other things, a court order declaring that it is the sole owner of the invention
and related intellectual property rights therein, including the patent
application, an injunction prohibiting AltaRex from using the invention, and
damages in the amount of $200,000,000. In response to Biomira's action, the
Corporation filed a statement of defense with the court on April 21, 1999. See
Item 3 - "Legal Proceedings". Although there can be no assurance that Biomira's
legal action will not be successful, AltaRex believes that Biomira's claims are
without merit and intends to defend against such action.
If Biomira is successful in its action against the Company, the ability of the
Company to develop and commercialize its existing products and future products
based upon the invention described in the patent application referred to above,
including, in particular, its OvaRex(TM) MAb lead product, may be materially and
adversely affected and could be fully lost. In any event, this litigation will,
if it proceeds to trial, require the court to consider complicated scientific
evidentiary matters (such as the point at which significant discoveries were
made) and questions as to the contractual interpretation of the Biomira License
Agreement. It is not possible to predict the court's position or disposition in
these and other matters. In addition, even if successful at trial, this
litigation will result in significant expense to the Company.
Possible Expiration or Termination of License Agreement for MAb B43; Loss of
Exclusivity
In 1995, the Company licensed the B43 Technology from Biomira, including the
antibody MAb B43, which is utilized in OvaRex(TM) MAb. The Biomira License
Agreement requires that the Company use its best efforts to commercialize the
B43 Technology and to spend certain minimum amounts to develop the B43
Technology between 1995 and 1999. Biomira provided the Company with written
notice alleging that the Company was in default of certain reporting obligations
under the Biomira License Agreement and that Biomira would terminate such
agreement on June 1, 1999 unless such alleged defaults were fully cured on or
before such date. As of the date of this document, Biomira has not given any
notice of termination of the Biomira License Agreement. Biomira had previously
given notice to the Company on March 16, 1999 of the alleged default and that
such agreement would terminate on April 15, 1999. Although the Company believes
it is currently in compliance with all of the terms of the Biomira License
Agreement, there can be no assurance that the Company will be able to continue
to meet the obligations of the Biomira License Agreement. Should the Company's
rights under the Biomira License Agreement be terminated or cease to be
exclusive, Biomira may elect to license the B43 Technology to competitors of the
Company. Although the Company believes that it would have a competitive
advantage over other potential competitors based on its lead time in the
regulatory process, termination of the Biomira License Agreement or the loss of
exclusivity to the B43 Technology could have a material adverse effect on the
Company's business, its results of operations, its financial condition and its
ability to market and develop commercially viable products based on the B43
Technology.
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Pursuant to the ISTC Funding Arrangement, Biomira is required to obtain the
consent of ISTC to any license relating to technology developed pursuant to the
ISTC Funding Arrangements, including the B43 Technology. See "- Strategic
Alliances and License Agreements - Biomira License Agreement". The Company
understands that Biomira has failed to obtain such consent with respect to the
license of the B43 Technology granted to the Company under the Biomira License
Agreement. In the past, in this regard, the Company has had discussions with
ISTC and Biomira. In the event of a breach of a term or condition of the ISTC
Funding Arrangements, ISTC may direct Biomira to transfer to ISTC clear title to
the B43 Technology. In such event, the Company may need to obtain a license from
ISTC to use the B43 Technology which may affect or result in the loss of the
Company's rights to the B43 Technology. To the knowledge of the Company, ISTC
has not, to date, taken any such action.
In addition, the Biomira License Agreement expires November 30, 2010, unless the
parties mutually agree in writing to renew the Biomira License Agreement. If at
that time the Company cannot successfully renew the Biomira License Agreement on
terms acceptable to the Company, the Company may be subject to competition from
others to whom Biomira would be free to license the Technology. Consequently,
the loss of such exclusive Biomira License Agreement or renewal of the Biomira
License Agreement on different terms may adversely affect the revenues, if any,
from the sale of products that use the Technology. The termination of, or loss
of exclusivity of, the Biomira License Agreement could have a material adverse
affect on the Company's business, results of operations and financial condition.
In light of the current litigation involving Biomira and the Company, the
Company considers the mutual agreement of the parties to renew the Biomira
License Agreement to be unlikely.
Reliance on Strategic Relationships
The Company's future success is dependent on the development and maintenance of
strategic relationships. The Company intends to seek to enter into strategic
relationships with strategic partners to participate in and finance the later
stage clinical development of products as required by the FDA, HPB, EMEA and
other international drug regulatory agencies. The Company expects that its
strategic partners would then have the opportunity to market the Company's
products in return for payment to the Company of up-front licensing fees,
milestone payments, royalties or previously agreed upon transfer prices on the
sale of such products.
The Company has entered into the Purdue Option which grants to Purdue the option
to acquire exclusive worldwide rights to license and commercialize OvaRex(TM)
MAb and BrevaRex(TM) MAb. See "- Description of the Business - Strategic
Alliances and License Agreement - Purdue Pharma L.P". If Purdue does not
exercise the Purdue Option or the Company fails to enter into alternative
strategic relationship on terms favourable to the Company or if Purdue or other
strategic partners fail to effectively
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<PAGE> 40
complete the clinical trials, the regulatory approval of OvaRex(TM) MAb or
BrevaRex(TM) MAb may be delayed and such delay may have a materially adverse
effect on the Company's results of operations and business. The Company also
intends to rely on Purdue to market OvaRex(TM) MAb and BrevaRex(TM) MAb. If
Purdue exercises the Purdue Option but fails to, or if the Company fails to
enter into alternative strategic partnerships or if its alternative strategic
partners fail to, effectively market OvaRex(TM) MAb or BrevaRex(TM) MAb, the
Company may lose the opportunity to successfully commercialize these products.
There can be no assurance that Purdue will exercise the Purdue Option or that
the Company will be able to enter into alternative strategic partnerships on
terms that are acceptable to the Company.
The Company does not manufacture its own antibodies but has, and will seek to
enter into, agreements with third parties to manufacture its antibodies.
Pursuant to the Draximage Alliance Agreement, Draximage will fill/finish
OvaRex(TM) MAb vials for clinical trials and may have certain contingent rights
with respect to the manufacture and/or marketing of the OvaRex(TM) MAb drug for
commercial purposes. In addition, the Company is working with other vendors to
fill/finish OvaRex(TM) MAb vials. The Company has an agreement with Lonza
Biologics to scale-up cell culture-derived material to the commercial level.
Similarly the Company is working with other vendors to begin the scale-up
processes for cell culture BrevaRex(TM) MAb and to fill/finish BrevaRex(TM) MAb
vials. If these contract suppliers fail to perform under the terms of the
agreement, the Company may incur significant costs and risks.
Scaling-up production of cell culture-derived materials will enable the Company
to further pursue regulatory approval and commercialization of OvaRex(TM) MAb.
Such regulatory approval and commercialization is dependant upon the Company's
ability to achieve such production.
The Company also relies on a number of alliances and collaborative partnerships
for the development of its products. There is no guarantee that these
relationships will continue or result in any successful developments.
Uncertainty Associated with Preclinical and Clinical Testing
Before obtaining regulatory approvals for the commercial sale of any of the
Company's potential new products, the products will be subjected to extensive
preclinical and clinical testing to demonstrate their safety and efficacy in
humans. Results of the initial preclinical and clinical testing of products
under development by the Company are not necessarily indicative of results that
will be obtained from subsequent or more extensive preclinical and clinical
testing. Furthermore, there can be no assurance that clinical trials of products
under development will be completed or will demonstrate the safety and efficacy
of such products at all or to the extent necessary to obtain regulatory
approvals. Companies in the biotechnology industry
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have suffered significant setbacks in advanced clinical trials, even after
achieving promising results in earlier trials. The failure to adequately
demonstrate the safety and efficacy of a therapeutic product under development
could delay or prevent regulatory approval of such product.
The rate of completion of clinical trials depends on, among other factors, the
enrollment of patients. Patient accrual is a function of many factors, including
the size of the patient population, the proximity of patients to clinical sites,
the eligibility criteria for the study and the existence of competitive clinical
trials. Delays in planned patient enrollment in the Company's current clinical
trials or future clinical trials may result in increased costs, program delays,
or both.
Lack of Product Revenues; History of Losses
To date, the Company has not recorded any revenues from the sale of
biopharmaceutical products and there can be no assurance that significant
additional losses will not occur in the near future or that the Company will be
profitable in the future. The Company has accumulated net losses of
approximately $20.2 million to December 31, 1998. The Company anticipates that
its operating expenses and capital expenditures will increase significantly in
1999 and in subsequent years as it adds the personnel and facilities associated
with advancing products throughout development, clinical trials and
commercialization. The amounts and timing of expenditures will depend on the
progress of ongoing research and development, the results of preclinical testing
and clinical trials, the rate at which operating losses are incurred, the
execution of any development and licensing agreements with strategic partners,
the Company's development of additional products, the FDA, HPB, EMEA and other
regulatory processes and other factors, many of which are beyond the Company's
control.
The Company does not expect to receive revenues from commercial sales of its new
products for several years, if at all. The Company expects to continue to incur
losses unless and until such time as strategic alliance payments, product sales
and royalty payments generate sufficient revenues to fund its continuing
operations. The ability of the Company to achieve profitability in subsequent
years depends upon, among other things, successfully completing product
development efforts and obtaining regulatory approval for its lead clinical
products. The development of the Company's products will require the commitment
of substantial resources to conduct the time-consuming development of products
to meet market and regulatory requirements and to establish strategic
relationships for production capabilities. There can be no assurance that the
Company will generate any revenues or achieve profitability.
The Company has two licensing agreements that require payments of royalties
based on the gross revenue of the OvaRex(TM) MAb. On the successful
commercialization of
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<PAGE> 42
OvaRex(TM) MAb, the Company will be required to pay royalties from the gross
revenue received by the Company on the sale of this product. There can be no
assurance that the Company will generate sufficient revenues from the sale of
OvaRex(TM) MAb to achieve profitability.
The Company anticipates that, based on its current operating plan, its existing
cash reserves are sufficient to meet its planned cash requirements into the
first half of 2000. Beyond that, the Company intends to rely on cash, if any,
generated from operations, licensing revenues and collaborative agreements,
which will be highly dependent on the Company's successful development and
commercialization of its clinical products. There can be no assurance that these
products will be successfully developed or commercialized or that the underlying
assumed levels of expenses will prove to be accurate.
Capital Requirements
Based on its current operating plan, the Company estimates that its net
expenditures for 1999 will significantly exceed that of 1998. The Company's
future capital requirements, however, will depend on many factors, including
continued scientific progress in its product discovery and development program,
progress in its pre-clinical and clinical evaluation of product candidates, time
and expense associated with filing, prosecuting and enforcing its patent claims
and costs associated with obtaining regulatory approvals. In order to meet such
capital requirements, the Company will consider contract fees, collaborative
research and development arrangements, and additional public or private
financing (including the issuance of additional equity securities) to fund all
or a part of particular programs. There can be no assurance that additional
funding will be available or, if available, that it will be available on
acceptable terms. If adequate funds are not available, the Company may have to
reduce substantially or eliminate expenditures for research and development,
testing, production and marketing of its proposed products, or obtain funds
through arrangements with corporate partners that require the Company to
relinquish rights to certain of its technologies or products. The ability of the
Company to arrange such financing in the future will depend in part upon the
prevailing capital market conditions as well as the business performance of the
Company. Further, there can be no assurance that the Company will be able to
raise additional capital if its capital resources are exhausted. There can be no
assurance that the Company will be successful in its efforts to arrange
additional financing if needed or that any such additional financing will be
available on terms satisfactory to the Company.
Key Personnel
The Company is highly dependent on its senior officers, scientific personnel,
consultants and management staff, the loss of whose services might significantly
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delay or prevent the Company's achievement of its scientific or business
objectives. Competition among biotechnology and biopharmaceutical companies for
qualified employees is intense, and the ability to retain and attract qualified
individuals is critical to the Company's success. There can be no assurance that
the Company will be able to attract and retain such individuals currently or in
the future on acceptable terms, or at all, and the failure to do so would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Regulatory Environment; No Assurance of Product Approval
The FDA, HPB, EMEA and comparable agencies in foreign countries impose
substantial requirements on biotechnology and pharmaceutical companies prior to
the introduction of therapeutic products. These requirements include lengthy and
detailed laboratory and clinical testing procedures, sampling activities and
other costly and time-consuming procedures, together which involve the
expenditure of substantial resources. Satisfaction of these requirements
typically takes a number of years and varies substantially based on the type,
complexity and novelty of the pharmaceutical product.
Any future FDA, HPB, EMEA or other governmental approval of products developed
by the Company may entail limitations on the indicated uses for which such
products may be marketed. Approved products may be subject to additional testing
and surveillance programs as required by regulatory agencies. In addition,
product approvals may be withdrawn or limited for noncompliance with regulatory
standards or the occurrence of unforeseen problems following initial marketing.
The effect of governmental regulation may be to delay marketing the Company's
products for a considerable period of time, to impose costly requirements on the
Company's activities or to provide a competitive advantage to other companies
that compete with the Company. Adverse clinical results could have a negative
impact on the regulatory process and timing. A delay in obtaining or failure to
obtain regulatory approvals could adversely affect the marketing of the
Company's products and the Company's liquidity and capital resources. In
addition, future legislation or administrative action may result in governmental
regulations adverse to the Company. The extent of potentially adverse
governmental regulation that might arise from future legislation or
administrative action cannot be predicted.
To date, the Company has submitted INDs to the HPB and FDA for OvaRex(TM) MAb
and BrevaRex(TM) MAb products, but has not submitted such documentation for
other products currently under development. There can be no assurance that the
Company will obtain regulatory approval to commercialize OvaRex(TM) MAb and
BrevaRex(TM) MAb, or that it will be in a position to file the regulatory
applications for its future products.
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Competition
Technological competition in the pharmaceutical industry is intense. There are
many companies and institutions, both public and private, including
pharmaceutical companies, chemical companies, specialized biotechnology
companies and research, government or academic institutions, that are engaged in
developing synthetic pharmaceuticals and biotechnological products for human
therapeutic applications, including the applications targeted by the Company.
The Company may have to compete with these competitors to develop products aimed
at treating similar conditions. Many of these competitors have substantially
greater resources than the Company. There can be no assurance that developments
by others will not render the Company's products or technologies non-competitive
or adversely affect the commitment of the Company's commercial collaborators to
the Company's programs.
The pharmaceutical industry is also characterized by extensive research efforts
and rapid technological change. Competition can be expected to increase as
technological advances are made and commercial applications for
biopharmaceutical products increase. Competitors of the Company may use
different technologies or approaches to develop products similar to products
which the Company is seeking to develop, or may develop new or enhanced products
for processes that may be more effective, less expensive, safer or more readily
available before the Company obtains approval of its products. There can be no
assurance that the Company's products will compete successfully or that research
and development will not render the Company's products obsolete or uneconomical.
Proprietary Rights and Patent Protection
Due to the length of time and expense associated with bringing new products
through development and the governmental approval process to the marketplace,
the pharmaceutical industry has traditionally placed considerable importance on
obtaining and maintaining patent and trade secret protection for significant new
technologies, products and processes.
The patent protection afforded to biotechnology and pharmaceutical firms is
uncertain and involves many complex legal, scientific and factual questions.
There is no clear law or policy involving the breadth of claims allowed in such
cases, or the degree of protection afforded under patents. These issues are
further complicated in this field by the abundance of publications and/or prior
art, including publications by the Company. Thus, while the Company believes
that its proprietary information is protected to the fullest extent practicable,
there can be no assurance that (i) any patents will be issued to the Company in
any or all appropriate jurisdictions, (ii) litigation will not be commenced
seeking to challenge the Company's patent protection or that such challenges
will not be successful, (iii) processes or products of the Company do not or
will not infringe upon the patents of third parties, or (iv) the
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scope of patents that may be issued to the Company will successfully prevent
third parties from developing similar and competitive products. It is not
possible to predict how any patent litigation will affect the Company's efforts
to develop, manufacture or market its products. The cost of litigation to uphold
the validity and prevent infringement of any patents issued to the Company may
be significant. See "- Biomira Litigation" and "Item 3 - Legal Proceedings".
The products developed by the Company also incorporate technology and processes
that will not be protected by any patent and are capable of being duplicated or
improved upon by competitors. Accordingly, the Company may be vulnerable to
competitors, which develop competing technology, whether independently or as a
result of acquiring access to the proprietary products and trade secrets of the
Company. In addition, the Company may be required to obtain licenses under
patents or other proprietary rights of third parties. No assurance can be given
that any licenses required under such patents or proprietary rights will be
available on terms acceptable to the Company. If the Company does not obtain
such licenses, it could encounter delays in introducing one or more of its
products to the market while it attempts to design around such patents, or could
find that the development, manufacture or sale of products requiring such
licenses could be foreclosed.
There can be no assurance that the Company's patent applications will mature
into issued patents, or will afford legal protection against competitors, or
will provide significant proprietary protection or competitive advantage. In
addition, there can be no assurance that the Company's patents will not be held
invalid or unenforceable by a court, infringed or circumvented by others or that
others will not obtain patents that the Company would need to license or
circumvent. Competitors or potential competitors may have filed patent
applications or received patents, and may obtain additional patents and
proprietary rights relating to the products or processes competitive with those
of the Company.
Manufacturing and Marketing
The Company has limited experience in manufacturing pharmaceuticals. The Company
intends to rely primarily on contract manufacturers to produce antibodies,
adjuvants and other components of its products for research and development,
preclinical and clinical trial purposes. The Company's products have never been
manufactured on a commercial scale, and there can be no assurance that such
products can be manufactured at a cost or in quantities necessary to make them
commercially viable. There can be no assurance that third party manufacturers
will be able to meet the Company's needs with respect to timing, quantity or
quality. If the Company is unable to contract for a sufficient supply of
required products and substances on acceptable terms, or if it should encounter
delays or difficulties in its relationships with manufacturers, the Company's
preclinical and clinical testing would be delayed, thereby delaying the
submission of products for regulatory
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approval or the market introduction and subsequent sales of such products. Any
such delay may have a material adverse effect on the Company's business,
financial condition and results of operations. Moreover, contract manufacturers
that the Company may use must continually adhere to current Good Manufacturing
Practices regulations enforced by the FDA through its facilities inspection
program. If the facilities of such manufacturers cannot pass a pre-approval
plant inspection, the FDA premarket approval of the Company's products will not
be granted.
The Company currently has no sales, marketing or distribution experience. The
Company intends to rely on its current and future strategic partners, to market
its products; however, there can be no assurance that such corporate partners
have effective sales forces and distribution systems. If the Company is unable
to maintain or establish such relationships and is required to market any of its
products directly, the Company will have to develop a marketing and sales force
with technical expertise and with supporting distribution capabilities. There
can be no assurance that the Company will be able to maintain or establish such
relationships with third parties or develop in-house sales and distribution
capabilities. To the extent that the Company depends on its strategic partners
or third parties for marketing and distribution, any revenues received by the
Company will depend upon the efforts of such strategic partners or third
parties, and there can be no assurance that such efforts will be successful.
There can be no assurance that any products successfully developed by the
Company, if approved for marketing, will ever achieve market acceptance. The
Company's products, if successfully developed, will compete with a number of
traditional drugs and therapies manufactured and marketed by major
pharmaceutical and other biotechnology companies, as well as new products
currently under development by such companies and others. The degree of market
acceptance of any products developed by the Company will depend on the clinical
efficacy and safety of the product candidates, their potential advantage over
alternative treatment methods and reimbursement policies of government and
third-party payors. There can be no assurance that physicians, patients or the
medical community in general will accept and utilize any products that may be
developed by the Company, and the lack of such market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Product Liability and Insurance
The testing, marketing, sale and use of products under development by the
Company may entail risk of product liability. Such risk exists in human clinical
trials and even with respect to those products that receive regulatory approval
for commercial sale. There can be no assurance that the Company can avoid
significant product liability exposure. The Company currently has in place
product liability insurance for its biopharmaceutical products and expects that
as it expands, it will require additional
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insurance. There can be no assurance that it will be able to obtain appropriate
levels of product liability insurance prior to any sale of its biopharmaceutical
products. An inability to obtain insurance on economically feasible terms or to
otherwise protect against potential product liability claims could inhibit or
prevent the commercialization of products developed by the Company. The
obligation to pay any product liability claim or recall a product could have a
material adverse effect on the business, financial condition and future
prospects of the Company.
Unstable Share Price
Market prices for securities of biotechnology companies generally, and of common
shares in particular, are volatile. Factors such as announcements (publicly made
or at scientific conferences) of technological innovations, new commercial
products, patents, the development of proprietary rights by the Company or
others, results of clinical trials, regulatory actions, publications, quarterly
financial results or public concern over the safety of biotechnological
products, future sales of Common Shares by the Company or by its current
shareholders and other factors could have a significant effect on the market
price of the Common Shares of the Company.
No Assurance of Successful Development
Prospects for companies in the biotechnology industry generally may be regarded
as uncertain given the nature of the industry and, accordingly, investments in
biotechnology companies should be regarded as highly speculative. The Company's
realization of its long-term potential will be dependent upon the successful
development and commercialization of products currently under development. There
can be no assurance that these products will be delivered successfully or
receive regulatory approval. The new products of the Company are currently in
the research and development stages, the riskiest stages for a company in the
biotechnology industry. There can be no assurance that the research and
development programs conducted by the Company will result in commercially viable
products. To achieve profitable operations the Company, alone or with others,
must successfully develop, introduce and market its products. To obtain
regulatory approvals for the products being developed and to achieve commercial
success, human clinical trials must demonstrate that the products are safe for
human use and that they show efficacy. Unsatisfactory results obtained from a
particular study relating to a program may cause the Company to abandon its
commitment to that program. No assurances can be provided that any future animal
or human test, if undertaken, will yield favourable results.
ITEM 2 - DESCRIPTION OF PROPERTY
LEASED PROPERTIES
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AltaRex's Canadian office is located at Campus Tower, Suite 300, 8625 - 112
Street, Edmonton, Alberta, Canada T6G 1K8. Its research and development facility
is located at 1134 Dentistry Pharmacy Building, University of Alberta, Edmonton,
Alberta T6G 2N8. The Company's U.S. office is located at Suite 125, 303 Wyman
Street, Waltham, Massachusetts 02451. All of the above premises are leased by
AltaRex.
The Canadian leases are each for a term of five years, with the Campus Tower
lease terminating on December 30, 2001, the Dentistry Pharmacy lease
terminating on July 31, 2002 and the U.S. lease is for a three-year term,
terminating on March 31, 2001. The total lease costs under such leases for the
Company were approximately $280,000 for the fiscal year ended December 31, 1998
and are expected to be approximately $280,000 for the fiscal years ending
December 31, 1999 and 2000.
In January 1999, the Company entered into a letter of intent for the lease of
approximately 25,000 square feet of laboratory and office facilities in Waltham,
Massachusetts. The facilities are expected to be available on or about December
1, 1999. If leased as proposed, the initial term would extend until March 31,
2007 and the expected annual lease cost to the Company would be approximately
$1.3 million plus operating expenses. The Company anticipates that it will move
its laboratory operations to Waltham by the end of 1999.
ITEM 3 - LEGAL PROCEEDINGS
THE BIOMIRA CLAIM
On February 26, 1999, Biomira commenced legal action (the "Biomira
Claim") in the Province of Alberta against the Company and the founder of
AltaRex and certain other individuals affiliated with AltaRex (the "Individual
Defendants"), claiming ownership of an invention (the "Invention") disclosed in
an international patent application entitled "Method and Composition for
Reconforming Multi-Epitopic Antigens to Initiate an Immune Response" (the
"Multi-Epitopic Patent Application") and filed by AltaRex relating to certain
aspects of AltaRex's core technology, products, processes and their production.
In the action, Biomira is seeking, among other things, a court order declaring
that it is the sole owner of the invention and related intellectual property
rights therein, including the Multi-Epitopic Patent Application, an injunction
prohibiting AltaRex from using the invention, and damages in the amount of
$200,000,000. The Biomira Claim alleges that the Individual Defendants owed
fiduciary duties and/or duties of confidence to Biomira arising out of such
individuals' affiliation with Biomira prior to the formation of AltaRex and that
the Individual Defendants have breached those duties by causing the
Multi-Epitopic Patent Application to be filed for AltaRex's benefit. In
addition, the Biomira Claim alleges that the Company intentionally or
negligently induced the Individual Defendants to breach such alleged duties. On
March 16, 1999, the Company demanded further particulars from Biomira with
respect to the allegations
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made in its legal action against the Company on the basis that such action fails
to disclose sufficient information with respect to claims made by Biomira in its
action so as to enable the Company to properly defend the action. On April 7,
1999, Biomira responded to the Company's request by refusing to provide further
particulars with respect to its claims. On April 15, 1999, the Court of Queen's
Bench of Alberta refused to grant a motion by the Company to require Biomira to
provide such further particulars.
