UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
Form 20-F / A
-------------
(X) REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Fiscal Year Ended December 31, 1998
IMMUNE NETWORK LTD.
(Exact name of Registrant as specified in its charter)
British Columbia, Canada
(Jurisdiction of amalgamation)
3650 Wesbrook Mall, Vancouver, British Columbia, Canada V6S 2L2
(Address of principal executive office)
Commission File Number: 0-27883
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares, Without Par Value
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
Number of outstanding shares of each of the Registrant's classes of capital or
common stock as of April 30, 2000: 30,223,965 Common Shares Without Par Value
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: Not Applicable
Indicate by check mark which financial statement item the Registrant has elected
to follow:
Item 17 X Item 18
--- ---
<PAGE>
Page 2
TABLE OF CONTENTS
-----------------
Page No.
--------
CURRENCY EXCHANGE RATES 5
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS 5
GLOSSARY 6
ITEM 1. DESCRIPTION OF BUSINESS 7
Formation of the Company 7
Business of the Company 7
Projects 10
Summary of Research and Development Programs 10
AIDS Project 10
Alzheimers Disease Project 12
Asthma Project 13
Material Agreements 14
Sidney Kimmel Cancer Center 14
ImmPheron, Inc. 15
University of British Columbia 15
Bridge Pharma, Inc. 16
Meditech Pharmaceuticals Inc. 16
CroMedica Global Inc. 17
Markets 18
AIDS Project 18
Alzheimer Disease Project 19
Asthma Project 19
Business Strategy 20
Research and Development Expenses 21
Proprietary Protection 21
General 21
AIDS Project 22
Alzheimer Disease Project 23
Asthma Project 24
Other 24
Government Regulation 24
United States Regulation 24
Canadian Regulation 25
Additional Regulatory Considerations 26
Regulation in Other Jurisdictions 27
Risk Factors 27
ITEM 2. DESCRIPTION OF PROPERTY 34
ITEM 3. LEGAL PROCEEDINGS 34
ITEM 4. CONTROL OF COMPANY 34
ITEM 5. NATURE OF TRADING MARKET 35
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY
HOLDERS 35
ITEM 7. TAXATION 36
<PAGE>
Page 3
ITEM 8. SELECTED FINANCIAL DATA 37
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 40
General 40
Liquidity and Capital Resources 41
Nine Month Period Ended September 30, 1999 41
Year Ended December 31, 1998 41
Year Ended December 31, 1997 42
Year Ended December 31, 1996 42
Results of Operations 42
Nine Month Period Ended September 30, 1999 42
Year Ended December 31, 1998 43
Year Ended December 31, 1997 43
Year Ended December 31, 1996 43
ITEM 9A. MARKET RISK 44
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY 44
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS 45
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM THE COMPANY 45
Incentive Stock Options 45
Share Purchase Warrants 46
Special Warrants 46
Agent's Special Warrants 47
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS 48
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED 48
Shares 48
Escrow Shares 49
ITEM 15. DEFAULTS UNDER SENIOR SECURITIES 49
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES 49
ITEM 17. FINANCIAL STATEMENTS 49
ITEM 18. FINANCIAL STATEMENTS 50
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS 50
Financial Statements
Exhibits
Corporate Documentation
Instruments Defining the Rights of Holders of Securities Being
Registered
Material Contracts
SIGNATURES
<PAGE>
Page 4
CURRENCY EXCHANGE RATES
-----------------------
The Company's accounts are maintained in Canadian dollars. In this Registration
Statement all currency references are expressed in Canadian dollars unless
otherwise indicated. As of April 30, 1999, the exchange rate for conversion
from U.S. dollars to Canadian dollars was US$1.00 = US$1.4818. The following
table sets forth the exchange rates for one U.S. dollar expressed in terms of
Canadian dollars for the past five calendar years and the interim period ended
September 30, 1999.
Canadian Dollars per One U.S. Dollar
================================================================================
2000(1) 1999 1998 1997 1996 1995 1994
$ $ $ $ $ $ $
================================================================================
High 1.4538 1.5095 1.5745 1.4288 1.3747 1.4092 1.4030
--------------------------------------------------------------------------------
Low 1.4505 1.4578 1.4225 1.3474 1.3409 1.3401 1.3270
--------------------------------------------------------------------------------
Average for
Period 1.4520 1.4894 1.4898 1.3894 1.3646 1.3689 1.3685
--------------------------------------------------------------------------------
End of
Period 1.4538 1.4695 1.5375 1.4288 1.3697 1.3655 1.4030
================================================================================
(1) Covers the period from January 1 through March 31, 2000.
Exchange rates are based upon the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
-------------------------------------------------
Certain statements in this Registration Statement constitute "forward looking
statements". Such forward looking statements involve known 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. These factors include, but are not limited to: the
Company's early stage of development; the fact that the Company's technology is
in the research stage and therefore its potential benefits for human therapy are
unproven; the possibility that favorable relationships with collaborators cannot
be established or, if established will be abandoned by the collaborators before
completion of product development; the possibility that the Company or its
collaborators will not successfully develop any products; the possibility that
advances by competitors will cause the Company's proposed products not to be
viable; uncertainties as to the requirement that a drug be found to be safe and
effective after extensive clinical trials and the possibility that the results
of such trials, if commenced and completed, will not establish the safety or the
efficacy of the Company's products; risks relating to requirements for approvals
by government agencies such as the FDA before products can be marketed and the
possibility that such approvals will not be obtained in a timely manner or at
all or will be conditioned in a manner that would impair the Company's ability
to market the product successfully; the risk that the Company's patents could be
invalidated or narrowed in scope by judicial actions or that the Company's
technology could infringe the patent or other intellectual property rights of
third parties; the possibility that the Company will not be able to raise
adequate capital to fund its operations through the process of developing and
testing a successful product or that future financing will be completed on
unfavourable terms; the possibility that any products successfully developed by
the Company will not achieve market acceptance; and other risks and
uncertainties which may not be described herein. Further information concerning
these and other risks and uncertainties is included under "Item 1 - Description
of Business - Risk Factors". These risks and uncertainties should be considered
when evaluating forward looking statements, and undue reliance should not be
placed upon forward looking statements.
The information in this Registration Statement is as at April 30, 2000 unless
otherwise stated.
<PAGE>
Page 5
GLOSSARY
--------
The following are abbreviations and definitions of terms used in this
Registration Statement.
AIDS Acquired Immunodeficiency Syndrome.
Amalgamation The amalgamation of Bobby Cadillac's Food Corporation
and Immune Network Research Ltd. effective April 24, 1996,
whereby the Company was formed.
Antibody A protein that is produced in response to an antigen
(often a virus or bacterium). It is able to combine with
and neutralize the antigen.
Anti-idiotypic
antibody A special type of antibody that is directed against
a particular "idiotope", the unique amino acid sequence
that makes up the antigen binding site in the variable
region of another antibody.
BCFC Bobby Cadillac's Food Corporation.
clonotypic effect A persistent tendency of the humoral immune response to
have a narrow range of targets.
Company Immune Network Research Ltd., formed upon the
Amalgamation.
Financial Statements The financial statements listed in Item 19(a) herein.
Fiscal 2000 The fiscal year of the Company ended December 31, 2000.
Fiscal 1999 The fiscal year of the Company ended December 31, 1999.
Fiscal 1998 The fiscal year of the Company ended December 31, 1998.
Fiscal 1997 The fiscal year of the Company ended December 31, 1997.
Fiscal 1996 The fiscal year of the Company ended December 31, 1996.
Fiscal 1995 The fiscal year of the Company ended December 31, 1995.
Fiscal 1994 The fiscal year of the Company ended December 31, 1994.
HIV Human immunodeficiency virus.
Immune Network Immune Network Research Ltd., as it existed prior to the
Amalgamation.
Immunoglobulin An antibody protein that is generated in response to and
will bind to a specific antigen.
in vivo Occurring in a living organism.
in vitro Occurring outside a living organism.
monoclonal
antibodies Antibodies which are produced by a single clone and are
homogenous.
Share A common share without par value in the capital stock of
the Company.
<PAGE>
Page 6
ITEM 1. DESCRIPTION OF BUSINESS
A. Formation of the Company
------------------------
The Company was formed by the amalgamation, under the Company Act (British
Columbia), of Immune Network and BCFC on April 24, 1996.
The Amalgamation was completed pursuant to an agreement (the "Amalgamation
Agreement") between Immune Network and BCFC following receipt of (i) required
securityholders approval, (ii) an order from the Supreme Court of British
Columbia approving the Amalgamation under section 237 of the Company Act
(British Columbia), and (iii) acceptance from the Vancouver Stock Exchange to
the filing of documentation relating to the Amalgamation. The Amalgamation
became effective upon the issuance of a certificate of amalgamation by the
Registrar of Companies for the Province of British Columbia on April 24, 1996.
The principal features of the Amalgamation are summarized as follows:
* The property, assets and liabilities of each of Immune Network and BCFC
became the property, assets and liabilities of the Company.
* The Company issued Shares to the shareholders of Immune Network and BCFC,
as follows:
(a) the issued and outstanding common shares of Immune Network were
exchanged for 7,664,653 Shares, and 5,066,667 Shares in escrow, on
the basis of 1.33 Shares for each one Immune Network common share
held; and
(b) the issued and outstanding common shares of BCFC were exchanged for
4,263,309 Shares on the basis of two Shares for each three BCFC common
shares held.
* The holders of options to acquire shares of BCFC were deemed to be holders
of options to acquire that number of Shares (333,333 at the time of the
Amalgamation) resulting from the application of a 3:2 share exchange ratio
to the number of common shares of BCFC that such holder could previously
acquire.
B. Business of the Company
-----------------------
The Company is a biotechnology company focused on the development of new drugs
to treat major diseases, predominantly involving the body's immune system.
Using both its internal expertise and external network, the Company's objective
is to accelerate the period in which a return on investment would typically be
recognized with traditional biotechnology companies through participation in
"special situations" in biotechnology. The Company's current projects, listed
below, may all be considered special situations:
* AIDS project
* Alzheimer Disease project
* Asthma project
The Company's goal is to capitalize on special situations through a strategy of
acquisition of rights or other interest in the project, addition of value, and
rapid divestiture through licenses, alliances, or other disposition. Special
situations in biotechnology are stalled projects that have an underlying
foundation of strong science, protectable intellectual property, and a clearly
indentified market niche. A stalled project is a project initiated by another
party, the development of which has been suspended for any of a number of
reasons such as a lack of financial or management resources, for such period of
time that the value of the project may have been materially reduced. The
<PAGE>
Page 7
Company differentiates itself from other biotechnology companies by focusing on
the potential for rapid return on investment rather than focusing on a
particular scientific or therapeutic specialization. The Company intends to
collaborate with development partners and contract research organizations on its
projects.
See "Item 1 - Description of Business - Projects".
During the five years preceding the date of this Registration Statement, the
general development of the Company and its predecessor, Immune Network, has
been as follows:
* The Company was formed on April 24, 1996, the effective date of the
Amalgamation.
* In December 1997, as amended in December 1998, the Company entered into
a research agreement with Immpheron, Inc. regarding the AIDS project (see
"Item 1 - Description of Business - Material Agreements - Immpheron,
Inc.").
* On December 15, 1998, the Company was issued a U.S. patent for its
"Anti-idiotypic antibody" and its use in diagnosis and therapy in HIV-
related diseases (see "Item 1 - Description of Business - Patents").
* In July 1999, the Company entered into an agreement with the University
of British Columbia (the "UBC Option Agreement") whereby the Company was
granted an option to license dapsone, a drug currently in use for other
conditions, for the treatment of Alzheimer disease (see "Item 1 -
Description of Business - Material Agreements - University of British
Columbia").
* In August 1999, the Company entered into a joint venture arrangement
with Bridge Pharma, Inc. for the development of a new asthma therapeutic
(see "Item 1 - Description of Business - Material Agreements - Bridge
Pharma, Inc."). The joint venture operations commenced in October 1999.
* In October 1999, the Company exercised its option to license dapsone
from the University of British Columbia (see "Item 1 - Description of
Business - Material Agreements - University of British Columbia").
* In December 1999, the Company entered into an agreement to reacquire the
50% interest in the Antibody 1F7 previously acquired by ImmPheron, Inc.
(see "Item 1 - Description of Business - Material Agreements - ImmPheron,
Inc.")
* In February 2000, the Company acquired an option from Meditech
Pharmaceuticals Inc. to acquire an exclusive license on two of Meditech
Pharmaceutical Inc.'s drugs, Viraplex and MTCH-24 (see "Item 1 -
Description of Business - Material Agreements - Meditech Pharmaceuticals
Inc.").
* In March 2000, the Company and CroMedica Global, Inc., a contract research
organization, entered into an agreement whereby CroMedica Global Inc.
will provide services relating to the clinical trial program for the
Company's patented drug candidate for Alzheimer disease (see "Item 1 -
Description of Business - Material Agreements - CroMedica Global Inc.").
* In April 2000, the Company and Bridge Pharma, Inc. signed an addendum
under which they agreed to add the use of certain compounds for the
treatment of atopic dermatitis (eczema) (see "Item 1 - Description of
Business - Material Agreements - Bridge Pharma, Inc.").
<PAGE>
Page 8
The Company expects to complete the following milestones in Fiscal 2000: (1)
completion of the investigational new drug application for its AIDS project drug
candidate IQ199, in either Canada or the United States; (2) initiation of a
Phase I/II clinical trial of IQ199 and Phase II trial of its Alzheimer drug
candidate IQ200; and (3) initiation of in vitro and in vivo testing of the
Asthma project compound. See "Item 1 - Description of Business - Projects" and
"Item 1 - Description of Business - Government Regulation".
The Company completed three private placements during the period from January 1,
1999 through to February 29, 2000, raising $1,314,997, the stated use of
proceeds of which is as follows:
$ 318,000 - research activities - pharmacology testing and preparation
for clinical trials
$ 100,000 - test material production - synthesis of compounds and
compositions required for further testing and product
development
$ 150,000 - preclinical development - toxicity testing and preparation
of data
$ 100,000 - clinical regulatory expenses - consultation with
regulatory experts and preparation of regulatory filings
$ 392,977 - general working capital
$ 254,020 - general and administrative expenses
Subsequent to February 29, 2000, the Company completed a brokered private
placement with Groome Capital.com Inc. of 15,454,544 special warrants at $0.55
each, raising net proceeds of $7,791,911.23 after deduction of agent's
commission and expenses. See "Options to Purchase Securities From the Company"
for details of the special warrants issued. The net proceeds from this private
placement will be utilized as follows:
$5,500,000 - clinical trials (AIDS and Alzheimer projects)
$1,600,000 - research and development
$ 350,413 - general and administrative
$ 341,498.20 - general working capital
The Company is in the development stage and currently derives no revenues from
its operations. The Company's ability to remain as a going concern is dependent
on additional capital being raised to fund future operations and on-going
research and development activities. The Company believes that the funds
received from its most recent private placement will be sufficient to finance
the Company's operations for the remainder of the current fiscal year. The
Financial Statements have been prepared assuming the Company will continue as a
going concern and reference should be made to Note 1(a) of the Financial
Statements.
The Company is dependent on generating income primarily by raising funds by the
issuance of shares in order to finance research and development activities and
meet general and administrative expenses in the medium term. The Company plans
to collaborate with development partners on its AIDS and Alzheimer disease
projects, reducing the requirement for capital. In the long term, the Company
intends to derive its income from licensing arrangements and divestitures of
intellectual property. There can be no assurance that the Company will be
successful in raising the required financing or in carrying out intellectual
property transactions that produce income. Reference should be made to "Item 1
- Business of the Company - Risk Factors" for disclosure of the distinctive or
special characteristics of the Company's operations or industry which may have a
material impact upon its future financial performance.
<PAGE>
Page 9
As at April 30, 2000, the Company had 9 full-time employees and 3 part-time
employees, 10 of whom are involved in research and development and 2 of whom are
engaged in administration.
The Company does not anticipate any material acquisition or any material
increase in the number of employees in the foreseeable future.
The Company has met all commitments to date and is not in arrears of its
financial obligations.
See also "Item 8 - Selected Financial Data".
C. Projects
--------
Summary of Research and Development Programs
The following table summarizes the Company's current research and development
programs:
================================================================================
Project Product Candidate Development Research and
Status Development Partner
================================================================================
AIDS Project Compound IQ199 Preclinical/Pre-IND(1) ---
--------------------------------------------------------------------------------
Alzheimer
Disease Project Compound IQ200 Assessment for Phase II CroMedica Global
clinical research(2) Inc.
--------------------------------------------------------------------------------
Alzheimer
Disease Project Compound IQ201 Preclinical ---
--------------------------------------------------------------------------------
Asthma Project Compound IQ210 Preclinical Bridge Pharma,
Inc.
================================================================================
(1) Preclinical includes pharmacological and efficacy testing in animals,
toxicology testing and formulation work. After completion of such actions,
the product, with the approval of a governing body, can enter human trials
(Phases I, II and III). See "Item 1 - Description of Business - Government
Regulation".
(2) A Phase II clinical trial is a pivotal trial designed to test a drug's
effectiveness in a relevant patient group. The Company has contracted with
experts to assess the data available to date and to determine an optimal
clinical testing and commercialization strategy.
AIDS Project
The goal of the Company's AIDS project is to develop an AIDS therapy, IQ199, a
type of monoclonal antibody that addresses two major problems facing current
drugs: (1) the existence of various strains of HIV with different sensitivity to
existing therapies; and (2) the ability of HIV to mutate which allows the virus
to become resistant to existing drug therapy.
AIDS is caused by HIV1 and is generally transmitted between humans through the
transfer of bodily fluids. AIDS occurs because the HIV virus destroys the immune
system of infected individuals2. After initial infection, lymphatic B-cells of
the immune system begin producing antibodies specific to the infecting viral
------------------------------
1 Horowitz, H.W., Telzak, E.E., Sepkowitz and K.A. Wormser,
G.P. (1998). Human Immunodeficiency Virus Infection, Part I, Dis Mon. 44(10),
545-606.
2 (1993) What is HIV? And how does it cause AIDS?; a statement from the
National Institutes of Health (HIH). Centers for Disease Control and Prevention
(CDC). November 3.
<PAGE>
Page 10
strain3. Antibodies are proteins secreted by cells in the blood that help the
body fight infections and diseases by searching out and selectively binding to
their targets to guard the immune system against infectious microorganisms.
Monoclonal antibodies are an important part of developing therapies that work.
The term "monoclonal" refers to the fact that the cells which secrete the
antibodies are derived from clones, or identical copies, of a single cell.
Monoclonal antibodies are screened in the laboratory and selected for their
sensitivity and specificity to particular target receptors so that they can be
utilized to diagnose and/or treat specific diseases.
Viral replication is initially suppressed by the immune system; however, due to
a high viral mutation rate, new forms of the virus are produced. The immune
system does not produce antibodies specific to the new variants but continues to
produce antibodies against the original strain4 - this is called the "clonotypic
effect". The antibodies produced against the original viral strain are
ineffective against the new variants. Unchecked by the body's immune system,
the new viral strains proliferate, leading to the destruction or functional
impairment of cells of the immune system and inhibition of the body's ability to
fight infections and certain cancers5.
Current therapy for HIV infection is often ineffective in the long term since
these agents usually target only specific strains of HIV. When the virus
mutates, the drugs become ineffective. Many drug companies have attempted to
overcome this problem by developing therapeutics that recognize more than one
strain of HIV (e.g. Glaxo Inc., Pfizer Inc.). However, with continuous viral
mutation, the long-term effectiveness of these therapies is limited.
Previously, combinations of several anti-HIV drugs were shown to be effective in
patients with AIDS symptoms6. Recently, however, as a result of the appearance
of new drug resistant HIV strains, trials using combination drug approaches have
been unsuccessful at reducing AIDS symptoms7. In addition, serious drug side
effects and high medication costs make patient compliance difficult to maintain.
Therefore, current therapies may not provide a long-term solution to AIDS,
making alternative approaches in AIDS therapy increasingly desirable.
IQ199, the Company's 1F7 monoclonal antibody, is a novel approach for treating
HIV infection aimed at resetting the body's immune system to continue to fight
the AIDS virus even as the virus mutates. 1F7 was discovered in 1993 by Drs.
Sybille Muller, Heinz Kohler, Michael Grant and Haitao Wang and ispatent-
protected by the authors in the U.S. (see "Item 1 - Description of Business -
Patents"). IQ199 is an antibody produced in mice that appears to reset the
body's immune system, thereby facilitating its response against new strains of
HIV8. IQ199 is not directed against HIV itself but is able to stimulate the
immune system directly. IQ199 stimulates the immune system by suppressing the
"B-cells" that produce antibodies against the original HIV strain and also
------------------------------
3 Kohler, H., Goudsmit and J., Nara, P. (1995). Clonal dominance; a cause for
alimited and failing immune system to HIV-1 infection and vaccination. J Acquir
Immune Defic Syndr. 5(11), 1158-68.
4 Muller, S., Margolin, D.H., Nara, P.L., Alvord, W.G. and Kohler, H. (1998).
Stimulation of HIV-1 neutralizing antibodies in simian HIV-IIIB infected
macaques. Proc Natl Acad Sci U.S.A. 95(1), 276-81.
5 (1994). The Evidence That HIV Causes AIDS. Fact Sheet, Office of
Communications and Public Liaison, National Institute of Allergy and
Infectious Diseases, National Institute of Health, November 1994.
6 Horowitz, H.W., Telzak, E.E., Sepkowitz, K.A. and Wormser, G.P. (1998). Human
Immunodeficienct Virus Infection, Part !. Dis Mon. 44(10), 545-606.
7 Chesney, M/A/, Morin, M. and Sherr, L. (2000). Adherence to HIV combination
therapy. SocSciMED 50(11), 1599-605.
8 MULLER, S., Margolin, D.H., NARA., P.L., Alvord, W.G. and Kohler, H. (1998).
Stimulation of HIV-1-neutralizing antibodies in simian HIV-IIIB-infected
macaques. Proc Natl Acad Sci U.S.A. 95(1), 276-81.
<PAGE>
Page 11
stimulates other lines of "B-cells" to produce antibodies against the new mutant
virus strains8.
An experiment was carried out to test the efficacy of 1F7 in suppressing
dominant antibody responses in HIV-infected macaque monkeys8. Significant
increases in the number of anti-HIV antibodies for more than one virus strains
(HIV-1 IIIB and MN) were detected in the blood of the 1F7-inoculated macaques.
Moreover, in all three injected monkeys, antibody binding to three different HIV
strains (MN, CM and SF2) that are not targeted by the 1F7 antibody increased
following 1F7 injection. These results suggest that the monkey's immune system
became more effective against HIV strains after 1F7 injection.
In HIV patients the CD8+ "cytotoxic" cells of the immune system destroy its own
CD4+ "helper" T-cells that have become infected with the virus. It appears that
a key factor in the pathology of AIDS is that cytotoxic T-cells also kill
uninfected helper T-cells9. Early in vitro experiments conducted by Dr.
Michael Grant have demonstrated that 1F7 selectively inhibited the destruction
of uninfected CD4+ cells by the cytotoxic T-cells in HIV-infected
individuals10.
In summary, the experiments conducted by Dr. Muller and colleagues and Dr. Grant
suggest that the monoclonal antibody 1F7 has several important effects on both
humoral (antibody-mediated) and cellular immunity mechanisms that make it an
ideal candidate for an HIV therapy. In addition, the failure or limited success
of other drug therapies opens the market for new and novel AIDS therapeutics
such as 1F7.
The Company has licensed the antibody 1F7 technology from the San Diego Regional
Cancer Center (see "Description of Business - Material Agreements - Sidney
Kimmel Cancer Center") and has further patents pending regarding the antibody
1F7 (see "Description of Business - Patents - AIDS Project").
The AIDS project is in the preclinical stage. The Company is currently
preparing an investigational new drug ("IND") application for filing with the
regulatory agencies upon completion of preclinical studies (see "Item 1 -
Description of Business - Government Regulation"). Once the IND becomes
effective, the Company can then begin the first of three phases of clinical
trials. Preliminary discussions are being held with various research
organizations and the regulatory agencies regarding the requirements and
conditions for a clinical trial.
Alzheimers Disease Project
The short term goal of the Company's Alzheimer disease project is to
demonstrate that dapsone, a drug currently in use for other conditions, is
effective in slowing the progression of Alzheimer disease. The Company has
developed a clinical, regulatory and commercial strategy for the project.
Clinical trials for IQ200, the first generation compound in this project, have
been designed to confirm the ability of the compound to slow the progression of
dementia in confirmed Alzheimer disease patients. The Company is also
conducting research on IQ201 and subsequent candidates as possible second
generation agents for prevention of onset and/or slowing the progression of
Alzheimer disease.