On April 21, 1999, the Company filed its statement of defence to the
Biomira Claim. In its statement of defence, the Company denies all of the
allegations contained in the Biomira Claim. In particular, the Company maintains
that (i) the Invention was entirely conceived, fashioned and developed by the
Individual Defendants, who are fully and properly disclosed as the "inventors"
of the Multi-Epitopic Patent Application, (ii) the Invention was arrived at by
the Individual Defendants in all material respects while in the employ of and
under obligation to AltaRex and not in any material respect in the course of
work by any of them for Biomira or an affiliate thereof, (iii) it was at all
material times agreed and understood by Biomira that, pursuant to certain
previously agreed principles, the Biomira License Agreement and the license
granted thereunder, the Individual Defendants and AltaRex were authorized,
enabled and licensed from and after the commencement of operations of AltaRex on
December 1, 1995 to proceed and continue with research, development and product
creation for the sole benefit of the Company and not for that of Biomira, and
(iv) neither AltaRex nor any of the Individual Defendants acted in breach of any
obligations to or entitlements of Biomira. Alternatively, the Company maintains
that if Biomira has any claim whatsoever to the Multi-Epitopic Patent
Application, the Biomira License Agreement grants to the Company an exclusive,
world-wide license to the Invention and all related rights and entitlements and,
accordingly, Biomira is precluded from asserting the purported entitlements
alleged in the Biomira Claim.
Although there can be no assurance that Biomira will not be successful in
the Biomira Claim and neither Biomira nor the Company has had an opportunity to
request production of documents or to discover the other party, management of
the Company believes that the Biomira claim is without merit. The Company
intends to vigorously defend the Biomira Claim. See "Risk Factors - Biomira
Litigation".
If Biomira is successful in its action against the Company, the ability
of the Company to develop and commercialize its existing products and future
products based upon the invention described in the patent application referred
to above, including, in particular, its OvaRex(TM) MAb lead product, may be
materially and adversely affected and could be fully lost. In any event, this
litigation will, if it proceeds to trial, require the court to consider
complicated scientific evidentiary matters (such as the point at which
significant discoveries were made) and questions as to the contractual
interpretation of the Biomira License Agreement. It is not possible to predict
the court's position or disposition in these and other matters. In addition,
even if successful at trial, this litigation will result in significant expense
to the Company.
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THE ALTAREX CLAIM
On March 16, 1999, the Company commenced legal action (the "AltaRex
Claim") in the Province of Alberta against Biomira seeking a declaration of the
court that, among other things, (i) Biomira is in breach of the Biomira License
Agreement and the Asset Purchase Agreement, (ii) the Company has the exclusive
worldwide right and license to use the B43 Technology to develop, commercialize,
manufacture, use and sell products based upon such technology (including
OvaRex(TM) MAb), (iii) the Company has the exclusive right under the Biomira
License Agreement to develop, commercialize, use and sell all AIT(R) Technology
applications, (iv) as a result of its breaches of the Biomira License Agreement,
Biomira is not entitled to any rights under the Biomira License Agreement, and
(v) the terms of the Biomira License Agreement prohibit Biomira from bringing
the Biomira Claim. In addition, the Company is seeking an injunction prohibiting
Biomira from pursuing its legal action against the Company and damages in an
amount to be proven at trial.
On March 31, 1999, Biomira filed a statement of defence in respect of the
AltaRex Claim. In its statement of defence, Biomira denies the allegations
contained in the AltaRex Claim. In particular, Biomira maintains that (i) there
were not any agreed principles between Biomira and AltaRex and their respective
representatives in addition to those set forth in the Biomira License Agreement
and the Asset Purchase Agreement, (ii) Biomira has not breached the Biomira
License Agreement, and (iii) the Biomira License Agreement does not grant to
AltaRex the exclusive right to develop, commercialize, use and sell all AIT(R)
Technology applications.
Neither Biomira nor the Company has had an opportunity to request
production of documents or to discover the other party in connection with the
AltaRex Claim.
OTHER
Except for non-material legal proceedings against it in the normal course
of its operations, the Company is not aware of any other material existing or
pending legal proceedings against it.
ITEM 4 - CONTROL OF REGISTRANT
Insofar as it is aware, the Company is not directly or indirectly owned or
controlled by another corporation(s) or by the provincial government of Alberta,
the federal government of Canada or any foreign government.
To the knowledge of the Company, no person of record owns beneficially, directly
or indirectly, more than 10% of the issued and outstanding Common Shares of the
Company as at June 1, 1999, except as set out below:
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<TABLE>
<CAPTION>
IDENTITY OF PERSON OR
TITLE OF CLASS GROUP AMOUNT OWNED PERCENT OF CLASS
- -------------- ----- ------------ ----------------
<S> <C> <C> <C>
Common Shares Investissements
BioCapital Societe en
Commandite 7,168,000 Common Shares 12.9%
Common Shares The Business
Development Bank of
Canada 6,000,000 Common Shares 10.8%
Common Shares Purdue(1) 10,000,000 Common Shares 18.0%
Common Shares Directors and Officers 6,577,733 Common Shares 11.8%
</TABLE>
Notes:
(1) Banela Corporation ("Banela") and East Hudson Inc. ("EHI") each purchased
5,000,000 Common Shares pursuant to the Equity Investment Agreements. See
"Item 1 - Business Strategic Alliances and License Agreements - Purdue
Pharma L.P." Each of Banela and EHI is an associate of Purdue Pharma L.P.
ITEM 5 - NATURE OF TRADING MARKET
The Common Shares of the Company were listed and posted for trading on The
Alberta Stock Exchange on June 7, 1994 and on The Toronto Stock Exchange on
December 20, 1996. The Company's shares were subsequently voluntarily delisted
on the Alberta Stock Exchange on February 2, 1997.
All trading prior to December 12, 1995 occurred while the Company was still a
junior capital pool company pursuant to Alberta Securities Commission Policy
4.11 (the "Policy"). The Common Shares of the Company were suspended from
trading from December 12, 1995 to August 1, 1996 for failure by the Company to
complete a "Major Transaction" pursuant to the Policy. Trading in the Company's
common shares was reinstated on August 2, 1996 after the Company completed
certain transactions which collectively constituted its Major Transaction under
the Policy.
The following table sets forth the reported high and low sale prices of the
Common Shares of the Company as reported by The Alberta Stock Exchange from
January 1, 1996 to February 2, 1997 and by The Toronto Stock Exchange from
December 20, 1996 to June 1, 1999. Price range information set out below has
been adjusted to reflect the four-for-one consolidation of the Company's Common
Shares that occurred in November 1996. On May 7, 1999 and June 1, 1999, the
Company sold an aggregate of 39,100,000 Common Shares for an aggregate purchase
price of $19,550,000 in a public offering outside the U.S.
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<TABLE>
<CAPTION>
Period Price Range
High Low
---- ---
<S> <C> <C>
1st Quarter, 1996 Trading Suspended
2nd Quarter, 1996 Trading Suspended
3rd Quarter, 1996 7 5
4th Quarter, 1996 8.08 6
1st Quarter, 1997 7 5
2nd Quarter, 1997 5.5 3.4
3rd Quarter, 1997 4.3 2.5
4th Quarter, 1997 3.8 2.1
1st Quarter, 1998 3.25 2.25
2nd Quarter, 1998 2.54 1.01
3rd Quarter, 1998 1.92 .71
4th Quarter, 1998 .85 .42
1st Quarter, 1999 .74 .42
2nd Quarter, 1999
(Through June 1, 1999) 1.38 .42
---- ---
</TABLE>
The closing price of the Common Shares of the Company on The Toronto Stock
Exchange on June 1, 1999 was $.90 per Common Share.
The Company's shares are not listed on any exchange in the United States. At
June 14, 1999, approximately 5.3% of the outstanding shares of the Company are
held of record by 13 persons resident in the United States.
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no laws, governmental decrees or regulations in Canada that restrict
the export or import of capital or which affect the remittance of dividends,
interest or other payments to non-resident holders of the Company's Shares,
other than specific
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embargoes enacted by regulations under the United Nations Act (Canada) and
withholding tax requirements. See "Item 7. Taxation."
There are no limitations under the laws of Canada or the Province of Alberta, or
in the Articles of Amalgamation of the Company, with respect to the right of
non-resident or foreign owners to hold or vote the Common Shares of the Company
other than those imposed by the Investment Canada Act (Canada) (the "Investment
Act").
The following summarizes the principal features of the Investment Act for
non-residents other than WTO investors (defined in section 14.1(b) of the
Investment Act as being individual investors who are nationals of, or have the
right of permanent residence in, a Member of the World Trade Organization and
corporate investors who are either WTO investor-controlled in fact, or
two-thirds of whose board of directors is comprised of any combination of
Canadians and WTO investors) who propose to acquire Common Shares of the
Company.
The Investment Act prohibits implementation of a reviewable investment by an
individual, government (or agency thereof), company, partnership, trust or joint
venture which is not a "Canadian" (as defined in the Investment Act (a
"non-Canadian")) or a WTO investor, unless after review the minister responsible
for the Investment Act (the "Minister") is satisfied that the investment is
likely to be of net benefit to Canada. A reviewable investment under the
Investment act is characterized as an investment for control of a Canadian
business with assets valued at $5,000,000 or more, or in the case where the
total assets of the Canadian business are less than half of the total assets
acquired, the Canadian business assets are $50,000,000 or more. Notwithstanding
the above limits, an investment can become a reviewable investment if an order
for review is made by the Federal cabinet on the grounds that the investment is
related to Canada's cultural heritage or national identity.
An investment in Common Shares of the Company by a WTO investor would only be
reviewable under the Investment Act if it was an investment to acquire control
of the Company and the value of the assets of the Company equals or exceeds an
amount determined annually by the Minister pursuant to a formula specified in
the Investment Act ($184,000,000 for 1998).
A non-Canadian, whether a WTO investor or otherwise, would acquire control of
the Company for the purposes of the Investment Act if he acquired a majority of
the Common Shares of the Company. The acquisition of less than a majority, but
one-third or more, of the Common Shares of the Company would be presumed to be
an acquisition of control of the Company unless it could be established that the
Company was not controlled in fact by the acquirer through the ownership of
Common Shares.
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<PAGE> 54
Certain transactions in relation to Common Shares of the Company would be exempt
from the Investment Act, including:
(a) the acquisition of Shares by a person in the ordinary course of
the person's business as a trader or dealer in securities;
(b) the acquisition of control of the Company in connection with the
realization of security granted for a loan or other financial
assistance and not for any purpose related to the provisions of
the Investment Act; and
(c) the acquisition of control of the Company by reason of an
amalgamation, merger, consolidation or corporate reorganization
following which the ultimate direct or indirect control in fact of
the Company, through the ownership of voting interests, remains
unchanged.
The Investment Act further contains provisions which require notification to be
given under the Investment Act in the circumstances where a "non-Canadian" (as
defined in the Investment Act) acquires control of the Company notwithstanding
that such investment is not a reviewable investment as described above.
In addition to the foregoing, certain transactions involving the Company and its
security holders may be subject to notification and review under the Competition
Act (Canada). In general, in order for a transaction to be notifiable, the
parties together with their affiliates (defined to include parent, subsidiary
and sister companies) must have assets in Canada or gross revenues from sales
in, from or into Canada that exceed $400,000,000. Assuming this threshold is
met, additional thresholds based on the type of transaction must be met before
notification is required. If a transaction is ultimately notifiable, the parties
must provide the Commissioner of Competition (the "Commissioner") with detailed
information about the transaction and the parties, and observe a waiting period
prior to closing the transaction. However, in the event that the Commissioner
determines that a proposed transaction may result in a substantial lessening of
competition, the Commissioner may bring a proceeding before the Competition
Tribunal to enjoin the transaction or to seek other remedies.
ITEM 7 - TAXATION
The following is a general summary only and should not be considered as income
tax advice or relied upon for tax planning purposes.
Certain Canadian Federal Income Tax Consequences
The following is a general summary of certain Canadian federal income tax
considerations generally applicable to a holder of the Company's Shares who is
not a resident of Canada for the purposes of the Income Tax Act (Canada) (the
"Act"). The
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<PAGE> 55
discussion does not address all potentially relevant federal income tax matters
and it does not address consequences peculiar to persons subject to special
provisions of federal income tax law.
The summary is based on the current provisions of the Act and the regulations
thereunder and the Company's understanding of the current administrative
practices published by, and press announcements released by Revenue Canada. This
summary takes into account proposals to amend the Act announced prior to the
date hereof (although no assurances can be given that such changes will be
enacted in the form presented or at all), but does not otherwise take into
account or anticipate any other changes in law, whether by judicial,
governmental or legislative action or decision nor does it take into account any
provincial, territorial, local or foreign tax considerations. Accordingly,
holders and prospective holders of the Company's Shares should consult their own
tax advisors about the federal, provincial, territorial, local and foreign tax
consequences of purchasing, owning and disposing of such shares.
The Act provides in subsection 212(2) that dividends and other distributions
which are deemed to be dividends and which are paid or credited or are deemed to
be paid or credited by a Canadian resident company to a non-resident of Canada
shall be subject to non-resident withholding tax equal to 25 percent of the
gross amount of the dividend or deemed dividend.
Subsections 2(3) and 115(1) of the Act provide that a non-resident person is
subject to tax in Canada at the rates generally applicable to residents of
Canada on any "taxable capital gain" arising on the disposition of the shares of
a company which are listed on a prescribed stock exchange if such non-resident,
together with persons with whom he does not deal at arm's length, owned 25
percent or more of the issued shares of any class of the capital stock of the
Company at any time in the five years immediately preceding the date of
disposition of the shares. Subsections 2(3) and 115(1) also provide that a
non-resident person is subject to tax in Canada on taxable capital gains arising
on the disposition of shares that constitute capital property used in carrying
on a business in Canada. The taxable portion of a capital gain is equal to
three-quarters of the amount by which the proceeds of disposition of such
shares, net of any reasonable costs associated with the disposition of such
shares, exceeds the adjusted cost base to the holder of the shares.
Provisions in the Act relating to dividend and deemed dividend payments and
gains realized by non-residents of Canada who are residents of the United States
are subject to the Canada-United States Income Tax Convention (1980), as amended
(the "1980 Convention").
Article X of the 1980 Convention provides that for 1997 and subsequent taxation
years pursuant to the Third Protocol to the 1980 Convention the rate of Canadian
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<PAGE> 56
non-resident withholding tax on dividends paid to a U.S. company that
beneficially owns at least 10 percent of the voting stock of the Company shall
not exceed 5 percent of the dividends. Otherwise, and except in the case of
dividends received by a resident of the United States who carries on business in
Canada through a Canadian permanent establishment and the shares in respect of
which the dividends are paid are effectively connected with that permanent
establishment, the rate of non-resident withholding shall not exceed 15 percent
of the dividend. Where the dividends are received by a United States person
carrying on business in Canada through a Canadian permanent establishment and
the shares in respect of which the dividends are paid are effectively connected
with that permanent establishment the dividends are generally subject to
Canadian tax as business profits, generally without limitation under the 1980
Convention.
Article XIII of the 1980 Convention provides that gains realized by a United
States resident on the disposition of shares of a Canadian company may not
generally be taxed in Canada unless the value of those shares is derived
principally from real property situated in Canada or the shares form part of the
business property of a permanent establishment which the United States
shareholder has or had in Canada within the 12 month period preceding the date
of disposition. Canada also retains the right to tax gains on property owned at
the time of departure from Canada if it is sold by a person (other than a trust)
who was not during the 120 month period immediately preceding the sale a
resident in Canada for more than 60 months, subject to certain restrictions.
Certain United States Federal Income Tax Consequences
The following is a general discussion of certain possible United States federal
income tax consequences, under current law, generally applicable to a U.S.
Holder (as defined below) of the Company's Shares. This discussion does not
address all potentially relevant federal income tax matters and it does not
address consequences peculiar to persons subject to special provisions of
federal income tax law, such as those described below as excluded from the
definition of a U.S. Holder. In addition, this discussion does not cover any
state, local or foreign tax consequences. (See "Taxation - Certain Canadian
Federal Income Tax Consequences" above.)
The following discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, published Internal Revenue Service
("IRS") rulings, published administrative positions of the IRS and court
decisions that are currently applicable, any or all of which could be materially
and adversely changed, possibly on a retroactive basis, at any time. This
discussion does not consider the potential effects, both adverse and beneficial,
of any recently proposed legislation which, if enacted, could be applied,
possibly on a retroactive basis, at any time. This discussion is for general
information only and it is not intended to be, nor should it be construed to be,
legal or tax advice to any holder or
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<PAGE> 57
prospective holder of the Company's Shares and no opinion or representation with
respect to the United States federal income tax consequences to any such holder
or prospective holder is made. Accordingly, holders and prospective holders of
the Company's Shares should consult their own tax advisors about the federal,
state, local, and foreign tax consequences of purchasing, owning and disposing
of the Company's Shares.
Holders
As used herein, a "U.S. Holder" means a holder of the Company's Shares who is a
citizen or individual resident of the United States, a corporation or
partnership created or organized in or under the laws of the United States or of
any political subdivision thereof, a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust, or an estate whose income is taxable in the United
States irrespective of source. This summary does not address the tax
consequences to, and U.S. Holder does not include, persons subject to specific
provisions of federal income tax law, such as tax-exempt organizations,
qualified retirement plans, individual retirement accounts and other
tax-deferred accounts, financial institutions, insurance companies, real estate
investment trusts, regulated investment companies, broker-dealers, nonresident
alien individuals, persons or entities that have a "functional currency" other
than the U.S. dollar, shareholders who hold the Company's Shares as part of a
straddle, hedging or a conversion transaction, and shareholders who acquired
their stock through the exercise of employee stock options or otherwise as
compensation for services. This summary is limited to U.S. Holders who own the
Company's Shares as capital assets. This summary does not address the
consequences to a person or entity holding an interest in a shareholder or the
consequences to a person of the ownership, exercise or disposition of any
options, warrants or other rights to acquire the Company's Shares.
Distributions on the Company's Shares
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to the Company's Shares are required to include in gross income for
United States federal income tax purposes the gross amount of such distributions
equal to the U.S. dollar value of such dividends on the date of receipt (based
on the exchange rate on such date) to the extent that the Company has current or
accumulated earnings and profits, without reduction for any Canadian income tax
withheld from such distributions. Such Canadian tax withheld may be credited,
subject to certain limitations, against the U.S. Holder's United States federal
income tax liability or, alternatively, may be deducted in computing the U.S.
Holder's United States federal taxable income by those who itemize deductions.
(See more detailed discussion at "Foreign Tax Credit" below.) To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital up to the U.S. Holder's
adjusted basis in the Company's Shares, and thereafter as gain from the sale or
exchange of the Company's Shares. Preferential tax rates for long-term capital
gains are applicable to a U.S. Holder which is an
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<PAGE> 58
individual, estate or trust. There are currently no preferential tax rates for
long-term capital gains for a U.S. Holder which is a corporation.
In the case of foreign currency received as a dividend that is not converted by
the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have
a tax basis in the foreign currency equal to its U.S. dollar value on the date
of receipt. Generally any gain or loss recognized upon a subsequent sale or
other disposition of the foreign currency, including the exchange for U.S.
dollars, will be ordinary income or loss. However, an individual whose realized
gain does not exceed $200 will not recognize that gain, to the extent that there
are no expenses associated with the transaction that meet the requirement for
deductibility as a trade or business expense (other than travel expenses in
connection with a business trip) or as an expense for the production of income.
Dividends paid on the Company's Shares will not generally be eligible for the
dividends received deduction provided to corporations receiving dividends from
certain United States corporations. A U.S. Holder which is a corporation may,
under certain circumstances, be entitled to a 70 percent deduction in respect of
the United States source portion of dividends received from the Company (unless
the Company qualifies as a "foreign personal holding company" or a "passive
foreign investment company," as defined below) if such U.S. Holder owns shares
representing at least 10 percent of the voting power and value of the Company.
The availability of this deduction is subject to several complex limitations
which are beyond the scope of this discussion.
Under current temporary Treasury Regulations, dividends paid on the Company's
Shares, if any, generally will not be subject to information reporting and
generally will not be subject to U.S. backup withholding tax. However, dividends
paid, and the proceeds of a sale of the Company's Shares, in the U.S. through a
U.S. or U.S. related paying agent (including a broker) will be subject to U.S.
information reporting requirements and may also be subject to the 31 percent
U.S. backup withholding tax, unless the paying agent is furnished with a duly
completed and signed Form W-9. Any amounts withheld under the U.S. backup
withholding rules will be allowed as a refund or a credit against the U.S.
Holder's U.S. federal income tax liability, provided the required information is
furnished to the IRS. It should be noted, however, that under new Treasury
Regulations which are scheduled to become effective on January 1, 2001, and
which are only to be applied prospectively, any dividends paid on the Company's
Shares will be subject to information reporting and potential 31 percent U.S.
backup withholding tax.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of the Company's Shares may be entitled, at the
option
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<PAGE> 59
of the U.S. Holder, to either a deduction or a tax credit for such foreign tax
paid or withheld. Generally, it will be more advantageous to claim a credit
because a credit reduces United States federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign taxes paid by (or withheld from) the U.S. Holder during that year. There
are significant and complex limitations which apply to the credit, among which
is the general limitation that the credit cannot exceed the proportionate share
of the U.S. Holder's United States income tax liability that the U.S. Holder's
foreign source taxable income bears to his or its worldwide taxable income. In
the determination of the application of this limitation, the various items of
income and deduction must be classified into foreign and domestic sources.
Complex rules govern this classification process. In addition, this limitation
is calculated separately with respect to specific classes of income such as
"passive income," "high withholding tax interest," "financial services income,"
"shipping income," and certain other classifications of income. Dividends
distributed by the Company will generally constitute "passive income" or, in the
case of certain U.S. Holders, "financial services income" for these purposes.
The availability of the foreign tax credit and the application of the
limitations on the credit are fact specific, and holders and prospective holders
of the Company's Shares should consult their own tax advisors regarding their
individual circumstances.
Disposition of Company's Shares
A U.S. Holder will recognize gain or loss upon the sale of the Company's Shares
equal to the difference, if any, between (i) the amount of cash plus the fair
market value of any property received, and (ii) the shareholder's tax basis in
the Company's Shares. This gain or loss will be capital gain or loss if the
Company's Shares are a capital asset in the hands of the U.S. Holder, which will
be a short-term or long-term capital gain or loss depending upon the holding
period of the U.S. Holder. Gains and losses are netted and combined according to
special rules in arriving at the overall capital gain or loss for a particular
tax year. Deductions for net capital losses are subject to significant
limitations. For U.S. Holders which are individuals, any unused portion of such
net capital loss may be carried over to be used in later tax years until such
net capital loss is thereby exhausted. For U.S. Holders that are corporations
(other than corporations subject to Subchapter S of the Code), an unused net
capital loss may be carried back three years from the loss year and carried
forward five years from the loss year to be offset against capital gains until
such net capital loss is thereby exhausted.
Other Considerations
In the following circumstances, the above sections of this discussion may not
describe the United States federal income tax consequences resulting from the
holding and disposition of the Company's Shares:
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<PAGE> 60
Foreign Personal Holding Company
If at any time during a taxable year more than 50 percent of the total combined
voting power or the total value of the Company's outstanding shares is owned,
directly or indirectly, by five or fewer individuals who are citizens or
residents of the United States and 60 percent or more of the Company's gross
income for such year was derived from certain passive sources (e.g., from
dividends received from its subsidiaries), the Company may be treated as a
"foreign personal holding company." In that event, U.S. Holders that hold the
Company's Shares would be required to include in gross income for such year
their allocable portions of such passive income to the extent the Company does
not actually distribute such income.
Foreign Investment Company
If (i) 50 percent or more of the combined voting power or total value of the
Company's Shares are held, directly or indirectly, by citizens or residents of
the United States, United States domestic partnerships or corporations, or
estates or trusts other than foreign estates or trusts (as defined by the Code
Section 7701(a)(31)), and (ii) the Company is found to be engaged primarily in
the business of investing, reinvesting, or trading in securities, commodities,
or any interest therein, then it is possible that the Company may be treated as
a "foreign investment company" as defined in Section 1246 of the Code, causing
all or part of any gain realized by a U.S. Holder selling or exchanging the
Company's Shares to be treated as ordinary income rather than capital gain.
Passive Foreign Investment Company
As a foreign corporation with U.S. Holders, the Company could potentially be
treated as a passive foreign investment company ("PFIC"), as defined in Section
1296 of the Code, depending upon the percentage of the Company's income which is
passive, or the percentage of the Company's assets which is producing passive
income. U.S. Holders owning shares of a PFIC are subject to an additional tax
and to an interest charge based on the value of deferral of tax for the period
during which the shares of the PFIC are owned, in addition to treatment of gain
realized on the disposition of shares of the PFIC as ordinary income rather than
capital gain. However, if the U.S. Holder makes a timely election to treat a
PFIC as a qualified electing fund ("QEF") with respect to such shareholder's
interest therein, the above-described rules generally will not apply. Instead,
the electing U.S. Holder would include annually in his gross income his pro rata
share of the PFIC's ordinary earnings and net capital gain regardless of whether
such income or gain was actually distributed. A U.S. Holder of a QEF can,
however, elect to defer the payment of United States federal income tax on such
income inclusions. In addition, taxpayers owning (actually or constructively)
marketable stock in a PFIC will be permitted to elect to mark that stock to
market annually, rather than be subject to the excess-
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<PAGE> 61
distribution regime of Section 1291 of the Code. Amounts included in or deducted
from income under this regime (and actual gains and losses realized upon
disposition, subject to certain limitations) will be treated as ordinary.
Special rules apply to U.S. Holders who own their interests in a PFIC through
intermediate entities or persons.
The Company believes that it was not a PFIC for its fiscal years ended December
31, 1997 and 1998. The Company may have been a PFIC in earlier fiscal years and
may become a PFIC in its current and subsequent fiscal years. If in its current
or in a subsequent year the Company concludes that it is a PFIC, it intends to
make information available to enable a U.S. Holder to make a QEF election in
that year. There can be no assurance that the Company's determination concerning
PFIC status will not be challenged by the IRS, or that it will be able to
satisfy the record keeping requirements which are imposed on QEF's.
Controlled Foreign Company
If more than 50 percent of the voting power of all classes of stock or the total
value of the stock of the Company is owned, directly or indirectly, by citizens
or residents of the United States, United States domestic partnerships and
corporations or estates or trusts other than foreign estates or trusts, each of
whom owns 10 percent or more of the total combined voting power of all classes
of stock of the Company ("United States shareholder"), the Company could be
treated as a "controlled foreign corporation" under Subpart F of the Code (a
"CFC"). This classification would effect many complex tax results one of which
is the inclusion in the gross income of United States shareholders of certain
income of a CFC. The United States generally taxes United States shareholders of
a CFC currently on their pro rata shares of the subpart F income of the CFC. In
effect, the Code treats those United States shareholders as having received a
current distribution out of the CFC's subpart F income. Such shareholders also
are subject to current U.S. tax on their pro rata shares of the CFC's earnings
which are invested in U.S. property. The foreign tax credit may reduce the U.S.
tax on these amounts. In addition, under Section 1248 of the Code, gain from the
sale or exchange of stock by a holder of Shares of the Company who is or was a
United States shareholder at any time during the five year period ending with
the sale or exchange is treated as ordinary dividend income to the extent of
earnings and profits of the Company attributable to the stock sold or exchanged.
Note that the overlap between the PFIC and CFC rules generally will be
eliminated for 10-percent United States shareholders of a CFC. Where a foreign
corporation is both a PFIC and a CFC, the Code generally will treat the foreign
corporation as a non-PFIC with respect to 10-percent United States shareholders
of the CFC. Special rules are provided for stock held by PFIC shareholders
subject to the rules applicable to non-qualified funds. Because of the
complexity of Subpart
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<PAGE> 62
F, and because it is not clear that Subpart F would apply to the holders of
Shares of the Company, a more detailed review of these rules is outside of the
scope of this discussion.
ITEM 8 - SELECTED FINANCIAL DATA
The following table presents selected financial data for the Company which are
for the periods indicated below and which are derived from the Consolidated
Financial Statements of the Company and are prepared in accordance with
accounting principles generally accepted in Canada ("Canadian GAAP"). These
principles, as applied to the Company, do not differ materially from those
accounting principles and requirements of the Securities and Exchange Commission
in the United States ("U.S. GAAP") except as disclosed in Note 8 to the
Company's Consolidated Financial Statements. All figures are in Canadian funds.
The selected financial data should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations. To date, the
Company has not generated sufficient cash flow from operations to fund ongoing
operational requirements and cash commitments. The Company has financed its
operations principally through the sale of its equity securities and its ability
to continue operations is dependent on the ability of the Registrant to obtain
additional financing. See "Item 9 Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
---- ---- ----
($) ($) ($)
<S> <C> <C> <C>
INCOME STATEMENT DATA
Revenues .......................... 1,013,742 1,619,836 88,257
Expenses
Research and development ...... 9,433,681 4,733,918 1,720,031
General and administration .... 4,695,990 1,563,555 540,285
----------- ----------- -----------
Net loss .......................... (13,115,929) (4,677,637) (2,172,059)
Net loss per common share.......... (0.79) (0.29) (0.24)
</TABLE>
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<PAGE> 63
<TABLE>
<CAPTION>
AS AT DECEMBER 31
1998 1997
---- ----
($) ($)
<S> <C> <C>
BALANCE SHEET DATA
Total assets..................... 15,159,774 27,299,744
Shareholders' equity............. 12,646,840 25,708,769
</TABLE>
The Company has paid no dividends on its shares since incorporation and does not
anticipate doing so for the foreseeable future. The declaration of dividends on
the Common Shares of the Company is within the discretion of the Company's board
of directors and will depend upon, among other factors, earnings, capital
requirements, and the operating and financial condition of the Company.
ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis explains trends in the Company's financial
condition and results of operation for the years ending December 31, 1998, 1997
and 1996. This discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
financial statements and the related notes included elsewhere in this Annual
Report. The financial statements have been prepared by management in accordance
with accounting principles generally accepted in Canada which conform to
accounting principles in the United States, except as described in Note 8 to the
financial statements.
OVERVIEW
The Company's business is the research, development and commercialization of
biopharmaceutical products for the therapy of cancer. Substantially all of the
Company's products are subject to regulation by the HPB in Canada, the FDA in
the United States, the EMEA in Europe and similar agencies in other countries.
None of the Company's products have been approved to date. The Company has not
been profitable since its inception and expects to continue to incur substantial
losses in continuing the research, development and clinical trials of its
products. The Company does not expect to generate significant revenues until
such time as and unless its cancer therapeutic products are approved by the
various regulatory agencies and become commercially viable.
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<PAGE> 64
ACQUISITION AND AMALGAMATION
Effective July 17, 1996, the Company (at that time known as Allrich Energy Group
Inc.) acquired all of the outstanding shares of AltaRex Inc. for a purchase
price satisfied through the issue of 7.5 million Common Shares of the Company.
These Common Shares gave AltaRex Inc.'s shareholders a controlling interest in
the Company and effectively constituted a reverse take-over of the Company by
the shareholders of AltaRex Inc. The Company, at the time of acquisition, was an
inactive public company. The purpose of the acquisition was to realize funds
associated with a private placement and special warrant offering that were
completed at that time and to provide future access to public market funding.
Effective May 31, 1997, the Company amalgamated with AltaRex Inc. and continued
under the name of AltaRex Corp.
RESULTS OF OPERATIONS
The Company, through its predecessor AltaRex Inc., commenced operations on
December 1, 1995 and completed its first full year of operations on December 31,
1996. As of December 31, 1998, the Company had incurred cumulative losses of
$20.2 million. This related to losses of $13.1 million, $4.7 million, and $2.2
million, respectively, for the years ended December 31, 1998, 1997 and 1996 and
a loss of $0.2 million for the one month ended December 31, 1995. These
increasing losses are due to the increased cost of clinical and product
development activities and supporting efforts in product commercialization.
Costs for research and development and supporting activities are expected to
increase as the Company pursues its development, clinical trials and
commercialization programs prior to receiving regulatory approvals and the
successful introduction of the Company's products.
Year ended December 31, 1998 compared to year ended December 31, 1997.
Revenues
Revenues for the year ended December 31, 1998 decreased by $0.61 million, from
$1.62 million in 1997 to $1.01 million in 1998. Interest income increased by
$0.06 million, from $0.90 million in 1997 to $0.96 million in 1998, due to
higher effective interest rates on short-term investments in 1998. Research
contract revenue decreased by $0.63 million, from $0.68 million to $0.05 million
in 1998, due to the completion of government research contracts in late 1997 and
early 1998.
Expenses
Expenses for the year ended December 31, 1998 increased by $7.83 million, from
$6.30 million in 1997 to $14.13 million in 1998. Research and development
expenses increased by $4.70 million, from $4.73 million in 1997 to $9.43 million
in 1998. This
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<PAGE> 65
increase is due to the expansion and progress of the Company's clinical trial
program for OvaRex(TM) MAb, which involved the consolidation of the Company's
Phase II clinical trial commenced in Canada in 1997 with its United States Phase
IIb clinical trial initiated in 1998 to form a potentially pivotal Phase IIb
North American trial. The increase is also due to the costs related to
production of antibody for clinical trial purposes.
General and administrative expenses increased by $3.13 million, from $1.56
million in 1997 to $4.69 million in 1998. This increase is due to the addition
of key management personnel in 1998, the establishment of an office in the
United States in May 1998 and the relocation of certain personnel to such
office, as well as the related support costs for increasing research and
development activities and patent and corporate development activities.
The Company anticipates that the level of spending in research and development
will continue to increase significantly in the near future as the Company's
OvaRex(TM) MAb, BrevaRex(TM) MAb and other programs enter into further research
and development activities, including but not limited to cell culture-derived
material production, clinical trials and submissions for regulatory approvals.
This will also result in an increase in general and administrative expenses to
support the growth in the Company's research, clinical and business development
programs. The actual levels of research and development and general and
administrative expenditures are dependent on the cash resources available to the
Company and the extent to which the Company is successful in contracting with
strategic partners to finance and commercialize its products. See " - Liquidity
and Capital Resources".
Year ended December 31, 1997 compared to year ended December 31, 1996
Revenues
Revenues for the year ended December 31, 1997 increased by $1.53 million, from
$0.09 million in 1996 to $1.62 million in 1997. Interest income increased by
$0.84 million, from $0.06 million in 1996 to $0.90 million in 1997, due to
higher average balances in short-term investments resulting from funds raised in
the $27.7 million public share offering completed in December 1996. Research
contract revenue increased by $0.67 million, from $0.01 million in 1996 to $0.68
million in 1997, and relates to two government research contracts undertaken by
the Company.
Expenses
Expenses for the year ended December 31, 1997 increased by $4.04 million, from
$2.26 million in 1996 to $6.30 million in 1997. Research and development
expenses increased by $3.01 million, from $1.72 million in 1996 to $4.73 million
in 1997. This increase reflects the cost of supporting a higher level of
activity in research, product
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<PAGE> 66
development and clinical trials, including increased staffing and research
supplies and the costs of managing clinical trials. Clinical trial activity
included the commencement of a Phase II clinical trial of the Company's lead
product OvaRex(TM) MAb in Canada, as well as the preparation for a Phase IIb
clinical trial in the United States.
General and administrative expenses for the year ending December 31, 1997
increased by $1.02 million, from $0.54 million in 1996 to $1.56 million in 1997.
This increase is due to the support required of the Company's growth in its
research and development programs, its business development activities and the
costs related to the maintenance of a publicly-traded company, including
increased staffing.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1998, the Company has cash and short-term investments of $12.8
million. Included in this balance are short-term financial instruments with a
carrying value, including accrued interest, of $12.3 million, consisting of
obligations of Canadian federal and provincial governments, as well as corporate
obligations. These instruments carry maturities of six months or less and their
carrying value approximates fair value. These instruments have a weighted
average interest rate of 5.07%. The Company purchases such financial instruments
for investment purposes only and not for trading or speculative purposes.
The Company's risks relative to these securities are credit risk and interest
rate risk. Regarding credit risk, the Company mitigates such risk by investing
only in federal or provincial government securities or investment grade
corporate obligations in the form of commercial paper or bankers' acceptances.
Regarding interest rate risk, exposure results from changes in short-term
interest rates or early redemption of securities. These risks are mitigated by
the short-term nature of the portfolio.
FOREIGN CURRENCY EXPOSURE
To date, exposure to foreign currency fluctuations has not had a material effect
on the Company's operations. Upon the opening of a U.S. office in Waltham,
Massachusetts, the establishment of significant operations there and the
conducting of clinical trials in the United States, the Company's risk of
foreign currency exposure will increase as a potentially significant portion of
its transactions will be denominated in U.S. dollars. The Company does not
currently engage in hedging or other activities to control the risk of foreign
currency exposure, but will continue to monitor the situation and may do so in
the future as conditions warrant.
IMPACT OF THE YEAR 2000 ISSUE
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<PAGE> 67
The Year 2000 issue is the result of computer programs being written using two
rather than four digits to define the applicable year. Computer programs that
have time sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations, causing disruptions in operations.
In 1998, the Company developed, and is in the process of completing, a
comprehensive plan for the assessment of the impact of, and the necessary
remediation plans related to, the Year 2000 issue. The Company's plan includes
the review, assessment and testing of internal systems and equipment, the review
of Year 2000 compliance and readiness of vendors and suppliers to the Company
and the development of contingency plans for all mission critical systems and
risks. The design and execution of the plan is the responsibility of the Chief
Financial Officer and involves personnel from throughout the Company.
The Company has completed its inventory of all equipment and software
applications it uses throughout its offices and labs and is in the process of
testing such equipment and software. The Company has identified all key vendors
and suppliers and is currently in communication with them regarding Year 2000
readiness. Confirmation of Year 2000 compliance has been obtained from the
Company's payroll and accounting systems suppliers and banking and investment
management service providers. The Company is continuing its review and
assessment of Year 2000 readiness with contract research organizations and other
suppliers and service providers involved in the Company's clinical development
programs. Alternative suppliers and service providers and appropriate back-up of
data and information will be provided to mitigate any potential losses or delays
due to the Year 2000 issue. The Company specifies the need for Year 2000
compliance in all significant new contractual relationships.
Management of the Company believes that the review, assessment and testing and
the completion of any necessary changes will be completed by September, 1999.
The Company's expected aggregate expenditures related to the Year 2000
compliance is expected to be less than $100,000. These expenditures will be
incurred and paid in 1999 and the first half of 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments totalled $12.8 million at December 31, 1998.
Since its inception, the Company has financed its operations primarily through
private placements and public offerings of equity securities, amounting to $32.9
million, and interest income on invested balances, amounting to $1.9 million.
The Company currently has no contributing cash flows from operations. As a
result, the Company relies on external sources of financing such as the issue of
equity or debt securities, the exercise of warrants and investment income.
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<PAGE> 68
The Company's net cash used in operating activities amounted to $11.4 million,
$4.0 million and $2.2 million for the years ended December 31, 1998, 1997 and
1996, respectively, and resulted primarily from the Company's net operating
losses. The Company's net cash used in investing activities amounted to $0.6
million, $1.5 million and $0.1 million for the years ended December 31, 1998,
1997 and 1996, respectively, and resulted primarily from the purchase of capital
assets used in the Company's business.
On May 7, 1999, the Company closed the sale of 28.51 million shares for gross
proceeds of $14.3 million. On June 1, 1999, the Company closed the sale of the
remaining 5.49 million shares available under the offering plus an additional
5.1 million shares pursuant to the exercise of an overallotment option granted
to the agents. Gross proceeds raised on June 1, 1999 amounted to $5.3 million.
Total gross proceeds raised under this offering amounted to $19.6 million. Net
proceeds after deduction of agent fees and commissions amounted to $18.2
million.
The Company expects to incur substantial and increasing research and development
expenses, including expenses related to preclinical studies, clinical trials,
manufacturing and commercialization activities, and supporting general and
administrative expenses. The Company believes that the net proceeds of its
Public Offering (described in "Item 1 - Description of the Business - Strategic
Alliances and License Agreements), together with its available cash, and
interest earned thereon, should be sufficient to finance its operations and
capital needs through the first half of the year 2000, while maintaining
sufficient cash reserves. The Company's funding needs may vary depending on a
number of factors including progress of the Company's research and development
programs, the number and breadth of these programs, the results of preclinical
studies and clinical trials, the cost, timing and outcome of the regulatory
process, the establishment of collaborations, the cost of preparing, filing,
prosecuting, maintaining, defending and enforcing patent claims, the status of
competitive products and the availability of other financing.
The Company may need to raise substantial additional capital to fund its
operations in the future. The Company may seek such additional funding through
public or private equity or debt financings from time to time, as market
conditions permit, or through collaborative arrangements. The ability of the
Company to access the capital markets or to enlist strategic partners is
substantially dependent on the progress of its research and development programs
and regulatory approval of its products. There can be no assurance that
additional financing will be available on acceptable terms, if at all. If
adequate funds are not available, the Company may be required to delay, reduce
the scope of, or eliminate one or more of its research and development programs.
If the Purdue Option is exercised, Purdue has agreed to assume certain
historical and future costs and expenses incurred by the Company in connection
with the research
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<PAGE> 69
and development of OvaRex(TM) MAb and BrevaRex(TM) MAb products and to make
certain payments to the Company upon the Company's achieving certain milestones.
However, there can be no assurance that Purdue will exercise the Purdue Option,
thereby entitling the Company to such payments. See Item 1 - "Description of the
Business Strategic Alliances and License Agreements - Purdue Pharma L.P."
ITEM 9A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included in the discussion under Item
9, above.
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ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT AS OF JUNE 1, 1999
<TABLE>
<CAPTION>
PRESENT OCCUPATION AND POSITION
NAME AND MUNICIPALITY POSITION DURING THE LAST FIVE YEARS
- -------------------------------------- --------------------------------- -------------------------------------------
<S> <C> <C>
Dr. Antoine A. Noujaim(2) Chairman of the Board and Present and Chief Executive Officer
Edmonton, Alberta Chief Scientific Officer from November, 1995 to February 22,
1998; President of Biomira
Research Inc., a division of Biomira
Inc. (A biopharmaceutical company),
from 1994 to 1995; Senior Vice-President
of the Immunoconjugate Division of Biomira
Inc. from 1989 to 1994; director of Biomira
Inc. from 1985 to 1995.
Richard E. Bagley President, Chief Executive President, Chief Executive Officer
Weston, Massachusetts Officer and Director and Director since February 23,
1998. Chairman and Chief
Executive Officer of Proscript Inc.
from September, 1995 to February,
1998. President and Chief Executive
Officer of Immulogic
Pharmaceutical Corporation from
1990 to 1994.
William R. McMahan(2) Director Director since January 1, 1996.
Calgary, Alberta President of Oxbow Capital Corporation
(a merchant banking company) from
October, 1993 to present. A Director
of International Marketing, Oxbow
Resources Limited (a merchant banking
company) from January, 1992 to present.
Consultant for Safety Boss Limited (an
oilfield service company) from August
1, 1991 to December 31, 1991.
Jean-Claude Gonneau(1) Director Director since January 29, 1997.
London, United Kingdom Director of the Company. Principal
with Donaldson, Lufkin & Jenrette
(an investment dealer).
</TABLE>
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<TABLE>
<S> <C> <C>
Monique Begin(1) Director Director since May 14, 1998.
Ottawa, Ontario Professor emeritus, University of
Ottawa. Dean, Faculty of Health
Sciences, University of Ottawa from
1990 to 1997. Former Minister of
National Health and Welfare
Canada from September 1977 to
September 1984.
Jim A. Wright(1) Director Director since May 14, 1998.
Winnipeg, Manitoba Chairman of the Board, President
and Chief Scientific Officer of
GeneSense Technologies Inc. since
1997. Terry Fox Senior Research
Scientist of the National Cancer
Institute of Canada since 1990.
Associate Director, Manitoba
Institute of Cell Biology since 1989.
Edward M. Fitzgerald Senior Vice President, Chief Senior Vice President, Chief
Dover, Massachusetts Financial Officer and Financial Officer and Secretary since
Secretary September 28, 1998. Consultant in
private practice, 1998. Director,
Mergers & Acquisitions and
Director, Consumer Lending Group
at BankBoston Corporation from
1992 to 1997. With Arthur
Andersen & Co. from 1978 to 1992
serving as Partner from 1989 to
1992.
Dr. Christopher F. Nicodemus Senior Vice President, Senior Vice President, Medical and
Charlestown, Massachusetts Medical and Regulatory Regulatory Affairs since January 25,
Affairs 1999. Vice President, Medical
Affairs from 1998 to 1999 and Vice
President, Clinical Operations from
1997 to 1998 of Diatide, Inc. With
Immulogic Pharmaceutical
Corporation from 1993 to 1997
serving as Vice President, Medical
Affairs from 1994 to 1997. Senior
Associate Medical Director with
Pfizer Labs from 1992 to 1993.
Dr. Thomas R. Sykes Vice-President, Preclinical Vice-President since January, 1996.
Acton, Massachusetts and Support Operations Director of Pharmaceutical Research
and Development of Biomira
Research Inc. from 1993 to 1995.
Director of Product Development
for the Immunoconjugate Division
of Biomira Inc. from 1990 to 1993.
</TABLE>
60
<PAGE> 72
<TABLE>
<S> <C> <C>
Marlene R. Booth Vice President, Regulatory Vice President, Regulatory Affairs
Norwell, Massachusetts Affairs and Project and Project Management since June
Management 1, 1999. Vice President, Project
Management, QA and Regulatory at
Proscript, Inc. from 1997 to 1999.
Senior Director, Regulatory Affairs
at Biopure Corporation from 1995 to
1997. Vice President, Regulatory
Affairs and Quality Assurance from
1992 to 1994 at Ares-Serono.
</TABLE>
NOTES:
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Mr. Sykes has tendered his resignation effective June 30, 1999.
ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation paid to Richard E. Bagley, Dr.
Antoine A. Noujaim, Dr. R. Madiyalakan, Dr. Thomas Sykes and Blaine Schamber
(the "Named Executive Officers") for each of the fiscal years ended December 31,
1998 and 1997 and the period from July 17, 1996 to December 31, 1996, being the
end of the first financial year of the Company following the acquisition by the
Company of all of the issued shares of AltaRex Inc.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION COMMON SHARES
------------------------ UNDER OPTIONS ALL OTHER
NAME AND YEAR SALARY BONUS GRANTED COMPENSATION
PRINCIPAL POSITION (5) ($) ($) (#) ($)(4)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard E. Bagley(1) 1998 315,179 Nil 825,000 Nil
President and Chief
Executive Officer
</TABLE>
61
<PAGE> 73
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION COMMON SHARES
------------------------ UNDER OPTIONS ALL OTHER
NAME AND YEAR SALARY BONUS GRANTED COMPENSATION
PRINCIPAL POSITION (5) ($) ($) (#) ($)(4)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dr. Antoine A. Noujaim(1) 1998 220,000 Nil Nil 6,880
Chairman of the Board, 1997 220,000 Nil Nil 6,312
Chief Scientific Officer 1996 78,602 Nil 375,000 Nil
and Former President and
Chief Executive Officer
Dr. R. Madiyalakan(2) 1998 131,706 Nil Nil 32,991
Vice-President, Planning 1997 105,000 5,771 10,000 3,997
and Chief Scientific 1996 Nil Nil 25,000 465
Officer
Dr. Thomas Sykes 1998 167,135 Nil Nil 51,589
Vice President, Preclinical 1997 105,000 Nil 10,000 4,269
and Support Operations 1996 36,559 Nil 25,000 465
Blaine Schamber(3) 1998 116,250 Nil 40,000 11,021
Controller; previously 1997 105,000 Nil 10,000 4,206
Vice-President, Finance 1996 35,941 Nil 25,000 464
and Corporate
Development
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Dr. Noujaim became an officer of the Company on July 17, 1996 upon the
acquisition by the Company of all of the issued shares of AltaRex Inc.
Dr. Noujaim's salary was paid by AltaRex Inc. until May of 1997. Dr.
Noujaim ceased to be the President and Chief Executive Officer of the
Company on February 23, 1998. Mr. Richard E. Bagley was appointed
President and Chief Executive Officer of the Company on that date.