------------------------------
9 Zarling, J.M., Ledbetter, J.A., Sias, J. Fultz, P., Eichberg, J., Gjerset, G.
and Moran, P.A. (1990). HIV-infected humans, but not chimpanzees, have
circulating cytotoxic T lymphocytes that lyse uninfected CD4+ cells. J Immounol
144(8), 2992-8.
10 Grant, M. Smaill, F., Muller, S., Kohler, H. Rosenthal, K. (2000). The anti-
idiotypic antibody 1F7 selectively inhibits cytotoxic T-cells activated in HIV-1
infection. Immunol Cell Biol 78(1), 20-7.
<PAGE>
Page 12
Alzheimer disease is a condition characterized by death of brain cells and
severe degradation of mental health. Primarily affecting the elderly, Alzheimer
disease currently afflicts over 35 million people worldwide11 and is the eighth
leading cause of death in people aged 65 and older in the United States12.
Presently, there are only two drugs approved for the treatment of this disease -
both treat the symptoms of the disease by temporarily improving brain function
but they do not arrest or slow the progression of the disease.
In 1992, researchers at the University of British Columbia conducted a
retrospective study on the prevalence of dementia among elderly Japanese
patients receiving dapsone13. They found that the occurrence of dementia was 37%
lower in patients chronically treated with dapsone as compared to patients not
receiving dapsone. These results suggest that continuous therapy with dapsone
(IQ200) may lower the incidence of dementia.
The Company entered into an option agreement with the University of British
Columbia (the "UBC Option Agreement") for an exclusive worldwide license on a
patent that covers the use of dapsone and related compounds for the treatment of
dementia, with rights to manufacture, distribute and sell products based on such
technology (see "Item 1 - Description of Business - Patents"). Subsequently the
Company exercised its option and is currently finalizing the terms of the
license agreement (see "Item 1 - Description of Business - Material Contracts -
UBC Option Agreement").
Based on a positive statistical analysis of data from the restrospective study,
the Company will be proceeding with a Phase II, multi-center clinical research
program for this drug candidate. The Phase II research program will be
conducted by CroMedical Global Inc. ("CroMedica"), an arm's length clinical
research operating facility (see "Description of Business - Material Agreements
- CroMedica Global Inc."). The three-country clinical trial program has been
designed by CroMedica to establish the efficacy of the Company's patented drug
candidate against the progression of Alzheimer disease. The patient selection
process is scheduled to begin before the end of the current year, with first
results anticipated in year 2001. CroMedica will be responsible for the
coordination, management and conduct of the studies. Total expenses are
expected to be US$13 million over three years. The Company will need to secure
additional funds, through financings and/or collaborative agreements, to cover
much of the cost associated with the completion of the Phase II clinical
research program. There can be no assurance that such additional funds will be
secured at all or in a timely manner.
A project plan is currently being developed for a second pharmaceutical
composition for Alzheimer disease therapy (IQ201) which may be advanced into
clinical development as part of an arm's length agreement entered into between
the Company and CroMedica (see "Item 1 - Description of Business - Material
Agreements - CroMedica Global Inc."). When this project is initiated, IQ201
will enter into the preclinical stage of development. Initial expenses for this
project are expected to be nominal.
Asthma Project
The goal of the Company's asthma project is to synthesize and test several new
compounds that have, in laboratory studies, demonstrated possible disease-
modifying actions in asthma. Pursuant to a research agreement between the
Company and Bridge Pharma, Inc. (see "Item 1 - Description of Business -
Material Agreements - Bridge Pharma, Inc."), the research will involve the
------------------------------
11 The World Health Report 1999. World Health Organization.
12 1996 National Center for Health Statistics, U.S. Department of Health and
Human Services.
13 McGeer et al, 1992. Dementia, Volume 3: 146-149.
<PAGE>
Page 13
exploration of targeted mast cell stabilizers which are effective but may not
possess the side-effects associated with steroids and other drugs that are
currently available for the treatment of asthma. Initial data from Bridge
Pharma, Inc. indicates that these novel, non-steroidal, disease-modifying
therapeutics have a better activity profile with fewer side effects than other
drugs of their class. Bridge Pharma, Inc. intends to screen these compounds in
laboratory models of asthma, select a clinical candidate and initiate clinical
testing of this candidate drug.
Asthma is a disorder characterized by chronic inflammation and hyper-sensitivity
of the air passages in the lung. People who suffer from asthma experience
"attacks" during which their air passages contract causing difficulty in
breathing. Temporary relief from the symptoms of asthma is currently achieved
through use of bronchodilators that re-open the air passages. Recently, a
better understanding of the underlying pathophysiology of asthma has led to the
conclusion that long-term management of asthma should be achieved with safe,
disease-modifying drugs, and to acutely maintain normal lung function with the
use of bronchodilator drugs only as needed. Although various bronchodilator
drugs are currently available, there is still a need for effective,
well-tolerated, non-steroidal, disease-modifying drugs.
Asthma appears to involve the release of many inflammatory agents that are
involved in allergic reactions. Inhibiting a single mediator is not always
effective. Inhibition of multiple mediators is more likely to produce a
broad-based anti-inflammatory effect. The only known method to meet such a goal
is to inhibit the release of inflammatory agents by stabilizing the cells that
produce them.
The patent application for the drug candidate under the Asthma project is part
of the intellectual property covered by the Company's agreement with Bridge
Pharma, Inc. The Asthma project is in the preclinical stage. Total expenses
related to this project are expected to be up to a maximum of $3 million over
two years. The Company will need to secure additional funds, through sources
such as financings and/or collaborative agreements, to cover much of the costs
associated with the completion of research and development relating to the
Asthma project. There can be no assurance that such additional funds will be
secured at all or in a timely manner.
D. Material Agreements
-------------------
Sidney Kimmel Cancer Center
By an arms length exclusive licensing agreement dated April 23, 1993 (the "1F7
License Agreement") entered into between the Company and the San Diego Regional
Cancer Center (now known as the Sidney Kimmel Cancer Center) (the "Cancer
Center"), the Company was granted an exclusive license to use and sublicense the
technology characterized as "Antibody 1F7" (see "Item 1 - Description of
Business - Patents") and to make or have made licensed products in all countries
of the world in which the Cancer Center has patent rights, and to sell licensed
products worldwide. Under the terms of the 1F7 License Agreement, the Company
is required to pay to the Cancer Center a royalty equal to 2% of net sales of
therapeutic licensed products and 5% of net sales of diagnostic licensed
products resulting from Antibody 1F7 technology.
The 1F7 License Agreement shall expire on the later of: (a) April 23, 2010; or
(b) expiry of the last remaining patent rights. The Company may continue to
utilize the technology under the 1F7 License Agreement after the expiration of
the last remaining patent rights, but shall not have any further royalty or
other payment obligations to the Cancer Center.
Subject to its terms and conditions, the 1F7 License Agreement may be
terminated: (a) at any time by the Cancer Center if the Company files in any
<PAGE>
Page 14
court a bankruptcy or insolvency petition; (b) by either party upon failure of
the other party to remedy a breach for which notice was given; and (c) upon 60
days' written notice by the Company to the Cancer Center.
The Company has paid a license fee of US$10,000 to the Cancer Center.
ImmPheron, Inc.
By an arms length agreement dated December 15, 1997, as amended December 15,1998
(the "Immpheron Agreement"), the Company formed a strategic partnership with
Immpheron, Inc. ("Immpheron") to continue research and development of monoclonal
Antibody 1F7 and the intellectual property related to its use as a therapeutic
for the prevention and treatment of HIV infection. See "Item 1 - Description of
Business - AIDS Project (1F7)". By incurring US$81,000 in preclinical trial
expenditures, Immpheron acquired a 50% interest in the Antibody 1F7 technology
licensed from the Cancer Center.
By letter agreement dated December 20, 1999 (the "Purchase Agreement"), the
Company reacquired the 50% interest in the Antibody 1F7 acquired by ImmPheron,
in consideration of the following payments and royalty grant to ImmPheron:
(a) US$4,000 on execution of the agreement (paid);
(b) US$2,000 on each of January 31, February 29, March 31 and April 30, 2000
(all paid);
(c) US$88,000 on July 20, 2000;
(d) US$10,000 within 30 business days of the commencement of a Phase I clinical
trial; and
(e) 4% royalty on net earnings from the Antibody 1F7.
University of British Columbia
Pursuant to an arms length agreement (the "UBC Option Agreement"), the Company
has exercised an option granted by the University of British Columbia ("UBC")
for the world-wide license to use and sublicense dapsone, a drug currently in
use for other conditions, for the treatment of Alzheimer disease, and the
manufacture, distribution and sale of products based on such technology (see
"Item 1 - Description of Business - Alzheimer Disease Project"). A formal
license agreement is currently being negotiated by the Company and UBC which is
to include the following material terms:
(a) an initial, non-refundable, license fee will be payable upon execution
of the license agreement, which is intended to partially reimburse UBC for
its costs of developing, protecting and licensing the technology;
(b) payments will be made to UBC upon certain milestones being reached,
including the initiation of phase III clinical trials, filing of an NDA with
the FDA, and upon receipt of FDA approval for marketing;
(c) a royalty will be paid to UBC based upon the total gross revenue derived
from the sale of products using the technology;
(d) an annual, non-refundable, license maintenance fee of $1,000 will be paid
in advance to UBC;
<PAGE>
Page 15
(e) UBC will own and manage the patent portfolio, including all patents for
improvements. The Company will pay all future patent application, patent
prosecution and patent maintenance costs and will reimburse all cost
incurred to date by UBC and, in return, the Company will have the right to
designate which technologies should be patented and shall become a licensee
of all resulting patents on the same terms and provided in the license
agreement;
(f) although UBC does not generally assign its technology, provision will be
made for such assignment upon the achievement of certain milestones; and
(g) the license agreement will terminate with respect to any patent and
royalties applicable thereto, on the expiration or official determination of
invalidity of the patent, and with respect to the know-how and all other
rights, on the later to occur of expiration or invalidity of the last
patent, if any, licensed under the license agreement or the expiration of
ten years from the date of the license agreement.
Bridge Pharma, Inc.
By an arms length agreement dated August 12, 1999 (the "Bridge Pharma
Agreement") with Bridge Pharma, Inc. ("BPI"), the Company has entered into a
joint venture arrangement, on a 50-50 basis, with BPI for the development of a
new asthma therapeutic. In order to retain its 50% interest, the Company is
required to provide up to US$2 million in funding to the project over a period
of two years. Any additional funding required above the first US$2 million will
be shared equally between the parties. The goal of the collaboration between
the Company and BPI is to finish the work necessary to complete clinical trials
either as a continuance of the joint venture or in alliance with a strategic
partner. See "Item 1 - Description of Business - Asthma Project".
Bridge Pharma, Inc. and the Company shall each own an undivided 50% interest in
all technology invented, discovered, acquired or developed under the joint
venture or with the use of the defined technology of the other party.
Pursuant to an addendum agreement dated April 4, 2000 (the "Bridge Pharma
Addendum"), the Company and Bridge Pharma, Inc. agreed to add to the joint
venture the use of certain additional compounds and the associated intellectual
property for the treatment of atopic dermatitis (eczema), subject to Canadian
Venture Exchange acceptance. The Company has agreed that it will increase its
initial funding obligation from US$2 million to US$3.5 million if and when the
Company and Bridge Pharma, Inc. both agree on the selection of at least one of
the additional compounds to proceed to clinical trials.
Meditech Pharmaceuticals Inc.
By an arms length agreement dated February 3, 2000 (the "Meditech Agreement"),
Meditech Pharmaceuticals Inc. ("Meditech") has granted to the Company an
irrevocable one year option (the "Option") to acquire an exclusive, worldwide
(exclusive of the United States) license on two of Meditech's drugs, Viraplex
and MTCH-24, or any derivatives or formulations thereof. In consideration of
the grant of the Option, the Company paid the sum of US$25,000 and incurred the
required amount of US$20,000 in research and development expenditures relating
to these two drugs.
The Company has given written notice of the exercise of the Option and upon
execution of the license agreement will pay Meditech a license fee of
US$100,000. The license agreement will provide for the payment to Meditech of a
royalty on net sales of 7% for MTCH-24 or any derivatives or formulations of
MTCH-24, and 4% for Viraplex or any derivatives or formulations of Viraplex.
<PAGE>
Page 16
CroMedica Global Inc.
Pursuant to an arm's length agreement entered into on March 27, 2000 (the
"CroMedica Agreement"), CroMedica Global Inc. ("CroMedica") has designed a
three-country clinical trial program to test the efficacy of the Company's
patented drug candidate against the progression of Alzheimer disease. CroMedica
will be responsible for the coordination, management and conduct of the studies
(see "Item 1 - Description of Business - Projects - Alzheimer Disease Project").
The CroMedica Agreement is a fixed price contract, with the price being either
US$13,199,286 ("Option A Pricing") or US$13,849,286 ("Option B Pricing"),
exclusive of all applicable taxes, dependent upon whether the Company elects to
proceed with a second generation technology known as the IQ201 project. As of
April 30, 2000, the Company has paid CroMedica $1,964,742 (net of GST) under the
CroMedica Agreement. CroMedica has agreed to defer payment by the Company of
US$2,000,000 of the costs under the CroMedica Agreement. The amount of the
payment deferral from time to time will be secured by a debenture issued by the
Company on March 27, 2000 in favour of CroMedica (the "CroMedica Debenture").
The CroMedica Debenture was accepted for filing by the Canadian Venture Exchange
on April 13, 2000.
The CroMedica Debenture will secure up to a maximum principal amount of
US$2,000,000 (approximately Cdn$2,907,000). As of April 30, 2000, the
principal amount secured under the CroMedica Debenture is US$1,000,000
(approximately Cdn$1,453,500). The principal amount shall be increased by
either US$200,000 (approximately Cdn$290,700) on the first day of each month
from June through October 2001 if Option A Pricing applies, or by US$200,000 on
the first day of each month from October 2001 through February 2002 if Option B
Pricing applies.
The principal amount outstanding under the CroMedica Debenture will be paid in
equal monthly instalments (except for one month's payment which will double the
amount of the payment made the other months) on the first day of each month from
October 2001 through August 2003. The CroMedica Debenture provides for interest
at the rate equal to the prime rate of interest charged by the Bank of Montreal
for Canadian loans to Canadian customers, plus 5%. Interest shall be payable
commencing on October 1, 2001 and shall be calculated from the time of their
deferral under the CroMedica Agreement.
As security for the payment of all amounts payable under the CroMedica Debenture
and the performance by the Company of its obligations thereunder, the Company
has granted CroMedica a security interest in all of its present and future
property and assets. Accordingly, if the Company is unable to repay the
indebtedness secured by the CroMedica Debenture, all of its property and assets,
including its intellectual property, shall be subject to seizure to the extent
of its indebtedness to CroMedica.
The Company may terminate the CroMedica Agreement upon 30 days' written notice
to CroMedica. If such termination is the result of an external development
partnership, licensing agreement, corporate merger or acquisition, a termination
fee equal to 30% of the remaining payments under the CroMedica Agreement will be
due to CroMedica. The termination fee will be 10% for termination of the
CroMedica Agreement by the Company for any other reason.
Donald Rix, a director of the Company, has disclosed his interest in this
transaction as a director of a subsidiary of CroMedica and, in accordance with
the provisions of the Company Act (British Columbia) abstained from voting on
approval of the CroMedica Agreement.
The CroMedica Agreement further provides that CroMedica is granted a right of
first refusal on all of the Company's clinical trials, other than the first
human trial, involving Antibody 1F7 (see "Item 1 - Description of Business -
Projects - AIDS Project").
<PAGE>
Page 17
The Company has the sole rights in any intellectual property arising from
research under the CroMedica Agreement.
E. Markets
-------
The pharmaceutical and related biotechnology industries are characterized by
extensive research efforts, rapid technology change and intense competition.
(See "Item 1 - Description of Business - Risk Factors".) Competition in the
biopharmaceutical industry is based primarily on product performance, including
efficacy, safety, ease of use and adaptability to various modes of
administration, patient compliance, price, acceptance by physicians, marketing,
and distribution. Barriers to entry into the market include the availability of
patent protection in the United States (the "U.S.") and other jurisdictions of
commercial interest, and the ability and time needed and cost to obtain
governmental approval for testing, manufacturing and marketing.
The Company's programs are in varying stages of development. Products that may
result from the Company's research and development programs are not expected to
be commercially available for a number of years, if at all, and it will be a
number of years, if ever, before the Company will receive any significant
royalty revenues from commercial sales of such products. Therefore, any
discussion of a market for the Company's products is of a very preliminary
nature. In addition, some of the Company's competition may have substantially
more financial and technical resources, more extensive research and development
capabilities, products at a later stage of development, and greater marketing,
distribution, production and human resources than the Company. (See "Item 1 -
Description of Business - Risk Factors").
The statistical information provided throughout this section has been sourced
from the Company's market research reports, from public offering disclosure
published by competitors believed by the Company to be accurate, from published
data, and from the Company's experience in the industry.
AIDS Project
AIDS was first recognized in 1981 and has since become a major epidemic,
affecting more than 30 million people worldwide14.
The current U.S. market for HIV drugs is estimated to be in excess of US$3
billion15. The Company feels that its 1F7 antibody, drug candidate IQ199, could
represent an important new treatment for HIV which would compete for a
significant portion of this market.
The monoclonal antibody IQ199 will compete primarily with other treatments that
improve the quality of life for HIV-infected individuals. Current treatment
includes two classes of agents known as antiviral and immune stimulating agents.
There are several problems with the current therapeutics such as viral
resistance, serious health complications, and high treatment cost. The
mechanism of action of IQ199 is different from current HIV drugs and may
represent a more effective approach, associated with a wider therapeutic window.
By blocking clonal dominance, an inherent immune response, IQ199 should allow
the immune system to regain its ability to respond to the endogenous virus.
This unique mechanism of action gives IQ199 a potential competitive advantage
over other drug therapies.
------------------------------
14 The World Health Report 1999. World Health Organization.
15 IMS Health, 1998.
<PAGE>
Page 18
The Company has carried out a survey of the scientific and patent literature and
has not found, nor is the Company aware of, any existing or potential AIDS
therapies that have a similar mechanism of action as IQ199. Since multiple HIV
drugs are often used in combination chemotherapy regimens, it is unlikely that
IQ199 will directly compete with individual AIDS therapeutics. It is more
likely that IQ199 may become part of such combination regimens.
Alzheimer Disease Project
Competition currently exists among companies and research groups attempting to
develop new drugs to combat Alzheimer disease. There are numerous drugs in
various stages of clinical trials. These experimental drugs fall into one of
five categories: cholinominetics, antioxidants, estrogen replacement,
anti-inflammatories and others. The FDA, however, has approved only two drugs.
(See "Item 1 - Description of Business - Government Regulation") Both drugs are
acetylcholinesterase inhibitors, and their overall benefit to Alzheimer patients
is minimal. The first such drug approved, tacrine, had side effects that
prevented it from being accepted in the market. The most recently approved
agent, donepezil, produces only mild increases in alertness. Despite this, most
physicians treating Alzheimer disease patients are expected to prescribe
donepezil because there are so few alternatives16.
NSAIDS (non-steroidal anti-inflammatory drugs) have shown some promise for use
in Alzheimer treatment, but the potential for serious gastrointestinal side
effects complicate their therapeutic use. The new anti-inflammatory "COX-2
inhibitors" may be direct competitors with the Company's drug candidates. The
competitors in this area are Merck and Co. Inc. and Searle and Co. Inc. which
are both conducting phase III clinical trials with their COX-2 inhibitors.
Other potential competitors include Aventis Pharma Inc. which is conducting
phase III clinical trials for its phosphodiesterase inhibitor, propentofylline,
and Neotherapeutics Inc. which is in phase II trials for its drug Neotrofin, a
nerve growth factor.
The Company's Alzheimer disease drug candidates have a unique combination of
actions with a manageable and well-established toxicology profile17. The
Company's Alzheimer disease project represents a novel approach to
pharmacological therapy of Alzheimer disease by treating brain inflammation
which occurs during the illness18. The Company's review of patent literature
further suggests that the Company's approach to treatment of this illness is
unique.
Despite their limited effectiveness and serious side-effects, the few drugs that
are approved for use in Alzheimer disease have U.S. sales that exceed US$400
million annually19.
Asthma Project
Asthma morbidity and mortality are increasing worldwide. More than 12 million
Americans, including 5 million children, suffer from asthma. Among adults in
the U.S., 1 in 20 is asthmatic and among children the prevalence is higher -
about 1 in 10 20 Allergy Clin Immun. 100, 771.. Asthma related mortality in the
------------------------------
16 Medical Science Bulletin, 1997;20.
17 Compendium of Pharamaceuticals and Specialties, 1999, Canadian Pharmaceutical
Association
18 Scientific American, June 2000, Nicola Jones.
19 Reuters news.
20 (1997) J Allergy Clin Immun. 100, 771.
<PAGE>
Page 19
U.S. and Canada has increased by more than 25% during the last 20 years, with
the direct annual cost estimated at over $7 billion annually in the U.S.
alone21.
Anti-asthmatic drugs for clinical use fall into two categories: (1) those which
primarily provide symptomatic relief (bronchodilators); and (2) those which
provide a long-term disease-modifying action22. There is now a sound medical
rationale for the use of disease modifying agents as first-line drugs in the
management of chronic asthma. Current asthma therapy is inadequate and
management believes that the future market for disease-modifying drugs, such as
IQ210 which is currently under development by Bridge Pharma, Inc. and the
Company, will be at least as large as the current market for symptomatic
bronchodilating drugs.
In the asthma therapeutic market, the Company's proposed asthma treatment will
compete primarily with other disease-modifying asthma therapies. Current
treatment includes inhaled steroids, antiallergenic agents such as sodium
cromoglycate (inhalant) and ketotifen fumarate (systemic). The anti-asthmatic
agent under research by the Company and its partner (see "Item 1 - Description
of Business - Material Agreements - Bridge Pharma, Inc.") has demonstrated in
Preclinical studies a better activity profile with fewer side effects than other
drugs of its class. It is expected that this agent could become an important
treatment for asthma.
Several companies are working on new approaches to the treatment of asthma.
Potential competitors include Novartis Inc. and Genentech Inc. which are
developing a monoclonal antibody to bind IgE, a major component of allergy
induced asthma attacks. Other potential competitors are Texas Biotechnology
Corporation, which is developing a selectin inhibitor that is currently in phase
II human trials; Inflazyme Pharmaceuticals Ltd., which has recently completed
phase I trials with a novel steroid analogue; Leukosite Inc., which has
completed phase I trials of a new compound to inhibit the production of
leukotrienes; and AVANIR Pharmaceuticals, Inc., which is in preclinical testing
of a compound to downregulate the production of IgE. These competitors,
however, face many of the same difficulties as the Company in eventually
bringing their drugs to market.
Business Strategy
The Company's objective is to accelerate the period in which a return on
investment would typically be recognized with traditional biotechnology
companies through participation in "special situations" in biotechnology. The
Company's current project may all be considered to be special situations.
Special situations in biotechnology are stalled projects that have an underlying
foundation of strong science, protectable intellectual property, and a clearly
identifiable market niche. A stalled project is a project initiated by another
party, the development of which has been suspended for any number of reasons
such as a lack of financial or management resources, for such period of time
that the value of the project may have been materially reduced. The Company's
goal is to capitalize on special situations through a strategy of acquisition of
rights or other interest in the project, addition of value, and rapid
divestiture through licenses, alliances, or other disposition. The stage at
which such divestiture may occur is dependent upon the individual milestones for
each project. The Company differentiates itself from other biotechnology
companies by focusing on the potential for rapid return on investments, rather
than focusing on a particular scientific or therapeutic specialization.
------------------------------
21 (1995) Global Initiative for Asthma, Nat Inst Health.
22 Goodman and Gilman, Pharmacological Basis of Therapeutics, 1999.
<PAGE>
Page 20
The Company conducts some of its own research and development but primarily
contracts out and seeks collaborative partners with experience in the
development and marketing of drugs in the relevant therapeutic areas. Potential
partners must possess both the human and financial resources to spearhead the
clinical development of the Company's products as required by the FDA, the HPB,
and drug regulatory agencies in other countries. The form of collaboration
depends, in part, on the product candidate, the stage of development, and the
partner's expertise. The Company also expects any potential partner to market
the products. No assurance can be given that any such proposed partnership
arrangements will be entered into, or, if entered into, will be successful in
completing the development programs for the drug candidate in any particular
jurisdiction. (See "Item 1 - Description of Business - Risk Factors".)