(2) Dr. Madiyalakan ceased to be an officer of the Company in September
1998. He currently serves as a consultant to the Company under a
services agreement that expires on September 30, 1999 and the amounts
which appear on the table do not include compensation earned
thereunder.
(3) Mr. Schamber ceased to be the Vice-President, Finance and Corporate
Development of the Company in July, 1998. He currently serves as
Controller of the Company.
(4) Compensation under the column "All Other Compensation" is with respect
to employee benefits such as health care, life insurance and a group
retirement savings plan. In respect of Messrs. Madiyalakan and Sykes,
such amounts include relocation expenses. The aggregate amount of
Perquisites and other personal benefits, securities, and property did
not exceed the lesser of $50,000 and 10 percent of the total annual
salary and bonus of the named Executive Officer.
62
<PAGE> 74
(5) 1996 figures are for the period from July 17, 1996 to December 31,
1996. 1997 and 1998 figures are for the period from January 1 to
December 31 of those years.
On September 28, 1998, Edward M. Fitzgerald commenced employment with the
Company as Senior Vice-President, Chief Financial Officer and Secretary. Total
Annual Compensation for 1998 for the above executive officers and Mr. Fitzgerald
equals $1,042,644.
STOCK OPTIONS
The following table details information with respect to the grant of options by
the Company to the named executive officers during the financial year of the
Company ended December 31, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
OPTION GRANTS
- ------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE OF
COMMON % OF TOTAL COMMON SHARES
SHARES OPTIONS UNDERLYING
UNDER GRANTED TO EXERCISE OR OPTIONS ON THE
OPTIONS EMPLOYEES BASE PRICE DATE OF GRANT
GRANTED IN FINANCIAL ($/COMMON ($/COMMON
NAME # YEAR SHARE) SHARE) EXPIRY DATE(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard E. Bagley 825,000 57% $3.00 $3.00 March 4, 2008
Blaine J. Schamber 40,000 3% $2.18 $2.18 May 13, 2008
</TABLE>
Note:
(1) At the annual and special meeting of shareholders held on May 19, 1999,
the shareholders approved and adopted an amendment to the terms of
certain outstanding options granted under the Plan extending the
exercise period of such options from five years from the original date
of grant to ten years from the original date of grant. The expiry date
included herein incorporates the adoption of this amendment.
The following table details all options held by the named executive officers and
outstanding on December 31, 1998. There were no options of the Company exercised
by the named executive officers during the last financial year.
AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED
FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION VALUES
63
<PAGE> 75
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
VALUE OF
UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FINANCIAL FINANCIAL
YEAR-END YEAR-END
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
NAME (#) ($)1
- ----------------------------------------------------------------------
<S> <C> <C>
Richard E. Bagley Nil/825,000 NA/NA
- ----------------------------------------------------------------------
Dr. Antoine A. 250,000/125,000 NA/NA
Noujaim
- ----------------------------------------------------------------------
Dr. Thomas R. 26,666/8,334 NA/NA
Sykes
- ----------------------------------------------------------------------
Blaine J. 26,666/48,334 NA/NA
Schamber
- ----------------------------------------------------------------------
Dr. R. Nil/26,666 NA/NA
Madiyalakan
- ----------------------------------------------------------------------
</TABLE>
Note:
1 None of the unexercised options were in-the-money as at December 31,
1998.
COMPENSATION OF DIRECTORS
In 1998, each director, with the exception of Dr. Antoine A. Noujaim and Mr.
Bagley, received a fee of $10,000 per annum. Further, all directors are eligible
to receive stock options and are entitled to receive their reasonable out-of
pocket disbursements incurred on the business of the Company. In the aggregate,
a total of $71,501 in fees was paid to the members of the Board of Directors
during the period from January 1, 1998 to December 31, 1998.
64
<PAGE> 76
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
SUBSIDIARIES
As at June 1, 1999, there were outstanding options to purchase a total of
2,355,499 Common Shares under the Company Stock Option Plan (the "Plan") and the
following table sets out in detail all stock options issued and outstanding
under the Plan.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Number of Shares Exercise Price
Group Under Option Date of Grant per Share Expiry Date(1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Directors (excluding 382,500 July 26, 1996 1.80 July 26, 2006
Executive Officers) 12,500 July 8, 1997 3.68 July 8, 2007
(six in total 30,000 January 22, 1998 2.96 January 22, 2008
100,000 May 21, 1998 2.18 May 21, 2008
- -------------------------------------------------------------------------------------------------------------------------
Executive Officers 25,000 July 26, 1996 1.80 July 26, 2006
(four in total) 10,000 February 11, 1997 5.90 February 11, 2007
824,130 March 4, 1998 3.00 March 4, 2008
870 July 6, 1998 3.00 July 6, 2008
175,000 September 15, 1998 0.91 September 15, 2008
175,000 December 23, 1998 0.53 December 23, 2008
- -------------------------------------------------------------------------------------------------------------------------
Employees 108,500 July 26, 1996 1.80 July 26, 2006
(29 in total) 13,333 February 4, 1997 6.00 February 4, 2007
10,000 February 11, 1997 5.90 February 11, 2007
14,000 July 8, 1997 3.68 July 8, 2007
3,000 November 7, 1997 3.30 November 7, 2007
10,000 February 1, 1998 2.84 February 1, 2008
105,000 May 21, 1998 2.18 May 21, 2008
50,000 August 4,1998 1.15 August 4, 2008
50,000 November 30, 1998 0.80 November 30, 2008
100,000 May 11, 1999 0.46 May 11, 2009
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE> 77
<TABLE>
<S> <C> <C> <C> <C>
Consultants
Dr. Terry Allen 5,000 July 8, 1997 3.68 July 8, 2007
Dr. Richard Baum 10,000 July 8, 1997 3.68 July 8, 2007
Dr. Beatrice Leveugle 5,000 July 8, 1997 3.68 July 8, 2007
Dr. Gerry Miller 5,000 July 8, 1997 3.68 July 8, 2007
Dr. John Samuels 5,000 July 8, 1997 3.68 July 8, 2007
Dr. Constantine Bona 10,000 July 8, 1997 3.68 July 8, 2007
Dr. Jean-Francois Chatal 10,000 July 8, 1997 3.68 July 8, 2007
Dr. David Goodwin 10,000 July 8, 1997 3.68 July 8, 2007
Dr. James Lown 10,000 July 8, 1997 3.68 July 8, 2007
Dr. Dean Mann 10,000 July 8, 1997 3.68 July 8, 2007
Dr. Paul Muller 10,000 July 8, 1997 3.68 July 8, 2007
Dr. Aldo Serafini 10,000 July 8, 1997 3.68 July 8, 2007
Dr. David Wishart 5,000 November 7, 1997 3.30 November 7, 2007
Dr. R. Madiyalakan 26,666 September 30, 1998 0.72 October 30, 1999
Genome Securities, Inc. 25,000 July 17, 1998 1.40 July 17, 2008
</TABLE>
Note:
(1) At the annual and special meeting of shareholders held on May 19, 1999,
the shareholders approved and adopted an amendment to the terms of
certain outstanding options granted under the Plan extending the
exercise period of such options from five years from the original date
of grant to ten years from the original date of grant. The expiry date
included herein incorporates the adoption of this amendment.
ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
There are no material interests, direct or indirect, of directors, senior
officers or shareholders of the Company who beneficially own, directly or
indirectly, more than 10% of the outstanding Common Shares or any known
associate or affiliates of such persons, in any transaction since July 1996 or
in any proposed transaction which has materially affected or will materially
affect the Company, except for the following:
1. On July 17, 1996 the Company acquired all of the issued and outstanding
shares of AltaRex Inc. for a purchase price satisfied by the issuance
by the Company of 7,525,000 Common Shares (the "AltaRex Acquisition").
As a result, the former shareholders of AltaRex Inc. became the
controlling shareholders of the Company and AltaRex Inc. became a
wholly owned subsidiary of the Company. Each of the officers and
directors of the Company (other than Mr. Gonneau) directly or
indirectly owned shares of AltaRex Inc. prior to the AltaRex
Acquisition and therefore received Common Shares of the Company
pursuant to the AltaRex Acquisition. The numbers of Common Shares of
the Company referred to in this paragraph have been adjusted to reflect
a consolidation of the Common Shares of the Company which was effected
in November of 1996.
66
<PAGE> 78
2. AltaRex Inc. entered into loan agreements with several individuals
between January 1, 1996 and July 17, 1996 pursuant to which it borrowed
$1,100,000 (the "Bridge Financing"). Dr. Antoine A. Noujaim and 668355
Alberta Ltd. loaned $100,000 and $400,000 respectively to AltaRex Inc.
pursuant to the bridge financing. The loans from Dr. Noujaim and 668355
Alberta Ltd. were unsecured loans bearing interest at 12% per annum.
The bridge financing was repaid in full by AltaRex Inc. on July 30,
1996. William R. McMahan, a director of the Company, is a director of
668355 Alberta Ltd. and a trust established for the benefit of his
family is a major shareholder of 668355 Alberta Ltd.
PART II
ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED
Not Applicable.
PART III
ITEM 15 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 16 - CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
Not Applicable
PART IV
ITEM 17 - FINANCIAL STATEMENTS
See the Financial Statements listed in Item 19 hereof and attached hereto as
Exhibit A, which are filed and incorporated herein as part of this Annual
Report.
These financial statements were prepared in accordance with generally accepted
accounting principles in Canada and are expressed in Canadian dollars. Such
financial statements have been reconciled to United States generally accepted
accounting principles. For a history of exchange rates in effect for Canadian
dollars as against U.S. dollars see page 3 of this Annual Report.
67
<PAGE> 79
ITEM 18 - FINANCIAL STATEMENTS
Not Applicable
ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements
Report of Ernst & Young LLP, Independent Chartered Accountants
Consolidated balance sheets as at December 31, 1998 and December 31, 1997
Consolidated statements of loss and accumulated deficit for the years ended
December 31, 1998, 1997 and 1996, and for the period December 1, 1995 to
December 31, 1998
Consolidated statements of cash flows for the year ended December 31, 1998, 1997
and 1996, and for the period December 1, 1995 to December 31, 1998
Notes to the Consolidated Financial Statements
Exhibits
The list of Exhibits filed as part of this Annual Report on Form 20-F are set
forth on the Exhibit Index immediately preceding such Exhibits, and is
incorporated herein by this reference.
68
<PAGE> 80
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALTAREX CORP.
/s/ Edward M. Fitzgerald
Per: ____________________________________________
Edward M. Fitzgerald
Senior Vice President, Chief Financial
Officer and Secretary
DATED this 22nd day of June, 1999.
69
<PAGE> 81
Exhibit A
CONSOLIDATED FINANCIAL STATEMENTS
ALTAREX CORP.
DECEMBER 31, 1998 AND 1997
A-1
<PAGE> 82
AUDITORS' REPORT
To the Directors of
ALTAREX CORP.
We have audited the consolidated balance sheets of ALTAREX CORP. as at December
31, 1998 and 1997 and the consolidated statements of loss and accumulated
deficit, and the consolidated statements of cash flows for the years ended
December 31, 1998, 1997, 1996 and the period December 1, 1995 to December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1998
and 1997 and the results of its operations and the changes in its financial
position for the years ended December 31, 1998, 1997, 1996 and the period
December 1, 1995 to December 31, 1998 in accordance with accounting principles
generally accepted in Canada.
Edmonton, Canada /s/ Ernst & Young LLP
February 12, 1999 Chartered Accountants
(except as to note 11 which is
as of April 27, 1999)
A-2
<PAGE> 83
ALTAREX CORP.
CONSOLIDATED BALANCE SHEETS
As at December 31
<TABLE>
<CAPTION>
1998 1997
(In Canadian dollars) $ $
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments 12,823,420 25,002,106
Accounts receivable 78,616 192,299
Investment tax credit receivable 247,734
Prepaid expenses 174,293 89,096
- ----------------------------------------------------------------------------------------------
13,076,329 25,531,235
DEPOSITS AND OTHER ASSETS [note 2] 322,840 185,741
NOTES RECEIVABLE FROM EMPLOYEES [note 3] 106,186
CAPITAL ASSETS [note 4] 1,654,419 1,582,768
- ----------------------------------------------------------------------------------------------
15,159,774 27,299,744
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities 2,079,168 1,035,299
- ----------------------------------------------------------------------------------------------
2,079,168 1,035,299
DEFERRED LEASE CREDIT 433,766 555,676
- ----------------------------------------------------------------------------------------------
2,512,934 1,590,975
- ----------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES [notes 7 , 10 and 11]
SHAREHOLDERS' EQUITY
Share capital [notes 5 and 11] 32,838,364 32,784,364
Accumulated deficit during the development stage (20,191,524) (7,075,595)
- ----------------------------------------------------------------------------------------------
12,646,840 25,708,769
- ----------------------------------------------------------------------------------------------
15,159,774 27,299,744
==============================================================================================
</TABLE>
See accompanying notes
On behalf of the Board:
Director Director
A-3
<PAGE> 84
ALTAREX CORP.
CONSOLIDATED STATEMENTS OF LOSS AND
ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DEC. 1, 1995
DECEMBER 31, - DEC. 31,
---------------------------------------------
1998 1997 1996 1998
(In Canadian dollars) $ $ $ $
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Research contracts [note 7] 50,000 680,000 15,000 745,000
Sale of research materials 39,760 8,589 71,869
Interest income 963,742 900,076 64,668 1,928,486
- -------------------------------------------------------------------------------------------------------------
1,013,742 1,619,836 88,257 2,745,355
- -------------------------------------------------------------------------------------------------------------
EXPENSES
Research and development [note 7] 9,433,681 4,733,918 1,720,031 16,095,431
General and administrative 4,695,990 1,563,555 540,285 6,841,448
- -------------------------------------------------------------------------------------------------------------
14,129,671 6,297,473 2,260,316 22,936,879
- -------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR (13,115,929) (4,677,637) (2,172,059) (20,191,524)
Accumulated deficit, beginning of year (7,075,595) (2,397,958) (225,899)
- -------------------------------------------------------------------------------------------------------------
ACCUMULATED DEFICIT, END OF YEAR (20,191,524) (7,075,595) (2,397,958) (20,191,524)
=============================================================================================================
NET LOSS PER COMMON SHARE ($ 0.79) ($ 0.29) ($ 0.24)
- -------------------------------------------------------------------------------------------
Weighted-average number of
common shares 16,503,764 15,894,880 9,067,374
===========================================================================================
</TABLE>
See accompanying notes
A-4
<PAGE> 85
ALTAREX CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DEC. 1, 1995
DECEMBER 31, - DEC. 31,
-------------------------------------------------
1998 1997 1996 1998
(In Canadian dollars) $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH USED IN OPERATING ACTIVITIES
Net loss (13,115,929) (4,677,637) (2,172,059) (20,191,524)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 548,687 366,268 127,816 1,052,488
Amortization of deferred lease credit (168,551) (64,324) (232,875)
Interest expense satisfied through
issuance of common shares 12,066 12,066
Net changes in non-cash working capital
balances 1,301,468 374,431 (163,546) 1,621,897
- ----------------------------------------------------------------------------------------------------------------------
(11,434,325) (4,001,262) (2,195,723 (17,737,948)
- ----------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES
Purchase of capital assets (620,339) (1,473,826) (45,473) (2,706,908)
Acquisition of AltaRex Corp. (30,250) (30,250)
- ----------------------------------------------------------------------------------------------------------------------
(620,339) (1,473,826) (75,723) (2,737,158)
- ----------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Issue of common shares, net [note 6] 54,000 2,860,273 25,391,601 29,305,874
Issue of Private Placement Units, net [note 6] 2,340,674 2,340,674
Issue of Special Warrants, net [note 6] 1,210,000 1,210,000
Share subscription receivable 293,963
Deferred lease credit 46,641 620,000 666,641
Deferred finance costs (118,477) (118,477)
Employee relocation loans (106,186) (106,186)
Net changes in non-cash financing balances (219,028) 219,028
- ----------------------------------------------------------------------------------------------------------------------
(124,022) 3,261,245 29,455,266 33,298,526
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (12,178,686) (2,213,843) 27,183,820 12,823,420
Cash and short-term investments,
beginning of year 25,002,106 27,215,949 32,129
- ----------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS,
END OF YEAR 12,823,420 25,002,106 27,215,949 12,823,420
======================================================================================================================
</TABLE>
See accompanying notes
A-5
<PAGE> 86
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
1. BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
The Company, amalgamated under the Business Corporations Act (Alberta) is a
biotechnology company that is engaged in the research and development of
biopharmaceutical products for the therapy of cancer. The Company is in its
development stage.
The Company's ability to complete its research and development program and
commercialize its technology is dependent on the Company continuing to arrange
the necessary financing and the receipt of regulatory approvals to use its
products in the therapy of cancer.
ACQUISITION OF ALTAREX INC.
Effective July 17, 1996, AltaRex Corp. (formerly known as Allrich Energy Group
Inc.) acquired 100% of the issued and outstanding common shares of AltaRex Inc.
by issuing a total of 7,525,000 of AltaRex Corp.'s common shares. At the date of
acquisition, AltaRex Corp. was a non-operating company with net monetary
liabilities totalling $30,250, which amount approximated their net fair value.
AltaRex Inc. was incorporated on October 31, 1995 and commenced active
operations on December 1, 1995. By this transaction, sufficient common shares of
AltaRex Corp. were issued so that a controlling interest (approximately 74%) of
the corporate group passed to the former shareholders of AltaRex Inc.
Accordingly, for accounting purposes, AltaRex Inc. was treated as the purchaser,
and the acquisition was accounted for as a reverse take-over. The legal parent
company, AltaRex Corp., is deemed to be a continuation of AltaRex Inc., and
accordingly, these financial statements are a continuation of the financial
statements of AltaRex Inc., the legal subsidiary, and not the legal parent. In
these financial statements, the 1996 comparative figures presented are those of
AltaRex Inc. In making the acquisition, AltaRex Inc. acquired net liabilities of
approximately $30,250 which amount has been charged to share issue costs. The
acquisition has been accounted for using the purchase method with the cost of
the purchase being a nominal $1.
AMALGAMATION OF ALTAREX CORP. AND ALTAREX INC.
Effective May 31, 1997, AltaRex Corp. amalgamated with its wholly-owned
subsidiary, AltaRex Inc., to continue operations as AltaRex Corp. For accounting
purposes, the amalgamation has been accounted for based on the carrying amounts
of the assets and liabilities of AltaRex Corp. and AltaRex Inc. prior to the
amalgamation.
A-6
<PAGE> 87
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared by management in accordance with
accounting principles generally accepted in Canada, which do not differ
materially from those established in the United States, except as disclosed in
Note 8. The preparation of financial statements in conformity with such
principles requires management to make estimates and assumptions that affect the
reported assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting periods. Actual results could differ
from those estimates.
CONSOLIDATION OF SUBSIDIARIES
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, AltaRex US, Corp.
REVENUE RECOGNITION
Research material sales are recognized as materials are delivered.
Revenue from research contracts, which includes government funding of research
projects, is recognized as the services are performed based on costs incurred
or, for those contracts that provide for milestone payments, as milestones are
achieved. Amounts received under refundable research contracts are recorded as
revenue when repayment is conditional on the commercial success of the research
effort. Amounts received in advance of services to be performed are recorded as
unearned revenue.
CASH AND SHORT-TERM INVESTMENTS
The Company invests its surplus cash in highly liquid government and commercial
instruments with maturities not exceeding one year. The carrying cost of
short-term investments approximates their fair value. The short-term investments
held at December 31, 1998 have maturity periods averaging 2.5 months (1997 - 5
months) and average interest rates approximating 5.1% (1997 - 3.9%).
A-7
<PAGE> 88
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPOSITS AND OTHER ASSETS
Deposits and down payments on service contracts are deferred and expensed as
services are provided under the terms of the contract.
Included in deposits and other assets are amounts paid on deposit to an
underwriter in anticipation of a financing transaction and have been deferred
pending completion of a transaction. In the event of successful completion of
the financing these costs will be charged to capital. In the event the financing
is unsuccessful these costs will be expensed.
CAPITAL ASSETS
Capital assets are stated at cost net of investment tax credits, accumulated
amortization and depreciation. Depreciation and amortization is provided at
rates which are designed to allocate the cost of the assets, on a straight-line
basis, over their estimated useful lives as follows:
<TABLE>
<S> <C>
Scientific equipment 5 years
Computer software and equipment 3 years
Office equipment 5 years
Leasehold improvements 3 - 5 years, term of lease
</TABLE>
DEFERRED LEASE CREDIT
The deferred lease credit relates to leasehold improvements provided to the
Company by the landlord for its leased office and research facilities. The
deferred lease credit is being amortized over the term of the lease agreements
which is three to five years (see note 7).
RESEARCH AND DEVELOPMENT COSTS
Research costs are expensed in the period incurred. Development costs are
expensed in the period incurred unless the Company believes a development
project meets generally accepted accounting principles for deferral and
amortization. No development costs have been deferred to date.
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities in foreign currencies are translated into
Canadian dollars at the rate of exchange at the period end; transactions during
the period are translated at the rate of exchange in effect at the date of the
transaction. Gains and losses arising from these translation adjustments are
included in income.
A-8
<PAGE> 89
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT TAX CREDITS
The Company is permitted to offset federal income taxes payable with unapplied
investment tax credits which are based on the cost of carrying on qualifying
research and development activities and the cost of qualifying new equipment
(see note 6).
Refundable investment tax credits received by the Company relating to the
acquisition of assets are deducted from the cost of the related asset.
Refundable investment tax credits received by the Company relating to current
expenses are included in the determination of net income as a reduction of
research and development costs.
INCOME TAXES
Income taxes have been provided on a deferred tax allocation basis whereby the
provision for income taxes is determined on the basis of income and expenses
included on the statement of income rather than the related amounts reported in
the income tax returns of the Company. Deferred income taxes relate primarily to
differences between the amount of depreciation and amortization recorded for
accounting purposes and capital cost allowance claimed for income tax purposes.
LOSS PER SHARE
In accordance with generally accepted accounting principles in Canada applicable
to reverse take-overs, the loss per share figures are calculated on the
following basis:
- - The number of shares outstanding from the beginning of the fiscal
period to the date of the reverse take-over on July 17, 1996 are deemed
to be the number of shares issued by AltaRex Corp. to AltaRex Inc.
- - The number of shares outstanding from the date of the reverse take-over
to the end of each of the fiscal periods are deemed to be the actual
number of shares of AltaRex Corp. outstanding in each period.
The loss per share figure is calculated on the weighted-average number of shares
outstanding based on the numbers determined above, including shares held in
escrow.
A-9
<PAGE> 90
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
3. NOTES RECEIVABLE
The note receivable balance is comprised of employee relocation loans. The notes
are unsecured, non-interest bearing (except on default of repayment),
denominated in U.S. dollars, and have maturity dates ranging from May 2000 to
June 2003.
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998 1997
--------------------------- -----------------------
ACCUMULATED ACCUMULATED
COST AMORTIZATION COST AMORTIZATION
$ $ $ $
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scientific equipment 1,187,996 543,893 954,565 306,144
Computer software and equipment 301,968 150,688 174,658 74,763
Office equipment 416,559 117,151 244,346 50,820
Leasehold improvements 781,041 221,413 713,000 72,074
- ----------------------------------------------------------------------------------------------
2,687,564 1,033,145 2,086,569 503,801
- ----------------------------------------------------------------------------------------------
NET BOOK VALUE 1,654,419 1,582,768
==============================================================================================
</TABLE>
5. SHARE CAPITAL
AUTHORIZED
The authorized share capital of the Company consists of an unlimited number of
common shares and an unlimited number of preferred shares.
The preferred shares may be issued in one or more series and the directors are
authorized to fix the number of shares in each series and to determine the
designation, rights, privileges, restrictions and conditions attached to the
shares of each series.
A-10
<PAGE> 91
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
5. SHARE CAPITAL (CONTINUED)
ISSUED AND OUTSTANDING COMMON SHARES
Summarized below is the issued and outstanding common shares of AltaRex Corp.:
<TABLE>
<CAPTION>
SHARE
NUMBER OF CAPITAL
SHARES $
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT DECEMBER 1, 1995 1,169,330
Issue of shares 25,000
Initial capitalization of Company 1,000,000
- ----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 1,194,330 1,000,000
Private placement of shares of AltaRex Inc. 175,200
Issue of shares of AltaRex Inc. in settlement of interest payable 12,066
Shares issued in private placement of unit sales 1,497,500 2,310,424
Shares issued to acquire AltaRex Inc. 7,525,000 1
Issue of shares for cash from exercise of Special Warrants 797,500 1,210,000
Shares issued for cash in public offering 4,100,000 25,036,466
Issue of shares resulting from exercise of stock options 116,933 76,014
Issue of shares resulting from exercise of Warrants 43,300 103,920
- ----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 15,274,563 29,924,091
Issue of shares resulting from exercise of stock options, net 95,000 170,931
Issue of shares resulting from exercise of Warrants 1,113,050 2,689,342
- ----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 16,482,613 32,784,364
Issues of shares resulting from exercise of stock options 30,000 54,000
- ----------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 16,512,613 32,838,364
====================================================================================================
</TABLE>
Effective November 28, 1996, the shareholders approved a consolidation of the
Company's common shares, on the basis of one new common share for every four
existing common shares. These financial statements reflect the share
consolidation for all periods presented.
On July 17, 1996, the Company issued 1,497,500 common shares on the exercise of
Private Placement Units ("Units"). The Units were issued for gross proceeds of
$2,695,500 inclusive of Units issued for $175,000 in commission charges. The
Units consisted of 1,497,500 common shares and common share purchase warrants
("Warrants") that were exercisable into 1,497,500 common shares.
A-11
<PAGE> 92
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
5. SHARE CAPITAL (CONTINUED)
Also on July 17, 1996 Special Warrants were issued for gross proceeds of
$1,435,500 inclusive of Special Warrants issued for $130,500 in commission
charges. The Special Warrants consisted of 797,500 common shares and Warrants
that were exercisable into 797,500 common shares. On November 18, 1996 a total
of 797,500 common shares were issued on the exercise of Special Warrants.
As additional consideration for the services rendered by the underwriter related
to the Special Warrant issuance, a compensation option was granted. The
compensation option consisted of optioned units that if exercised would have
resulted in the issuance of 72,500 common shares and warrants that would have
been exercisable into 72,500 common shares.
On July 17, 1998 the right to exercise the outstanding Warrants and compensation
option related to the issuance of Units and Special Warrants expired.
On December 20, 1996, the Company issued 4,100,000 common shares in a public
offering for net proceeds of $25,036,466, after related issue expenses of
$2,638,534.
As at December 31, 1998, a total of 2,649,552 (December 31, 1997 - 5,260,994)
common shares of the Company are being held in escrow for regulatory purposes
and released on the following basis:
- - An amount of 2,434,773 (December 31, 1997 - 4,831,440) common shares
will be released from escrow on a basis pro rata to each shareholder,
of one common share for each $1.20 of gross research and development
costs incurred by the Company to a maximum in any one year of 2,396,667
common shares. A total of 2,396,667 common shares were released in
1998.
- - An additional 214,779 (December 31, 1997 - 429,554) common shares will
be released from escrow on a basis pro rata to each shareholder on July
17, 1999. A total of 214,775 common shares were released on July 15,
1998.
WARRANTS AND STOCK OPTION PLAN (SEE NOTE 11)
In 1998, the Company amended its stock option plan for directors, officers,
employees and consultants. Pursuant to the amended plan, a total of 2,480,000
(December 31, 1997 - 1,544,206) common shares of the Company are reserved for
issue of stock options, of which 209,251 (December 31, 1997 - 565,373) are
available for grant at December 31, 1998. At December 31, 1998, there were
2,114,083 (December 31, 1997 - 683,833) stock options outstanding for directors,
officers and employees and 156,666 (December 31, 1997 - 295,000) options for
consultants.
A-12
<PAGE> 93
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
5. SHARE CAPITAL (CONTINUED)
The following schedule details the warrants and stock options granted,
exercised, expired and cancelled since December 1, 1995.
<TABLE>
<CAPTION>
SHARES ISSUABLE ON
EXERCISE OF
------------------------------ EXERCISE PRICE
STOCK OPTIONS WARRANTS PER SHARE
$
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 1 AND
DECEMBER 31, 1995 Nil Nil
Granted 858,500 2,440,000 1.80 - 3.00
Exercised (43,300) 2.40 - 3.00
- -------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 858,500 2,396,700
Granted 217,833 41,667 3.30 -12.00
Exercised (95,000) (1,113,050) 1.80 - 3.00
Cancelled (2,500) 3.68
- -------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 978,833 1,325,317
Granted 1,723,666 0.53 - 3.00
Exercised (30,000) 1.80
Cancelled (401,750) 1.15 - 5.90
Expired (1,283,650) 1.80 - 3.00
- -------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 2,270,749 41,667
=================================================================================================
</TABLE>
A-13
<PAGE> 94
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
5. SHARE CAPITAL (CONTINUED)
The following warrants and stock options to purchase common shares are
outstanding at December 31, 1998.
<TABLE>
<CAPTION>
SHARES ISSUABLE ON
EXERCISE OF
- ------------------------------------
EXERCISE PRICE
STOCK OPTIONS WARRANTS PER SHARE YEAR OF EXPIRY
$
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
26,666 0.72 1999
41,667 12.00 2000
522,250 1.80 2001
139,500 3.30 - 3.68 2002
33,333 5.90 - 6.00 2002
400,000 0.53 - 0.91 2003
75,000 1.15 - 1.40 2003
1,074,000 2.18 - 3.00 2003
- -----------------------------------------------------------------------------------------------
2,270,749 41,667
===============================================================================================
</TABLE>
A-14
<PAGE> 95
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
6. INCOME TAX
The Company is eligible for scientific research and development investment tax
credits which may be applied against federal taxes payable. The accumulated
non-refundable investment tax credits as at December 31, 1998 approximate
$1,923,000 (December 31, 1997 - $1,360,000).
As at December 31, 1998, the Company has scientific research and experimental
development expenditures for tax purposes of approximately $8,146,000 (December
31, 1997 - $5,208,000) which may be carried forward indefinitely and utilized by
reducing income for income tax purposes.
As at December 31, 1998, the Company has approximately $12,984,000 (December 31,
1997 - $2,900,000) of non-capital losses available to be applied to taxable
income of future years. These losses expire between 2001 and 2005.
No recognition has been given in these financial statements to the potential tax
benefits which may result from these carry forward amounts.
7. COMMITMENTS AND CONTINGENCIES (SEE NOTE 11)
The Company leases office and research facilities and is committed to annual
minimum basic rent payments as follows:
<TABLE>
<CAPTION>
$
- ------------------------------------------------------
<S> <C>
1999 279,919
2000 279,919
2001 156,077
2002 52,454
</TABLE>
A-15
<PAGE> 96
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
On December 1, 1995, in an arm's-length transaction, AltaRex Inc. acquired a
fifteen year exclusive world-wide right and license to a certain antibody, its
cell bank, related data, records and proprietary rights (the "Technology") which
will be used for the therapy of cancer (the "Biomira License Agreement"), for a
non-refundable cash fee of $150,000 from Biomira Inc., which, at the time of the
acquisition, had a director who was also a director of the Company. This license
fee has been charged to research and development expenses. In addition, certain
equipment was purchased for cash of $514,000, an amount approximating its fair
value. The Company also agreed to pay royalties associated with revenues from
the Technology. The Technology agreement requires that the Company use its best
efforts to commercialize the Technology and to commit to spending certain
minimum amounts to develop the Technology. Should these obligations not be met,
the Company's right under the Technology agreement ceases to be exclusive (see
note 11).
The Company is party to a jointly-funded research contract with the
Canada-Israel Industrial Research and Development Foundation. Total funding of
$300,000 is available over a three year term commencing in 1997. During 1997,
$100,000 was received and recorded as revenue. No amounts were received in 1998
and the Company is not currently conducting research pursuant to the contract.
The funding received is conditionally repayable, on commercial success, at a
rate of 2.5% of gross sales of the resulting products.
The Company is party to an agreement with the Alberta Heritage Foundation for
Medical Research to jointly fund clinical trials, with the Company controlling,
through ownership or licensing, all of the technology. Total funding available
of $500,000 was received and recorded as revenue in 1997. The Company is
required to repay this funding and a royalty equivalent to the amount actually
received, from the commercial success of the resulting products and technology,
at a rate of the lesser of 5% of gross sales or $100,000 per annum. In addition,
the Company granted Warrants in connection with this agreement which entitle the
holder to obtain 41,667 common shares (see note 5).
The Company has contracted certain research projects to a third party consultant
for a three year period ending March 2000. Fees will be paid to the consultant
to a maximum of $300,000 per annum.
A-16
<PAGE> 97
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
8. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada (Canadian GAAP) which conform in all
material respects to those accounting principles in the United States (U.S.
GAAP), except as follows:
(a) Cash and short-term investments
For Canadian GAAP purposes with regard to the statement of cash flows, cash
and cash equivalents include all short-term investments. For U.S. GAAP
purposes only those short-term investments with original maturities of less
than three months would be included in cash and cash equivalents. Short-term
investments with maturities greater than three months amounted to $4,241,732
as at December 31, 1998 ($9,036,000 as at December 31, 1997).
In addition, for Canadian GAAP purposes, the gross amount of non-cash items
are included in the respective operating, investing, or financing activities
as applicable. For U.S. GAAP purposes, non-cash items such as leasehold
improvements financed by the deferred lease credit would be excluded from
the statements of cash flows. Accordingly, for U.S. GAAP purposes for the
year ended December 31, 1998 cash used in investing activities would
decrease by $4,840,909 (1997 - increase by $8,416,000), cash provided in
financing activities would decrease by $46,641 (1997 - $620,000) and cash
and cash equivalents would decrease by $4,241,732 (1997 - $9,036,000).
(b) Accounting for income taxes
For U.S. GAAP purposes, the Company would be required to account for income
taxes in accordance with the provisions of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" (SFAS 109). SFAS 109
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year. In addition, for U.S. GAAP purposes, a deferred tax
asset, net of a valuation allowance, would be recorded to recognize the
future benefit of loss carryforwards when the realization of the benefit is
determined to be more likely than not. For Canadian GAAP purposes, the
benefits of such losses may only be recorded in the period incurred if
realization is virtually certain. At December 31, 1998, the Company has
determined that the deferred tax asset net of a valuation allowance of
$11,066,000 (December 31, 1997 - $5,005,000) would be nil (nil at December
31, 1997).
A-17
<PAGE> 98
Notes to Consolidated Financial Statements
8. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES (CONTINUED)
(c) Accounting for stock-based compensation
For U.S. GAAP purposes, the Company would account for stock-based
compensation to employees in accordance with Accounting Principles Board
(APB) Opinion No. 25. For U.S. GAAP purposes, no compensation expense would
be recognized on the Company's stock options and warrants granted, since the
exercise price of these instruments equal the fair value of the Company's
stock as at the date of the grant. Stock-based compensation to non-employees
would be recorded at the fair value of the options and warrants granted.
This compensation expense would be amortized over the appropriate vesting
periods. As at December 31, 1998, the unamortized compensation benefit that
the Company would record as additional compensation expense in future
periods amounts to $89,000 (December 31, 1997 - $181,000).
(d) Reverse take-over costs
For Canadian GAAP purposes, costs incurred in connection with the Company's
reverse take-over are presented as a charge against shareholder's equity.
For U.S. GAAP purposes, these costs totalling $495,000 would be charged to
expense. Accordingly, net loss for the year ended December 31, 1996 and
share capital for each of the periods presented would increase by $495,000.
(e) Comprehensive income
For U.S. GAAP purposes, the Company would adopt the disclosure requirements
of Financial Accounting Standard No. 130 ('SFAS 130'). SFAS 130 requires the
presentation of comprehensive income and its components. Comprehensive
income includes all changes in equity during a period except shareholder
transactions. For the periods presented, comprehensive income would equal
net loss determined for U.S. GAAP purposes as set out in the following
table.
A-18
<PAGE> 99
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
8. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES (CONTINUED)
The following table reconciles the net loss as reported on the statements of
loss to the net loss that would have been reported had the financial statements
been prepared in accordance with U.S. GAAP.
<TABLE>
<CAPTION>
YEARS ENDED DEC. 1, 1995
DECEMBER 31, - DEC. 31,
--------------------------------------
1998 1997 1996 1998
$ $ $ $
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss per Canadian GAAP 13,115,929 4,677,637 2,172,059 20,191,524
Adjustment for stock -based compensation 130,000 163,000 75,000 368,000
Adjustments of reverse take-over costs 495,000 495,000
- ----------------------------------------------------------------------------------------------------
Net loss per U.S. GAAP 13,245,929 4,840,637 2,742,059 21,054,524
====================================================================================================
Basic and diluted net loss
per share, U.S. GAAP (0.80) (0.30) (0.30)
=====================================================================================
Weighted-average number of
common shares 16,503,764 15,894,880 9,067,374
Weighted-average number
of common shares and
dilutive share equivalents 16,503,764 15,894,880 9,067,374
====================================================================================================
</TABLE>
The following summarizes balance sheet items with material variations under U.S.
GAAP.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
$ $
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Share capital 33,701,364 33,517,364
Accumulated deficit 21,054,524 7,808,595
</TABLE>
A-19
<PAGE> 100
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
9. SEGMENTED DISCLOSURE
The Company has considered the reporting requirements of the Canadian Institute
of Chartered Accountants on segment disclosures. The Company has determined that
it manages its operations as one reportable segment of a biotechnology company
engaged in the research and development of biopharmaceutical products for the
therapy of cancer. All of the Company's revenues are generated in Canada. The
Company's capital assets are located in Canada with the exception of $330,000
located in the United States.
10. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
A-20
<PAGE> 101
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
11. SUBSEQUENT EVENTS
(a) Biomira License Agreement
Biomira Inc. has provided the Company with written notice alleging that
the Company is in default of certain reporting obligations under the
Biomira License Agreement and that Biomira Inc. will terminate the
agreement on June 1, 1999 unless the alleged defaults are fully cured
on or before that date. Biomira had previously given notice to the
Company of the alleged default and that the agreement would terminate
on April 15, 1999. The Company believes that it is currently in
compliance with all of the terms of the Biomira License Agreement and
intends to take such actions as may be necessary to prevent any attempt
by Biomira Inc. to terminate the Biomira License Agreement or in any
way limit the rights of the Company thereunder.
(b) Biomira Claim
On February 26, 1999, Biomira Inc. commenced legal action against the
Company, the founder of the Company and certain other individuals
affiliated with the Company, claiming ownership of an invention
disclosed in a patent application filed by the Company relating to
certain aspects of the Company's core technology, products, processes,
and their production. In the action, Biomira is seeking, among other
things, a court order stating that it is the sole owner of the
invention and related intellectual property rights therein, including
the patent application, an injunction prohibiting the Company from
using the invention and damages in the amount of $200,000,000. Although
there can be no assurance that Biomira will not be successful with its
claim, the Company believes that the claim is without merit. The
Company has filed a statement of defense denying the claim. Given the
early stage of the Biomira Claim, it is not possible to estimate the
potential costs and losses, if any, related to this matter.
(c) Altarex Claim
On March 16, 1999, the Company filed a counter claim against Biomira
Inc., seeking a declaration of the court that, among other things, (i)
Biomira is in breach of the Biomira License Agreement and the related
asset purchase agreement between the Company, Biomira Inc. and Biomira
Research Inc., (ii) the Company has the exclusive worldwide right and
license to use the B43 Technology to develop, commercialize,
manufacture, use and sell products based upon such technology
(including OvaRex(TM) MAb), (iii) the Company has the exclusive right
under the Biomira License Agreement to develop, commercialize, use and
sell all AIT(R) Technology applications, (iv) as a result of its
breaches of the Biomira License Agreement, Biomira Inc. is not entitled
to any rights under the Biomira License Agreement, and (v) the terms of
the Biomira License Agreement prohibit Biomira from bringing the legal
action described in the preceding paragraph. In addition, the Company
is seeking an injunction prohibiting Biomira from pursuing its legal
action against the Company and damages in an amount to be proven at
trial. Biomira Inc. has filed a statement of defense denying the
counterclaim. Given the early stage of the Altarex Claim, it is not
possible to estimate the potential costs related to this matter.
A-21
<PAGE> 102
ALTAREX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
(In Canadian dollars)
11. SUBSEQUENT EVENTS (CONTINUED)
(d) Amendment to stock option plan
On April 9, 1999 the Company's directors approved an amendment to the
Company's stock option plan, subject to shareholder and regulatory
approval, by increasing the number of Common Shares reserved for
issuance from 2,480,000 to 4,180,000 and increasing the maximum
exercise period for existing and future options from 5 years to 10
years.
(e) Public offering of Common shares
Pursuant to an agency agreement dated April 27, 1999, the Company
proposes to issue up to 34,000,000 Common Shares at $0.50 per share,
for gross proceeds of $17,000,000. The agency fee and other expenses of
the issue payable by the Company are estimated at $1,700,000 and will
be deducted from the gross proceeds. The Company has also agreed to
grant the agents options to acquire up to an aggregate of 5,100,000
additional Common Shares at the offering price to cover
over-allotments.
A-22
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
- ------ -------------------- -------
<S> <C> <C>
1.1+ The Articles of the Company dated November 18, 1993 as amended by
Articles of Amendment dated June 25, 1996 and November 28, 1996.
1.2+ Articles of Amalgamation of the Company dated May 31, 1997 as amended
by Articles of Amendment dated June 27, 1997.
1.3+ The Bylaws of the Company dated March 1, 1995.
1.4+ Asset Purchase Agreement dated November 24, 1995 among AltaRex Inc.,
Biomira Research Inc. and Biomira Inc.*
1.5+ The Share Purchase Agreement.
1.7+ Letter Agreement dated February 20, 1996 between AltaRex Inc. and Merck
Frosst Canada Inc.*
1.8+ Joint Research Collaboration Agreement dated February 21, 1996 between
AltaRex Inc. and Resolution Pharmaceuticals Inc.
1.9+ Joint Research and Licensing Agreement dated August 15, 1996 between
the University of Alberta and AltaRex Inc.*
1.10+ License Agreement dated November 24, 1995 between Biomira Inc. and
AltaRex Inc.*
1.11+ Assignment of Patent Agreement dated April 4, 1996 between Biomira Inc.
and AltaRex Inc.
1.12+ Employment Contracts dated January 1, 1996, between AltaRex Inc. and
Dr. Antoine Noujaim, and Employment Contracts dated January 1, 1997
between AltaRex Corp. and each of Blaine J. Schamber, Dr. R.
Madiyalakam and Dr. Thomas R. Sykes.
1.13+ The Warrant Indenture.
1.14+ The Special Warrant Indenture.
1.15+ Assignment of Letter Agreement dated February 20, 1996 between AltaRex
Inc. and Merck Frosst Canada Inc. See "Business of AltaRex - Strategic
Alliances and License Agreement."
1.16+ Employment Contract dated January 1, 1997 between AltaRex Corp. and Dr.
R. Madiyalakan.
1.17+ Employment Arrangement dated February 18, 1998 and amended as of March
30, 1998 between AltaRex Corp. and Richard E. Bagley.
1.18 Office lease of Altarex U.S. Corp. dated March 30, 1998 for property
located at 303 Wyman Street, Waltham, Massachusetts
</TABLE>
<PAGE> 104
* Confidential treatment granted as to certain portions, which portions
are omitted and filed separately with the Commission.
+ Incorporated by reference to Exhibits to the Company's Registration
Statement on Form 20-F.
<PAGE> 1
Exhibit 1.18
HOBBS BROOK OFFICE PARK
Waltham, Massachusetts
OFFICE LEASE
ALTAREX, U.S. Corp.
303 Wyman Street
March 30, 1998
<PAGE> 2
HOBBS BROOK OFFICE PARK
Waltham, Massachusetts
LEASE dated March 30, 1998
ARTICLE I
REFERENCE DATA
1.1 SUBJECTS REFERRED TO
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Article.
LANDLORD: 275 Wyman Street Trust, formed under Declaration of Trust dated July
16, 1962 and recorded with the Middlesex South Registry of Deeds in Book 10190,
Page 252, as amended by instrument dated January 17, 1992 and recorded with said
Registry in Book 21748, Page 313, with Trustees Thomas M. Dusel, Robert J.M.
O'Hare, Jr. and Michael D. Bank (as amended, the "Landlord")
LANDLORD'S ADDRESS: P.O. Box 9198
Waltham, Massachusetts 02254-9198
Attention: Real Estate Manager
TENANT: ALTAREX, U.S. Corp.
TENANT'S ORIGINAL ADDRESS: Campus Tower
8625-112 Street;
Edmonton, Alberta
CANADA P6G 2E1
GUARANTOR: Altarex Corporation
GUARANTOR'S ORIGINAL ADDRESS: Campus Tower
8625-112 Street;
Edmonton, Alberta
CANADA P6G 2E1
TERM COMMENCEMENT DATE: April 1, 1998
TERM EXPIRATION DATE: March 31, 2001
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ANNUAL FIXED RENT: $107,887.50
SECURITY DEPOSIT: NONE
BASE OPERATING EXPENSES PER SQUARE FOOT OF RENTABLE FLOOR AREA: Actual
Landlord's Operating Expenses per square foot of rentable area for calendar year
1998.
BASE TAXES PER SQUARE FOOT OF RENTABLE FLOOR AREA: Actual Landlord's Taxes per
square foot of rentable area for calendar year 1998.
LAND: The land upon which the Building is situated including parking areas,
garages, drives, walks, landscaped areas and other common areas serving
the Building.
BUILDING: The entire building known and numbered as 303 Wyman Street, Waltham,
Massachusetts and all improvements on the Land but excluding any
parking garage.
TOTAL RENTABLE FLOOR AREA OF BUILDING: 84,612 square feet.
PREMISES: The space delineated on Exhibit A.
RENTABLE FLOOR AREA OF PREMISES: 3,425 square feet.
PERMITTED USES: General Office Use
PUBLIC LIABILITY INSURANCE: $1,000,000.00
BROKER: R.M. Bradley & Co., Inc. and Lynch, Murphy, Walsh & Partners
TENANT'S AUTHORIZED REPRESENTATIVE: Richard E. Bagley
1.2 EXHIBITS
The following is a list of Exhibits attached to this Lease.
Exhibit A: Plan of Premises.
Exhibit B: [INTENTIONALLY OMITTED]
Exhibit C: Landlord's Cleaning Specifications.
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Exhibit D: Lessee's Estoppel
Exhibit E : Subordination, Non-Disturbance and
Attornment Agreement
Exhibit F: Guaranty of Altarex Corporation
ARTICLE II
PREMISES; TERM; RENT; OPERATING
EXPENSES; AND ELECTRICITY
2.1 PREMISES AND EXCLUSIONS
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the Premises. The Premises exclude common areas and facilities of the Building,
including without limitation exterior faces of exterior walls, the common
stairways and stairwells, entranceways and any lobby and courtyard areas,
elevators and elevator wells, fan rooms, electric and telephone closets, janitor
closets, freight elevator vestibules, and pipes, ducts, conduits, wires and
appurtenant fixtures serving other parts of the Building (exclusively or in
common) and other common areas and facilities. If the Premises include less than
the entire rentable area of any floor, then the Premises also exclude the common
corridors, elevator lobby and toilets located on such floor.
This Lease is subject to all easements, restrictions, agreements, and
encumbrances of record to the extent in force and applicable.
2.2 APPURTENANT RIGHTS
Tenant shall have, as appurtenant to the Premises, rights to use in
common (subject to reasonable rules of general applicability to tenants and
other users of the Building from time to time made by Landlord of which Tenant
is given notice): (a) the common lobbies, corridors, stairways, elevators and
loading platform, and the pipes, ducts, conduits, wires and appurtenant meters
and equipment serving the Premises in common with others; (b) common driveways
and walkways necessary for access to the Building; (c) if the Premises include
less than the entire rentable floor area of any floor, the common toilets,
corridors and elevator lobby on such floor and serving the Premises; and (d) all
other areas or facilities in the Building from time to time intended for general
use by Tenant, other Building tenants, and Landlord.
2.3 RESERVATIONS
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Landlord reserves the right from time to time, without unreasonable
(except in emergency) interruption of Tenant's use: (a) to install, use,
maintain, repair, replace and relocate for service to the Premises and other
parts of the Building, or either, pipes, ducts, conduits, wires and appurtenant
fixtures, wherever located in the Premises or the Building; and (b) to alter or
relocate any other common facility, including without limitation any lobby and
courtyard areas. Installations, replacements and relocations referred to in
clause (a) above shall be located as far as practicable in the central core area
of the Building, above ceiling surfaces, below floor surfaces or within
perimeter walls of the Premises.