The rationale behind the Company's business strategy is to avoid the large
expenses incurred in the later stages of clinical development, to obtain early
returns in the form of upfront fees and milestone payments, to utilize expertise
and resources of major multinational pharmaceutical companies, and to obtain
long term revenue streams through royalty payments on product sales.
Notwithstanding the Company's business strategy described above, the Company has
no regular cash flow and is dependent on generating required funds primarily by
way of equity financing. The Company expects to continue to rely on outside
sources of financing to meet its capital requirements for at least the next two
years. There can be no assurance that the Company will be able to arrange and
complete the required financings on favourable terms. Such equity financings
could be highly dilutive. (See Item 1 - Description of Business - Risk
Factors".)
The Company presently has no plans for developing an in-house marketing or
manufacturing capability.
F. Research and Development Expenses
---------------------------------
During Fiscal 1998, 1997 and 1996, the Company spent $31,055, $77,548 and
$348,734, respectively, on research and development.
G. Proprietary Protection
----------------------
General
The Company's patent strategy is to pursue, in selected jurisdictions, the
broadest possible patent protection on its proprietary products and technology.
The Company plans to protect its technology, inventions and improvements to
inventions by filing patent applications according to industry standards in a
timely fashion.
In addition to its patents, the Company also relies upon trade secrets, know-how
and the continuing technological innovations to develop its competitive
position. It is the Company's policy to require its directors, employees,
consultants, members of its scientific advisory board and parties to
collaborative agreements to execute confidentiality agreements upon the
commencement of employment, consulting or collaborative relationships with the
Company. These agreements provide that all confidential information developed
or made known during the course of the relationship with the Company is to be
kept confidential except in specific circumstances. In the case of employees
and consultants, the agreements provide that all inventions resulting from work
performed for the Company utilizing property of the Company or relating to the
Company's business and conceived or completed by the individual during
employment are the exclusive property of the Company to the extent permitted by
law.
<PAGE>
Page 21
The Company, and licensors who have granted the Company rights to their
respective technologies (see "Item 1 - Description of Business - Projects"),
have been granted patents or have filed patent applications in the United States
and other jurisdictions (such as Canada, Japan, Germany, France, Italy and the
United Kingdom) in respect of certain core technologies utilized by the Company.
Given that the patent applications for these technologies involve complex legal,
scientific and factual questions, there can be no assurance that patent
applications relating to the technology used by the Company will result in
patents being issued or that, if issued, the patents will provide a competitive
advantage or will afford protection against competitors with similar technology,
or will not be challenged successfully or circumvented by competitors.
The following patents granted or filed have either been assigned to the Company
or licensed for use by the Company.
AIDS Project
Title: Anti-Idiotypic Antibody and its use in Diagnosis
and Therapy in HIV-Related Disease
United States Patent Number: 5,849,583
Date Granted: December 15, 1998
Scope of Patent: An active pharmaceutical composition comprising an
effective monoclonal antibody, for the use in
diagnosis and therapy of HIV-related diseases.
The Company has licensed this patent from the Sidney Kimmel Cancer Center (see
"Item 1 - Description of Business - Material Agreements - Sidney Kimmel Cancer
Center").
The Company has three additional patents pending regarding the 1F7 Antibody and
the above title:
United States
Application Number: 09/211,156
Scope of Pending Patent: A method of reducing T cell-mediated cytotoxicity
in HIV+ sera comprising administering a
pharmaceutical composition comprised of a
monoclonal antibody or fragment thereof.
Canada and Europe
Application Number: 2131692 (Canada) and 92907381.3 (Europe)
Scope of Pending Patent: An active pharmaceutical composition
comprising an effective monoclonal antibody, for
the use in diagnosis and therapy of HIV-related
disease.
In addition, the Company has a further patent pending in Canada regarding the
1F7 Antibody:
Title: Methods and Compositions for Inhibiting Killing
of Uninfected Lymphocytes
Application Number: 2123551
Scope of Pending Patent: Method and composition for inhibiting cytotoxic
T-lymphocytes mediated immunopathology in an HIV
infected individual.
<PAGE>
Page 22
Alzheimer Disease Project
Title: Dapsone and Promin for the treatment of dementia
United States Patent Number: 5,532,219
Date Granted: July 2, 1996
PCT Application: Issued in Germany, France, U.K. and Italy, pending
in Japan.
European Patent Office
Number: EP00642337B1
Application Number: 4509618 (Japan)
Date Granted: September 3, 1997
Scope of Pending and Issued
Patents: A method for treating dementia is a human being
characterized by administering to the human being
through the novel use of a substance selected from
the group consisting of a 4,4'-
diaminodiphenylsulfone, its didextrose sulfonate
derivative, and other closely related sulfone
derivatives, and therapeutically acceptable salts
thereof.
The Patent Cooperation Treaty ("PCT") is a multilateral treaty that was
concluded in Washington in 1970 and entered into force in 1978. It is
administered by the International Bureau of the World Intellectual Property
Organization ("WIPO"), headquartered in Geneva, Switzerland. The PCT
facilitates the obtaining of protection for inventions where such protection is
sought in any or all of the PCT contracting states (total of 104 at July 1999).
It provides for the filing of one patent application (the "international
application"), with effect in several contracting states, instead of filing
several separate national and/or regional patent applications. At the present
time, an international application may include designations for regional patents
in respect of contracting states party to any of the following regional patent
treaties: The Protocol on Patents and Industrial Designs within the framework of
the African Regional Industrial Property Organization, the Eurasian Patent
Convention, the European Patent Convention, and the Agreement Establishing the
African Intellectual Property Organization. The PCT does not eliminate the
necessity of prosecuting the international application in the national phase of
processing before the national or regional offices, but it does facilitate such
prosecution in several important respects by virtue of the procedures carried
out first on all international applications during the international phase of
processing under the PCT. The formalities check, the international search and
(optionally) the international preliminary examination carried out during the
international phase, as well as the automatic deferral of national processing
which is entailed, give the applicant more time and a better basis for deciding
whether and in what countries to further pursue the application. Further
information may be obtained from the official WIPO internet website
(http://www.wipo.int).
World Intellectual Property
Organization Patent Number: WO9324118A1
Date Granted: December 3, 1993
The Company has exercised an exclusive option to license this technology and is
currently negotiating the terms of a license agreement with UBC (see "Item 1 -
Description of Business - Material Agreements - University of British
Columbia").
<PAGE>
Page 23
Asthma Project
A new PCT application was filed by Bridge Pharma, Inc. in April 1998 and is part
of the intellectual property covered by the joint venture with the Company (see
"Item 1 - Description of Business - Material Agreements - Bridge Pharma, Inc.").
Other
Pursuant to the Bridge Pharma Addendum (see "Item 1 - Description of Business -
Material Agreements - Bridge Pharma, Inc."), a provisional patent application
was filed in 1999 with the U.S. Patent Office.
H. Government Regulation
---------------------
The research and development, manufacture and market of pharmaceutical products
are subject to regulation by the Food and Drug Administration (the "FDA") in
the United States, by the Health Protection Branch (the "HPB") of the Department
of Health and Welfare Canada in Canada, and by comparable regulatory authorities
in other countries. These national agencies and other federal, state,
provincial and local entities regulate the testing, manufacture, safety and
promotion of the Company's products.
Drug licensing laws require approval of manufacturing facilities, carefully
controlled research and testing of products, governmental review and approval of
results prior to marketing of therapeutic products, and adherence to Good
Manufacturing Practices during production. Compliance with Good Manufacturing
Practices requires considerable time and resources in the area of production and
quality control. Product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if new evidence demonstrates that the
drug is unsafe or lacks efficacy for its intended use(s) becomes known after the
product reaches the market.
United States Regulation
The Company is required by the FDA to comply with the following procedures prior
to marketing its products:
* preclinical laboratory and animal toxicology tests;
* submission of an investigational new drug application ("IND"), which
must become effective before human clinical trials commence;
* adequate and well-controlled human clinical trials to establish the
safety and efficiacy of the drug for its intended application;
* the submission of a new drug application ("NDA") to the FDA; and
* FDA approval of a NDA prior to any commercial sale or shipment of the
product, including pre-approval and post-approval inspections of
manufacturing facilities.
Preclinical laboratory and animal toxicology tests must be performed to assess
the safety and potential efficacy of the product. The results of these
preclinical tests are then submitted to the FDA as part of an IND requesting
authorization to initial human clinical trials. Clinical trials may be
initiated only upon approval of the IND by the FDA.
Clinical trials involve the administration of the pharmaceutical product to
individuals under the supervision of qualified medical investigators. Clinical
studies are conducted in accordance with protocols that detail the objectives of
a study, the parameters to be used to monitor safety and the efficacy criteria
to be evaluated. Each protocol is submitted to the FDA prior to the
commencement of each clinical trial. Clinical studies are typically conducted
in three sequential stages, which may overlap:
<PAGE>
Page 24
Phase I: Initial introduction of the compound into human subjects to
test for safety, dosage, tolerance, metabolic interaction,
distribution, excretion and pharmacodynamics.
Phase II: Studies in a limited patient population to:
* determine the efficacy of the product for specific,
targeted indications;
* determine optimal dosage; and
* identify possible adverse effects and safety risks.
In the event Phase II evaluations demonstrate that the drug is effective and has
an acceptable safety profile, Phase III of the clinical trial will proceed.
Phase III: Clinical trials are undertaken to further evaluate clinical
efficacy of the product and to further test for its safety within
an expanded patient population at geographically dispersed
clinical study sites.
Two key factors influencing the rate of progression of clinical trials are the
rates at which patients are available to participate in the research programs
and whether the effective treatments are currently available for the disease the
drug is intended to treat.
The Company or the FDA may suspend clinical trials at any time if either
believes the clinical subjects are being exposed to unacceptable health risks.
The results of the product development, analytical laboratory studies and
clinical studies are submitted to the FDA as part of an NDA for approval of the
marketing and commercialization of the controlled release product.
If the approval being sought is for a new therapeutic area on a previously
clinically tested drug the approval process will require a new full clinical
trial regime, from preclinical to Phase III. However, if the approval being
sought is for a new indication within a therapeutic area on a drug that has been
through one or more stages of clinical trials, then it is possible, if the
indication is close enough to that of the original submission, that any clinical
data available on this drug might be used to avoid repetition of these trials.
The FDA may deny approval of an NDA if applicable regulatory criteria are not
satisfied or may require additional testing. Product approvals may be withdrawn
if compliance within regulatory standards is not maintained or if problems occur
after the product reaches the market. The FDA may require further testing and
surveillance programs to monitor the pharmaceutical product that has been
commercialized. Noncompliance with applicable requirements can result in fines
and other judicially imposed sanctions, including product seizures, injunction
actions and criminal prosecutions.
Canadian Regulation
The regulations concerning the sale of pharmaceutical products in Canada are
substantially similar to those of the United States described above.
The Company must submit an IND to the HPB prior to conducting clinical trials of
a new drug in Canada. This application includes information about the methods
of manufacture of the drug and controls, and preclinical laboratory and animal
toxicology tests on the safety and potential efficacy of the drug. If the HPB
does not notify the Company within 60 days of receiving the application that the
application is unsatisfactory, the Company may proceed with clinical trials of
<PAGE>
Page 25
the drug. The phases of clinical trials are the same as those described under
"United States Regulation" above.
The Company must submit a new drug submission ("NDS") to the HPB and receive a
notice of compliance from the HPB before selling a new drug in Canada. The NDS
includes information describing the new drug, including its proper name, the
proposed name under which the new drug will be sold, a quantitative list of
ingredients of the new drug, the methods of manufacturing, processing and
packaging of the new drug, the controls applicable to these operations, the
tests conducted to establish the safety of the new drug, the results of clinical
trials and the effectiveness of the new drug when used as intended. If the HPB
determines that the NDS meets the requirements of Canada's Food and Drugs Act
and Regulations, the HPB will issue a notice of compliance for the new drug.
The HPB may deny approval of an NDS if applicable regulatory criteria are not
satisfied, or the HPB may require additional testing of a product. Product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur after the product reaches the market. The HPB
may require further testing and surveillance programs to monitor the
pharmaceutical product which has been commercialized. Noncompliance with
applicable requirements can result in fines and other judicially imposed
sanctions, including product seizures and criminal prosecutions.
Additional Regulatory Considerations
In addition to the regulatory approval process, the Company is also subject to
regulations under provincial, state and federal law, including requirements
regarding occupational safety, laboratory practices, environmental protection
and hazardous substance control. Also, the Company may be subject to other
present and future local, provincial, state, federal and foreign regulations,
including possible future regulations of the biotechnology industry.
Certain provincial regulatory authorities in Canada have the ability to
determine whether the cost of a drug sold within its province will be reimbursed
by a provincial government health plan by listing drugs on formularies. These
provincial formularies may affect the prices and/or volume of drugs sold within
such provinces.
Proposals have recently been made that, if implemented, would significantly
change Canada's drug approval system. Basically, the recommendations emphasize
the need for efficiency in Canadian drug review. Proposals include the
establishment of a separate agency for drug regulation with a revised approval
system based on those found in European Community countries. However, there is
no assurance that such changes will be implemented or will expedite the approval
of new drug products.
The Canadian government has regulations which prohibit the issuance of a notice
of compliance for a medicine, other than the first medicine marketed in Canada,
provided that the patent owner of the medicine has filed a list of its Canadian
patents covering that medicine with the HPB. After receiving such list, the HPB
may refuse to issue a notice of compliance permitting the importation or sale of
a patented medicine to persons other than a patent owner until patents on the
medicine expire or are declared invalid by a court of competent jurisdiction.
<PAGE>
PAGE 26
Regulation in Other Jurisdictions
The Company may decide to develop one or more of its compounds first in regions
outside of North America and Europe, depending upon clinical and commercial
factors. Currently, the Company has no plans in place for drug development
activities outside of these regions.
In addition to meeting the specific requirements of the country for which a drug
is first intended to be commercialized, the Company intends to meet and exceed
the North American regulatory guidelines for any of its drug development
programs that are not initially commenced in North America.
I. Risk Factors
------------
The following provides a brief description of some of the risk factors which
should be considered in relation to the Company's business. It must be
recognized that there are three primary markets for pharmaceuticals: North
America, Europe and Japan/Asia, and the risk factors associated with the
Company's projects may vary according to the particular market being addressed.
Specific risk factors to be considered include, but are not limited to, those
listed below:
Early Stage of Development
All of the Company's products are in the research and/or development stage. At
present, the Company does not own or possess rights to a marketable product
except for MTCH-24 (see "Item 1 - Description of Business - Material Agreements
- Meditech Pharmaceuticals Inc."). There can be no assurance that any such
products will be fully developed and tested, and if fully developed and tested,
will perform in accordance with the Company's expectations. There is also no
assurance that necessary regulatory approvals or clearances will be obtained in
a timely manner, if at all, or that any of the Company's products can be
successfully and profitably developed, produced and marketed, including MTCH-24.
The research may fail or the compounds may not meet regulatory approval for
human use. Even if the Company's research programs are successful, development
of a marketable product will likely take several years.
There is no guarantee that the Company will make a satisfactory deal with a
major pharmaceutical company to conduct human clinical trials, to complete
product development, to obtain regulatory approval, or ultimately to market the
product.
Limited Revenues, History of Operating Loss and Accumulated Deficit
The Company has had no sales revenue to date. Although the Company has been
involved with pharmaceuticals since 1991, it has been engaged only in research
and development. The Company has incurred significant operating losses,
including net losses of $201,671 in Fiscal 1998, $262,744 in Fiscal 1997,
$825,674 in Fiscal 1996, $559,444 in Fiscal 1995, and $493,178 in Fiscal 1994.
At September 30, 1999, the Company had an accumulated deficit of $2,993,203.
Notwithstanding the Company's objective to accelerate the period in which a
return on investment would typically be recognized with traditional
biotechnology companies, for some projects it may be a number of years, if ever,
before the Company will receive any significant revenues from commercial sales
of products. The future growth and profitability of the Company will be
principally dependent upon its ability to successfully complete development of,
obtain regulatory approvals for, and market or license its proposed products.
Accordingly, the Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in connection with the
establishment of a new business in a highly competitive industry, characterized
by new product introductions. The Company anticipates that it will incur
<PAGE>
Page 27
substantial operating expenses in connection with the research, development,
testing and approval of its proposed products and expects these expenses to
result in continuing and significant losses until such time as the Company is
able to achieve adequate revenue levels. There can be no assurance that the
Company will be able to significantly increase revenues or achieve profitable
operations. Failure to obtain additional capital, if needed, would have a
material adverse effect on the Company's operations. See "Item 9 - Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Uncertainties of Additional Funding Required
The Company has sufficient funds to undertake its currently planned research and
development activities through Fiscal 2000. However, the Company will require
substantial funds in order to conduct its future activities. The Company
intends to seek these funds through equity financing, collaborative arrangements
with corporate sponsors, or from other sources. The Company may also require
additional funds in order to acquire technology or products that complement the
Company's efforts. There can be no assurance that additional financing will be
available on acceptable terms, if at all. Additional equity financings could
result in significant dilution to existing shareholders. If sufficient capital
is not available, or is available but at a prohibitive cost, the Company may be
required to delay, reduce the scope of, eliminate or divest one or more of its
discovery, research or development programs, any of which could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Item 9 - Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Security Interest Granted Over Property and Assets
The Company has issued the CroMedica Debenture to secure the repayment of the
principal amount of up to US$2,000,000 (approximately Cdn$2,907,000), of which
the principal amount of US$1,000,000 (approximately Cdn$1,453,500) is owing as
at April 30, 2000 (see "Item 1 - Description of Business - Material Agreements -
CroMedica Global Inc."). Repayment of this principal amount in instalments
commencing October 1, 2001 is secured by a security interest in all of its
property and assets, including the Company's intellectual property.
Agreements with Other Parties
The Company may, in the future, be unable to meet its share of costs incurred
under agreements to which it is a party and the Company may have its interests
in certain licenses, rights or products subject to such agreements reduced as a
result. Furthermore, if other parties to such agreements do not meet their
share of such costs, the Company may be unable to finance the costs required to
complete the recommended programs.
Patents, Permits and Licenses
The Company considers patent protection and proprietary technology to be
materially significant to its business. The Company relies on certain patents
and pending applications relating to various aspects of its potential products
and technology. These patents and patent applications are either owned by or
exclusively licensed to the Company. There can be no assurance that the Company
will be able to obtain and retain all necessary patents, licenses and permits
that may be required to carry out the research and development, manufacturing,
preclinical and clinical testing, obtaining regulatory approvals and marketing
of commercial products. There can also be no assurance that others will not
independently develop similar technologies, duplicate any technology developed
by the Company, the Company's technology will not infringe upon patents or other
rights owned by others, that any of the Company's patents will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
<PAGE>
Page 28
will provide competitive advantages to the Company. Litigation, which could
result in substantial cost to the Company, may be necessary to enforce the
Company's rights provided by its patents or to determine the scope and validity
of others' proprietary rights.
There have been no patent infringement claims filed by or against the Company.
No Assurance of Protection of Proprietary Information
Certain of the Company's know-how and proprietary technology may not be
patentable. To protect its rights, the Company requires management personnel,
employees, consultants, advisors and collaborators to enter into confidentiality
agreements. There is no assurance, however, that these agreements will provide
meaningful protection for the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure.
No Assurance Regarding Licensing of Proprietary Technology Owned by Others
The manufacture and sale of any products developed by the Company will involve
the use of processes, products, or information, the rights to certain of which
are owned by others. Although the Company has obtained licenses or rights with
regard to the use of certain of such processes, products, and information, there
can be no assurance that such licenses or rights will not be terminated or
expire during critical periods, that the Company will be able to obtain licenses
or other rights which may be important to it, or, if obtained, that such
licenses will be obtained on favourable terms. Some of these licenses provide
for limited periods of exclusivity that may be extended only with the consent of
the licensor. There can be no assurance that extensions will be granted on any
or all such licenses. This same restriction may be contained in licenses
obtained in the future.
No Assurance of Regulatory Approval - Potential Delays
The preclinical testing and clinical trials of any products developed by the
Company or its collaborators and the manufacturing, labeling, sale,
distribution, export or import, marketing, advertising and promotion of any new
products resulting therefrom are subject to regulation by federal, state and
local governmental authorities in the United States, principally the FDA, and by
other similar agencies in other countries (see "Item 1 - Description of Business
- Government Regulation"). In order for a product developed by the Company or
its collaborators to be marketed and sold in a particular country, it must
receive all relevant regulatory approvals or clearances. The regulatory
process, which includes extensive preclinical studies and clinical trials of
each product in order to establish its safety and efficacy, is uncertain, can
take many years and requires the expenditures of substantial resources. Data
obtained from a preclinical trial and clinical activities are susceptible to
varying interpretations which could delay, limit or prevent regulatory approval
or clearance. In addition, delays or rejections may be encountered based upon
changes in regulatory policy during the period of product development and/or the
period of review of any application for regulatory approval or clearance for a
product. Delays in obtaining regulatory approvals or clearances would adversely
affect the marketing of any products developed by the Company or its
collaborators, impose significant additional costs on the Company and its
collaborators, diminish any competitive advantages that the Company or its
collaborators may attain and adversely affect the Company's ability to receive
royalties and generate revenues and profits. There can be no assurance that,
even after such time and expenditures, any required regulatory approvals or
clearances will be obtained for any products developed by or in collaboration
with the Company.
<PAGE>
Page 29
Any regulatory approval or clearances granted may entail limitations on the
indicated uses for which the new product may be marketed that could limit the
potential market for such product. In addition, product approvals or
clearances, once granted, may be withdrawn if problems occur after initial
marketing. Furthermore, manufacturers of approved products are subject to
pervasive review, including compliance with detailed regulation governing GMP
("Good Manufacturing Procedures"). Failure to comply with applicable regulatory
requirements can result in actions such as warning letters, fines, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
production and refusal of the government to renew marketing applications or
criminal prosecution.
The Company is also subject to numerous federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals, the environment
and the use and disposal of hazardous substances, used in connection with the
Company's discovery, research and development activities. The Company is unable
to predict the extent of government regulations which might have an adverse
effect on the discovery, development, production and marketing of the Company's
products. Also, there can be no assurance that the Company will not be required
to incur significant costs to comply with current or future laws or regulations
or that the Company will not be adversely affected by the cost of such
compliance.
No Assurance of Successful Manufacturing
The Company has no experience manufacturing commercial quantities of products
and does not currently have the resources to manufacture any products that it
may develop. The Company presently has no plans for developing an in-house
marketing or manufacturing capability. Accordingly, the Company will be
dependent upon securing a contract manufacturer or other third party to
manufacture such products. There can be no assurance that the terms of any such
arrangement would be favorable enough to permit the products to compete
effectively in the marketplace. There are presently no such arrangements in
place.
Delays from Non-Compliance with Good Manufacturing Practices ("GMP")
The manufacture of the Company's pharmaceutical products will be subject to
current GMP or similar regulations prescribed by the FDA in the United States,
the HPB in Canada and similar authorities prior to the commercial manufacture of
any such products in the countries where the products are manufactured. There
can be no assurance that the Company or any entity manufacturing products on
behalf oft he Company will be able to comply with GMP or satisfy certain
regulatory inspections in connection with the manufacture of the Company's
proposed products. Failure or delay by any manufacturer of the Company's
products to comply with GMP or similar regulations or satisfy regulatory
inspections would have a material adverse effect on the Company.
Competition
The biotechnology industry is intensely competitive. Many companies, as well as
research organizations, currently engage in or have in the past engaged in
efforts related to the development of products in the same therapeutic areas as
the Company. Many of the competing companies have significantly greater
financial resources and expertise than the Company. Other smaller companies may
also prove to be significant competitors, particularly through collaborative
arrangements with large and established companies. Academic institutions,
government agencies and other public and private research organizations may also
conduct research, seek patent protection and establish collaborative
arrangements for discovery, research, clinical development and marketing of
products similar to those of the Company. There can be no assurance that
competitors will not develop more effective or more affordable products, or
<PAGE>
Page 30
achieve earlier patent protection or product commercialization than the Company
and its collaborators, or that such competitive products will not render the
Company's products obsolete.
With respect to the Company's Alzheimer disease project, Merck and Co. Inc. and
Searle & Co. Inc. may be direct competitors with the Company's drug candidates.
Other potential competitors include Aventis Pharma Inc. and Neotherapeutics Inc.
With respect to the Company's asthma project, potential competitors include
Novartis Inc., Genentech Inc., Texas Biotechnology Corporation, Inflazyme
Pharmaceuticals Inc., Leukosite Inc, and AVANIR Pharmaceuticals Inc. With
respect to the Company's AIDS project, it is unlikely that the Company's drug
candidate will directly compete with individual AIDS therapies; the Company's
drug candidate would likely be part of a combination regimen.