2.4 TERM
The Term shall begin at 12:01 a.m. on April 1, 1998
2.4.1 EXTENSION OPTION. Tenant shall have the option to extend the Term
for one additional three year extension term (the "Extension Term") by notice
given to Landlord at least six months before the Term Expiration Date. Tenant's
election shall be exercised, and Annual Fixed Rent for each Extension Term shall
be determined, as set forth below. If Tenant fails timely to exercise its option
for the Extension Term, Tenant shall have no further extension rights hereunder.
Tenant's option so to extend the Term shall be void, at Landlord's
election, if Tenant is in default (continuing beyond any applicable cure period)
at the time Tenant elects to extend the Term or at the time the Term would
expire but for such extension. The extension of the Term shall be applicable to
the entire Premises. During the Extension Term, if any, all provisions of this
Lease shall apply except that Tenant shall have no further option to extend the
Term after the Extension Term.
During the Extension Term, Tenant shall pay Annual Fixed Rent equal to
95% of the then-prevailing market rate for three to five year leases of office
space in the greater Boston, Massachusetts "Metro-West" area comparable to the
Premises in terms of location within a building, finish, age, building quality
and amenities for a tenant of equal size and financial strength as Tenant.
Landlord shall notify Tenant of its estimate of the prevailing market
rate within ten (10) days after Tenant exercises the extension option. Tenant
shall have the option to accept or reject by written notice Landlord's estimate,
or to withdraw its exercise of the extension option. In the event Tenant rejects
Landlord's estimate then the prevailing market rate shall be arbitrated in
accordance with the following procedure. Each of Landlord and Tenant, within
twenty (20) days after notice by Tenant disputing Landlord's estimate of the
prevailing market rate, shall appoint as an arbitrator an MAI appraiser with at
least ten years experience as an appraiser of Boston office buildings, including
first class suburban office buildings, and shall give notice of such appointment
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to the other party. If either Landlord or Tenant shall fail timely to appoint an
arbitrator, the other may apply to the Boston Office of the American Arbitration
Association ("AAA") for appointment of such an arbitrator if the arbitrator has
not been appointed within five business days after notice of such failure has
been given to the delinquent party. The two arbitrators shall, within five
business days after appointment of the second arbitrator, appoint a third
arbitrator who shall be similarly qualified. If the two arbitrators are unable
to agree timely on the selection of the third arbitrator, then both arbitrators
together may request such appointment from the Boston office of the AAA. The
arbitration shall be conducted in accordance with the Commercial Arbitration
Rules of the AAA insofar as such rules are not inconsistent with the provisions
of this Lease (in which case the provisions of this Lease shall govern), and the
arbitrators shall be charged to reach a majority decision in accordance with the
standards provided in this Lease. The prevailing market rent rate shall be in
accordance with the arbitrators' decision. The cost of the arbitration
(exclusive of each party's witness and attorneys fees, which shall be paid by
such party) shall be borne equally by the parties. If the AAA shall cease to
provide arbitration for commercial disputes in Boston, the second or third
arbitrator, as the case may be, shall be appointed by any successor organization
providing substantially the same services, and in the absence of such an
organization, by a court of competent jurisdiction under the arbitration act of
The Commonwealth of Massachusetts.
For any portion of the Extension Term, Tenant shall make payment on
account of Annual Fixed Rent at the rate payable for the preceding lease year
and the parties shall adjust for over or under payments within twenty days after
the decision of the arbitrators is announced.
Promptly after the Annual Fixed Rent is determined for the Extension
Term, Landlord and Tenant shall enter into an amendment of this Lease confirming
the extension of the Term and the new rate for Annual Fixed Rent.
2.5 ANNUAL FIXED RENT
Tenant covenants and agrees to pay the Annual Fixed Rent in Section 1.1
to Landlord in advance in equal monthly installments on the first day of each
calendar month during the Term. All payments shall be due without billing or
demand and without deduction, setoff or counterclaim. Tenant shall make payment
for any portion of a month at the beginning or end of the Term. All payments
shall be payable to Landlord at its Address, both as specified in Section 1.1,
or to such other entities at such other places as Landlord may from time to time
designate.
Without limiting the foregoing, Tenant's obligation so to pay rent, or
to pay any additional charge hereunder, shall not be discharged or otherwise
affected by any law or regulation now or hereafter applicable to the Premises,
or any other restriction on
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Tenant's use, or (except as expressly provided herein) any casualty or taking,
or any failure by Landlord to perform any covenant contained herein, or any
other occurrence; and Tenant waives all rights now or hereafter existing to
terminate or cancel this Lease or quit or surrender the Premises or any part
thereof, or to assert any defense in the nature of constructive eviction to any
action seeking to recover rent or additional charges.
2.6 ADDITIONAL CHARGES - OPERATING EXPENSES AND TAXES
2.6.1 ADDITIONAL CHARGES - GENERAL COVENANT. Tenant covenants
and agrees to pay to Landlord, as additional charges, (i) an amount equal to the
product of (a) the Rentable Floor Area of the Premises and (b) the excess (if
any) of Landlord's Operating Expenses per square foot of Rentable Floor Area
over Base Operating Expenses per Square Foot of Rentable Floor Area and (ii) an
amount equal to the product of (a) the Rentable Floor Area of the Premises and
(b) the excess (if any) of Landlord's Taxes per square foot of Rentable Floor
Area over Base Taxes Per Square Foot of Rentable Floor Area, provided that if
less than the Total Rentable Floor Area of the Building is occupied at any time
during such period, Landlord may extrapolate components of Landlord's Operating
Expenses and Landlord's Taxes as though the Total Rentable Floor Area of the
Building had been occupied at all times during such period.
Appropriate adjustments (including adjustments in Base Operating
Expenses Per Square Foot of Rentable Floor Area and Base Taxes Per Square Foot
of Rentable Floor Area, which are quoted on an annual basis in Section 1.1)
shall be made for any portion of a year at the beginning or end of the Term or
for any year during which changes occur in the percentage of occupancy of the
Building.
2.6.2 PAYMENT. Additional charges for Landlord's Operating
Expenses and Landlord's Taxes under this Section 2.6 shall be paid for any
portion of a month at the beginning of the Term and thereafter in monthly
installments on the first day of each calendar month in amounts reasonably
estimated by Landlord for the then current calendar year. Landlord may from time
to time revise such estimates based on available information relating to
Landlord's Operating Expenses and Taxes or otherwise affecting the calculation
hereunder. Within 90 days after the end of each calendar year, Landlord will
provide Tenant with an accounting of Landlord's Operating Expenses and Taxes and
other data necessary to calculate additional charges hereunder for such calendar
year prepared in accordance herewith and otherwise in accordance with generally
accepted accounting principles. Such statement shall be conclusive between the
parties unless fraudulently prepared except as to matters to which Tenant
objects by written notice to Landlord within 30 days of delivery of the
Landlord's statement of such accounting. Upon issuance thereof, there shall be
an adjustment between Landlord and Tenant for the calendar year covered by such
accounting to the end that Landlord shall
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have received the exact amount of additional charges due hereunder. Any
overpayments by Tenant hereunder shall be credited against the next payments of
additional charges due under this Section 2.6 or refunded to Tenant at the
expiration of the term, provided there are no outstanding amounts due Landlord
under this Lease at such time. Any underpayments by Tenant shall be due and
payable within ten (10) days of delivery of Landlord's statement. With respect
to the calendar year in which the Term ends, the adjustment shall be pro rated
for the portion of the year included in the Term, but shall take place
nevertheless at the times provided in the preceding sentences.
2.6.3 "LANDLORD'S OPERATING EXPENSES" - DEFINITION.
"Landlord's Operating Expenses" means all costs of Landlord in owning,
servicing, operating, managing, maintaining, and repairing the Building, and
providing services to tenants including, without limitation, the costs of the
following: (i) supplies, materials and equipment purchased or rented, total wage
and salary costs paid to, and all contract payments made on account of, all
persons engaged in the operation, maintenance, security, cleaning and repair of
the Building and Land, including Social Security, old age and unemployment taxes
and so-called "fringe benefits"; (ii) building services furnished to tenants of
the Building at Landlord's expense (including the types of services provided to
Tenant pursuant to Section 4.1 hereof) and maintenance and repair of and
services provided to or on behalf of the Building performed by Landlord's
employees or by other persons under contract with Landlord; (iii) utilities
consumed and expenses incurred in the operation, maintenance and repair of the
Building including, without limitation, oil, gas, electricity (other than
electricity to tenants in their Premises if Tenant is directly responsible for
payment under this Lease on account of electricity consumed by Tenant), water,
sewer and snow removal; (iv) casualty, liability and other insurance, and
unreimbursed costs incurred by Landlord which are subject to a commercially
reasonable insurance deductible; (v) costs of operating any cafeteria, other
food service facility, or physical fitness facility for use of tenants
generally; and (vi) reasonable management fees. If Landlord, in its reasonable
discretion, installs a new or replacement capital item for the purpose of
reducing or conserving the use of energy in the Building, complying with any
building code or other law, regulation, or legal requirement, complying with
requirements of any insurer, or improvements (and not repairs or replacements)
otherwise relating to the operation of the Building, the cost of such item
amortized over a reasonable period with interest shall be included in Landlord's
Operating Expenses. Landlord's Operating Expenses shall not include any costs or
expenses incurred by Landlord in the construction and development of the
Building including construction for tenants for which Landlord is entitled to
reimbursement; payments of principal, interest or other charges on mortgages;
and salaries of executives or principals of Landlord (except as the same may be
reflected in the management fee for the Building or attributable to actual
Building operations).
2.6.4 "LANDLORD'S TAXES" - DEFINITION. "Landlord's Taxes"
means all taxes, assessments and similar charges assessed or imposed on the Land
for the
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then current calendar year by any governmental authority attributable to the
Building (including personal property associated therewith). The amount of any
special taxes, special assessments and agreed or governmentally imposed "in lieu
of tax" or similar charges shall be included in Landlord's Taxes for any year
but shall be limited to the amount of the installment (plus any interest, other
than penalty interest, payable thereon) of such special tax, special assessment
or such charge required to be paid during or with respect to the year in
question. Landlord's Taxes include expenses, including fees of attorneys,
appraisers and other consultants, incurred in connection with any efforts to
obtain abatements or reduction or to assure maintenance of Landlord's Taxes for
any year wholly or partially included in the Term, whether or not successful and
whether or not such efforts involved filing of actual abatement applications or
initiation of formal proceedings. Landlord's Taxes exclude income taxes of
general application and all estate, succession, inheritance and transfer taxes.
If at any time during the Term there shall be assessed on Landlord, in addition
to or in lieu of the whole or any part of the ad valorem tax on real or personal
property, a capital levy or other tax on the gross rents or other measures of
building operations, or a governmental income, franchise, excise or similar tax,
assessment, levy, charge or fee measured by or based, in whole or in part, upon
Building valuation, gross rents or other measures of building operations or
benefits of governmental services furnished to the Building, then any and all of
such taxes, assessments, levies, charges and fees, to the extent so measured or
based, shall be included within the term Landlord's Taxes, but only to the
extent that the same would be payable if the Building and Land were the only
property of Landlord.
2.7 ELECTRICITY
Landlord shall furnish to Tenant throughout the Term electricity for
the operation of lighting fixtures, and 120 volt current for the operation of
normal office fixtures and equipment, but excluding any high energy consumption
equipment. Tenant covenants and agrees to pay, as an additional charge, the cost
of such electricity, which shall be separately metered and billed to Tenant
monthly.
ARTICLE III
CONSTRUCTION OF PREMISES
3.1 COMPLETION DATE
Subject to delay by causes beyond the reasonable control of Landlord or
caused by action or inaction of Tenant, Landlord shall endeavor, in good faith,
to have the Premises ready for Tenant's occupancy as expeditiously as
practicable. So long as Landlord uses commercially reasonable efforts to
complete construction, delays in readying the Premises for Tenant's occupancy,
for any reason, shall not give rise to any
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liability of Landlord hereunder, shall not constitute a Landlord's default,
shall not affect the validity of this Lease, and shall have no effect on the
beginning or end of the Term as otherwise determined hereunder or on Tenant's
obligations associated therewith.
3.2 WHEN PREMISES DEEMED READY
The Premises shall be conclusively deemed ready for Tenant's occupancy
as soon as the obligations of Landlord as hereinafter specified have been
substantially completed by Landlord insofar as is practicable in view of delays
or defaults, if any, of Tenant or its contractors, and a certificate of
occupancy is issued for the Premises. Notwithstanding the previous sentence, the
Premises shall be deemed to be ready for Tenant's occupancy if only minor or
insubstantial details of construction, decoration or mechanical adjustments
remain to be done in the Premises or any part thereof, or if the delay in the
availability of the Premises for occupancy is (i) due to special work, changes,
alterations or additions required or made by Tenant in the layout or finish of
the Premises or any part thereof, (ii) caused in whole or in part by Tenant
through the delay of Tenant in submitting any plans and/or specifications,
supplying information, approving plans, specifications or estimates, giving
authorizations or otherwise or (iii) caused in whole or in part by delay and/or
default on the part of Tenant or its contractors. If the Premises are deemed
ready for Tenant's occupancy, but through no fault of Landlord are not in fact
actually ready for Tenant's occupancy, Tenant shall not (except with Landlord's
consent) be entitled to take possession of the Premises for the conduct of its
business until the Premises are in fact actually ready for such occupancy,
notwithstanding the fact, because the Premises shall have as above stated been
deemed ready for such occupancy, that the Term hereof shall on that account have
commenced. Landlord's architect's certificate of substantial completion, or of
any other facts pertinent to this Section 3.2, shall be deemed conclusive of the
statements therein contained and binding upon Tenant. Any of Landlord's work in
the Premises not fully completed on the Term Commencement Date shall thereafter
be so completed with reasonable diligence by Landlord.
3.3 PLANS AND SPECIFICATIONS
Landlord shall prepare architectural, electrical and mechanical
construction drawings, plans and specifications (called "Plans") necessary to
lay out the Premises for Tenant's occupancy, at Landlord's sole cost, which
Plans shall be subject to approval by Tenant (which approval shall not be
unreasonably withheld or delayed). Tenant shall promptly provide all information
to the architect necessary for the preparation of the Plans. (The word
"architect" as used in this Section shall include an interior space designer or
planner.)
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3.4 CONSTRUCTION OF PREMISES
Except as is otherwise herein provided or as may be otherwise approved
by the Landlord, all work necessary to prepare the Premises for Tenant's
occupancy, including any work to be performed at Tenant's expense, shall be
performed substantially in accordance with the Plans by contractors employed by
Landlord.
3.5 QUALITY AND COST OF MATERIALS
Landlord shall bear costs up to $30,825 for materials and workmanship
to be furnished and installed by Landlord pursuant to the Plans. Tenant shall
bear all other costs of preparing the Premises for its occupancy in accordance
with the Plans and shall pay such costs to Landlord upon request as an
additional charge hereunder.
3.6 TENANT'S DELAY - ADDITIONAL COSTS
If Tenant fails or omits to make timely submission to Landlord of any
pertinent information, or delays in supplying information, or in approving
plans, specifications or estimates, or in giving authorizations or otherwise,
any additional cost to Landlord in connection with the completion of the
Premises in accordance with the terms of this Lease shall be promptly paid by
Tenant to Landlord, as an additional charge, if such additional cost is the
result of such failure, omission or delay of Tenant. For the purposes of the
preceding sentence, the expression "additional cost to Landlord" shall mean the
cost over and above such cost as would have been the aggregate cost to Landlord
of completing the Premises in accordance with the terms of this Lease had there
been no such failure, omission or delay. Nothing contained in this Section 3.6
shall limit or qualify or prejudice any other covenants, agreements, terms
provisions and conditions contained in this Lease, including, but not limited to
Section 3.2.
3.7 ENTRY BY TENANT PRIOR TO TERM COMMENCEMENT DATE
With Landlord's prior written consent, Tenant shall have the right to
enter the Premises prior to the Term Commencement Date, without payment of rent,
to perform such work or decoration as is to be performed by, or under the
direction or control of, Tenant. Such right of entry shall be deemed a license
from Landlord to Tenant, and entry thereunder shall be at the risk of Tenant.
3.8 CONCLUSIVENESS OF LANDLORD'S PERFORMANCE
By taking possession of the Premises, Tenant accepts the improvements
in the condition in which they may then be, and waives any right or claim
against Landlord arising out of the condition of the Premises, including the
improvements thereon, the
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appurtenances thereto, and the equipment thereof, except defects in workmanship
and/or materials. Tenant shall be deemed to have waived any right or claim
against Landlord arising out of a defect in workmanship and/or materials on the
date one (1) year following the date on which the Premises were ready for
Tenant's occupancy if Tenant has not then given written notice of such defect to
Landlord.
ARTICLE IV
LANDLORD'S COVENANTS
4.1 BUILDING SERVICES
Landlord shall furnish services, utilities, facilities and supplies set
forth in this Section 4.1.1 and in Exhibit C. Exhibit C is intended to add
detail to the provisions of the main body of the Lease, and in case of conflict,
the provisions of the main body of the Lease shall control. Tenant may obtain
additional services, utilities, facilities and supplies from time to time upon
reasonable advance request or Landlord may furnish the same without request if
Landlord determines that Tenant's use or occupancy of the Premises necessitates
the same (for example where the condition of the Premises necessitates
additional cleaning services), and, in either case, the cost of the same at
reasonable rates from time to time established by Landlord shall constitute
additional charges, payable within fifteen (15) days after billing.
4.1.1 WATER CHARGES. Landlord shall furnish hot and cold water
for ordinary office cleaning, toilet, lavatory and drinking purposes. If Tenant
requires, uses or consumes water for any other purpose, Landlord may assess on
Tenant reasonable charges for additional water.
4.1.2 ELEVATOR SERVICE. Landlord shall provide necessary
elevator facilities on Mondays through Fridays excepting legal holidays from
8:00 a.m. to 6:00 p.m. and on Saturdays from 8:00 a.m. to 1:00 p.m. (such hours
on such days being referred to as "business days") and have at least one
elevator serving the Premises in operation available for Tenant's non-exclusive
use at all other times.
4.1.3 CLEANING. Landlord shall cause the common areas and the
office areas of the Premises to be kept reasonably clean provided the same are
maintained and kept in good order by Tenant. Cleaning standards shall be in
accordance with Exhibit C.
4.1.4 HEAT AND AIR-CONDITIONING. Landlord shall, through the
Building heating and air-conditioning system, furnish to and distribute in the
Premises heat during the normal heating season on business days and
air-conditioning on business days when air-conditioning may reasonably be
required for the comfortable occupancy
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of the Premises by Tenant. Landlord shall not be required to furnish heat and
air-conditioning in the Premises in excess of the capacity of the equipment
presently installed in the Building. If Tenant requests Landlord to provide heat
or air-conditioning after 6:00 p.m. on any business day, after 12:00 noon on
Saturday, on Sunday or on a legal holiday, Tenant shall pay Landlord therefor at
rates reasonably established by Landlord from time to time. If Tenant requires
additional air-conditioning for business machines, meeting rooms or other
purposes, or because of occupancy or unusual electrical loads, any additional
air-conditioning units, chillers, condensers, compressors, ducts, piping and
other equipment and facilities will be installed and maintained by Landlord at
Tenant's sole cost, but only to the extent that the same are compatible with the
Building and its mechanical systems.
4.1.5 ENERGY CONSERVATION. Tenant agrees to cooperate with
Landlord and to abide by all Building regulations which Landlord may, from time
to time, prescribe for the proper functioning and protection of the heating and
air-conditioning systems and in order to maximize the effect thereof and to
conserve heat and air-conditioning. Notwithstanding anything to the contrary in
this Section 4.1.1 or otherwise in this Lease, Landlord may institute such
policies, programs and measures as may be in Landlord's judgment necessary,
required or expedient for the conservation or preservation of energy or energy
services, or as may be necessary to comply with applicable codes, rules,
regulations or standards.
4.2 REPAIRS.
Except as otherwise provided in this Lease, and except for repairs to
items referred to below necessitated by Tenant's act or neglect (which shall be
Tenant's repair obligation under Section 5.1), Landlord shall make such repairs
to the roofs, exterior walls, exterior windows, floor slabs, core walls, and
common areas and facilities in the Building as may be necessary to keep them in
good condition.
4.3 QUIET ENJOYMENT.
Landlord covenants that Tenant, on paying the rent and performing the
Tenant obligations in this Lease, shall peacefully and quietly have, hold and
enjoy the Premises, free from any claim by Landlord or persons claiming under
Landlord, but subject to all of the terms and provisions hereof, provisions of
law and rights of record to which this Lease is or may become subordinate. This
covenant is in lieu of any other so-called quiet enjoyment covenant, either
express or implied.
4.4 INTERRUPTION
Landlord shall not be liable to Tenant for any compensation or
reduction of rent by reason of inconvenience or annoyance or for loss of
business arising from the
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necessity of Landlord or its agents entering the Premises for any of the
purposes authorized in this Lease or for repairing the Premises or from repairs
by Landlord of any portion of the Building however the necessity may occur. In
case Landlord is prevented or delayed from diligent construction of
improvements, making any repairs, alterations or improvements, or furnishing any
services or performing any other covenant or duty to be performed on Landlord's
part, by reason of any cause reasonably beyond Landlord's control, Landlord
shall not be liable to Tenant therefor, nor, except as otherwise provided in
Section 6.1, shall Tenant be entitled to any abatement or reduction of rent by
reason thereof, nor shall the same give rise to a claim in Tenant's favor that
such failure constitutes actual or constructive, total or partial, eviction from
the Premises. Notwithstanding the previous sentence, if Tenant is prevented, on
account of Landlord's failure to provide an essential service required under the
Lease where such failure is caused by matters within Landlord's reasonable
control, from using all or a substantial portion of the Premises for more than
ten (10) business days following notice to Landlord, then from and after the end
of such ten (10) business day period until such essential service is restored,
Annual Fixed Rent or a just and proportionate part thereof, shall be abated. In
no event shall Landlord be liable for indirect or consequential damages arising
out of any default by Landlord.
Landlord reserves the right to stop any service or utility system, when
necessary by reason of accident or emergency, or until necessary repairs have
been completed; provided, however, that in each instance of stoppage, Landlord
shall exercise reasonable diligence to eliminate the cause thereof. Except in
case of emergency repairs, Landlord will give Tenant reasonable advance notice
of any contemplated stoppage and will use reasonable efforts to avoid
unnecessary interruption of Tenant's use of the Premises by reason thereof.
ARTICLE V
TENANT'S ADDITIONAL COVENANTS
5.1 MAINTENANCE AND REPAIR
Except for damage by fire or casualty and reasonable wear, Tenant shall
at all times keep the Premises clean, neat and in as good repair, order and
condition as the same are at the beginning of the Term or may be put in
thereafter. The foregoing shall include without limitation Tenant's obligation
to maintain floors and floor coverings, to paint and repair walls and doors, to
replace and repair ceiling tiles, lights and light fixtures, drains and the
like, and clean the Premises to the extent such cleaning is not to be performed
by Landlord under Exhibit C.
5.2 USE, WASTE AND NUISANCE
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Throughout the Term, Tenant shall occupy the Premises for the Permitted
Uses only, and shall not use the Premises for any other purpose. Tenant shall
not injure, overload, deface or commit waste in the Premises or any part of the
improvement on the Land, nor permit the emission therefrom of any objectionable
noise, light or odor, nor use or permit any use of the Premises which is
improper, offensive, contrary to law or ordinance or which is liable to
invalidate or increase the premium for any insurance on the Building or its
contents or which is liable to render necessary any alterations or additions in
the Building, nor obstruct in any manner any portion of the Building. If
Tenant's use of the Premises results in an increase in the premium for any
insurance on the Building or the contents thereof, Landlord shall notify Tenant
of such increase and Tenant shall pay same as additional charges. Tenant may not
without Landlord's consent install in the Premises any pay telephones, vending
machines, water fountains, refrigerators, sinks or cooking equipment provided
that Landlord's consent will not be unreasonably withheld with respect to items
designed for the convenience of Tenant's employees which are customary for
office employees if Landlord determines that special venting or other matters
are not required in connection therewith.
Tenant shall not (either with or without negligence) cause or permit
the escape, disposal or release of any biologically or chemically active or
other hazardous substances, or materials. Tenant shall not allow the storage or
use of such substances or materials in any manner not sanctioned by law or by
the highest standards prevailing in the industry for the storage and use of such
substances or materials, nor allow to be brought into the Building any such
materials or substances except to use in the ordinary course of Tenant's
business, and then only after written notice is given to Landlord of the
identity of such substances or materials. Without limitation, hazardous
substances and materials shall include those described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. ss.9601 et seq., the Resource Conservation and Recovery Act, as amended,
42 U.S.C. ss.6901 et seq., the Massachusetts Hazardous Waste Management Act, as
amended, M.G.L. Chapter 21C, and the Massachusetts Oil and Hazardous Material
Release Prevention Act, as amended, M.G.L. Chapter 21E, and the regulations
adopted under these acts. If any lender or governmental agency shall ever
require testing to ascertain whether or not there has been any release of
hazardous materials, then the reasonable costs thereof shall be reimbursed by
Tenant to Landlord upon demand as additional charges if such requirement applies
to the Premises, and if the requirement applies to the Building generally, then
such costs shall be included in Landlord's Operating Expenses. In addition,
Tenant shall execute affidavits, representations and the like from time to time
at Landlord's request concerning Tenant's best knowledge and belief regarding
the presence of hazardous substances or materials on the Premises. In all
events, Tenant shall indemnify Landlord in the manner elsewhere provided from
any release of hazardous materials on the Premises occurring while Tenant is in
possession, or elsewhere if caused by Tenant or persons acting under Tenant.
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5.3 RULES AND REGULATIONS
Tenant shall conform to all reasonable non-discriminatory rules and
regulations now or hereafter promulgated by Landlord for the care and use of the
Premises and the Building.
5.4 SAFETY APPLIANCES
Tenant shall keep the Premises equipped with all safety appliances and
permits which, as a result of Tenant's particular activities, are required by
law or ordinance or any order or regulation of any public authority, shall keep
the Premises equipped at all times with adequate fire extinguishers and other
such equipment reasonably required by Landlord, and, subject to Section 5.10,
shall make all repairs, alterations, replacements, or additions so required as a
result of Tenant's particular activities.
5.5 INDEMNIFICATION AND INSURANCE
Tenant shall save Landlord, its mortgagees, agents, employees,
independent contractors, invitees, and any other parties designated by Landlord
from time to time (collectively, the "Indemnitees") harmless and indemnified
(and shall defend the Indemnitees with counsel reasonably approved by the
Indemnitees) against any claim, loss or cost arising in whole or in part out of
any injury, loss, theft or damage to any person or property while on or in the
Premises, or in transit thereto or therefrom, or out of any condition within or
around the Premises, to the extent not due to negligence or willful misconduct
of the Indemnitees, and to any person or property anywhere occasioned by any
act, omission, neglect or default of Tenant or of employees, agents, independent
contractors or invitees of Tenant or any person acting under Tenant. In addition
to the foregoing, Landlord may make all repairs and replacements to the
improvements on the Land resulting from acts or omissions of Tenant's employees,
agents, independent contractors or invitees or any other persons acting under
Tenant (including damage and breakage occurring as a result of work performed by
or for Tenant and when Tenant's property is being moved into or out of the
Building) and Landlord may recover all costs and expenses thereof from Tenant as
additional charges. Throughout the Term (and such further time as Tenant or any
person claiming through Tenant occupies any part of the Premises) Tenant shall
maintain in a responsible company or companies approved by Landlord, liability
insurance in form satisfactory to Landlord, written on an occurrence basis,
insuring the Indemnitees and other parties designated by Landlord, and Tenant,
as their respective interests may appear, against all claims, demands or actions
for injury, death, and property damage in amounts not less than those specified
in Section 1.1 (as such amounts may, from time to time, be reasonably increased
by Landlord). All insurance to be maintained by Tenant under this Section 5.5
shall provide that it will not be subject to cancellation, termination, or
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change except after at least 30 days' prior written notice to the Indemnitees
and other parties designated by Landlord. The policy or policies or a duly
executed certificate or certificates for the same (together with satisfactory
evidence of the payment of the premium thereon if requested by Landlord) shall
be deposited with Landlord and other parties designated by Landlord at the
beginning of the Term and, upon renewals of such policies, not less than 30 days
prior to the expiration of the term of such coverage. If Tenant fails to comply
with any of the foregoing requirements, Landlord may obtain such insurance on
behalf of Tenant and may keep the same in effect, and Tenant shall pay Landlord,
as additional charges, the premium cost thereof upon demand. The covenants of
this Section 5.5 shall survive the expiration of the Term or earlier termination
of this Lease.
5.6 TENANT'S PROPERTY
All furnishings, fixtures, equipment, effects and property of Tenant
and of all persons claiming through Tenant which from time to time may be on the
Premises or elsewhere in the Building or in transit thereto or therefrom shall
be at the sole risk of Tenant and shall be kept insured by Tenant throughout the
term at Tenant's expense and in prudent amounts, and if the whole or any part
thereof shall be destroyed or damaged by fire, water or otherwise, or by the
leakage or bursting of water pipes, steam pipes, or other pipes, by theft or
from any other cause, no part of said loss or damage is to be charged to or be
borne by Landlord unless caused by the negligence or willful misconduct of
Landlord or its agents. The parties acknowledge that damage or destruction may
result from acts of cleaning personnel and employees of other independent
contractors of Landlord working in and around the Premises and that Tenant shall
bear the risk and cost thereof unless Landlord has been negligent in the
selection of such persons.
5.7 ENTRY FOR REPAIRS AND INSPECTIONS
Tenant shall permit Landlord and its agents to enter and examine the
Premises at reasonable times and after reasonable notice (except no notice shall
be required in an emergency), if Landlord shall so elect, to make any repairs or
replacements Landlord may deem necessary or desirable, to remove at Tenant's
expense any alterations, additions, signs, curtains, blinds, shades, awnings,
aerials, flagpoles, or the like not consented to in writing, and to show the
Premises to prospective tenants during the twelve (12) months preceding
expiration of the Term and to prospective purchasers and mortgagees at all
times. In case of an emergency in the Premises or in the Building, Landlord or
its representative may enter the Premises (forcibly, if necessary) at any time
to take such measures as may be needed to deal with such emergency.
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5.8 ASSIGNMENT, SUBLETTING
Tenant shall not assign this Lease, or sublet or license the Premises
or any portion thereof, or permit the occupancy of all or any portion of the
Premises by anybody other than Tenant (all or any of the foregoing actions are
referred to as "Subleases" and all or any of assignees, subtenants, licensees,
and other such parties are referred to as "Subtenants") without obtaining, on
each occasion, the prior consent of the Landlord, which consent shall not be
required for a Related Party Transfer. "Related Party Transfer" shall include
any assignment, sublet, license or any other transfer by Tenant to a successor
by merger, any party acquiring all or substantially all of Tenant's stocks and
assets, or any affiliate. Affiliate shall mean any entity controlled by Tenant
or controlled by the same persons who control Tenant, where control is
established by demonstrating the possession of 50 percent ownership of the
shares of beneficial interest of the entity in question, together with the power
to control and manage the affairs thereof either directly or by election of
directors and/or officers. Unless Landlord's consent specifically provides
otherwise with respect to a particular proposed Subtenant, Tenant shall not
offer to make or enter into negotiations with respect to a Sublease to any of
the following: (i) a tenant in the Hobbs Brook Office Park; (ii) any party with
whom Landlord or any affiliate of Landlord is then negotiating with respect to
space in the Hobbs Brook Office Park; (iii) any entity owned by, owning, or
affiliated with, directly or indirectly, any tenant or party described in
clauses (i) and (ii) hereof; or (iv) any party which would be of such type,
character or condition as to be inappropriate, in Landlord's judgment, as a
tenant for a first class office building. Tenant shall not, without Landlord's
approval, offer to make or make a Sublease of all or any portion of the Premises
unless the aggregate rent and other charges payable to Tenant under such
Sublease equal or exceed the greater of (i) aggregate rent and other charges
payable hereunder (pro-rated for a Sublease of less than all of the Premises),
or (ii) the then prevailing rent rate being quoted for comparable space in Hobbs
Brook Office Park. Tenant's request for consent to a Sublease shall include a
copy of the proposed Sublease instrument, if available, or else a statement of
the proposed Sublease in detail satisfactory to Landlord, together with
reasonably detailed financial, business and other information about the proposed
Subtenant. Consent may be granted in Landlord's sole discretion, but such
consent or refusal to consent shall not be unreasonably delayed. Landlord shall
have the option (but not the obligation) to terminate the Lease with respect to
the portion of the Premises which Tenant proposes to Sublease effective upon the
date of the proposed Sublease and continuing for the proposed term thereof by
giving Tenant notice of such termination within 60 days after Landlord's receipt
of Tenant's request. If Tenant does make a Sublease hereunder, and if the
aggregate rent and other charges payable to Tenant under and in connection with
such Sublease (including without limitation any amounts paid for leasehold
improvements or on account of Tenant's costs associated with such Sublease)
exceed the rent and other charges paid hereunder with respect to the space in
question, Tenant shall pay to Landlord, as an additional charge, the amount of
such excess. If the amount of rent and other charges payable under a
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Sublease is not readily ascertainable, such amount may, at Landlord's option, be
deemed to equal the fair market rent then obtainable for the space in question.
Tenant shall pay to Landlord, as an additional charge, Landlord's
reasonable legal fees and other expenses incurred in connection with any
proposed Sublease, including fees for review of documents and investigations of
proposed Subtenants. Notwithstanding any such Sublease, the original Tenant
named herein shall remain directly and primarily obligated under this Lease.
If Tenant enters into any Sublease with respect to the Premises (or any
part thereof), Landlord may, at any time and from time to time, require that
such Subtenant agree directly with Landlord to be liable, jointly and severally
with Tenant, to the extent of the obligation undertaken by or attributable to
such Subtenant, for the performance of Tenant's agreements under this Lease
(including payment of rent and other charges under the Sublease), and every
Sublease shall so provide. Landlord may collect rent and other charges from the
Subtenant and apply the net amount collected to the rent and other charges
hereunder, but no such assignment or collection shall be deemed a waiver of the
provisions of Section 5.8, or the acceptance of the Subtenant, as a tenant, or a
release of Tenant from direct and primary liability for the further performance
of Tenant's covenants hereunder. The consent by Landlord to a particular
Sublease shall not relieve Tenant from the requirement of obtaining the consent
of Landlord to any further Sublease.
5.9 ALTERATIONS
Tenant shall make no alterations, additions or improvements to the
Premises without the prior written consent of Landlord and only in accordance
with complete construction documents approved in advance by Landlord. All such
alterations, additions and improvements shall be done only by contractors
approved in advance by Landlord. Tenant shall obtain all necessary permits
before undertaking any such alterations, additions or improvements and shall
carry such insurance and obtain such payment, performance and lien bonds as
Landlord shall reasonably require. Any alterations, additions and improvements
to the Premises, except movable furniture and trade fixtures, shall belong to
Landlord. All alterations, additions and improvements to the Premises shall be
at Tenant's sole cost. If any mechanic's lien (which term shall include all
similar liens relating to the furnishing of labor and materials) is filed
against the Building which is claimed to be attributable to Tenant, its agents,
employees or contractors, Tenant shall give immediate notice of such lien to
Landlord and shall discharge the same by payment or filing any necessary bond
within 10 days after Tenant has notice (from any source) of such lien.
Landlord's approval of the construction documents shall signify Landlord's
consent to the work shown thereon only and Tenant shall be solely responsible
for any errors or omissions contained therein.
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5.10 SURRENDER
At the expiration of the Term or earlier termination of this Lease,
without the requirement of any notice, Tenant shall peaceably surrender the
Premises including all alterations and additions thereto and all replacements
thereof, including carpeting, any water or electricity meters, and all fixtures
and partitions, in any way bolted or otherwise attached to the Premises (which
shall become the property of Landlord) except such alterations and additions as
Landlord shall have directed Tenant to remove at the time Tenant requested
Landlord's consent to the installation of the same, the Premises and
improvements to be in the condition in which the same are required to be
maintained under Section 5.1. Tenant shall, at the time of termination, remove
the goods, effects and fixtures which Tenant is directed or permitted to remove
in accordance with the provisions of this Section, making any repairs to the
Premises and other areas necessitated by such removal and leaving the Premises
clean and tenantable. Should Tenant fail to remove any of such goods, effects,
and fixtures, Landlord may have them removed forcibly, if necessary, and store
any of Tenant's property in a public warehouse at the risk of Tenant. If such
items are not removed from storage within thirty (30) days, such items may be
sold by any customary methods in order to pay storage costs and other expenses
of Landlord. The expense of such removal, storage and reasonable repairs
necessitated by such removal shall be borne by Tenant or reimbursed by Tenant to
Landlord.
5.11 PERSONAL PROPERTY TAXES
Tenant shall pay promptly when due all taxes (and charges in lieu
thereof) imposed upon Tenant's personal property in the Premises, no matter to
whom assessed (including, without limitation, fixtures and equipment).
ARTICLE VI
CASUALTY AND TAKING
6.1 DAMAGE BY FIRE OR CASUALTY
If the Premises or any part thereof shall be damaged by fire or other
insured casualty, then, subject to the last paragraph of this Section 6.1,
Landlord shall proceed with diligence, subject to then applicable statutes,
building codes, zoning ordinances and regulations of any governmental authority,
and at the expense of Landlord (but only to the extent of insurance proceeds
made available to Landlord by any mortgagee of the Building) to repair or cause
to be repaired such damage. All such repairs made necessary by any act or
omission of Tenant shall be made at the Tenant's expense to the extent that the
cost of such repairs are less than the commercially reasonable deductible
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amount in Landlord's insurance policy. All repairs to and replacements of
property which Tenant is entitled to remove shall be made by and at the expense
of Tenant. If the Premises or any part thereof shall have been rendered unfit
for use and occupation hereunder by reason of such damage the Fixed Rent and all
other amounts payable by Tenant hereunder, or a just and proportionate part
thereof, according to the nature and extent to which the Premises shall have
been so rendered unfit, shall be abated until the Premises (except as to the
property which is to be repaired by or at the expense of Tenant) shall have been
restored as nearly as practicable to the condition in which they were
immediately prior to such fire or other casualty. Landlord shall not be liable
for delays in the making of any such repairs which are due to government
regulation, casualties and strikes, unavailability of labor and materials,
delays in obtaining insurance proceeds, and other causes beyond the reasonable
control of Landlord, nor shall Landlord be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting from delays in
repairing such damage.
If (i) the Premises are so damaged by fire or other casualty (whether
or not insured) at any time during the last twelve (12) months of the Term that
the cost to repair such damage is reasonably estimated to exceed one-third of
the total Annual Fixed Rent payable hereunder for the period from the estimated
completion date of repair until the end of the Term, (ii) at any time the
Building (or any portion thereof, whether or not including any portion of the
Premises) is so damaged by fire or other casualty (whether or not insured) that
substantial alteration or reconstruction or demolition of the Building (or a
portion thereof) shall in Landlord's judgment be required, or (iii) at any time
damage to the Building occurs by fire or other insured casualty and any
mortgagee shall refuse to permit insurance proceeds to be utilized for the
repair or replacement of such property and Landlord determines not to repair
such damage, then and in any of such events, this Lease and the term hereof may
be terminated at the election of Landlord by a notice from Landlord to Tenant
within sixty (60) days, or such longer period as is required to complete
arrangements with any mortgagee regarding such situation, following such fire or
other casualty; the effective termination date pursuant to such notice shall be
not less than thirty (30) days after the day on which such termination notice is
received by Tenant. In the event of any termination, the Term shall expire as
though such effective termination date were the date originally stipulated in
Section 1.1 for the end of the Term and the Fixed Rent and additional charges
for Operating Expenses and Taxes shall be apportioned as of such date. If any
portion (other than a portion which, if not repaired, would not unreasonably
affect Tenant's use of the Premises for the Permitted Uses) of the Premises is
damaged by fire or other casualty and Landlord has not within six (6) months of
such casualty substantially completed (subject only to punchlist-type items the
completion of which does not unreasonably interfere with the Tenant's use of the
Premises) repair of such damage, then, within ten (10) days after such six-month
period has expired, Tenant may terminate this Lease by notice to Landlord
effective on the 30th day after such notice is given, provided that such
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termination notice shall be effective only if repair of the damage in question
has not been substantially completed before the date of termination.
6.2 CONDEMNATION - EMINENT DOMAIN
In case during the Term all or any substantial part of the Premises or
the Building are taken by eminent domain or Landlord receives compensable damage
by reason of anything lawfully done in pursuance of public or other authority,
this Lease shall terminate at Landlord's election, which may be made
(notwithstanding that Landlord's entire interest may have been divested) by
notice given to Tenant within 90 days after the election to terminate arises,
specifying the effective date of termination. The effective date of termination
specified by Landlord shall not be less than 15 nor more than 30 days after the
date of notice of such termination. If any portion (other than a portion which,
if condemned, would not unreasonably affect Tenant's use of the Premises for the
Permitted Uses) of the Premises is taken by eminent domain and thereby rendering
the Premises unfit for use and occupation, Tenant may terminate this Lease by
notice to Landlord effective on the 30th day after such notice is given. Unless
terminated pursuant to the foregoing provisions, this Lease shall remain in full
force and effect following any such taking, subject, however, to the following
provisions. If in any such case the Premises are rendered unfit for use and
occupation and this Lease is not terminated, Landlord shall use due diligence
(following the expiration of the period in which Landlord may terminate this
Lease pursuant to the foregoing provisions of this Section) to put the Premises,
or what may remain thereof (excluding any items installed or paid for by Tenant
which Tenant may be required to remove pursuant to Section 5.12), into proper
condition for use and occupation and a just proportion of the Fixed Rent and
additional charges for Operating Expenses and Taxes according to the nature and
extent of the injury shall be abated until the Premises or such remainder shall
have been put by Landlord in such condition; and in case of a taking which
permanently reduces the area of the Premises, a just proportion of the Fixed
Rent and additional charges for Operating Expenses and Taxes shall be abated for
the remainder of the Term.
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6.3 EMINENT DOMAIN AWARD
Except for Tenant's relocation expenses (specifically so designated by
the court or authority having jurisdiction over the matter) Landlord reserves to
itself any and all rights to receive awards made for damages to the Premises,
the Building or the leasehold hereby created, or any one or more of them,
accruing by reason of exercise of eminent domain or by reason of anything
lawfully done in pursuance of public or other authority. Tenant hereby releases
and assigns to Landlord all Tenant's rights to such awards, and covenants to
deliver such further assignments and assurances thereof as Landlord may from
time to time request, hereby irrevocably designating and appointing Landlord as
its attorney-in-fact to execute and deliver in Tenant's name and behalf all such
further assignments thereof.
ARTICLE VII
DEFAULT
7.1 TERMINATION FOR DEFAULT OR INSOLVENCY
This Lease is upon the condition that (1) if Tenant shall fail to
perform or observe any of Tenant's covenants, and if such failure shall
continue, (a) in the case of rent or payment of additional charges or any sum
due Landlord hereunder, for more than ten (10) days, or (b) in any other case,
after notice, for more than thirty (30) days (provided that if correction of any
such matter reasonably requires longer than 30 days and Tenant so notifies
Landlord within 20 days after Landlord's notice is given together with an
estimate of time required for such cure, Tenant shall be allowed such longer
period, but only if cure is begun within such 30-day period and such delay does
not cause increased risk of damage to person or property), or (2) if three or
more notices under clause (1) hereof are given in any twelve month period
(failure to pay rent or any other sum for more than 3 days after the particular
due date shall have the same effect under this clause (2) as such a notice); (3)
if Tenant shall vacate more than 50 percent of the Rentable Floor Area of
Premises; (4) if the leasehold hereby created shall be taken on execution, or by
other process of law, or if any assignment shall be made of Tenant's property or
the property of any guarantor of Tenant's obligations hereunder ("Guarantor")
for the benefit of creditors; or (5) if a receiver, guardian, conservator,
trustee in bankruptcy or similar officer shall be appointed by a court of
competent jurisdiction to take charge of all or any part of Tenant's or the
Guarantor's property and such appointment is not discharged within 90 days
thereafter or if a petition including, without limitation, a petition for
reorganization or arrangement is filed by Tenant or the Guarantor under any
bankruptcy law or is filed against Tenant or the Guarantor and, in the case of a
filing against Tenant only, the same shall not be dismissed within 90 days from
the date upon which it is filed, then, and in any of said cases, Landlord may,
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immediately or at any time thereafter, elect to terminate this Lease by notice
of termination, by entry, or by any other means available under law and may
recover possession of the Premises as provided herein. Upon termination by
notice, by entry, or by any other means available under law, Landlord shall be
entitled immediately, in the case of termination by notice or entry, and
otherwise in accordance with the provisions of law to recover possession of the
Premises from Tenant and those claiming through or under the Tenant. Such
termination of this Lease and repossession of the Premises shall be without
prejudice to any remedies which Landlord might otherwise have for arrears of
rent or for a prior breach of the provisions of this Lease. Tenant waives any
statutory notice to quit and equitable rights in the nature of further cure or
redemption, and Tenant agrees that upon Landlord's termination of this Lease
Landlord shall be entitled to re-entry and possession in accordance with the
terms hereof. Landlord may, without notice, store Tenant's personal property
(and those of any person claiming under Tenant) at the expense and risk of
Tenant or, if Landlord so elects, Landlord may sell such personal property at
public auction or auctions or at private sale or sales after seven days notice
to Tenant and apply the net proceeds to the earliest of installments of rent or
other charges owing Landlord. Tenant agrees that a notice by Landlord alleging
any default shall, at Landlord's option (the exercise of such option shall be
indicated by the inclusion of the words "notice to quit" in such notice),
constitute a statutory notice to quit. If Landlord exercises its option to
designate a notice of default hereunder as a statutory notice to quit, any grace
periods provided for herein shall run concurrently with any statutory notice
periods. Landlord and Tenant waive trial by jury in any action to which they are
parties. Tenant further agrees that it shall not interpose any counterclaim or
set-off in any summary proceeding or in any action based in whole or in part on
non-payment of rent.
7.2 REIMBURSEMENT OF LANDLORD'S EXPENSES
In the case of termination of this Lease pursuant to Section 7.1,
Tenant shall reimburse Landlord for all reasonable expenses arising out of such
termination, including without limitation, all reasonable costs incurred in
collecting amounts due from Tenant under this Lease (including attorneys' fees,
costs of litigation and the like); all reasonable expenses incurred by Landlord
in attempting to relet the Premises or parts thereof (including advertisements,
brokerage commissions, Tenant's allowances, costs of preparing space, and the
like); all of Landlord's then unamortized costs of special inducements provided
to Tenant (including without limitation rent holidays, rent waivers, above
building standard leasehold improvements, and the like) and all Landlord's other
reasonable expenditures necessitated by the termination. The reimbursement from
Tenant shall be due and payable immediately from time to time upon notice from
Landlord that an expense has been incurred, without regard to whether the
expense was incurred before or after the termination.
7.3 DAMAGES
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Landlord may elect by written notice to Tenant within one year
following such termination to be indemnified for loss of rent by a lump sum
payment representing the then present value of the amount of rent and additional
charges which would have been paid in accordance with this Lease for the
remainder of the Term minus the then present value of the aggregate fair market
rent and additional charges payable for the Premises for the remainder of the
Term (if less than the rent and additional charges payable hereunder), estimated
as of the date of the termination, and taking into account reasonable
projections of vacancy and time required to re-lease the Premises. (For the
purposes of calculating the rent which would have been paid hereunder for the
lump sum payment calculation described herein, the last full year's additional
charges under Section 2.6 is to be deemed constant for each year thereafter. The
Federal Reserve discount rate (or equivalent) shall be used in calculating
present values.) Should the parties be unable to agree on a fair market rent,
the matter shall be submitted, upon the demand of either party, to the Boston,
Massachusetts office of the American Arbitration Association, with a request for
arbitration in accordance with the rules of the Association by a single
arbitrator who shall be an MAI appraiser with at least ten years experience as
an appraiser of major office buildings in the Greater Boston area. The parties
agree that a decision of the arbitrator shall be conclusive and binding upon
them. If, at the end of the Term, the rent which Landlord has actually received
from the Premises is less than the aggregate fair market rent estimated as
aforesaid, Tenant shall thereupon pay Landlord the amount of such difference.