No Assurance of Market Acceptance
There can be no assurance that any products successfully developed by the
Company or its corporate collaborators, if approved for marketing, will ever
achieve market acceptance. The Company's products, if successfully developed,
may compete with a number of traditional drugs and therapies manufactured and
marketed by major pharmaceutical and 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 or its corporate
collaborators will depend on a number of factors, including the establishment
and demonstration of the clinical efficacy and safety of the product candidates,
their potential advantage over alternative treatment methods and reimbursement
of 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 or its corporate
collaborators.
Dependence on and Management of Future Corporate Collaborations
The success of the Company's business strategy is largely dependent on its
ability to enter into collaborations and to effectively manage the relationships
that may come to exist as a result of this strategy. The Company is currently
seeking corporate collaborators, but there can be no assurance that such efforts
will lead to the establishment of any favourable collaboration. There can be
no assurance that any of the Company's future or existing collaborators will
commit sufficient resources to the company's research and development programs
or the commercialization of its products. Also, there can be no assurance that
such collaborators will not pursue existing or other development-stage products
or alternative technologies in preference tothose being developed in
collaboration with the Company, or that disputes will not arise with respect to
ownership of technology developed under any such collaborations. Management of
the Company's collaborative relationships will require significant time and
effort from the Company's management team and effective allocation of the
Company's resources.
Management of Growth
The Company's future growth, if any, may cause a significant strain on its
management, operational, financial and other resources. The Company's ability
to manage its growth effectively will require it to implement and improve its
operational, financial, manufacturing and management information systems and to
expand, train, manage and motivate its employees. These demands may require the
addition of new management personnel and the development of additional expertise
by management. Any increase in resources devoted to research, product
development and marketing and sales efforts without a corresponding increase in
the Company's operational, financial, manufacturing and management information
systems could have a material adverse effect on the Company's business,
financial condition, and results of operations.
<PAGE>
Page 31
Dependence Upon Key Personnel
The Company is dependent upon all members of its management team and the loss of
any of these employees could have an adverse effect on the Company to the extent
the Company is unable to hire a replacement in a timely manner. However, the
Company has implemented a continuous training program to expose its employees to
areas outside of their direct responsibility so as to minimize the disruption
encountered by the loss of any employee. Competition among biotechnology and
biotechnology companies for qualified employees is intense, and the ability to
retain and attract qualified individuals is critical to the success of the
Company. In order to reduce its risk regarding key employees, the Company has
entered into an employment agreement with each of its key employees. The
Company is also dependent, to some extent, on the guidance of certain members of
its scientific advisory board, none of whom is obligated, or will devote his
full-time efforts, to the business of the Company. 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. In addition, the Company does
not maintain "key person" life insurance on any officer, employee or consultant
of the Company except for Allen I. Bain, President and Chief Executive Officer.
The Company also has relationships with scientific collaborators at academic and
other institutions, some of whom conduct research at the Company's request or
assist the Company in formulating its research and development strategy. These
scientific collaborators are not employees of the Company and may have
commitments to, or consulting or advisory contracts with, other entities that
may limit their availability to the Company. In addition, these collaborators
may have arrangements with other companies to assist such other companies in
developing technologies that may prove competitive to those of the Company.
Conflicts of Interest
Certain officers and directors of the Company, namely Allen I Bain, Robert J.
Gayton and Oh Kim Sun, also serve as officers and/or directors of other
--
companies which engage in biotechnology/pharmaceutical research and development
activities. Although there are inherent conflicts arising from an officer or
director holding such positions with more than one company (such as in
determining the allocation of the individual's time and business opportunities
presented to the individual), there are presently no specific conflicts of
interest arising from the Company and such other companies having common
insiders. To the extent that such other companies may participate in ventures
in which the Company may participate, the directors of the Company would have a
conflict of interest in negotiating and concluding terms respecting the extent
of such participation. In the event that such a conflict of interest arises at
a meeting of the directors of the Company, a director who has such a conflict
will abstain from voting for or against the approval of the matter before the
meeting. In accordance with the laws of the Province of British Columbia, the
directors of the Company are required to act honestly, in good faith and in the
best interests of the Company. In determining whether the Company will
participate in a particular program, the directors will primarily consider the
potential benefits to the Company, the degree of risk to which the Company may
be exposed and its financial position at the time. Other than as indicated, the
Company has no other procedures or mechanisms to deal with conflicts of
interest.
Exposure from Product Liability Claims
The products the Company will attempt to develop will, in most cases, undergo
extensive clinical testing and will require FDA and HPB approval prior to sale
in the United States and Canada, respectively. However, despite all reasonable
efforts to ensure safety, it is possible that products which are defective or to
which patients react in an unexpected manner, or which are alleged to have side
effects, will be sold. The sale of such products may expose the Company to
potential liability resulting from the use of such products. Additionally, the
<PAGE>
Page 32
Company may be exposed to product liability claims in the development of the
products through administration of the drug candidates to volunteers and
patients in clinical trials. Such liability might result from claims made
directly by consumers or by pharmaceutical companies or others selling such
products. It is impossible to predict the scope of injury or liability from
such defects or unexpected reactions, or the impact on the market for such
products of any allegations of these claims (even if unsupported), or the
measure of damages which might be imposed as a result of any claims or the cost
of defending such claims. Although the Company's shareholders would not have
personal liability for such damages, the expenses of litigation in connection
with any such injuries or alleged injuries and the amount of any aware imposed
on the Company in excess of existing insurance coverage, if any, may have a
material adverse impact on the Company. In addition, any liability that the
Company may have as a result of the manufacture of any products could have a
material adverse effect on the Company's financial condition, business and
operations, to the extent insurance covering any such liability is not
available. It is the Company's policy to secure product liability coverage
prior to the commencement of each product's clinical trial. The Company is
presently in the process of acquiring product liability coverage for the
upcoming Alzheimer disease clinical trials. Currently, the Company has no other
product liability insurance. It is anticipated that insurance equivalent to
that customarily maintained by other entities in the Company's industry and of
its approximate size will be carried by the Company against such product
liability claims in the future. However, obtaining insurance of al kinds has
become increasingly most costly and difficult and there can be no assurance that
any such insurance will be available at all, available on commercial terms or,
if obtained, will be sufficient to satisfy asserted claims.
Currency Fluctuations
The Company reports its financial position and results of operations in Canadian
dollars in its annual financial statements. The Company's operations result in
exposure to foreign currency fluctuations and such fluctuations may materially
affect the Company's financial position and results of operations. The Company
does not currently take any steps to hedge against currency fluctuations.
Shares Reserved for Future Issuance
As at April 30, 2000, the Company had reserved 21,977,466 Shares for issuance
upon the exercise of stock options and other rights to purchase Shares. Such
Shares represent a potential dilution of approximately 72.7% based upon
30,233,965 Shares then outstanding. (See "Item 12 - Options to Purchase
Securities From Company".) The Company may in the future enter into commitments
which would require the issuance of additional Shares and may grant additional
stock options and/or issue share purchase warrants. The Company's share capital
consists of 100,000,000 Shares. Issuance of such additional Shares is subject
to Canadian Venture Exchange approval and compliance with applicable securities
legislation.
Dividends
To date, the Company has not declared or paid dividends on its Shares and does
not anticipate doing so in the foreseeable future. Investors will only realize
economic gain on their investments from appreciation in the price of the stock.
Volatility of Share Price
The market prices for the securities of biotechnology companies have
historically been highly volatile. The market has from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of any particular company. (See "Item 5 - Nature of Trading
Market".) Certain factors such as announcements by the Company, competition by
new therapeutic products or technological innovations, government regulations,
<PAGE>
Page 34
fluctuations in the operating results of the Company, results of clinical
trials, public concern on safety of drugs generally, general market conditions
and developments in patent and proprietary rights can have an adverse impact on
the market price of the Shares.
Forward Looking Statements
This Registration Statement contains forward looking statements concerning the
Company's operations, economic performance and financial condition, including in
particular, the likelihood of the Company's success in operating as an
independent company and developing and expanding its business. These statements
are based upon a number of assumptions and estimates which are inherently
subject to significant uncertainties and contingencies, many of which are beyond
the control of the Company, and reflect future business decisions which are
subject to change. Some of these assumptions inevitably will not materialize,
and unanticipated events will occur which will affect the Company's future
results. All such forward looking statements are qualified by reference to
matters discussed under this section entitled "Risk Factors".
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently subleases 2000 square feet of office space for
administrative purposes in Vancouver, Canada. The sublease expires on May 31,
2001 unless extended by the Company for up to one year. The Company is required
to pay the amounts required to be paid under the head lease, the monthly total
of which is approximately $7,000.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings and is not
aware of any contemplated legal proceedings to which it may be a party.
ITEM 4. CONTROL OF COMPANY
As far as known to the Company, the Company is not directly or indirectly owned
or controlled by another corporation or by any foreign government. The
following table sets forth certain information, as at April 30, 2000, concerning
(i) persons that are the registered owners of, or are known by the Company to
own beneficially, directly or indirectly, more than 10% of the outstanding
Shares and (ii) beneficial ownership of Shares by all directors and officers of
the Company, as a group:
================================================================================
Identity of Holder No. of Common Shares Percentage of Class
================================================================================
CDS & Co.(1) 15,899,947 52.6%
--------------------------------------------------------------------------------
Allen Bain(2) 4,315,555 14.5%
--------------------------------------------------------------------------------
Directors & Officers as 5,586,289 18.8%
a Group(8 persons)(3)
================================================================================
(1) The Company is unaware of the beneficial owner of these Shares.
(2) Includes 4,315,555 Shares subject to escrow restrictions. See "Item 14
- Description of Securities to be Registered - Escrow Shares".
(3) Includes 4,682,222 Shares subject to escrow restrictions. See "Item 14
- Description of Securities to be Registered - Escrow Shares".
<PAGE>
Page 34
ITEM 5. NATURE OF TRADING MARKET
The Shares are traded in Canada on the Canadian Venture Exchange and trade under
the symbol "IMM". The following table sets out for each of the periods
indicated the market price range and the trading volume on the Canadian Venture
Exchange (or its predecessor, the Vancouver Stock Exchange, if prior to November
29, 1999) of the Shares for each quarterly period since January 1, 1998:
================================================================================
High Low Volume
Year Quarterly Summary ($) ($) (Common Shares)
--------------------------------------------------------------------------------
2000 First Quarter 3.70 0.17 56,167,525
1999 Fourth Quarter 0.20 0.13 1,223,446
Third Quarter 0.26 0.13 2,080,784
Second Quarter 0.33 0.09 6,412,305
1998 First Quarter 0.19 0.08 2,230,648
Fourth Quarter 0.24 0.11 3,684,844
Third Quarter 0.25 0.09 1,964,582
Second Quarter 0.34 0.04 8,593,540
First Quarter 0.04 0.02 445,167
================================================================================
The closing price of the Shares on the Canadian Venture Exchange on Friday,
April 28, 2000 was $1.05.
There is no active trading market for the Shares in the United States, although
United States residents may purchase Shares. The following table indicates the
approximate number of record holders of Shares at September 30, 1999, the number
of record holders of Shares with United States addresses and the portion and
percentage of Shares so held in the United States. On such date, 27,939,465
Shares were outstanding.
================================================================================
Total Number Number of U.S. Shares Held in Percentage of
of Holders Holders the U.S. Shares
--------------------------------------------------------------------------------
166 62 1,865,676 6.7%
================================================================================
Depositories, brokerage firms and financial institutions hold a substantial
number of the Shares in "street names". Based upon enquiries made by the
Company, management of the Company estimates that the total number of beneficial
holders of Shares exceeds 702, of which approximately 42 are U.S. persons.
The Company is not aware of the distribution of any warrants to U.S. residents.
United States residents may beneficially own Shares or warrants held of record
by non-United States residents.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There is no law or governmental decree or regulation in Canada that restricts
the export or import of capital, or affects the remittance of dividends,
interest or other payments to a non-resident holder of Shares, other than
withholding tax requirements. See "Item 7 - Taxation".
There is no limitation imposed by Canadian law or by the constituent documents
of the Company on the right of a non-resident to hold or vote Shares (the
"Voting Shares"), other than are provided in the Investment Canada Act (Canada)
(the "Investment Act"), as amended by the World Trade Organization Agreement
Implementation Act (the "WTOA Act"). The Investment Act generally prohibits
<PAGE>
Page 35
implementation of a reviewable investment by an individual, government, or
agency thereof, corporation, partnership, trust or joint venture that is not a
"Canadian", as defined in the Investment Act (a "non-Canadian"), unless, after
review, the minister responsible for the Investment Act is satisfied that the
investment is likely to be of net benefit to Canada. An investment in the
Voting Shares of the Company by a non-Canadian (other than a "WTO Investor", as
defined below) would be reviewable under the Investment Act if it were an
investment to acquire control of the Company and the company was not,
immediately prior to the implementation of the investment, controlled by a WTO
investor, and the value of the assets of the Company were $5.0 million or more.
An investment in Voting shares of the Company by a WTO investor would be
reviewable under the Investment Act if it were an investment to acquire direct
control of the company, and the value of the assets of the Company equaled or
exceeded $184 million (threshold amount for 1999). A non-Canadian, whether a
WTO Investor or otherwise, would acquire control of the Company for purposes of
the Investment Act if he or she acquired a majority of the Voting Shares of the
Company. The acquisition of less than a majority, but at least one-third of the
Voting 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 the Voting Shares.
In general, an individual is a WTO Investor if he or she is a "national" of a
country (other than Canada) that is a member of the World Trade Organization
("WTO Member") or has a right of permanent residence in a WTO Member other than
Canada. A corporation or other entity will be a WTO Investor if it is a "WTO
Investor-controlled entity" pursuant to detailed rules set out in the Investment
Act. The United States is a WTO Member.
Certain transactions involving Voting Shares of the Company would be exempt from
the Investment Act, including:
(a) an acquisition of Voting Shares of the Company if the acquisition were
made in connection with the person's business as a trader or dealer in
securities;
(b) an acquisition or control of the Company in connection with the
realization of a security interest granted for a loan or other financial
assistance and not for the purpose related to the provisions of the
Investment Act; and
(c) an 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.
ITEM 7. TAXATION
A brief description of certain provisions of the tax treaty between Canada and
the United States is included below, together with a brief outline of income
taxes, including withholding provisions to which United States security holders
who are non-residents of Canada are subject under existing laws and regulations
of Canada and the United States; the consequences, if any, of state and local
taxes are not considered. Security holders should seek the advice of their own
tax advisors, tax counsel or accountants with respect to the applicability or
effect on their own taxes. The Company has not paid dividends on the Shares in
any of its last five fiscal years, and has no plans to pay dividends in the
immediate future. For additional particulars, see "Item 8 - Selected Financial
Data - Dividend Policy".
Canadian federal tax legislation would require a 25% withholding from any
dividends paid or deemed to be paid to the Company's non-resident shareholders.
However, a company resident in the United States that beneficially owns at least
10% of the voting stock of the Company would have this rate reduced to 5%
through the tax treaty between Canada and the United States. The rate of
Canadian non-resident withholding may not exceed 15% of the dividend in the case
of United States shareholders other than as described above. The amount of
stock dividends paid to non-residents of Canada would be subject to withholding
<PAGE>
Page 36
tax at the same rate as cash dividends. The amount of a stock dividend (for tax
purposes) would be equal to the amount by which the stated capital of the
Company had increased by reason of the payment of such a dividend. Interest
paid or deemed to be paid on the Company's debt securities held by non-Canadian
residents may also be subject to Canadian withholding tax, depending upon the
terms and provisions of such securities and any applicable tax treaty.
A non-resident holder is not subject to tax in Canada in respect of a capital
gain realized upon the disposition of a Share unless the Share represents
"taxable Canadian property" to the holder thereof. The Shares will be
considered taxable Canadian property to a non-resident holder only if:
(a) the non-resident holder;
(b) persons with whom the non-resident holder did not deal at arm's
length; or
(c) the non-resident holder and persons with whom he did not deal at arm's
length,
owned not less than 25% of the issued shares of any class or series of the
Company at any time during the five year period preceding the disposition. In
the case of a non-resident holder to whom Shares represent taxable Canadian
property and who is resident in the United States, no Canadian taxes will
generally be payable on a capital gain realized on such Shares by reason of the
Treaty unless:
(a) the value of such Shares is derived principally from real property
(including resource property) situated in Canada,
(b) they formed part of the business property or were otherwise
effectively connected with a permanent establishment or fixed base that the
holder has or had in Canada within the 12 months preceding the disposition;
or
(c) the holder is a U.S. LLC which is not subject to tax in the U.S.
If subject to Canadian tax on such a disposition, the taxpayer's capital gain
(or capital loss) from a disposition is the amount by which the taxpayer's
proceeds of distribution exceed (or are exceeded by) the aggregate of the
taxpayer's adjusted cost base of the shares and reasonable expenses of
disposition. For Canadian income tax purposes, the "taxable capital gain" is
equal to three quarters of the capital gain.
This discussion is not intended to be, nor should it be construed to be, legal
or tax advice to any holder or prospective holder of Shares and no opinion or
representation with respect to the United Sates federal income tax consequences
to any such holder or prospective holder is made. Holders and prospective
holders are urged to consult their own tax advisors with respect to their
particular circumstances.
ITEM 8. SELECTED FINANCIAL DATA
The Company has a limited history of operations and has not generated any
operating revenues. The following table sets forth selected financial data for
the Company which has been derived from the audited financial statements of the
Company. The selected financial data provided below are not necessarily
indicative of the future results of operations or financial performance of the
Company. This information should be read in conjunction with the Company's
Financial Statements and "Item 9 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" herein for a discussion of those
factors affecting comparability of the data in the following table.
The following financial data is expressed in Canadian dollars as used in the
Company's financial statements. The exchange rate for conversion to US dollars
is detailed in "Currency Exchange Rates".
<PAGE>
Page 37
--------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nine Nine Fiscal Year Ended December 31
Months Months
Ended Ended
Sept. 30, Sept. 30
1999 1998 1998 1997 1996 1995 1994
----------------------------------------------------------------------------------------------------------------------------------
OPERATING DATA:
REVENUE
Interest $ 6,215 $ 539 $ 912 $ 1,387 $ 18,016 $ --- $ ---
Grant and Miscellaneous 5,088 --- 1,667 --- ---
--------- ----------- ----------- ----------- --------- -------- --------
11,303 539 912 1,387 19,683 --- ---
----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
General and 175,947 86,271 166,855 147,618 476,943 286,233 294,617
Administrative and
Interest
Research and Development 159,183 24,407 31,055 77,548 348,734 370,211 367,237
--------- ----------- ----------- ----------- --------- -------- --------
335,130 110,678 197,910 225,166 825,677 656,444 661,854
----------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE UNDERNOTED 323,827 110,139 196,998 223,779 805,994 656,444 661,854
ITEMS
Loss (gain) on
disposition of capital
assets --- --- 4,673 --- --- --- (1,256)
Loss on disposition of
intangible assets --- --- --- 38,965 --- --- ---
Write-down of intangible
assets --- --- --- --- 60,180 --- 28,580
Refundable Investment
Tax Credit --- --- --- --- (40,500) (97,000) (196,000)
NET LOSS 323,827 110,139 201,671 262,744 825,674 559,444 493,178
DEFICIT, BEGINNING 2,669,376 2,467,705 2,467,705 2,204,961 1,359,357 799,913 306,735
----------------------------------------------------------------------------------------------------------------------------------
NET MONETARY
LIABILITIES ACQUIRED --- --- --- --- 19,930(1) --- ---
----------------------------------------------------------------------------------------------------------------------------------
DEFICIT, ENDING $ 2,993,203 $2,577,844 $2,669,376 $2,467,705 $2,204,961 $1,359,357 $ 799,913
---------------------=============================================================================================================
Net Loss per
Common Share $ 0.014 $ 0.005 $ 0.010 $ 0.013 $ 0.048 $ 0.053 $ 0.214
---------------------=============================================================================================================
Weighted Average
Number of
Outstanding Shares 23,010,972 20,370,452 20,137,118 19,970,452 17,360,000 10,522,000 2,305,635
---------------------=============================================================================================================
BALANCE SHEET DATA:
Current Assets $ 737,940 $ 59,930 $ 87,606 $ 10,586 $ 244,865 $ 355,905 $ 407,469
Capital Assets 33,887 3,282 --- 12,988 16,566 17,025 21,957
Other Assets --- --- --- --- --- 55,506 94,261
Intangible Assets 158,017 136,818 147,462 143,609 204,074 253,606 210,959
LIABILITIES $ 106,682 $ 95,084 $ 137,654 $ 32,098 $ 67,676 $ 775,785 $ 993,654
SHARE CAPITAL $ 3,816,365 $2,682,790 $ 2,712,790 $ 2,602,790 $2,602,790 $1,265,614 $ 504,905
SHARES TO BE ISSUED $ --- $ --- $ 54,000 $ --- $ --- $ --- $ ---
DEFICIT $ 2,993,203 $2,577,844 $ 2,669,376 $ 2,467,705 $2,204,961 $1,359,357 $ 799,913
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Page 38
<TABLE>
<CAPTION>
Nine Nine Fiscal Year Ended December 31
Months Months
Ended Ended
Sept. 30, Sept. 30
1999 1998 1998 1997 1996 1995 1994
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Loss - Canadian GAAP $ 323,827 $ 110,139 $ 201,671 $ 262,744 $ 825,674 $ 559,444 $ 493,178
Add stock-based
compensation 135,556 --- 162,000 --- 121,722 --- ---
Add reverse
acquisition costs --- --- --- --- 155,875 --- ---
-------------------------------------------------------------------------------------------------------------
Loss - U.S. GAAP $ 459,383 $ 110,139 $ 363,671 $ 262,744 $ 1,103,271 $ 559,444 $ 493,178
-------------------------------------------------------------------------------------------------------------
DEFICIT
Beginning, U.S. GAAP 3,108,973 2,745,302 2,745,302 2,482,558 1,379,287(1) 799,913 306,735
-------------------------------------------------------------------------------------------------------------
Ending, U.S. GAAP 3,568,356 2,855,441 3,108,973 2,745,302 2,482,558 1,359,357 799,913
=============================================================================================================
Loss per Share,
U.S. GAAP $ 0.03 $ 0.01 $ 0.02 $ 0.02 $ 0.09 $ 0.07 $ 0.32
=============================================================================================================
Weighted Average
Number of
Outstanding Shares 17,444,305 14,803,785 14,570,451 14,403,785 11,943,333 7,522,000 1,557,690
=============================================================================================================
BALANCE SHEET DATA:
Share Capital
Canadian GAAP 3,816,365 2,682,790 2,712,790 2,602,790 2,602,790 1,265,614 540,905
U.S. GAAP 4,386,616 2,955,485 3,147,485 2,875,485 2,875,485 1,265,614 540,905
DEFICIT, ENDING
Canadian GAAP 2,993,203 2,577,844 2,669,376 2,467,705 2,204,961 1,359,357 799,913
U.S. GAAP 3,568,356 2,855,441 3,108,973 2,745,302 2,482,558 1,359,357 799,913
==================================================================================================================================
</TABLE>
(1) On April 24, 1996, BCFC, a public company, and Immune Network amalgamated
and continued as the Company. Pursuant to the Amalgamation, the former
shareholders of BCFC received 4,263,309 Shares on a 2 new for 3 old
basis of the amalgamated company and the former shareholders of Immune
Network received 12,731,319 Shares on a 4 new for 3 old basis of the
amalgamated company. As a result, the shareholders of Immune Network
owned more than 50% of the amalgamated company. This business
combination is considered a reverse acquisition of BCFC by Immune
Network and a recapitalization of Immune Network. Accordingly, the prior
year financial figures presented in the Financial Statements reflect the
accounts of Immune Network at their historical carrying amounts.
(2) Beginning deficit in 1996 was adjusted for net monetary liabilities
acquired of $19,930. Detail is provided in Note 1 to the Financial
Statements.
Under accounting principles generally accepted in the United States ("U.S.
GAAP"), stock based compensation to non-employees must be recorded at the fair
market value of the options granted. This compensation, determined using a
black-Scholes pricing model, is expenses over the vesting periods of each option
grant. For the purposes of reconciliation to U.S. GAAP, the Company would
record additional compensation expense of $135,556 in the nine months ended
September 30, 1999, $162,000 in 1998 and $121,722 in 1996, in respect of options
granted to non-employees.
U.S. GAAP also requires escrow shares to be treated as contingent shares and as
such they are not included as outstanding shares for the purpose of calculating
basic earnings per share, but are included in the calculation of diluted
earnings per share if dilutive. When released from escrow, the fair market
value of these shares will be recognized as compensatory benefit and will be
charged to income.