Should Landlord fail to make the election provided for in this Section 7.3,
Tenant shall indemnify Landlord for the loss of rent by a payment at the end of
each month which would have been included in the Term, representing the
difference between the rent which would have been paid in accordance with this
Lease (Annual Fixed Rent under Section 2.5, and additional charges which would
have been payable under Section 2.6 to be ascertained monthly) and the rent
actually derived from the Premises by Landlord for such month (the amount of
rent deemed derived shall be the actual amount less any portion thereof
attributable to Landlord's reletting expenses described in Section 7.2 which
have not been reimbursed by Tenant thereunder).
7.4 MITIGATION
Any obligation imposed by law upon Landlord to relet the Premises shall
be subject to the reasonable requirements of Landlord to lease to high quality
tenants and to develop the Building in a harmonious manner with an appropriate
mix of uses, tenants, floor areas and terms of tenancies, and the like.
7.5 CLAIMS IN BANKRUPTCY
Nothing herein shall limit or prejudice the right of Landlord to prove
and obtain in a proceeding for bankruptcy, insolvency, arrangement or
reorganization, by reason of
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the termination, an amount equal to the maximum allowed by a statute or law in
effect at the time when, and governing the proceedings in which, the damages are
to be proved, whether or not the amount is greater to, equal to, or less than
the amount of the loss or damage which Landlord has suffered.
7.6 INTEREST ON UNPAID AMOUNTS
If any payment of Annual Fixed Rent, additional charges, or other
payment due from Tenant to Landlord is not paid when due, then without notice
and in addition to all other remedies hereunder, Tenant shall pay to Landlord
interest on such unpaid amount equal to 1.25% of the amount in question for each
month and for each part thereof during which said delinquency continues;
provided, however, in no event shall such interest exceed the maximum amount
permitted to be charged by applicable law.
7.7 VACANCY DURING LAST SIX MONTHS
If Tenant vacates all of the Premises within the last 6 months of the
Term, Landlord may enter the Premises and commence demolition work or
construction of leasehold improvements for future tenants. The exercise of such
right by Landlord will not affect Tenant's obligations to pay Annual Fixed Rent
or additional charges with respect to the Premises, which obligations shall
continue without abatement until the end of the Term.
ARTICLE VIII
MISCELLANEOUS
8.1 HOLDOVER
If Tenant remains in the Premises after the termination or expiration
of the Term, such holding over shall be as a tenant at will or tenant by the
month (requiring 30 days notice of termination by either party to the other) at
a monthly fixed rent equal to twotimes the Fixed Rent due hereunder for the last
month of the Term, and otherwise subject to all the covenants and conditions
(including obligations to pay additional charges under Section 2.6) of this
Lease as though it had originally been a monthly tenancy. Notwithstanding the
foregoing, if Landlord desires to regain possession of the Premises promptly
after the termination or expiration hereof and prior to acceptance of rent for
any period thereafter, Landlord may, at its option, forthwith re-enter and take
possession of the Premises or any part thereof by any legal process in force in
The Commonwealth of Massachusetts.
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Notwithstanding the establishment of any holdover tenancy following the
expiration or earlier termination of the Term, if Tenant fails promptly to
vacate the Premises at the expiration or earlier termination of the Term, Tenant
shall save Landlord harmless and indemnified against any claim, loss, cost or
expense (including reasonable attorneys' fees) arising out of Tenant's failure
promptly to vacate the Premises (or any portion thereof).
8.2 ESTOPPEL CERTIFICATES
At Landlord's request, from time to time, Tenant agrees to execute and
deliver to Landlord, within ten (10) days after such request, a certificate
which acknowledges the dates on which the Term begins and ends, tenancy and
possession of the Premises and recites such other facts concerning any provision
of the Lease or payments made under the Lease which Landlord or a mortgagee or
lender or a purchaser or prospective purchaser of the Building or any interest
therein or any other party may from time to time reasonably request. Tenant
acknowledges that the execution and delivery of such certificates in connection
with a financing or sale in a prompt manner constitute requirements of
Landlord's financing and/or property dispositions. Without limitation of the
foregoing, Tenant agrees to execute a document in the form of Exhibit D, or
whatever other instruments may reasonably be required by the first mortgagee or
junior mortgagee to acknowledge such tenancy in a recordable form, within ten
(10) days after Landlord's request, correcting as appropriate any
representations which are not then correct.
8.3 NOTICE
Any notice, approval, consent and other like communication hereunder
from Landlord to Tenant or from Tenant to Landlord shall be effective only if
given in writing and shall be deemed duly served if and when hand delivered or
if and when mailed prepaid certified mail (in either case, whether or not
accepted for delivery). Communications to Tenant shall be addressed to Tenant's
Authorized Representative at the Original Address of Tenant set forth in Section
1.1 prior to the Term Commencement Date and thereafter at the Premises.
Communications to Landlord shall be addressed to the Address of Landlord set
forth in Section 1.1. Either party may from time to time designate other
addresses within the continental United States by notice to the other.
8.4 LANDLORD'S RIGHT TO CURE
At any time and without notice, Landlord may, but need not, cure any
failure by Tenant to perform its obligations under this Lease. Whenever Landlord
chooses to do so, Tenant shall pay all costs and expenses incurred by Landlord
in curing any such failure, including, without limitation, reasonable attorneys'
fees together with an
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administrative charge equal to 15% of such costs and expenses (or such higher
percentage as may then be customary with respect to first-class office buildings
in the Greater Boston area) and interest as provided in Section 7.6.
8.5 SUCCESSORS AND ASSIGNS
This Lease and the covenants and conditions herein contained shall
inure to the benefit of and be binding upon Landlord, its successors and
assigns, and shall be binding upon Tenant, its successors and assigns, and shall
inure to the benefit of Tenant and only such Subtenants of Tenant as are
permitted hereunder. The term "Landlord" means the original Landlord named
herein, its successors and assigns. The term "Tenant" means the original Tenant
named herein and its permitted successors and assigns.
8.6 BROKERAGE
Landlord and Tenant each warrant that it has had no dealings with any
broker or agent in connection with this Lease or any other space in the Hobbs
Brook Office Park except for any brokers designated in Section 1.1. Each
covenants to pay, hold harmless and indemnify the other from and against any and
all costs, expense or liability for any compensation, commissions and charges
claimed by any broker or agent other than any such broker designated in Section
1.1 with respect to this Lease or the negotiation thereof arising from a breach
of the foregoing warranty. Landlord shall be responsible for payment of any
brokerage commission to any broker designated in Section 1.1.
8.7 WAIVER
The failure of Landlord or of Tenant to seek redress for violation of, or to
insist upon strict performance of, any covenant or condition of this Lease, or,
with respect to such failure of Landlord, any of the Rules and Regulations
referred to in Section 5.3, whether heretofore or hereafter adopted by Landlord,
shall not be deemed a waiver of such violation nor prevent a subsequent act,
which would have originally constituted a violation, from having all the effect
of an original violation, nor shall the failure of Landlord to enforce any of
said Rules and Regulations against any other tenant of the Building be deemed a
waiver of any such Rules or Regulations. The receipt by Landlord of Fixed Rent
or additional charges with knowledge of the breach of any covenant of this Lease
shall not be deemed waiver of such breach. No provision of this Lease shall be
deemed to have been waived by Landlord, or by Tenant, unless such waiver be in
writing signed by the party to be charged. No consent or waiver, express or
implied, by Landlord or Tenant to or of any breach of any agreement or duty
shall be construed as a waiver or consent to or of any other breach of the same
or any other agreement or duty.
8.8 ACCORD AND SATISFACTION
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No acceptance by Landlord of a lesser sum than the Fixed Rent and
additional charges then due shall be deemed to be other than on account of the
earliest installment of such rent and charges due, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
installment or pursue any other remedy provided in this Lease. The delivery of
keys to Landlord shall not operate as a termination of this Lease or a surrender
of the Premises.
8.9 REMEDIES CUMULATIVE
The specific remedies to which Landlord may resort under the terms of
this Lease are cumulative and are not intended to be exclusive of any other
remedies to which it may be lawfully entitled in case of any breach or
threatened breach by Tenant of any provisions of this Lease. In addition to the
other remedies provided in this Lease, Landlord shall be entitled to the
restraint by injunction of the violation or attempted or threatened violation of
any of the covenants or conditions of this Lease or to a decree compelling
specific performance of any such covenants or conditions.
8.10 PARTIAL INVALIDITY
If any term of this Lease, or the application thereof to any person or
circumstance, shall to any extent be invalid or unenforceable, the remainder of
this Lease, or the application of such term to persons or circumstances other
than those as to which it is invalid or unenforceable, shall not be affected
thereby, and each term of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
8.11 WAIVERS OF SUBROGATION
Any insurance carried by either party with respect to the Premises or
property therein or occurrences thereon shall, if it can be so written without
additional premium or with an additional premium which the other party agrees to
pay, include a clause or endorsement denying to the insurer rights of
subrogation against the other party to the extent rights have been waived by the
insured hereunder prior to occurrence of injury or loss. Each party,
notwithstanding any provisions of this Lease to the contrary, hereby waives any
rights of recovery against the other for injury or loss due to hazards covered
by such insurance to the extent of the indemnification received thereunder.
8.12 ENTIRE AGREEMENT
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This Lease contains all of the agreements between Landlord and Tenant
with respect to the Premises and supersedes all prior writings and dealings
between them with respect thereto.
8.13 NO AGREEMENT UNTIL SIGNED
The submission of this Lease or a summary of some or all of its
provisions for examination does not constitute a reservation of or option for
the Premises or an offer to lease and no legal obligations shall arise with
respect to the Premises or other matters herein until this Lease is executed and
delivered by Landlord and Tenant.
8.14 TENANT'S AUTHORIZED REPRESENTATIVE
Tenant designates the person named from time to time as Tenant's
Authorized Representative to take all acts of Tenant hereunder. Landlord may
rely on the acts of such Authorized Representative without further inquiry or
evidence of authority. Tenant's Authorized Representative shall be the person so
designated in Section 1.1 and such successors as may be named from time to time
by the then current Tenant's Authorized Representative or by Tenant's president.
8.15 NOTICE OF LEASE
Landlord and Tenant agree not to record this Lease. If appropriate,
both parties will, at the request of either, execute, acknowledge and deliver a
Notice of Lease and a Notice of Termination of Lease Term, each in recordable
form. Such notices shall contain only the information required by law for
recording. Tenant hereby irrevocably appoints Landlord as Tenant's
attorney-in-fact (which appointment shall survive termination of the Term) with
full power of substitution to execute, acknowledge and deliver a notice of
termination of lease on Tenant's name if Tenant fails to do so within 10 days
after request therefor.
8.16 TENANT AS BUSINESS ENTITY
If Tenant is a business entity, then Tenant warrants and represents
that (a) Tenant is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which such entity was organized; (b) Tenant has
the authority to own its property and to carry on its business as contemplated
under this Lease; (c) Tenant is in compliance with all laws and orders of public
authorities applicable to Tenant; (d) Tenant has duly executed and delivered
this lease; (e) the execution, delivery and performance by Tenant of this Lease
(i) are within the powers of Tenant, (ii) have been duly authorized by all
requisite action, (iii) will not violate any provision of law or any order of
any court or agency of government, or any agreement or other instrument to which
Tenant is a party or by which it or any of its property is bound, and (iv) will
not
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result in the imposition of any lien or charge on any of Tenant's property,
except by the provisions of this Lease; and (v) the Lease is a valid and binding
obligation of Tenant in accordance with its terms subject to bankruptcy and
creditors' rights, laws and general principles of equity. Tenant, if a business
entity, agrees that breach of the foregoing warranty and representation shall at
Landlord's election be a default under this Lease for which there shall be no
cure. This warranty and representation shall survive the termination of the
Term.
8.17 RELOCATION
If the Premises contain 3,500 rentable square feet or less, Landlord
reserves the right to relocate the Premises to comparable space within the
Building by giving Tenant prior notice of such intention to relocate. If within
one month after receipt of such notice Tenant has not agreed with Landlord on
the space to which the Premises are to be relocated, the timing of such
relocation and the terms of such relocation, then Landlord shall have the option
either to withdraw its relocation notice or to terminate this Lease on a date
which is at least 60 days after the date of the original notice (such date to
take effect as though the Lease had then expired).
If Landlord and Tenant do so agree on relocation, then, effective on
the date of such relocation, this Lease shall be amended by deleting the
description of the original Premises and the Rentable Floor Area of Premises set
forth in Section 1.1 and substituting therefor information relating to such
relocation space. Landlord agrees to pay the reasonable cost of moving Tenant to
such other space and finishing such space to a condition comparable to the then
condition of the Premises.
8.18 SECURITY DEPOSIT
On the execution of this Lease, Tenant shall pay to Landlord as a
security deposit for the performance of the obligations of Tenant hereunder any
amount specified therefor in Section 1.1. Said security deposit may be mingled
with other funds of Landlord and no fiduciary relationship shall be created with
respect to such deposit, nor shall Landlord be liable to pay Tenant interest
thereon. If Tenant shall fail to perform any of its obligations under this
Lease, Landlord may, but shall not be obliged to, apply the security deposit to
the extent necessary to cure the default, and Tenant shall be obligated to
reinstate such security deposit to the original amount thereof upon demand.
Within thirty (30) days after the expiration or sooner termination of the Term
the security deposit, to the extent not applied, shall be returned to the
Tenant, without interest.
8.19 GUARANTY
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The Tenant is a wholly-owned subsidiary of Altarex Corporation, a
Canadian corporation. As part of the execution of this Lease by Tenant, Altarex
Corporation has agreed to guaranty the obligations and debts of Tenant by
executing a Guaranty in the form attached hereto as Exhibit F.
8.20 MISCELLANEOUS PROVISIONS
This Lease may be executed in counterparts and shall constitute the
agreement of Landlord and Tenant whether or not their signatures appear in a
single copy hereof. This Lease shall be construed as a sealed instrument and
shall be governed exclusively by the provisions hereof and by the laws of The
Commonwealth of Massachusetts as the same may from time to time exist. The
titles are for convenience only and shall not be considered a part of the Lease.
Where the phrases "persons acting under Tenant" or "persons claiming under
Tenant" or similar phrases are used, the persons included shall be all
employees, agents, independent contractors and invitees of Tenant or of any
Subtenant of Tenant. The enumeration of specific examples of or inclusions in a
general provision shall not be construed as a limitation of the general
provision. If Tenant is granted any extension option, expansion option or other
right or option, the exercise of such right or option (and notice thereof) must
be unconditional to be effective, time always being of the essence to the
exercise of such right or option; and if Tenant purports to condition the
exercise of any option or to vary its terms in any manner, then the option
granted shall be void and the purported exercise shall be ineffective. Unless
otherwise stated herein, any consent or approval required hereunder may be given
or withheld in the sole absolute discretion of the party whose consent or
approval is required. Nothing herein shall be construed as creating the
relationship between Landlord and Tenant of principal and agent, or of partners
or joint venturers or any relationship other than landlord and tenant. This
Lease and all consents, notices, approvals and all other documents relating
hereto may be reproduced by any party by photographic, microfilm, microfiche or
other reproduction process and the originals thereof may be destroyed; and each
party agrees that any reproductions shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not reproduction was made in the regular
course of business) and that any further reproduction of such reproduction shall
likewise be admissible in evidence. This Lease may be amended only by a writing
signed by all of the parties hereto.
ARTICLE IX
LANDLORD'S LIABILITY AND ASSIGNMENT FOR FINANCING
9.1 LANDLORD'S LIABILITY
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Tenant agrees from time to time to look only to Landlord's interest in
the Land and Building for satisfaction of any claim against Landlord hereunder
or under any other instrument related to the Lease (including any separate
agreements among the parties and any notices or certificates delivered by
Landlord) and not to any other property or assets of Landlord. If Landlord from
time to time transfers its interest in the Land and Building (or part thereof
which includes the Premises), then from and after each such transfer Tenant
shall look solely to the interests in the Land and Building of each of
Landlord's transferees for the performance of all of the obligations of Landlord
hereunder (or under any related instrument). The obligations of Landlord shall
not be binding on any partners (or trustees or beneficiaries) of Landlord or of
any successor, individually, but only upon Landlord's or such successor's
interest described above.
In no event shall Landlord ever be liable for any indirect or
consequential damages.
9.2 ASSIGNMENT OF RENTS
If, at any time and from time to time, Landlord assigns this Lease or
the rents payable hereunder to the holder of any mortgage on the Building, or to
any other party for the purpose of securing financing (the holder of any such
mortgage and any other such financing party are referred to herein as the
"Financing Party"), whether such assignment is conditional in nature or
otherwise, the following provisions shall apply:
(i) Such assignment to the Financing Party shall not be deemed an
assumption by the Financing Party of any obligations of Landlord hereunder
unless such Financing Party shall, by written notice to Tenant, specifically
otherwise elect;
(ii) Except as provided in (i) above and (iii) below, the Financing
Party shall be treated as having assumed Landlord's obligations hereunder
(subject to Section 9.1) only upon foreclosure of its mortgage (or voluntary
conveyance by deed in lieu thereof) and the taking of possession of the Premises
from and after foreclosure and, with respect to obligations regarding return of
the security deposit, only upon receipt of the funds constituting such security
deposit;
(iii) Subject to Section 9.1, the Financing Party shall be responsible
for only such breaches under the Lease by Landlord which occur during the period
of ownership by the Financing Party after such foreclosure (or voluntary
conveyance by deed in lieu thereof) and taking of possession, as aforesaid;
(iv) In the event Tenant alleges that Landlord is in default under any
of Landlord's obligations under this Lease, Tenant agrees to give the holder of
any mortgage, by registered mail, a copy of any notice of default which is
served upon the Landlord, provided that prior to such notice, Tenant has been
notified, in writing,
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(whether by way of notice of an assignment of lease, request to execute an
estoppel letter, or otherwise) of the address of any such holder. Tenant further
agrees that if Landlord shall have failed to cure such default within the time
provided by law or such additional time as may be provided in such notice to
Landlord, such holder shall have sixty (60) days after the last date on which
Landlord could have cured such default within which such holder will be
permitted to cure such default. If such default cannot be cured within such
sixty-day period, then such holder shall have such additional time as may be
necessary to cure such default, if within such sixty day period such holder has
commenced and is diligently pursuing the remedies necessary to effect such cure
(including, but not limited to, commencement of foreclosure proceedings, if
necessary, to effect such cure), in which event Tenant shall have no right with
respect to such default while such remedies are being diligently pursued by such
holder.
In all events, any liability of a Financing Party shall be limited to
the interest of such Financing Party in the Land and Building, and in no event
shall a Financing Party ever be liable for any indirect or consequential
damages.
Tenant hereby agrees to enter into such agreements or instruments as
may, from time to time, be requested in confirmation of the foregoing.
Without limiting the generality of the foregoing, Tenant acknowledges
that Landlord's interest in this Lease has been assigned to Principal Mutual
Life Insurance Company ("Principal") pursuant to an Assignment of Leases and
Rents dated November 25, 1996 ("Lease Assignment") and recorded with the
Middlesex South Registry of Deeds as Instrument Number 737 on November 25, 1996.
Until the Lease Assignment is discharged of record, Tenant shall, upon notice by
Principal, make payments under this Lease as directed by Principal. Unless and
until such notice is given by Principal, all payments shall be made as set forth
in Section 2.5.
ARTICLE X
SUBORDINATION AND NON-DISTURBANCE
This Lease shall be subject and subordinate to any first mortgage and
to any junior mortgage that has been approved by the first mortgagee that may
now or hereafter be placed upon the Building and/or the Land and to any and all
advances to be made under such mortgages and to the interest thereon, and all
renewals, extensions and consolidations thereof. Any mortgagee may elect to give
this Lease priority to its mortgage, except that the Lease shall not have
priority to (i) the prior right, claim and lien of such mortgagees in, to and
upon any insurance proceeds and the disposition thereof under the mortgage; (ii)
the prior right, claim and lien of such mortgagees in, to and upon any award or
compensation heretofore or hereafter to be made for any taking by eminent domain
of any part of the Premises, and to the right of disposition thereof
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under the mortgage; and (iii)any lien, right, power or interest, if any, which
may have arisen or intervened in the period between the recording of the
mortgages and the execution of this Lease, or any lien or judgment which may
arise any time under the terms of this Lease. In the event of such election and
upon notification by such mortgagee, this Lease shall be deemed prior in lien to
the said mortgage. This Section shall be self-operative, but in confirmation
thereof, Tenant shall execute and deliver the Subordination, Nondisturbance and
Attornment Agreement attached as Exhibit E or whatever other instruments may be
required by the first mortgagee or junior mortgagee to acknowledge such
subordination or priority in a recordable form, and if Tenant fails to do so
within ten (10) days after demand, Tenant hereby irrevocably appoints Landlord
as Tenant's attorney-in-fact, in its name, place and stead to do so.
ARTICLE XI
PARKING
11.1 GENERAL
Landlord agrees to provide an automobile parking area during the term
of this Lease for the benefit and use of the customers and employees of Tenant,
and other tenants and occupants of the Building. Wherever the words "automobile
parking area" are used in this Lease, it is intended that the same shall
include, whether in a surface parking area or a parking structure, the
automobile parking stalls, driveways, entrances, exits, sidewalks, landscaped
areas, pedestrian passageways in conjunction therewith and other areas
designated for parking. Landlord shall keep the automobile parking area neat,
clean and in good repair, properly lighted and landscaped. Nothing contained
herein shall be deemed to create liability upon Landlord for any damage to motor
vehicles of customers or employees or from loss of property from within such
motor vehicles, unless caused by the negligence of Landlord, its agents,
servants and employees. Landlord shall have the right to establish and enforce
against all users of the automobile parking area, such reasonable rules and
regulations as may be deemed necessary and advisable for the proper and
efficient operation and maintenance of the automobile parking area, including
the hours during which the automobile parking area shall be open for use.
Landlord may establish for the automobile parking area, a system or
systems of validation or other operation including, but not limited to, a system
of charges against nonvalidated parking checks of users, which validation
parking system shall guarantee Tenant at least eleven (11) parking spaces at all
times free of charge during the term of the Lease. Tenant shall comply with such
system, and all rules and regulations established by Landlord in conjunction
with such system, and shall cause its customers and employees to comply
therewith; provided, however, that such system and such rules
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and regulations shall apply equally and without discrimination to all persons
entitled to the use of the automobile parking area.
Landlord shall at all times during the term hereof have the sole and
exclusive control of the automobile parking area, and may at any time during the
term hereof exclude and restrain any person from use thereof; excepting,
however, Tenant and its employees, bona fide customers, patrons and service
suppliers of Tenant and other tenants of Landlord who make use of said area in
accordance with any rules and regulations established by Landlord from time to
time with respect thereto. Landlord shall also have the right to designate
certain automobile parking areas as being for the exclusive use of one or more
of the tenants of Landlord. The rights of Tenant referred to in this Article
shall at all times be subject to the rights of Landlord and the other tenants of
Landlord to use the same in common with Tenant, and it shall be the duty of
Tenant to keep all of said area free and clear of any obstructions created or
permitted by Tenant or resulting from Tenant's operations and to permit the use
of any of said area only for normal parking and ingress and egress by said
customers, patrons and service suppliers to and from the Building.
Landlord shall at all times have the right and privilege of determining
the nature and extent of the automobile parking area, whether the same shall be
surface, underground or other structure, and of making such changes therein from
time to time which in its opinion are deemed to be desirable and for the best
interests of all persons using the automobile parking area.
11.2 EMPLOYEE PARKING
It is understood and agreed that the employees of Tenant and the other
tenants of Landlord within the Building shall not be permitted to park their
automobiles in the portions of the automobile parking area which may from time
to time be designated for patrons of the Building and that Landlord shall at all
times have the right to establish rules and regulations for employee parking.
11.3 PATRON PARKING
Landlord agrees to provide within the automobile parking area parking
spaces for the patrons of Tenant and other tenants in the Building in sufficient
number as from time to time Landlord shall reasonably deem appropriate.
11.4 OTHER PARKING USERS
Landlord may authorize persons other than those described above,
including occupants of other buildings, to utilize said automobile parking area.
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Executed to take effect as a sealed instrument.
275 Wyman Street Trust
By: /s/ Michael D. Bank
--------------------------------
Managing Trustee
ALTAREX, U.S. Corp.
By: /s/ Richard E. Bagley
--------------------------------
Name: Richard E. Bagley
Title: President/CEO
By:
--------------------------------
Name:
Title: Treasurer/Assistant Treasurer
36