<PAGE>
Page 39
Under U.S. GAAP, costs incurred in connection with the reverse acquisition in
1996 totaling $155,875, net of cash received from the acquisition of $15,028,
must be charged to expense.
As at December 31, 1998 there were 5,566,667 Shares held in escrow pursuant to
the terms of an escrow agreement dated December 7, 1995 among the Company,
Montreal Trust Company of Canada, as escrow agent, and the holders of the
Shares. The Shares may be released from escrow on a pro rata basis in
accordance with a prescribed formula based upon cumulative cash flow. No escrow
Shares have been released to date. Reference should be made to "Item 14 -
Description of Shares to be Registered".
To date, the Company has not paid any dividends on the Shares and it does not
expect to pay dividends in the foreseeable future.
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP"). These principles, as
applied to the Company, conform in all material respects to U.S. GAAP, except as
disclosed in Note 14 to the Financial Statements. For a comparison of these
differences between Canadian GAAP and U.S. GAAP, see Note 14 to the Financial
Statements.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
-------
The following discussion and analysis should be read in conjunction with the
Financial Statements and related notes. The Financial Statements are prepared
in accordance with Canadian generally accepted accounting principles. A
discussion of differences between Canadian and United States generally accepted
accounting principles is provided in Note 14 to the Financial Statements.
Since incorporation of Immune Network as a biotechnology company, the Company
has devoted its fiscal resources primarily to fund its research and development
programs. The Company's business remains at an early stage of development and
has been unprofitable. The Company expects to incur additional losses for the
next several years as it invests in product research and development,
preclinical studies and clinical trials, and regulatory compliance. The
Company's business is subject to significant risks, including uncertainties
associated with the regulatory approval process and with obtaining and enforcing
patents. See "Item 1 - Description of Business - Risk Factors".
Subsequent to September 30, 1999, the Company completed a non-brokered private
placement raising net proceeds of $318,000, and completed a brokered private
placement of special warrants raising net proceeds of $7,791,911, after
deducting the expenses of the offering of $708,088 (see "Description of Business
- Business of the Company" and "Options to Purchase Securities from the
Company"). Subsequent to September 30, 1999 and up to April 30, 2000, the
Company received $454,685 from the exercise of stock options. In addition,
180,000 share purchase warrants exercisable at $0.15 per share expired,
unexercised, on December 2, 1999. In June 2000, a shareholder of the Company
exercised its right to convert its loan to the Company in the principal amount
of $50,000 into 200,000 Shares, at a conversion price of $0.25 per Share.
<PAGE>
Page 40
Liquidity and Capital Resources
-------------------------------
The Company has financed its operations primarily through equity financings,
government grants and tax credits. From January 1, 1994 to December 31, 1998,
the Company received approximately $2,712,790 in net proceeds from the sale of
equity securities.
The Company has material financial commitments under the Bridge Pharma Agreement
and Bridge Pharma Addendum, and the CroMedica Agreement (see "Item 1 -
Description of Business - Material Agreements - Bridge Pharma, Inc." and "Item 1
- Description of Business - Material Agreements - CroMedica Global Inc."). The
Company is still negotiating the terms of the license agreement with the
University of British Columbia (see "Item 1 - Description of Business - Material
Agreements - University of British Columbia"), and does not expect the license
fee and other amounts to be payable under the proposed agreement to be material.
The Company does not anticipate revenues from product sales for the foreseeable
future. Over the next several years, through preclinical development and the
early clinical stages of development, the Company expects to derive its sources
of funding primarily from equity financing. Additional funding may be obtained
through interest income. The long term sustainability of the Company is
expected to be achieved through collaborative and licensing arrangements and the
creation, development and ultimate disposition of intellectual property.
Although no such arrangements have yet been negotiated, it is likely that all or
a portion of the payments that may be received under such agreements will be
conditional upon the Company reaching developmental milestones. As much as
possible, the disposition of intellectual property is intended to be carried out
so as to ensure an appropriate balance between future earnings potential and
current liquidity.
Nine Month Period Ended September 30, 1999
In February 1999 the Company completed a non-brokered private placement of
360,000 units at $0.15 per unit, each unit consisting of one Share and one share
purchase warrant exercisable for one year to purchase one additional Share at
$0.15. In July 1999 the Company completed two non-brokered private placements
raising gross proceeds of $942,977. In connection with these private
placements, a total of 6,286,513 share purchase warrants were issued, each
warrant exercisable to purchase one Share at $0.15 in the first year and $0.18
in the second year. During the period the Company also raised $116,175 from the
exercise of options ($93,750) and warrants ($22,425).
There were no material commitments for capital expenditures as at September 30,
1999.
Year Ended December 31, 1998
During Fiscal 1998, the Company completed a private placement of 400,000 units
for total proceeds of approximately $80,000. Each unit consisted of one Share
and one share purchase warrant exercisable for one year to purchase one Share at
$0.20. At December 31, 1998, the Company had a working capital deficit of
approximately $48. During the year the Company disposed of all of its capital
assets consisting of laboratory and office equipment to a private company. The
Company determined that its assets were no longer necessary in view of its
contract with ImmPheron under which ImmPheron was required to conduct
preclinical trials. The Company recognized a loss on the disposition of $4,673.
There was no material commitments for capital expenditures as at December 31,
1998.
<PAGE>
Page 41
Year Ended December 31, 1997
There were no share capital transactions during Fiscal 1997.
Year Ended December 31, 1996
During Fiscal 1996, the Company raised approximately $572,620 pursuant to a
private placement of 1,590,611 at $0.36 per Share. This financing was done
before the amalgamation of Immune Network and BCFC on April 24, 1996. The
Company raised an additional $825,000 in a post-amalgamation private placement
of 1.5 million units, each unit consisting of one Share and one share purchase
warrant exercisable for one year to purchase one Share at $0.55.
Results of Operations
---------------------
Nine Month Period Ended September 30, 1999
Beginning June 1999 the Company resumed research activities for Antibody 1F7
which included the completion of viral load testing on blood samples from
previous studies and the compilation of existing data in preparation for
regulatory review. During 1998 research activities had been scaled down due to
lack of funding and staff to carry out research.
During the second-half of Fiscal 1999, the Company exercised its option to
license the Alzheimer drug candidates (see "Item 1 - Description of Business -
Material Agreements - University of British Columbia") and entered into a joint
venture agreement regarding the development of a new asthma therapeutic (see
"Item 1 - Description of Business - Material Agreements - Bridge Pharma, Inc.").
The Company carried out research in the form of due diligence on these
technologies and also began preparations for clinical testing of the Alzheimer
Disease Project (AD2).
During the nine month ended September 30, 1999, the Company reported a net loss
of $323,827 ($0.014 per Share) as compared to $110,139 ($0.005 per Share) for
the same period in 1998. For the nine months ended September 30, 1999 the
Company expended $159,183 on its research activities as compared to $24,407
during the nine months ended September 30, 1998. The increase in research and
development expenditures was primarily due to the commencement of the Alzheimer
disease project in July 1999 and costs incurred prior to commencement of the
Asthma joint venture, which required the Company to increase its staff and
space, and to enhance its infrastructure (website), which directly attributed to
increases in salaries and benefits ($65,506), consultants ($34,957), rent
($10,485) and computer support and maintenance ($24,607). For the nine months
ended September 30, 1999, the Company expended $175,947 in its administrative
activities as compared to $86,271 during the nine months ended September 30,
1998. The increase in administrative expenses was primarily due to increase in
salaries and benefits ($42,494) as related to management change and hiring of
staff, legal and accounting ($35,236), computer support and maintenance
($8,212), and interest ($4,500) on shareholder's loan.
At October 1, 1999, management revised the estimated useful lives of its
technology and license from 17 years to an estimated remaining life of five
years and from 20 years to an estimated remaining life of 5 years for patents,
after considering such factors as the competition levels and the rate of
technological change in those areas where the Company's technologies are
focused, the Company's present stage of development of its research activities
and the accounting practices of comparable companies in similar stages of
development. This change in estimate will be accounted for on a prospective
basis and will result in additional amortization expense for the quarter ended
December 31, 1999 of approximately $10,000 and approximately an additional
$20,000 amortization expense for the year ending December 31, 2000.
<PAGE>
Page 42
Year Ended December 31, 1998
During Fiscal 1998, the Company reported a net loss of $201,671 ($0.010 per
Share) as compared to $262,744 ($0.013 per Share) during Fiscal 1997. During
Fiscal 1998, the Company expended $31,055 in its research activities as compared
to $77,548 during Fiscal 1997. The decrease in research expenditures in 1998
was attributable to the research agreement between the Company and ImmPheron,
Inc. during the fourth quarter of 1997 wherein ImmPheron Inc. was required to
fund US$81,000 towards a live animal trial of the Antibody 1F7 program in 1998
in order to earn its 50% interest. For Fiscal 1998, the Company expended
$166,855 in its administrative activities as compared to $147,618 during Fiscal
1997. Advertising expense increased by $31,076 as the Company increased its
advertising expenditures in 1998 in an effort to raise capital to fund further
operations. The Company entered into an investor relations contract with an
arm's length party in August 1998 at a fee of $4,000 per month. The contract
was terminated in December of 1998 due to reduced cash flow. In addition, the
Company took out several advertisements in an attempt to raise capital. Legal
fees decreased by $26,424 (from $28,243 to $1,819) and accounting fees decreased
by $4,265 (from $20,044 to $15,779), as considerable fees were incurred in 1997
as related to a proposed asset sale. During the year, the Company disposed of
all of its capital assets consisting of laboratory and office equipment to a
private company. The Company determined that its assets were no longer
necessary in view of its contract with ImmPheron Inc. The Company recognized a
loss on the disposition of $4,673.
Year Ended December 31, 1997
During Fiscal 1997, the Company reported a net loss of $262,744 ($0.013 per
Share) as compared to $825,674 ($0.048 per Share) during Fiscal 1996. Included
in the net loss figure for Fiscal 1997 was a $38,965 loss arising upon the
finalization of a sale to a minority shareholder of technologies, comprised of a
patent and two patent applications, no longer being pursued by the Company (see
discussion under "Year Ended December 31, 1996"). During Fiscal 1997, the
Company expended $147,618 on administrative expenses as compared to $476,943
during Fiscal 1996. The significant decrease in administration expenses was
attributable to costs associated with the amalgamation in Fiscal 1996 of Immune
Network and BCFC and scaled back its expenditures in 1997 due to cash flow
considerations.
Advertising expense decreased by $20,196, and of the $24,369 incurred for
advertising in 1996, approximately $16,500 was paid to an arm's length party for
public relations in connection with an AIDS conference held in Vancouver. The
balance was paid pursuant to an investor relations contract. Legal fees
increased by $11,171 (from $17,072 to $28,243) relating largely to a proposed
sale of assets of the Company which was ultimately abandoned in 1997.
Accounting fees decreased by $18,320 (from $38,364 to $20,044). The 1996
accounting fees represent higher audit fees associated with the Company's
amalgamation.
During Fiscal 1997, the Company expended $77,548 in its research activities as
compared to $348,734 during Fiscal 1996. This decrease of $271,186 in research
and development expenditures can be primarily attributed to the decrease in
scientific collaboration ($83,310), research salaries and benefits ($88,883) and
consulting fees ($69,113).
Year Ended December 31, 1996
During Fiscal 1996, the Company reported a net loss of $825,674 ($0.048 per
Share) as compared to $559,444 ($0.053 per Share) during Fiscal 1995. Included
in the December 31, 1996 figure was $60,180 in a write-down of intangible
assets. During 1996 the Company decided to change its focus and devote its
resources to its most promising technology, antibody 1F7. Accordingly, the
Company reviewed the costs associated with those technologies no longer being
pursued and wrote them down by $60,180 to their estimated net realizable value.
<PAGE>
Page 43
This estimate was based on preliminary discussions with a minority shareholder
who expressed an interest in acquiring these technologies.
In 1997 the Company concluded its transaction with the minority shareholder
resulting in a further write-down of $38,965.
During Fiscal 1996, the Company expended $348,734 ($370,211 in 1995) in research
activities, and $476,943 ($286,233 in 1995) in administration expenses. The
significant increase in administration expenses from Fiscal1995 to Fiscal 1996
($190,710) was attributable to the costs associated with the amalgamation of
Immune Network and BCFC.
ITEM 9A. MARKET RISK
Interest Rate Risk
In June 2000, a shareholder of the Company exercised its right to convert its
loan to the Company in the principal amount of $50,000 into 200,000 Shares, at a
conversion price of $0.25 per Share. The Company was subject to interest rate
risk on the $50,000 shareholder loan, which carried a fixed annual rate of 12%.
Foreign Currency Risk
The Company reports its financial position and results of operations in Canadian
dollars in its annual financial statements. The Company's operations result in
exposure to foreign currency fluctuations and such fluctuations may materially
affect the Company's financial position and results of operations. The Company
does not currently take any steps to hedge against currency fluctuations.
The Company's primary exposure risk is due to fluctuations in the US dollar.
For the nine months ended September 30, 1999, a uniform 10% strengthening in the
value of the US dollar relative to the Canadian dollar would result in an
increase in the loss and cash outflow of $5,139 due to the settlement of
accounts payable and transactions which are denominated in US dollars. For the
year ended December 31, 1998, a uniform 10% strengthening in the value of the
US dollar relative to the Canadian dollar would result in an increase in loss
and cash outflow of $2,680 due to the settlement of accounts payable and
transactions which are denominated in US dollars.
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY
As at April 30, 2000, the directors and executive officers of the Company, the
positions held by them and the period during which they have served as a
director or executive officer are as follows:
================================================================================
Name Position Period Served
--------------------------------------------------------------------------------
Allen I. BainAC President, Chief Executive Officer Since May 14, 1999
and Director
--------------------------------------------------------------------------------
Robert J. GaytonAC Director Since May 31, 1994
--------------------------------------------------------------------------------
Oh Kim Sun Director Since January 25, 2000
--------------------------------------------------------------------------------
Donald R. RixAC Director Since June 24, 1996
--------------------------------------------------------------------------------
Ronald G. Paton Corporate Secretary Since June 10, 1999
--------------------------------------------------------------------------------
Ron Kertesz Commercial Director(1) Since June 29, 1999
--------------------------------------------------------------------------------
Danny Lowe Controller Since June 29, 1999
--------------------------------------------------------------------------------
Mario Kasapi Manager of Business Development Since September 15, 1999
================================================================================
(AC) Member of the audit committee of the Company.
(1) Executive officer position (not a director of the Company).
<PAGE>
Page 44
Each director's term of office expires at the Company's next annual general
meeting. The term of office for the Company's executive officers and members of
the audit committee expires at its next annual general meeting. The board of
directors appoints the Company's executive officers and the audit committee for
the ensuing year following each annual general meeting.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate amount of compensation paid by the Company during Fiscal 1998 to
all officers and directors, as a group, for services in all capacities was
$40,208.
None of the Company's directors and officers have received any manner of
compensation for services provided in their capacity as directors or officers
during the Company's most recently completed financial year with the exception
of stock options granted to certain directors and officers of the Company (see
"Item 12 - Options to Purchase Securities from the Company").
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM THE COMPANY
Incentive Stock Options
As at April 30, 2000, the Company had outstanding incentive stock options
pursuant to which an aggregate of 1,405,500 Shares may be purchased from the
Company as follows:
================================================================================
Optionees Exercise Price ($) Expiry Date Shares Under Option
================================================================================
Gunnar Aberg $0.40 January 24, 2005 200,000
--------------------------------------------------------------------------------
Rupinder Bagri $0.40 January 24, 2005 20,000
--------------------------------------------------------------------------------
Allen Bain $0.40 January 24, 2005 100,000
$0.15 May 21, 2004 120,000
--------------------------------------------------------------------------------
Robert Gayton $0.40 January 24, 2005 50,000
--------------------------------------------------------------------------------
Michael D. Grant $0.15 May 19, 2003 50,000
--------------------------------------------------------------------------------
Mario Kasapi $0.40 January 24, 2005 100,000
--------------------------------------------------------------------------------
Ron Kertesz $0.40 January 24, 2005 100,000
$0.15 May 21, 2004 20,000
$0.23 July 25, 2004 160,000
--------------------------------------------------------------------------------
Danny Lowe $0.40 January 24, 2005 50,000
--------------------------------------------------------------------------------
Clive Page $0.23 June 9, 2004 80,500
--------------------------------------------------------------------------------
Ronald G. Paton $0.40 January 24, 2005 100,000
--------------------------------------------------------------------------------
Brendan Payne $0.23 July 25, 2004 10,000
--------------------------------------------------------------------------------
Ping Quin $0.23 July 25, 2004 20,000
--------------------------------------------------------------------------------
<PAGE>
Page 45
================================================================================
Optionees Exercise Price ($) Expiry Date Shares Under Option
================================================================================
Matt Sadler $0.23 July 25, 2004 25,000
--------------------------------------------------------------------------------
Talieh Shakrokhi $0.40 January 24, 2005 15,000
$0.23 July 25, 2004 25,000
--------------------------------------------------------------------------------
Oh Kim Sun $0.40 January 24, 2005 100,000
--------------------------------------------------------------------------------
Michelle Wong $0.40 January 24, 2005 20,000
--------------------------------------------------------------------------------
Stephanie Yip $0.40 January 24, 2005 25,000
--------------------------------------------------------------------------------
Alexander Zolotoy $0.40 January 24, 2005 15,000
================================================================================
A total of 900,000 stock options are held by directors and executive officers of
the Company.
All of the stock options are non-transferable and terminate on the earlier of
the expiry date or the 30th day following the day on which the optionee ceases
to be eligible to hold stock options pursuant to the applicable Canadian Venture
Exchange policy.
Share Purchase Warrants
As at April 30, 2000, share purchase warrants were outstanding entitling the
holders to purchase a total of 6,286,513 Shares as follows:
======================================================================
Number of Warrants Exercise Price Expiry Date
======================================================================
6,286,513(1) $0.15 1st year July 13, 2000
$0.18 2nd year July 13, 2001
======================================================================
(1) A total of 76,500 share purchase warrants are held by directors and
executive officers of the Company.
Special Warrants
As at April 30, 2000, the Company has reserved 17,574,544 Shares for issuance at
no additional cost upon exercise of special warrants, described as follows.
On January 24, 2000, the Company completed a private placement of 2,120,000
special warrants (the "January 2000 Special Warrants") at a price of $0.15 each.
Each January 2000 Special Warrant will be converted into one unit comprised of
one Share and one share purchase warrant. Each share purchase warrant entitles
the holder to purchase one Share (for a total of 2,120,000 Shares) at a price of
$0.15 until January 23, 2001 and at $0.17 from January 24, 2001 until January
23, 2002.
On March 9, 2000, the Company completed a private placement of 15,454,544
special warrants (the "March 2000 Special Warrants") at a price of $0.55 each.
Upon the exercise or deemed exercise of the March 2000 Special Warrants, each
March 2000 Special Warrant will be converted into one unit comprised of one
Share and one-half of one share purchase warrant. Each whole share purchase
warrant entitles the holder to purchase one Share (for a total of 7,727,272
Shares) at a price of $1.40 until September 8, 2001. An additional 2,318,181
Shares, including an additional 772,727 Shares issuable upon exercise of the
share purchase warrants, are reserved for issuance upon the exercise or deemed
exercise of the March 2000 Special Warrants in the event that receipts for a
prospectus are not obtained from the Securities Commissions in each of the
Provinces of British Columbia, Alberta, Ontario and Quebec qualifying the
distribution of the securities upon exercise of the March 2000 Special Warrants
by July 7, 2000. The March 2000 Special Warrants are identical in all respects
<PAGE>
Page 46
and subject to the terms of a special warrant indenture dated March 9, 2000,
entered into between the Company and Montreal Trust Company of Canada, as
trustee (the "Special Warrant Indenture"), and include the following terms and
conditions:
1. no fractional Shares will be issued; holders of special warrants may be
entitled to cash payment in respect of fractional entitlements;
2. the March 2000 Special Warrants, including the number of Shares issuable
upon exercise or deemed exercise thereof, may be subject to adjustment upon
the occurrence of certain stated events, including the subdivision or
consolidation of Shares, certain distributions of Shares, or securities
convertible into or exchangeable for Shares, or of other securities or
assets of the Company, certain offerings of rights, warrants or options and
certain capital reorganizations;
3. the holding of March 2000 Special Warrants will not give the holder rights
as a shareholder of the Company; and
4. March 2000 Special Warrants may be exercised by the holder at any time to
and until the earlier of 4:30 p.m. (Vancouver time) on the earlier of
September 8, 2001 and the fifth business day following the date on which the
final receipts issued by the applicable securities commissions for the
prospectus qualifying the distribution of the units on exercise of the March
2000 Special Warrants (together with the agent's compensation options on
exercise of the Agent's Special Warrants) have all been issued (the "Expiry
Time"), and March 2000 Special Warrants not exercised by the Expiry Time
shall, immediately prior to the Expiry Time, be deemed to have been
exercised without any further action on the part of the holder.
For US GAAP accounting purposes, the proceeds of the special warrants received
are allocated to the common shares and share purchase warrants based on their
relative fair values. The fair value of the common shares will be equal to the
quoted trading price of the common shares and the fair value of the share
purchase warrants will be determined using the Black-Scholes pricing model. The
total fair value of the common shares and the share purchase warrants will not
exceed the gross proceeds received. For Canadian GAAP purposes, the proceeds
are generally not allocated.
Agent's Special Warrants
The Company has issued 1,545,454 agent's warrants (the "Agent's Special
Warrants") in relation to the sale of the March 2000 Special Warrants described
above. Each Agent's Special Warrant is exercisable at no additional cost into
one compensation option (the "Agent's Compensation Option"). Each Agent's
Compensation Option will entitle the holder to acquire one unit (the "Agent's
Unit") at a price of $0.55 each. Each Agent's Unit will be exercisable into one
Share and one-half of one share purchase warrant (the "Agent's Unit Warrants").
Each whole Agent's Unit Warrant will entitle the holder to acquire one
additional Share at a price of $1.40 each until September 8, 2001. All of the
Agent's Special Warrants are identical in all respects and include the following
terms and conditions:
1. no fractional Shares will be issued; the holder of the Agent's Special
Warrants may be entitled to cash payment in respect of fractional
entitlements;
2. the Agent's Special Warrants, including the number of Shares issuable
upon exercise or deemed exercise thereof, may be subject to adjustment upon
the occurrence of certain stated events, including the subdivision or
consolidation of Shares, certain distributions of Shares, or securities
convertible into or exchangeable for Shares, or of other securities or
assets of the Company, certain offerings of rights, warrants or options and
certain capital reorganizations;
<PAGE>
Page 47
3. the holding of Agent's Special Warrants will not give the holder rights as a
shareholder of the Company; and
4. the Agent's Special Warrants may be exercised, for no additional
consideration, at any time prior to the Expiry Time, and any Agent's Special
Warrants not exercised by the Expiry Time shall, immediately prior to the
Expiry Time, be deemed to have been exercised into agent's compensation
options without any further action on the part of the holder.
The fair value of the warrants issued to the agent as compensation for the
private placement of the 15,454,544 special warrants has been estimated at
$480,000. The fair value has been estimated using the Black-Scholes pricing
model with the following assumptions: a risk free interest rate of 6%; a
dividend yield of 0%; a volatility factor of the expected market price of the
Company's common stock of 1.084 and an average expected life of the warrant of
0.75 years. This cost will be recorded as a share issue cost.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
To the knowledge of current management, no director or officer of the Company or
any shareholder holding of record or beneficially, directly or indirectly,
owning more than 10% of the issued and outstanding Shares, or any of their
respective associates or affiliates or any relative or spouse of any of the
foregoing who has the same home, has had any material interest, directly or
indirectly, in any material transaction with the Company, or in any proposed
material transaction, since January 1, 1996.
Pursuant to a Loan Agreement dated September 13, 1999, Allen I. Bain, President,
CEO and a director of the Company, borrowed approximately $34,000 from the
Company. Interest was charged on the principal sum outstanding in an amount
equal to the rate of interest in effect from time to time as prescribed by
Revenue Canada.
The Company subleases its office premises from Allen I. Bain, the President, CEO
and a director of the Company. The sublease expires on May 31, 2001 and may be
extended by the Company for an additional year. The Company is required to pay
the amounts under the head lease required to be paid by Dr. Bain, the monthly
total of which is approximately $7,000.
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
The shares to be registered are the Company's common shares without par value.
As at April 30, 2000, the authorized capital of the Company consists of
100,000,000 Shares of which 30,233,965 were issued as fully paid and
non-assessable. In addition, on such date, 37,432,010 Shares were reserved for
issuance against the exercise of outstanding stock options and other rights to
acquire Shares (see "Item 12 - Options to Purchase Securities from the
Company").
Shares
The holders of Shares are entitled to vote at all meetings of shareholders of
the Company, to receive dividends if and when declared by the directors, and
subject to the rights of the holders of any Shares ranking in priority to or on
parity with the Shares, to receive the remaining property and assets of the
Company in the event of liquidation, dissolution or winding up of the Company.
The Shares have no pre-emptive, redemption, purchase or conversion rights.
There are no sinking fund provisions in relation to the Shares and they are not
liable to further calls or to assessment by the Company. The British Columbia
Company Act provides that the rights and provisions attached to any class of
shares may not be modified, amended or varied unless consented to by special
resolution passed by a majority of not less than 3/4 of the votes cast in person
or by proxy by holders of shares of that class.
<PAGE>
Page 48
The Company has not declared or paid any dividends on its outstanding Shares
since its inception and does not anticipate that it will do so in the
foreseeable future. The declaration of dividends is within the discretion of
the Company's board of directors. The Company is limited in its ability to pay
dividends on its Shares by limitations under British Columbia law relating to
the sufficiency of profits from which dividends may be paid.
Escrow Shares
There are 5,566,667 Shares (the "Escrow Shares") deposited with Montreal Trust
Company of Canada (the "Escrow Agent") pursuant to an escrow agreement dated
December 7, 1995 (the "Escrow Agreement"). The Escrow Agreement provides that
the Escrow Shares may not be traded in or released, nor may the Company, its
transfer agent or escrow holder make any transfer or record of any trading of
the Escrow Shares without the consent of the executive director of the British
Columbia Securities Commission or, while the Shares are listed on the Canadian
Venture Exchange, the consent of the Canadian Venture Exchange.
The release of the Escrow Shares is based upon a prescribed formula. Escrow
Shares, while not freely tradeable, carry voting rights equal to those of all
other Shares. While not freely tradeable, Escrow Shares may be transferred
within escrow between principals of a listed company provided that consent is
first obtained from the Canadian Venture Exchange. If a holder of Escrow Shares
ceases to be a principal of the Company, such holder shall be entitled to retain
ownership of the Escrow Shares and shall not be required to transfer same.
The Escrow Agreement provides that the Escrow Shares must be surrendered to the
Company for cancellation:
(a) at the time of a major reorganization of the Company, if required as a
condition of the consent to the reorganization by the Canadian Venture
Exchange;
(b) where the Shares have been subject to a cease trade order issued under the
British Columbia Securities Act for a period of two consecutive years; or
(c) April 24, 2006.
ITEM 15. DEFAULTS UNDER SENIOR SECURITIES
None.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
None.
ITEM 17. FINANCIAL STATEMENTS
The consolidated financial statements of the Company have been prepared on the
basis of Canadian GAAP. A reconciliation to U.S. GAAP is included therein. The
Financial Statements filed as part of this Registration Statement are listed in
"Item 19 - Financial Statements and Exhibits".
<PAGE>
Page 49
ITEM 18. FINANCIAL STATEMENTS
Not applicable.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The Financial Statements and related notes of the Company, as required under
Item 17, comprise of the following:
Auditors' Report dated February 12, 1999.
Balance Sheets as of December 31, 1998 and 1997 .
Statements of Operations and Deficit, and Schedules of Research and
Development Costs for the years ended December 31, 1998, 1997 and 1996.
Statements of Changes in Financial Position for the years ended December 31,
1998, 1997 and 1996.
Notes to the Financial Statements.
Unaudited financial statements for the nine month period ended
September 30, 1999, with U.S. GAAP reconciliation.
(b) Exhibits
The following exhibits are filed as part of this Registration Statement.
(1) Corporate Documentation
-----------------------
The articles of incorporation and bylaws corresponding thereto currently in
effect are as follows:
1-1 Certificate of Amalgamation of the Company dated April 24, 1996(1);
1-2 Form 21, Special Resolution, of the Company filed on March 14, 1997,
with respect to an amendment to the articles of incorporation(2);
1-3 Form 1, Memorandum, of the Company approved by the British Columbia
Registrar of Companies May 2, 1995(3); and
1-4 Articles of incorporation of the Company(4).
1-5 Certificate of Name Change dated August 16, 2000.
(2) Instruments Defining the Rights of Holders of Securities Being Registered
-------------------------------------------------------------------------
See Exhibit 1-4 above.
<PAGE>
Page 50
(3) Material Contracts
------------------
3-1 Escrow Agreement dated December 7, 1995(5);
3-2 Incentive Stock Option Agreements(6);
3-3 Licensing Agreement dated April 23, 1993 with the San Diego Regional Cancer
Center (now known as the Sidney Kimmel Cancer Center)(7);
3-4 Joint Venture Agreement, dated August 12, 1999, with Bridge Pharma, Inc.
(8), together with Bridge Pharma Addendum dated April 4, 2000(9);
3-5 Executive Employment Agreement, dated May 21, 1999, with Allen Bain(10);
3-6 Services Agreement, dated May 21, 1999, with Ron Kertesz(11);
3-7 Services Agreement, dated June 1, 1999, with Danny Lowe(12);
3-8 Loan Agreement, dated September 13, 1999, with Allen Bain(13);
3-9 Purchase Agreement, dated December 20, 1999, with ImmPheron, Inc.(14);
3-10 Option Agreement, dated February 3, 2000, with Meditech Pharmaceuticals
Inc.(15);
3-11 CroMedica Agreement, entered into March 27, 2000, with CroMedica Global,
Inc.(16);
3-12 CroMedica Debenture, issued on March 27, 2000(17);
3-13 Special Warrant Indenture, dated March 9, 2000, with Montreal Trust Company
of Canada(18); and
3-14 Share Purchase Warrant Indenture, dated March 9, 2000, with Montreal Trust
Company of Canada. (19)
(1) Filed as exhibit 1-1 to the Company's Registration Statement on Form 20-F
(File No. 0-27883 filed on October 29, 1999).
(2) Filed as exhibit 1-2 to the Company's Registration Statement on Form 20-F
(File No. 0-27883 filed on October 29, 1999).
(3) Filed as exhibit 1-3 to the Company's Registration Statement on Form 20-F
(File No. 0-27883 filed on October 29, 1999).
(4) Filed as exhibit 1-4 to the Company's Registration Statement on Form 20-F
(File No. 0-27883 filed on October 29, 1999).
(5) Filed as exhibit 3-1 to the Company's Registration Statement on Form 20-F
(File No. 0-27883 filed on October 29, 1999).
(6) The portion of this Exhibit predating October 29, 1999 was previously filed
as exhibit 3-2 to the Company's Registration Statement on Form 20-F (File
No. 0-027883 filed on October 29, 1999); the portion of this Exhibit dated
after October 29, 1999 but predating April 12, 2000 was previously filed as
exhibit 3-2 to the Company's Registration Statement on Form 20-F/A (File
No. 0-27883 filed on April 17, 2000); and the portion of this Exhibit dated
after April 12, 2000 but predating June 23, 2000 was previously filed as
exhibit 3-2 to the Company's Registration Statement on Form 20-F/A (File
No. 0-27883 filed on June 27, 2000.
(7) Filed as exhibit 3-3 to the Company's Registration Statement on Form 20-F/A
(File No. 0-27883 filed on April 17, 2000).
(8) Filed as exhibit 3-3 to the Company's Registration Statement on Form 20-F/A
(filed on April 17, 2000).
(9) Filed as exhibit 3-4 to the Company's Registration Statement on Form 20-F/A
(File No. 0-27883 filed on June 27, 2000).
(10) Filed as exhibit 3-4 to the Company's Registration Statement on Form 20-F/A
(filed on April 17, 2000).
(11) Filed as exhibit 3-4 to the Company's Registration Statement on Form 20-F/A
(filed on June 27, 2000).
(12) Filed as exhibit 3-9 to the Company's Registration Statement on Form 20-F/A
(File No. 0-27883 filed on October 29, 1999).
(13) Filed as exhibit 3-6 to the Company's Registration Statement on Form 20-F/A
(File No. 0-27883 filed on April 17, 2000).
(14) Filed as exhibit 3-7 to the Company's Registration Statement on Form 20-F/A
(File No. 0-027883 filed on April 17, 2000).
(15) Filed as exhibit 3-10 to the Company's Registration Statement on Form 20-F
(File No. 0-27883 filed on October 29, 1999).
(16) Filed as exhibit 3-11 to the Company's Registration Statement on Form 20-
F/A (File No. 0-27883 filed on June 27, 2000).
(17) Filed as exhibit 3-12 to the Company's Registration Statement on Form 20-
F/A (File No. 0-27883 filed on June 27, 2000).
(18) Filed as exhibit 3-13 to the Company's Registration Statement on Form 20-
F/A (File No. 0-27883 filed on April 17, 2000).
(19) Filed as exhibit 3-14 to the Company's Registration Statement on Form 20-
F/A (File No. 0-27883 filed on June 27, 2000).
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
-------------------------------------------------------------------------------
IMMUNE NETWORK RESEARCH LTD.
Amalgamated under the Company Act of British Columbia
INTERIM BALANCE SHEETS
(unaudited - prepared by management)
(expressed in Canadian Dollars)
As at September 30
--------------------------
1999 1998
-------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $ 632,609 $ 59,493
Accounts Receivable 11,861 0
Deposits & prepaid expenses 93,470 437
-------------------------------------------------------------------------------
737,940 59,930
Capital assets 33,887 3,282
Patents, license and technology 158,017 136,818
-------------------------------------------------------------------------------
$ 929,844 $ 200,030
===============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 56,682 $ 45,084
-------------------------------------------------------------------------------
56,682 45,084
Shareholder loan 50,000 50,000
Share Capital
Authorized
100,000,000 common shares without par value
Issued
20,370,452 at Sept 30, 1998
27,939,465 at Sept 30, 1999 3,816,365 2,682,790
Deficit (2,993,203) (2,577,844)
-------------------------------------------------------------------------------
$ 929,844 $ 200,030
===============================================================================
On behalf of the Board:
/s/ Allen I. Bain /s/ Robert J. Gayton
----------------------- --------------------------
Allen I. Bain, Director Robert J. Gayton, Director
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
-------------------------------------------------------------------------------
IMMUNE NETWORK RESEARCH LTD.
INTERIM STATEMENT OF OPERATIONS AND DEFICIT
(unaudited - prepared by management)
(expressed in Canadian Dollars)
<TABLE>
<CAPTION>
From inception
(Feb 25, 1991 to
Sept. 30, 1999)
For the Nine Months ended Sept 30
------------------------------------------
1999 1998
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expenses
Research and development 1,719,606 159,183 24,407
Less grants and refundable
investment tax credits (496,267) (5,088) -
------------------------------------------------------------------------------------------------------------
1,223,339 154,095 24,407
General and administrative and interest 1,652,437 175,947 86,271
------------------------------------------------------------------------------------------------------------
2,875,776 330,042 110,678
------------------------------------------------------------------------------------------------------------
Loss before other items 2,875,776 330,042 110,678
------------------------------------------------------------------------------------------------------------
Other items:
Interest income (33,645) (6,215) (539)
Write down of intangible assets 88,760 - -
Loss on disposition of capital
and intangible assets 42,382 - -
------------------------------------------------------------------------------------------------------------
97,497 (6,215) (539)
------------------------------------------------------------------------------------------------------------
Loss for the period 2,973,273 323,827 110,139
Deficit, Beginning of Period - 2,669,376 2,467,705
------------------------------------------------------------------------------------------------------------
Net monetary liabilities acquired 19,930 - -
Deficit, End of Period $2,993,203 $2,993,203 $2,577,844
============================================================================================================
Net Loss Per Common Share $ 0.01 $ 0.01
============================================================================================================
Weighted Average Number of Outstanding Shares 23,010,972 20,370,452
============================================================================================================
</TABLE>
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
-------------------------------------------------------------------------------
IMMUNE NETWORK RESEARCH LTD.
INTERIM STATEMENT OF CASH FLOWS
(unaudited - prepared by management)
(expressed in Canadian Dollars)
<TABLE>
<CAPTION>
From inception
(Feb 25, 1991 to
Sept. 30, 1999)
For the Nine Months ended Sept 30
------------------------------------------
1999 1998
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Loss for the Period $(2,973,273) $ (323,827) $ (110,139)
Add items not affecting cash
Depreciation and amortization 111,556 9,463 8,878
Loss on write-down of capital assets 92,177 - -
Loss on disposition of intangible assets 38,965 - -
------------------------------------------------------------------------------------------------------------
(2,730,575) (314,364) (101,261)
Changes in non-cash working
capital components
Accounts receivable (11,209) (10,247) 914
Deposits & prepaid expenses (93,470) (93,470) 1,313
Accounts payable and accrued liabilities 20,192 (30,972) 12,987
------------------------------------------------------------------------------------------------------------
Cash used in operating activities (2,815,062) (449,053) (86,047)
------------------------------------------------------------------------------------------------------------
Financing Activities
Share capital issued, net 3,771,365 1,058,575 -
Shareholder loan 50,000 - 50,000
Share subscriptions 45,000 - 80,000
------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 3,866,365 1,058,575 130,000
------------------------------------------------------------------------------------------------------------
Investing Activities
Purchase of capital assets (75,328) (36,558) -
Patents, license and technology (390,012) (17,347) -
Proceeds in disposition of capital
and intangible assets 31,618 - 7,619
Cash, acquisition of BCFC 15,028`` - -
------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities (418,694) (53,905) 7,619
------------------------------------------------------------------------------------------------------------
Increase in Cash during the period 632,609 555,617 51,572
Cash and cash equivalents, beginning of period
- - 76,992 7,921
------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 632,609 $ 632,609 $ 59,493
============================================================================================================
</TABLE>
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
-------------------------------------------------------------------------------
IMMUNE NETWORK RESEARCH LTD.
NOTE TO INTERIM STATEMENTS
(unaudited - prepared by management)
(expressed in Canadian Dollars)
1. In the opinion of management of the Company, the unaudited financial
statements reflect all adjustments, which consist only of normal and recurring
adjustments, necessary to present fairly the financial position at September 30,
1999 and the results of operations and cash flows for the nine month periods
ended September 30, 1999 and 1998, in accordance with accounting principles
generally accepted in Canada (see note 3). In these financial statements, the
Company has adopted the new recommendations of the Canadian Institute of
Chartered Accountants Handbook for cash flow statements. Accordingly, the
Company now excludes non-cash investing and financing transactions in the
statement of cash flows. The impact of the adoption of the new recommendations
did not have any impact on the comparative figures. These financial statements
should be read in conjunction with the financial statements and notes thereto
contained in the Company's audited financial statements for the year ended
December 31, 1998.
2. Share Capital
a. Authorized
100,000,000 common shares without par value
b. Issued
-------------------------------------------------------------------------------
Balance at December 31, 1998 20,570,452 2,712,790
Issued for cash pursuant to private placement 360,000 54,000
Issued for cash upon exercise of options 625,000 93,750
Issued for cash upon exercise of warrants 97,500 22,425
Issued for cash pursuant to private placement,
net of issuance costs of $9,576 6,286,513 933,400
Balance at September 30, 1999 27,939,465 3,816,365
-------------------------------------------------------------------------------
Of the 360,000 common shares issued for cash pursuant to private placement,
$45,000 cash was received prior to December 31, 1998.
3. Reconciliation of generally accepted accounting principles.
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada which, in the case of the Company,
conform in all material respects with accounting principles generally accepted
in the United States ("U.S. GAAP"), except as fully described in Note 14 to the
audited financial statements as at December 31, 1998. The following table
reconciles the loss and loss per share as reported on the statement of loss and
deficit to the loss that would have been reported had the financial statements
been prepared in accordance with U.S. GAAP:
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
-------------------------------------------------------------------------------
Statement of Loss and Deficit
<TABLE>
<CAPTION>
From inception
(Feb 25, 1991 to
Sept. 30, 1999)
For the Nine Months ended Sept 30
------------------------------------------
1999 1998
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loss for the period
Canadian GAAP $ 2,973,273 $ 323,827 $ 110,139
Adjustment for Stock - Based Compensation 419,278 135,556 -
Adjustment for reverse acquisition cost 155,875 - -
----------- ----------- -----------
Loss for the period - U.S. GAAP 3,548,426 459,383 110,139
Net monetary liabilities acquired 19,930 - -
Deficit Beginning of the period - 3,108,973 2,745,302
U.S. GAAP
Deficit End of period 3,568,356 3,568,356 2,855,441
=========== ============ ===========
U.S. GAAP
Loss per share, U.S. GAAP $ 0.03 $ 0.01
-----------------------------------------------------------------------------------------------------------
</TABLE>
IMMUNE NETWORK RESEARCH LTD.
NOTE TO INTERIM STATEMENTS
(unaudited - prepared by management)
(expressed in Canadian Dollars)
Nine Months Ended September 30
1999 1998
-------------------------------------------------------------------------------
Numerator
Loss for the year $ 459,383 $ 110,139
Denominator
Weighted average number of common shares
outstanding 23,010,972 20,370,452
Less: Escrowed shares (5,566,667) (5,566,667)
------------- -------------
17,444,305 14,803,785
Basic & Diluted loss per common share $ 0.03 $ 0.01
The company's common shares issuable upon the exercise of stock options and the
escrowed shares were excluded from the determination of diluted loss per share
as their effect would be anti-dilutive.
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
-------------------------------------------------------------------------------
4. Patents, license and technology
Commencing October 1, 1999, management revised the estimated useful lives of
its technology and license from 17 years to an estimated remaining life of 5
years, and from 20 years to an estimated remaining life of 5 years for patents,
after reviewing current industry information. This change in estimate will be
accounted for on a prospective basis and will result in additional amortization
expense for the quarter ended December 31, 1999 of approximately $10,000.
5. Commitments and Contingency
a] Commitments
The Company has minimum lease payments for its laboratory premises expiring
through 2001, as follows:
$
-------------------------------------------------------------------------------
1999 (three months) 20,400
2000 82,000
2001 34,000
-------------------------------------------------------------------------------
136,400
-------------------------------------------------------------------------------
In addition, the Company has commitments under the Joint Venture Agreement with
Bridge Pharma, Inc. (note 6b)
b] Uncertainty due to Year 2000
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. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect the entity, including
those related to customers, suppliers, or other third parties have been fully
resolved.
6. Significant Agreements
a] License Agreement with the University of British Columbia
Pursuant to its exercise of an option granted under an arms length agreement,
the Company has exercised an option granted by the University of British
Columbia ("UBC") for the world-wide license to use and sublicense certain
technology for the treatment of Alzheimer's disease, and the manufacture,
distribution and sale of products based on such technology. A formal license
agreement is currently being negotiated by the Company and UBC which is to
include the following material terms:
i] an initial, non refundable, license fee will be payable upon execution of
the license agreement;
ii] payments will be made to UBC upon reaching certain milestones;
iii] a royalty will be paid to UBC based upon the total gross revenue derived
from the sale of products using the technology;
iv] an annual, non-refundable, license maintenance fee of $1,000 will be paid
in advance to UBC;
v] the license agreement will terminate with respect to any patent and
royalties applicable thereto, on the expiration or invalidity of the
patent, and with respect to the know-how and all other rights, on the later
to occur of expiration or invalidity of the last patent, if any, licensed
under the license agreement or ten years.
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
(A DEVELOPMENT STAGE ENTERPRISE)
INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
-------------------------------------------------------------------------------
6. Significant Agreements
b] Joint Venture Agreement with Bridge Pharma, Inc.
By an arms length agreement dated August 12, 1999 with Bridge Pharma, Inc.
("BPI"), the Company has entered into a joint venture arrangement, on a 50-50
basis, with BPI for the development of a new asthma therapeutic. In order to
retain its 50% interest, the Company is required to provide up to $2 million in
funding to the project over a period of two years. Any additional costs above
the first US$2 million will be shared equally between the parties.
The Bridge Pharma joint venture did not commence operations until October 1999
and, accordingly, has no accounting impact on the financial statements
presented.
The Company will account for the investment in the joint venture using the
proportionate method of consolidation. While under U.S. GAAP investments in
joint ventures are required to be accounted for under the equity method, under
rules promulgated by the Securities Exchange Commission, a foreign registrant
may, subject to the provision of additional information, continue to follow
proportionate consolidation for purposes of registration and other filings
notwithstanding the departure from U.S. GAAP. The required additional
information concerning the Company's interest in the joint venture will be
presented in a note to the financial statements.
7. Subsequent Events (to December 31, 1999)
a] On December 3, 1999 the Company announced a non-brokered private
placement of 2,120,000 special warrants at $0.15 per warrant for gross proceeds
of $318,000. Each warrant is convertible into one unit which is comprised of
one common share and one purchase warrant. Each purchase warrant entitles the
holder to acquire one common share at $0.15 up to January 23, 2001 and at $0.17
up to January 23, 2002. The private placement closed in January, 2000.
b] By letter of agreement dated December 20, 1999, the Company reacquired
the 50% interest in the Antibody 1F7 acquired by Immpheron, Inc., in
consideration of the following to ImmPheron:
i] US$4,000 on execution of the agreement;
ii] US$2,000 on each of January 31, February 29, March 31 and April 30, 2000;
iii] US$88,000 on July 20, 2000;
iv] US$10,000 within 30 business days of the commencement of a Phase 1
Clinical trial; and
v] a 4% royalty on net earnings from the Antibody 1F7.
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
( A development stage enterprise )
Vancouver, Canada
Financial Statements
For the Three Years Ended December 31, 1998
<PAGE>
AUDITORS' REPORT
To the Directors of Immune Network Research Ltd.
I have audited the balance sheet of Immune Network Research Ltd. (a development
stage enterprise) as at December 31, 1998 and 1997, and the statements of loss
and deficit and cash flows for the years ended December 31, 1998 and for the
period from February 25, 1991 (date of inception) to December 31, 1998. These
financial statements are the responsibility of the company's management. My
responsibility is to express an opinion on the financial statements based on my
audit.
I conducted my audits in accordance with auditing standards generally accepted
in Canada. Those standards require that I 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 my opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1998, and the
results of its operations and its cash flow for the years ended December 31,
1998 and 1997, and for the period from February 25, 1991 (date of inception)
through December 31, 1998, in accordance with principles generally accepted in
Canada.
Richmond, B.C.
February 12, 1999 /s/ Cheryl Archambault, C.A.
Comments by Auditor for U.S. Readers on
Canada-U.S. Reporting Difference
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
Note 1 to the financial statements. My report to the shareholders dated
February 12, 1999 is expressed in accordance with Canadian reporting standards
which do not permit a reference to such events and conditions in the auditor's
report when these are adequately disclosed in the financial statements. (See
Note 1).
Richmond, B.C.
February 12, 1999 /s/ Cheryl Archambault, C.A.
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
(Incorporated under the Company Act of British Columbia)
Balance Sheets
As at December 31, 1998 and 1997 (see Note 1)
(expressed in Canadian dollars)
================================================================================
1998 1997
--------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 76,992 $ 7,921
Accounts receivable 1,614 915
Deposits and prepaid expenses - 1,750
Share subscriptions receivable (Note 3) 9,000 -
-----------------------------------------------------------------------------
87,606 10,586
Capital assets (Note 4) - 12,988
Intangible assets (Note 5 and 6) 147,462 143,609
--------------------------------------------------------------------------------
$ 235,068 $ 167,183
================================================================================
Liabilities
Current liabilities:
Accounts payable and accrued liabilities $ 87,654 $ 32,098
-----------------------------------------------------------------------------
87,654 32,098
Loan payable to shareholder (Note 7) 50,000 -
Commitments and contingent liabilities (Note 8)
Subsequent event (Note 12)
Share capital and deficit
Share capital - to be issued. (Note 3) 54,000 -
Share capital (Note 9) 2,712,790 2,602,790
Deficit, accumulated through the
development stage (2,669,376) (2,467,705)
-----------------------------------------------------------------------------
97,414 135,085
--------------------------------------------------------------------------------
$ 235,068 $ 167,183
================================================================================
Approved on behalf of
the Board of Directors:
/s/ Allen I. Bain
--------------------
/s/ Robert J. Gayton
--------------------
See accompanying notes to financial statements
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
Statements of Operations
For the periods ended December 31.
(expressed in Canadian dollars)
================================================================================
From inception
(Feb 25, 1991 to
Dec 31, 1998
Note 16) 1998 1997 1996
--------------------------------------------------------------------------------
Revenue $ 13,279 $ - $ - $ -
Administrative expenses
Advertising 66,671 35,249 4,173 24,369
Conferences 21,255 - - 2,025
Consulting 714,591 58,983 56,938 269,909
Interest and bank charges 77,373 3,861 429 9,294
Legal, audit and accounting 209,190 17,598 48,287 55,436
Office 74,863 9,266 9,248 13,543
Postage 28,768 8,793 3,146 8,121
Promotion and entertainment 40,925 439 478 31,341
Rent 47,387 11,387 8,909 11,201
Salaries and benefits 41,454 - - 7,330
Securities, brokerage and
transfer agent fees 26,565 12,265 7,606 6,694
Subscriptions 10,325 158 673 3,117
Telephone 58,441 6,504 7,652 19,147
Travel 58,682 2,352 79 15,416
----------------------------------------------------------------------------
1,476,490 166,855 147,618 476,943
Research and development costs
- per schedule 1,560,423 31,055 77,548 348,734
-------------------------------------------------------------------------------
Less:
Refundable investment tax
credits (Note 10) (477,900) - - (40,500)
-------------------------------------------------------------------------------
Loss before other items 2,545,734 197,910 225,166 785,177
Other items:
Interest income (25,756) (912) (1,387) (18,016)
Miscellaneous income (1,674) - - (1,667)
Write-down of
intangible assets 88,760 - - 60,180
Loss on disposition of
capital assets (Note 4) 3,417 4,673 - -
Loss on disposition of
intangible assets (Note 5) 38,965 - 38,965 -
-------------------------------------------------------------------------------
103,712 3,761 37,578 40,497
-------------------------------------------------------------------------------
Net loss for the period $2,649,446 $201,671 $ 262,744 $825,674
================================================================================
Weighted average number of
shares outstanding 20,137,118 19,970,452 17,360,000
Loss per share $ 0.01 $ 0.01 $ 0.05
========== ========= =========
See accompanying notes to financial statements
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
Statements of Deficit
For the periods ended December 31.
(expressed in Canadian dollars)
================================================================================
From inception
(Feb 25, 1991 to
Dec 31, 1998
Note 16) 1998 1997 1996
--------------------------------------------------------------------------------
Deficit at beginning
of period - $2,467,705 $2,204,961 $1,359,357
Net loss for the period 2,649,446 201,671 262,744 825,674
Net monetary liabilities
acquired (Note 1) 19,930 - - 19,930
--------------------------------------------------------------------------------
Deficit at end of period 2,669,376 $2,669,376 $2,467,705 $2,204,961
--------------------------------------------------------------------------------
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
Schedules of Research and Development Costs
For the periods ended December 31.
(expressed in Canadian dollars)
================================================================================
From inception
(Feb 25, 1991 to
Dec 31, 1998
Note 16) 1998 1997 1996
--------------------------------------------------------------------------------
Research expenses
Consulting (net of grants
received) 168,275 $ 2,000 $ 13,022 $ 82,135
Amortization 102,093 10,795 15,776 19,744
Laboratory materials
and fees 121,274 - 383 5,823
Laboratory supplies 9,721 - 406 1,246
Salaries and benefits 587,726 - 8,294 97,177
Scientific collaboration 450,705 18,260 39,152 122,462
Rent 47,547 - - 5,150
Travel 73,082 - 515 14,997
--------------------------------------------------------------------------------
1,560,423 $ 31,055 $ 77,548 $ 348,734
================================================================================
See accompanying notes to financial statements
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
Statements of Changes in Financial Position
For the periods ended December 31.
(expressed in Canadian dollars)
================================================================================
From inception
(Feb 25, 1991 to
Dec 31, 1998
Note 16) 1998 1997 1996
--------------------------------------------------------------------------------
Operating activities
Net loss for the period $(2,649,446) $(201,671) $(262,744) $ (825,674)
Items not involving cash
Amortization 102,093 10,795 15,776 19,744
Loss on write-down of
capital assets 92,177 4,673 - 60,180
Loss on disposition of
intangible assets 38,965 - 38,965 -
----------------------------------------------------------------------------
(2,416,211) (186,203) (208,003) (745,750)
Accounts receivable ( 962) ( 699) 2,528 26,749
Refundable investment
tax credits - - - 293,000
Deposits and prepaid
expenses - 1,750 5,250 (2,000)
Accounts payable and
accrued liabilities 51,164 55,556 (35,578) (162,280)
----------------------------------------------------------------------------
(2,366,009) (129,596) (235,803) (590,281)
Financing activities
Deferred share issue costs - - - 55,506
Proceeds from (repayment of)
Related party debt - - - (150,000)
Shareholder loan 50,000 50,000 - (100,000)
Share subscriptions
received 45,000 45,000 - (332,320)
Common shares issued 2,712,790 110,000 - 1,337,176
----------------------------------------------------------------------------
2,807,790 205,000 - 810,362
Investing activities
Intangible assets (372,665) (13,951) (14,698) (25,359)
Capital assets (38,770) - - (3,694)
Proceeds from disposal
of capital assets 7,618 7,618 - -
Proceeds from disposal
of intangible assets 24,000 - 24,000 -
Cash, acquisition of
BCFC (Note 1) 15,028 - - 15,028
----------------------------------------------------------------------------
(364,789) (6,333) 9,302 (14,025)
-------------------------------------------------------------------------------
Increase (decrease) in cash 76,992 69,071 (226,501) 206,056
Cash, beginning of period - 7,921 234,422 28,366
-------------------------------------------------------------------------------
Cash, end of period $ 76,992 $ 76,992 $ 7,921 $ 234,422
===============================================================================
See accompanying notes to financial statements
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
Notes to the Financial Statements
December 31, 1998 and 1997
--------------------------------------------------------------------------------
1. Nature of operations
a. The Company is in the development stage and currently derives no
revenues from its operations. The Company's ability to remain as a
going concern is dependent on additional capital being raised to fund
its future operations and on-going research and development activities.
The Company has inadequate working capital to continue operations for
the year. It is not possible to predict whether financing efforts will
be successful or whether the Company will be able to secure the
necessary research agreements in order to continue its operations.
The financial statements have been prepared assuming the Company will
continue as a going concern. Accordingly, the financial statements do
not give effect to adjustments that would be necessary should the
Company not be able to continue as a going concern and, therefore, be
required to realize its assets and liquidate its liabilities in other
than the normal course of business and at amounts different from those
in the accompanying financial statements.
b. Amalgamation and continuing entity
Effective April 24, 1996, Bobby Cadillac's Food Corporation ("BCFC"), a
public company, and Immune Network Research Ltd. ("INR") amalgamated
and continued as Immune Network Research Ltd. ("INRL"). Pursuant to the
amalgamation, the former shareholders of BCFC received 4,263,309 common
shares on a 2 new for 3 old basis of the amalgamated company and the
former shareholders of INR received 7,664,652 common shares and
5,066,667 shares in escrow (for a total of 12,731,319) on a 4 new for 3
old basis of the amalgamated company. The escrowed shares represent the
equivalent number of INR shares that were held in escrow prior to the
amalgamation. These shares will be released from escrow on a pro-rata
basis based on a prescribed formula based on operating cash flow. At
the date of the amalgamation BCFC was an inactive company with net
monetary liabilities of $19,930. As a result, the shareholders of INR
owned more than 50% of the amalgamated company. This business
combination is considered a reverse acquisition of BCFC by INR and a
recapitalization of INR. Accordingly these financial statements are a
continuation of the financial statements of INR and reflect the assets,
liabilities, shareholders' equity, revenues and expenses of INR at
their historical amounts. The number of common shares outstanding is a
continuation of BCFC. The business combination resulted in the
acquisition of net monetary liabilities of $19,930 which has been
charged to deficit as follows:
--------------------------------------------------------------------------------
Net monetary liabilities acquired:
Total assets acquired (including cash of $15,028) $ 16,561
Total liabilities assumed (36,491)
--------------------------------------------------------------------------------
$ (19,930)
--------------------------------------------------------------------------------
The reverse acquisition resulted in approximately $150,973 of one-time
costs which were paid by the issuance of shares. The costs of
recapitalization have been charged against shareholders' equity.
The amalgamation was done concurrently with a public offering of
1,500,000 shares at $0.55 per share.
There was no goodwill on the acquisition. BCFC ceased operations
subsequent to the amalgamation.
<PAGE>
Page 2
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
Notes to the Financial Statements
December 31, 1998 and 1997
--------------------------------------------------------------------------------
2. Summary of significant accounting policies
The financial statements have been prepared in accordance with accounting
principals generally accepted in Canada. A reconciliation of amounts presented
in accordance with United States generally accepted accounting principles is
detailed in Note 14. Because a precise determination of many assets and
liabilities is dependent upon future events, the preparation of financial
statements necessarily involves the use of management's estimates and
approximations. Actual results could differ from those estimates.
The following is a summary of significant accounting policies used in
preparation of the financial statements:
a. Capital assets
Capital assets are recorded at cost. Depreciation is provided on a
declining balance basis over the expected useful lives of the assets at
the following annual rates:
Office equipment 20 %
Computers 30 %
Depreciation is reduced to one half the normal rate in the year of
acquisition for the respective assets.
b. Intangible assets
Intangible assets are recorded at the lower of cost or net realizable
value. Amortization of intellectual property is provided on a straight
line basis over 20 years. The patent is amortized over the life of the
patent which is 17 years from the date of issuance.
Management continually evaluates whether circumstances have occurred
indicating the remaining estimated useful life of intangible assets may
warrant revision, or may not be recoverable. If management subsequently
determines that successful development of products to which the
intangible assets relate is not reasonably certain, or that intangible
costs exceed recoverable value based on estimated future net cash flows,
such costs are charged to operations.
c. Loss per share
Loss per share is calculated based on the weighted average number of
shares outstanding including shares held in escrow. Fully diluted loss
per share is not presented as the effect of an exercise of outstanding
share purchase options is anti-dilutive.
d. Research and development costs
Research costs are expensed as incurred. Direct costs and applicable
overhead incurred in the development process are deferred only if they
meet criteria prescribed by generally accepted accounting principals for
deferral and amortization. The company assesses whether it has met the
relevant criteria for deferral and amortization at each reporting date.
No development costs have been deferred to date.
<PAGE>
Page 3
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
Notes to the Financial Statements
December 31, 1998 and 1997
--------------------------------------------------------------------------------
e. Advertising costs
Advertising costs are expensed as incurred.
3. Share capital to be issued
Share capital to be issued consists of amounts received and receivable in
advance of the issuance of shares. During the year the Company received $45,000
for 360,000 at $.15 per share. The balance of $9,000 was received subsequent to
year end. (See subsequent event note 12).
4. Capital assets
--------------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------------
Furniture and equipment $ 38,072 $ 38,072
Less: accumulated amortization (25,781) (25,084)
---------------------------------------------------------------------------
Less: proceeds from disposal of
capital assets (7,618) -
Less: loss on disposal of capital assets (4,673) -
---------------------------------------------------------------------------
$ - $ 12,988
---------------------------------------------------------------------------
During the year the Company disposed of its computer and laboratory equipment to
a private company owned by two of the Company's research consultants. A loss
of $4,673 was incurred on the transaction.
5. Intangible assets
Intangible assets consists of patents, filings in respect of patent applications
and intellectual property.
On December 15, 1998 the Company was issued U.S. Patent Number 5,849,583 titled
Anti-idiotypic antibody and its use in diagnosis and therapy in HIV-related
disease. The patent has a life of 17 years from the date of issuance.
During 1996, the Company evaluated its portfolio of technologies and decided to
change its direction. At that time, the Company reviewed the carrying value of
the intangible assets associated with these technologies no longer being pursued
and accordingly wrote down the carrying value to their estimated realizable
values. An impairment of $60,180 was recognized in the financial statements.
During 1997, the Company sold one patent and two applications relating to these
technologies to a minority shareholder resulting in a further write down of
$38,965.
--------------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------------
Intangible assets $ 202,529 $ 188,507
Less: accumulated amortization (55,067) (44,968)
---------------------------------------------------------------------------
$ 147,462 $ 143,609
--------------------------------------------------------------------------------
<PAGE>
Page 4
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
Notes to the Financial Statements
December 31, 1998 and 1997
--------------------------------------------------------------------------------
6. Research Agreement
During 1997 the Company entered into a research agreement with ImmPheron Inc., a
U.S. private research corporation ("ImmPheron"). The agreement provides that, in
addition to other terms, ImmPheron will earn a fifty percent interest in certain
of the Company's intellectual property, provided it completes a budgeted
research program and a formal report on the research suitable for publication in
a scientific journal by December 31, 1998. The terms of this agreement were
extended to March 31, 1999 by mutual agreement. The ultimate percentage of
ownership in the Company's intellectual property will also depend on each
party's ability to fund further research.
7. Loan payable to shareholder
During the year the Company borrowed $50,000 (the "Principal") from a
shareholder who holds less than 10% of the outstanding shares of the Company.
The loan plus any unpaid interest is due on or before June 15, 2001. The loan
bears interest at 12% to be paid quarterly. As at year end, $3,371 of interest
has been accrued on the loan.
The lender may, at any time, convert the Principal to common shares of the
Company at a price of $.15 per share. The conversion price will increase by
$.05 per share each year. The Company can request conversion at any time after
June 15, 1999.
8. Commitments and contingent liabilities
a. University of British Columbia
------------------------------
The research agreement with the University of British Columbia expired on
December 31, 1996. The Company currently has an outstanding balance owing
of $18,700.
b. Sidney Kimmel Cancer Center- (formerly San Diego Regional Cancer
---------------------------
Centre)
-------
Under an exclusive licensing agreement entered into during 1993, the
Company is required to pay to the Sidney Kimmel Cancer Centre a royalty
equal to 2% of net sales of therapeutic licensed products and 5% of net
sales of diagnostic licensed products resulting from 1F7 Antibody
technology. In accordance with the joint research agreement (Note 6), this
cost will be a cost to the joint research in the event that ImmPheron
becomes entitled to a fifty percent interest in certain of the Company's
intellectual property.
c. Contingent liability
--------------------
The Company was included as a defendant with the Genesis Group in an action
in the Supreme Court of British Columbia regarding an alleged unpaid
finders fee. Management is of the view, the action is without merit and
believes no liability will result from this action. Accordingly, no
liability has been recorded in the financial statements.
9. Share capital
a. Authorized
100,000,000 common shares without par value.
(25,000,000 common shares without par value -1995)
b. The following table gives effect to the reverse acquisition and
recapitalization of INR as described in Note 1.
<PAGE>
Page 5
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
Notes to the Financial Statements
December 31, 1998 and 1997
--------------------------------------------------------------------------------
Number
of shares Amount
---------- ------
Deemed issued upon incorporation on February 25,1991 1 $ 1
-------------------------
Ending balance - December 31, 1991 1 1
-------------------------
Deemed issued during 1992: 1,999,999 500,002
Less share issue costs 0 (7,848)
-------------------------
Ending balance - December 31, 1992 and 1993 2,000,000 492,155
Deemed issued during 1994:
4,000,000 shares 4,000,000 30,000
100,000 shares 100,000 18,750
-------------------------
Ending balance - December 31, 1994 6,100,000 540,905
Deemed issued during 1995:
4,400,133 shares 4,400,133 824,809
77,037 shares 77,037 20,800
Share issue costs for the year - (92,100)
Less share purchase loans forgiven - (28,800)
-------------------------
Ending balance - December 31, 1995 10,577,170 1,265,614
Deemed issued during 1996:
Private offering 2,120,816 572,620
Issued to the University of BC 33,333 9,000
-------------------------
12,731,319 1,847,234
Shares issued to acquire BCFC (Note 1) 4,263,309 -
Shares issued for cash 500,000 45,090
Corporate finance fee 55,556 15,000
Finder's fee 503,603 135,973
Public offering 1,725,000 948,750
Exercise of stock options 191,664 42,166
Share issue costs - (431,423)
-------------------------
Ending balance - December 31, 1996 and 1997 19,970,452 2,602,790
Issued during 1998:
Private placement 400,000 80,000
Exercise of stock options 200,000 30,000
-------------------------
Ending balance - December 31, 1998 20,570,452 $ 2,712,790
=========================
<PAGE>
Page 6
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
Notes to the Financial Statements
December 31, 1998 and 1997
--------------------------------------------------------------------------------
c. Share purchase options
Share purchase options outstanding are as follows:
Number Option
of shares Price
---------- ------
Expiry date:
May 7, 2001 100,000 $ 0.55
May 3, 2003 1,185,000 $ 0.15
May 25, 2003 300,000 $ 0.15
September 23, 2003* 150,000 $ 0.15
----------
1,735,000
=========
*options expired January 31, 1999.
d. 5,566,667 (1997 - 5,566,667) shares are held in escrow subject to the
direction and determination of the Vancouver Stock Exchange. The
release of the shares is subject to the Company's cumulative cash flow
as defined in the Escrow Agreement. Any escrow shares not released by
April 24, 2006, will be cancelled.
10. Refundable investment tax credits
In 1996, the Company became a public company and as such is no longer eligible
to claim refundable investment tax credits on current expenditures. In 1996,
the Company received $339,500 in investment tax credits relating to 1994 through
1996. There are no further claims for refundable tax credits outstanding.
11. Income tax losses
At December 31, 1998, the Company has operating losses of $1,698,668 expiring as
follows, which may be carried forward to apply against future years income for
Canadian income tax purposes, subject to final determination by taxation
authorities.
Year Loss
---- ----
2000 $ 221,112
2001 119,369
2002 179,348
2003 615,911
2004 292,369
2005 270,559
---------
$1,698,668
=========
The Company has $835,000 of unused tax pools available to offset future taxable
income, subject to certain restrictions and final determination by taxation
authorities.
The potential income tax benefits related to these amounts have not been
recognized in these financial statements.
<PAGE>
Page 7
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
Notes to the Financial Statements
December 31, 1998 and 1997
--------------------------------------------------------------------------------
12. Subsequent events
Subsequent to year end the Company received approval from the Vancouver Stock
Exchange for a private placement of 360,000 shares together with one year
warrants for the purchase of 180,000 additional shares all at a price of $.15
per share. $45,000 was received during the year (Note 3).
13. 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 the Company's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 Issue
affecting the Company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
14. Reconciliation of generally accepted accounting principles
The Company prepares its financial statements in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP") which as applied in
these financial statements conform in all material respects to those accounting
principles generally accepted in the United States ("U.S. GAAP"), except as
follows:
a. Under U.S. GAAP, the liability method is used in accounting for income
taxes pursuant to 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 reporting and tax bases of assets and liabilities using
enacted tax rates that will be in effect for the year in which the
differences are expected to reverse.
For reconciliation to U.S. GAAP purposes, a valuation allowance has
been recognized to offset deferred tax assets totaling approximately
$1,269,000 arising from temporary differences, tax credits and non-
capital loss carry forwards, for which realization is uncertain.
b. In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128).
SFAS 128 replaced the previously reported primary and fully diluted
earnings per share with basic and dilutive earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and escrow shares. Dilutive
earnings per share are calculated in accordance with the treasury
stock method and are based on the weighted average number of common
shares and dilutive common share equivalents outstanding. For purposes
of reconciling to U.S. GAAP, all earnings per share amounts for all
periods have been presented, and where necessary, restated to conform
to the SFAS 128 requirements.
c. The Company operates primarily in one business segment with
substantially all of its assets and operations in Canada.
<PAGE>
Page 8
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
Notes to the Financial Statements
December 31, 1998 and 1997
--------------------------------------------------------------------------------
d. Under US GAAP, stock based compensation to non-employees must be
recorded at the fair market value of the options granted pursuant to
Statement of Financial Accounting Standards No. 123 (SFAS 123). This
compensation, determined using a Black-Scholes pricing model, is
expensed over the vesting periods of each option granted. For purposes
of reconciliation to US GAAP under SFAS 123, the Company would record
additional compensation expense of $162,000 in respect of options
granted to non-employees [1997 $nil; 1996 $121,722 ].
e. Under U.S. GAAP costs incurred in connection with the reverse
acquisition in 1996 totaling $155,875, net of cash received from the
acquisition of $15,028, must be charged to expense.
f. Under U.S. GAAP, the excess, if any, of the fair value of the shares
in escrow over the nominal value paid would be recorded as
compensation expense upon release from escrow.
The effect of the above on the Company's financial statements is set out below:
Statements of loss and deficit
From inception
(Feb 25, 1991 to
Dec 31, 1998
Note 16) 1998 1997 1996
--------------------------------------------------------------------------------
Loss for the period
Canadian GAAP $2,649,446 $ 201,671 $ 262,744 $ 825,674
Adjustment for stock-
based compensation (283,722) (162,000) - (121,722)
Adjustment for reverse
acquisition costs (155,875) - - (155,875)
Loss and comprehensive
loss for the period
U.S. GAAP $3,089,043 $ 363,671 $ 262,744 $1,103,271
Net monetary liabilities
acquired 19,930 - - -
Deficit beginning of
the period
U.S. GAAP (1996-
adjusted for Note 1) - 2,745,302 2,482,558 1,379,287
Deficit at end of period,
U.S. GAAP 3,108,973 3,108,973 2,745,302 2,482,558
Loss per share, U.S. GAAP 0.02 0.02 0.09
--------------------------------------------------------------------------------
Loss per share
The following table sets forth the computation of basic and diluted loss per
share:
1998 1997 1996
--------------------------------------------------------------------------------
Numerator
Loss for the year $ 363,671 $ 262,744 $ 1,103,271
Denominator
Weighted average number of common
shares outstanding. 20,137,118 19,970,452 17,360,000
Less: Escrowed shares (5,566,667) (5,566,667) (5,416,667)
---------- ---------- ----------
14,570,451 14,403,785 11,943,333
Basic and diluted loss per
common share $ 0.02 $ 0.02 $ 0.09
--------------------------------------------------------------------------------
The Company's common shares issuable upon the exercise of stock options and the
escrowed shares were excluded from the determination of diluted loss per share
as their effect would be anti-dilutive.
<PAGE>
Page 9
IMMUNE NETWORK RESEARCH LTD.
(A development stage enterprise)
Notes to the Financial Statements
December 31, 1998 and 1997
--------------------------------------------------------------------------------
Balance sheets
1998 1997
--------------------------------------------------------------------------------
Share capital $3,147,485 $2,875,485
Deficit $3,108,973 $2,745,302
Statement of Cash Flows
From inception
(Feb 25, 1991 to
Dec 31, 1998
Note 16) 1998 1997 1996
--------------------------------------------------------------------------------
Cash used in operating
activities, Canadian GAAP $2,366,009 $ 129,596 $ 235,803 $ 590,281
Adjustment for reverse
acquisition costs (155,875) (155,875)
--------------------------------------------------------------------------------
Cash used in operating
activities, U.S. GAAP 2,521,884 $ 129,596 $ 235,803 $ 746,156
--------------------------------------------------------------------------------
Cash used in investing
activities, Canadian GAAP 364,789 (6,333) 9,302 (14,025)
Adjustment for intellectual
property acquired 9,000 9,000
--------------------------------------------------------------------------------
Cash used in investing
activities, U.S. GAAP 355,789 (6,333) 9,302 (5,025)
--------------------------------------------------------------------------------
Cash provided by financing
activities Canadian GAAP 2,807,790 205,000 - 810,362
Adjustment for reverse
acquisition costs 155,875 155,875
Adjustment for intellectual
property acquired (9,000) (9,000)
--------------------------------------------------------------------------------
Cash provided by
financing activities,
U.S. GAAP 2,954,665 $ 205,000 $ - $ 957,237
--------------------------------------------------------------------------------
15 Supplementary information
As of April 29, 1996 the audited statement of operations and deficit for BCFC
was as follows:
April 29,
1996
---------
Administrative expenses
Consulting fees $ 5,735
Depreciation -
Interest and bank charges -
Management fees 27,500
Office and miscellaneous -
Professional fees 11,748
Regulatory fees 94,083
Rent 6,000
Telephone -
Transfer agent fees 3,429
----------
Loss before other items: (58,495)
Other items
Write-off of accounts payable 13,124
----------
Net loss for the year (45,371)
Deficit beginning of year (2,259,895)
----------
<PAGE>
Page 10
IMMUNE NETWORK RESEARCH LTD.
(a development stage enterprise)
Notes to the Financial Statements
December 31, 1998 and 1997 Page 10
--------------------------------------------------------------------------------
Deficit end of year $(2,305,266)
===========
The audited statement of changes in financial position for BCFC for the
period ended April 29, 1996 was as follows:
April 29
1996
----------
Operating activities
Loss for the year $ (45,371)
Items not affecting cash
Depreciation -
Write-off payables (13,124)
----------
(58,495)
Accounts receivable 587
Accounts payable (57,487)
----------
(115,395)
Financial activities
Issuance of capital stock for cash 122,911
Subscriptions received in advance (25,000)
----------
97,911
----------
Increase (decrease) in cash (17,484)
Cash beginning of period 32,512
----------
Cash end of period $ 15,028
==========
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Company 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.
IMMUNE NETWORK LTD.
By: /s/ ALLEN I. BAIN
---------------------------------------
ALLEN BAIN, President, Chief Executive
Officer and Director
Dated: September 26, 2000
Vancouver, British Columbia
Canada
<PAGE>
IMMUNE NETWORK LTD.
REGISTRATION STATEMENT ON FORM 20-F
INDEX TO EXHIBITS
-----------------
Exhibit
Number Name of Exhibit
------ ---------------
1-1 Certificate of Amalgamation of the Company dated April 24, 1996(1)
1-2 Form 21, Special Resolution of the Company filed on March 14, 1997,
with respect to an amendment to the Articles of Incorporation(2)
1-3 Form 1, Memorandum of the Company approved by the British Columbia
Registrar of Companies on May 2, 1995(3)
1-4 Articles of Incorporation of the Company(4)
1-5 Certificate of Name Change dated August 16, 2000.
2 (See Exhibit 1-4 above)
3-1 Escrow Agreement dated December 7, 1995(5)
3-2 Incentive Stock Option Agreements of Directors and Officers of the
Company(6)
3-3 Licensing Agreement dated April 23, 1993 with the San Diego Regional
Cancer Centre (now known as the Sidney Kimmel Cancer Centre)(7)
3-4 Joint Venture Agreement dated August 12, 1999 with Bridge Pharma,
Inc.(8), together with Bridge Pharma Addendum dated April 4, 2000(9)*
3-5 Executive Employment Agreement dated May 21, 1999 with Allen Bain(10)
3-6 Services Agreement dated May 21, 1999 with Ron Kertesz (11)
3-7 Services Agreement dated June 1, 1999 with Danny Lowe (12)
3-8 Loan Agreement dated September 13, 1999 with Allen Bain(13)
3-9 Purchase Agreement dated December 20, 1999 with ImmPheron, Inc. (14)
3-10 Option Agreement dated February 3, 2000 with Meditech Pharmaceuticals
Inc.(15)
3-11 Agreement, entered into March 27, 2000, with CroMedica Global Inc.
(16)*
3-12 Debenture, issued on March 27, 2000, in favour of CroMedica Global
Inc. (17)
3-13 Special Warrant Indenture dated March 9, 2000 with Montreal Trust
Company of Canada (18)
3-14 Share Purchase Warrant Indenture, dated March 9, 2000, with
Montreal Trust Company of Canada (19)
<PAGE>
* The document has been redacted and confidential information has been
intentionally omitted. This exhibit has been filed separately with the
Securities and Exchange Commission as part of an Application for Order
Granting Confidential Treatment Pursuant to Rule 406.
(1) Filed as exhibit 1-1 to the Company's Registration Statement on Form 20-F
(File No. 0-27883 filed on October 29, 1999).
(2) Filed as exhibit 1-2 to the Company's Registration Statement on Form 20-F
(File No. 0-27883 filed on October 29, 1999).
(3) Filed as exhibit 1-3 to the Company's Registration Statement on Form 20-F
(File No. 0-27883 filed on October 29, 1999).
(4) Filed as exhibit 1-4 to the Company's Registration Statement on Form 20-F
(File No. 0-27883 filed on October 29, 1999).
(5) Filed as exhibit 3-1 to the Company's Registration Statement on Form 20-F
(File No. 0-27883 filed on October 29, 1999).
(6) The portion of this Exhibit predating October 29, 1999 was previously filed
as exhibit 3-2 to the Company's Registration Statement on Form 20-F (File
No. 0-027883 filed on October 29, 1999); the portion of this Exhibit dated
after October 29, 1999 but predating April 12, 2000 was previously filed as
exhibit 3-2 to the Company's Registration Statement on Form 20-F/A (File
No. 0-27883 filed on April 17, 2000); and the portion of this Exhibit dated
after April 12, 2000 but predating June 23, 2000 was previously filed as
exhibit 3-2 to the Company's Registration Statement on Form 20-F/A (File
No. 0-27883 filed on June 27, 2000.
(7) Filed as exhibit 3-3 to the Company's Registration Statement on Form 20-F/A
(File No. 0-27883 filed on April 17, 2000).
(8) Filed as exhibit 3-3 to the Company's Registration Statement on Form 20-F/A
(filed on April 17, 2000).
(9) Filed as exhibit 3-4 to the Company's Registration Statement on Form 20-F/A
(File No. 0-27883 filed on June 27, 2000).
(10) Filed as exhibit 3-4 to the Company's Registration Statement on Form 20-F/A
(filed on April 17, 2000).
(11) Filed as exhibit 3-4 to the Company's Registration Statement on Form 20-F/A
(filed on June 27, 2000).
(12) Filed as exhibit 3-9 to the Company's Registration Statement on Form 20-F/A
(File No. 0-27883 filed on October 29, 1999).
(13) Filed as exhibit 3-6 to the Company's Registration Statement on Form 20-F/A
(File No. 0-27883 filed on April 17, 2000).
(14) Filed as exhibit 3-7 to the Company's Registration Statement on Form 20-F/A
(File No. 0-027883 filed on April 17, 2000).
(15) Filed as exhibit 3-10 to the Company's Registration Statement on Form 20-F
(File No. 0-27883 filed on October 29, 1999).
(16) Filed as exhibit 3-11 to the Company's Registration Statement on Form 20-
F/A (File No. 0-27883 filed on June 27, 2000).
(17) Filed as exhibit 3-12 to the Company's Registration Statement on Form 20-
F/A (File No. 0-27883 filed on June 27, 2000).
(18) Filed as exhibit 3-13 to the Company's Registration Statement on Form 20-
F/A (File No. 0-27883 filed on April 17, 2000).
(19) Filed as exhibit 3-14 to the Company's Registration Statement on Form 20-
F/A (File No. 0-27883 filed on June 27, 2000).
<PAGE>
Exhibit 1-5
[GRAPHIC OMITTED] NUMBER: 518138
British
Columbia
CERTIFICATE
OF
CHANGE OF NAME
COMPANY ACT
I Hereby Certify that
IMMUNE NETWORK RESEARCH LTD.
has this day changed its name to
IMMUNE NETWORK LTD.
Issued under my hand at Victoria, British Columbia
c/s on August 16, 2000
/s/ John S. Powell
JOHN S. POWELL
Registrar of Companies
PROVINCE OF BRITISH COLUMBIA
CANADA
<PAGE>
Exhibit 3-2
EXHIBIT 3-2
Incentive Stock Options of Directors and Officers of the Company
<April 20, 2000 stock option agreements for each of Allen Bain, Robert Gayton,
Mario Kasapi, Danny Lowe and Ronald G. Paton>
<PAGE>
THIS INCENTIVE STOCK OPTION AGREEMENT is made as of the 20th day of April,
2000.
BETWEEN:
IMMUNE NETWORK RESEARCH LTD., having an office
---------------------------
located at 3650 Wesbrook Mall, Vancouver, BC,
Canada, V6S 2L2
(the "Company")
AND:
ALLEN BAIN, of 2039 MacDonald Street, Vancouver,
----------
BC, Canada, V6K 3Y2
(the "Optionee")
WHEREAS the Optionee is a director, senior officer, consultant, dependant
contractor or a bona fide employee of the Company or a subsidiary thereof, or an
employee of a company under contract to provide management services to the
Company (the "Management Company") and requires as a condition of holding such
position that the parties enter into this Agreement on the terms and conditions
set forth;
THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements
herein contained, the parties agree as follows:
1. The Company hereby grants to the Optionee, as an incentive and in
consideration of his services and not in lieu of salary or any other
compensation, subject to the terms and conditions hereinafter set forth,
the irrevocable right and option (the "Option") to purchase from time to
time up to a total of 380,000 fully paid and non-assessable common shares
in the capital stock of the Company.
2. Subject to the provisions of paragraphs 5, 6 and 8 hereof, the Option
shall be exercisable by the Optionee in whole or in part at any time before
4:00 p.m. (Vancouver time) on April 19, 2005 (the "Expiry Date") at an
exercise price of $1.20 per share. The Option is exercisable on a quarterly
basis as to 25% of the Option at the end of each three month period
commencing from the date of this Agreement.
3. In order to exercise the Option, the Optionee shall give written notice
to the Company of his intention to exercise his Option in whole or in part,
such notice to be accompanied by bank draft or money order payable to the
Company for the full amount of the purchase price of the shares then being
purchased. The Company will issue for the Optionee's collection a share
certificate registered in the name of the Optionee for the number of shares
purchased.
4. The Optionee acknowledges that the shares acquired on exercise of the
Option will be subject to a four month hold period commencing from the date
of this Agreement, within which period the shares may not be traded,
transferred or otherwise disposed of. The certificate issued evidencing the
shares acquired upon an exercise of the Option will bear the restrictive
legend prescribed by the Canadian Venture Exchange.
5. The parties represent that the Optionee is a director, senior officer,
<PAGE>
consultant, dependant contractor or an employee of the Company or a
subsidiary thereof or an employee of the Management Company. Subject to the
provisions of paragraphs 5 and 8, the Option shall terminate at the close
of business on the date which is 30 calendar days after the Optionee ceases
to be a director, senior officer, consultant, dependant contractor or an
employee of the Company or a subsidiary thereof or ceases to be an employee
of the Management Company and any unexercised portion of the Option may not
be exercised by the Optionee after such time.
6. If at any time the Optionee shall be dismissed by the Company or the
Management Company for cause or if the Company's contract with the
Management Company or with the Optionee terminates, any unexercised portion
of the Option shall immediately terminate.
7. The Optionee shall not, while employed by or otherwise providing services
to the Company (or a subsidiary thereof) or the Management Company, or at
any time thereafter, disclose to any person, firm or corporation any
confidential information concerning the business affairs of the Company,
whether for his own benefit, or to the detriment, or intended or probable
detriment, of the Company. The provisions of this paragraph shall be in
addition to any other confidentiality agreement the Optionee has entered
into with the Company (or a subsidiary thereof) or the Management Company.
8. If the Optionee dies while any Options are exercisable, the Option may
then be exercised by his legal heirs or personal representatives, to the
same extent as if the Optionee was alive and a director, senior officer,
consultant, dependant contractor or an employee of the Company or a
subsidiary thereof or of the Management Company, on or before the earlier
of a period of 12 months after the Optionee's death or the Expiry Date but
only for such shares as the Optionee was entitled to as at the date of the
death of the Optionee.
9. Subject to paragraph 8, the Option shall be non-transferable and non-
assignable.
10. The Optionee covenants and agrees that he will complete, sign and deliver
the documents prescribed by the policies of the Canadian Venture Exchange.
11. The granting and exercise of the Option by the Optionee are subject to
the required approvals of:
(a) the British Columbia Securities Commission or, if the Company is listed
thereon, the Canadian Venture Exchange;
(b) any other regulatory authority having jurisdiction; and
(c) if the Optionee is a consultant of the Company, then by the
shareholders of the Company,
provided, however, that in the event that such approvals are not obtained
within 12 months of the date of this Agreement, then this Agreement shall
from that date be null and void and of no further force and effect. For the
purposes of this Agreement, the term "insider" shall have the meaning
ascribed to it in the Securities Act (British Columbia).
12. Any amendment of the Option shall be subject to such approval as may be
required by the policies of the Canadian Venture Exchange (if the Company's
shares are listed thereon at the time of such amendment) in effect at the
time of the amendment. The Optionee acknowledges that it is a Canadian
<PAGE>
Venture Exchange requirement that a reduction in the exercise price of the
Option requires disinterested shareholder approval (as defined in the
Canadian Venture Exchange Corporate Finance Manual) if the Optionee is an
insider of the Company at the time of the amendment.
13. In the event of any subdivision, consolidation or other change in the share
capital of the Company while any portion of the Option is outstanding, the
number of shares under Option to the Optionee and the exercise price
thereof shall be deemed adjusted in accordance with such subdivision,
consolidation or other change in the share capital of the Company.
14. In the event that the Company shall amalgamate, consolidate with, or merge
into another corporation, the Optionee will thereafter receive, upon
exercise of the Option, the securities or property to which a holder of the
number of shares then deliverable upon the exercise of the Option would
have been entitled upon such amalgamation, consolidation or merger and the
Company will take steps in connection with such amalgamation, consolidation
or merger as may be necessary to ensure that the provisions hereof shall
thereafter be applicable, as near as reasonably may be, in relation to any
securities or property thereafter deliverable upon the exercise of the
Option. A sale of all or substantially all of the assets of the Company for
a consideration (apart from the assumption of obligations), a substantial
portion of which consists of securities, shall be deemed a consolidation,
amalgamation or merger for the purposes of this Agreement.
15. This Agreement shall enure to the benefit of and be binding upon the
parties and upon the successors or assigns of the Company and the
executors, administrators, and the Optionee's legal personal
representatives.
16. The Optionee acknowledges that neither the Option nor the shares issuable
upon exercise of the Option have been registered under the United States
Securities Act of 1933, as amended (the "1933 Act") and may not be offered
or resold in the United States unless registered under the 1933 Act and the
securities laws of all applicable states of the United States or an
exemption from such registration requirements is available. The
certificates representing any shares issued upon exercise of the Option may
contain a restrictive legend substantially in the following form:
"The securities represented by this certificate have not been registered
under the United States Securities Act of 1933, as amended (the "1933
Act"), and may not be offered or sold in the United States or to U.S.
Persons or for the account or benefit of a U.S. Person or exercised by
or on behalf of a U.S. Person, unless registered under the 1933 Act or
unless an exemption from such registration is available."
17. This Agreement shall be exclusively governed by the laws of British
Columbia and the laws of Canada applicable therein and is subject to the
exclusive jurisdiction of the courts of the said Province.
18. This Agreement may be signed by the parties in counterparts, both of
which together shall form one and the same instrument and each of which so
signed shall be deemed to be an original. This Agreement may be delivered
by fax.
IN WITNESS WHEREOF the parties have executed this Agreement the day and year
first above written notwithstanding its actual date of execution.
<PAGE>
SIGNED, SEALED AND DELIVERED by )
ALLEN BAIN in the presence of: ) (Signed)
) ------------------------------------
(signed) ) ALLEN BAIN
-------------------------------------- )
Signature of Witness )
)
)
-------------------------------------- )
Print Name )
IMMUNE NETWORK RESEARCH LTD.
by its Authorized Signatory:
--------------------------------------
Name: (signed)
-------------------------------
Title:
-------------------------------
<PAGE>
THIS INCENTIVE STOCK OPTION AGREEMENT is made as of the 20th day of April,
2000.
BETWEEN:
IMMUNE NETWORK RESEARCH LTD., having an office
---------------------------
located at 3650 Wesbrook Mall, Vancouver, BC,
Canada, V6S 2L2
(the "Company")
AND:
ROBERT GAYTON, of 5145 Ashfield Road, West
-------------
Vancouver, BC, Canada, V7W 2X4
(the "Optionee")
WHEREAS the Optionee is a director, senior officer, consultant, dependant
contractor or a bona fide employee of the Company or a subsidiary thereof, or an
employee of a company under contract to provide management services to the
Company (the "Management Company") and requires as a condition of holding such
position that the parties enter into this Agreement on the terms and conditions
set forth;
THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements
herein contained, the parties agree as follows:
1. The Company hereby grants to the Optionee, as an incentive and in
consideration of his services and not in lieu of salary or any other
compensation, subject to the terms and conditions hereinafter set forth,
the irrevocable right and option (the "Option") to purchase from time to
time up to a total of 380,000 fully paid and non-assessable common shares
in the capital stock of the Company.
2. Subject to the provisions of paragraphs 5, 6 and 8 hereof, the Option
shall be exercisable by the Optionee in whole or in part at any time before
4:00 p.m. (Vancouver time) on April 19, 2005 (the "Expiry Date") at an
exercise price of $1.20 per share. The Option is exercisable on a quarterly
basis as to 25% of the Option at the end of each three month period
commencing from the date of this Agreement.
3. In order to exercise the Option, the Optionee shall give written notice
to the Company of his intention to exercise his Option in whole or in part,
such notice to be accompanied by bank draft or money order payable to the
Company for the full amount of the purchase price of the shares then being
purchased. The Company will issue for the Optionee's collection a share
certificate registered in the name of the Optionee for the number of shares
purchased.
4. The Optionee acknowledges that the shares acquired on exercise of the
Option will be subject to a four month hold period commencing from the date
of this Agreement, within which period the shares may not be traded,
transferred or otherwise disposed of. The certificate issued evidencing the
shares acquired upon an exercise of the Option will bear the restrictive
legend prescribed by the Canadian Venture Exchange.
5. The parties represent that the Optionee is a director, senior officer,
<PAGE>
consultant, dependant contractor or an employee of the Company or a
subsidiary thereof or an employee of the Management Company. Subject to the
provisions of paragraphs 5 and 8, the Option shall terminate at the close
of business on the date which is 30 calendar days after the Optionee ceases
to be a director, senior officer, consultant, dependant contractor or an
employee of the Company or a subsidiary thereof or ceases to be an employee
of the Management Company and any unexercised portion of the Option may not
be exercised by the Optionee after such time.
6. If at any time the Optionee shall be dismissed by the Company or the
Management Company for cause or if the Company's contract with the
Management Company or with the Optionee terminates, any unexercised portion
of the Option shall immediately terminate.
7. The Optionee shall not, while employed by or otherwise providing services
to the Company (or a subsidiary thereof) or the Management Company, or at
any time thereafter, disclose to any person, firm or corporation any
confidential information concerning the business affairs of the Company,
whether for his own benefit, or to the detriment, or intended or probable
detriment, of the Company. The provisions of this paragraph shall be in
addition to any other confidentiality agreement the Optionee has entered
into with the Company (or a subsidiary thereof) or the Management Company.
8. If the Optionee dies while any Options are exercisable, the Option may
then be exercised by his legal heirs or personal representatives, to the
same extent as if the Optionee was alive and a director, senior officer,
consultant, dependant contractor or an employee of the Company or a
subsidiary thereof or of the Management Company, on or before the earlier
of a period of 12 months after the Optionee's death or the Expiry Date but
only for such shares as the Optionee was entitled to as at the date of the
death of the Optionee.
9. Subject to paragraph 8, the Option shall be non-transferable and non-
assignable.
10. The Optionee covenants and agrees that he will complete, sign and deliver
the documents prescribed by the policies of the Canadian Venture Exchange.
11. The granting and exercise of the Option by the Optionee are subject to
the required approvals of:
(a) the British Columbia Securities Commission or, if the Company is listed
thereon, the Canadian Venture Exchange;
(b) any other regulatory authority having jurisdiction; and
(c) if the Optionee is a consultant of the Company, then by the
shareholders of the Company,
provided, however, that in the event that such approvals are not obtained
within 12 months of the date of this Agreement, then this Agreement shall
from that date be null and void and of no further force and effect. For the
purposes of this Agreement, the term "insider" shall have the meaning
ascribed to it in the Securities Act (British Columbia).
12. Any amendment of the Option shall be subject to such approval as may be
required by the policies of the Canadian Venture Exchange (if the Company's
shares are listed thereon at the time of such amendment) in effect at the
time of the amendment. The Optionee acknowledges that it is a Canadian
<PAGE>
Venture Exchange requirement that a reduction in the exercise price of the
Option requires disinterested shareholder approval (as defined in the
Canadian Venture Exchange Corporate Finance Manual) if the Optionee is an
insider of the Company at the time of the amendment.
13. In the event of any subdivision, consolidation or other change in the share
capital of the Company while any portion of the Option is outstanding, the
number of shares under Option to the Optionee and the exercise price
thereof shall be deemed adjusted in accordance with such subdivision,
consolidation or other change in the share capital of the Company.
14. In the event that the Company shall amalgamate, consolidate with, or merge
into another corporation, the Optionee will thereafter receive, upon
exercise of the Option, the securities or property to which a holder of the
number of shares then deliverable upon the exercise of the Option would
have been entitled upon such amalgamation, consolidation or merger and the
Company will take steps in connection with such amalgamation, consolidation
or merger as may be necessary to ensure that the provisions hereof shall
thereafter be applicable, as near as reasonably may be, in relation to any
securities or property thereafter deliverable upon the exercise of the
Option. A sale of all or substantially all of the assets of the Company for
a consideration (apart from the assumption of obligations), a substantial
portion of which consists of securities, shall be deemed a consolidation,
amalgamation or merger for the purposes of this Agreement.
15. This Agreement shall enure to the benefit of and be binding upon the
parties and upon the successors or assigns of the Company and the
executors, administrators, and the Optionee's legal personal
representatives.
16. The Optionee acknowledges that neither the Option nor the shares issuable
upon exercise of the Option have been registered under the United States
Securities Act of 1933, as amended (the "1933 Act") and may not be offered
or resold in the United States unless registered under the 1933 Act and the
securities laws of all applicable states of the United States or an
exemption from such registration requirements is available. The
certificates representing any shares issued upon exercise of the Option may
contain a restrictive legend substantially in the following form:
"The securities represented by this certificate have not been registered
under the United States Securities Act of 1933, as amended (the "1933
Act"), and may not be offered or sold in the United States or to U.S.
Persons or for the account or benefit of a U.S. Person or exercised by
or on behalf of a U.S. Person, unless registered under the 1933 Act or
unless an exemption from such registration is available."
17. This Agreement shall be exclusively governed by the laws of British
Columbia and the laws of Canada applicable therein and is subject to the
exclusive jurisdiction of the courts of the said Province.
18. This Agreement may be signed by the parties in counterparts, both of
which together shall form one and the same instrument and each of which so
signed shall be deemed to be an original. This Agreement may be delivered
by fax.
IN WITNESS WHEREOF the parties have executed this Agreement the day and year
first above written notwithstanding its actual date of execution.
<PAGE>
SIGNED, SEALED AND DELIVERED by )
ROBERT GAYTON in the presence of: ) (Signed)
) ------------------------------------
(signed) ) ROBERT GAYTON
-------------------------------------- )
Signature of Witness )
)
)
-------------------------------------- )
Print Name )
IMMUNE NETWORK RESEARCH LTD.
by its Authorized Signatory:
--------------------------------------
Name: (signed)
-------------------------------
Title:
-------------------------------
<PAGE>
THIS INCENTIVE STOCK OPTION AGREEMENT is made as of the 20th day of April,
2000.
BETWEEN:
IMMUNE NETWORK RESEARCH LTD., having an office
---------------------------
located at 3650 Wesbrook Mall, Vancouver, BC,
Canada, V6S 2L2
(the "Company")
AND:
MARIO KASAPI, of 15860 McBeth Road, Surrey, BC,
------------
Canada, V4A 5X3
(the "Optionee")
WHEREAS the Optionee is a director, senior officer, consultant, dependant
contractor or a bona fide employee of the Company or a subsidiary thereof, or an
employee of a company under contract to provide management services to the
Company (the "Management Company") and requires as a condition of holding such
position that the parties enter into this Agreement on the terms and conditions
set forth;
THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements
herein contained, the parties agree as follows:
1. The Company hereby grants to the Optionee, as an incentive and in
consideration of his services and not in lieu of salary or any other
compensation, subject to the terms and conditions hereinafter set forth,
the irrevocable right and option (the "Option") to purchase from time to
time up to a total of 380,000 fully paid and non-assessable common shares
in the capital stock of the Company.
2. Subject to the provisions of paragraphs 5, 6 and 8 hereof, the Option
shall be exercisable by the Optionee in whole or in part at any time before
4:00 p.m. (Vancouver time) on April 19, 2005 (the "Expiry Date") at an
exercise price of $1.20 per share. The Option is exercisable on a quarterly
basis as to 25% of the Option at the end of each three month period
commencing from the date of this Agreement.
3. In order to exercise the Option, the Optionee shall give written notice
to the Company of his intention to exercise his Option in whole or in part,
such notice to be accompanied by bank draft or money order payable to the
Company for the full amount of the purchase price of the shares then being
purchased. The Company will issue for the Optionee's collection a share
certificate registered in the name of the Optionee for the number of shares
purchased.
4. The Optionee acknowledges that the shares acquired on exercise of the
Option will be subject to a four month hold period commencing from the date
of this Agreement, within which period the shares may not be traded,
transferred or otherwise disposed of. The certificate issued evidencing the
shares acquired upon an exercise of the Option will bear the restrictive
legend prescribed by the Canadian Venture Exchange.
5. The parties represent that the Optionee is a director, senior officer,
<PAGE>
consultant, dependant contractor or an employee of the Company or a
subsidiary thereof or an employee of the Management Company. Subject to the
provisions of paragraphs 5 and 8, the Option shall terminate at the close
of business on the date which is 30 calendar days after the Optionee ceases
to be a director, senior officer, consultant, dependant contractor or an
employee of the Company or a subsidiary thereof or ceases to be an employee
of the Management Company and any unexercised portion of the Option may not
be exercised by the Optionee after such time.
6. If at any time the Optionee shall be dismissed by the Company or the
Management Company for cause or if the Company's contract with the
Management Company or with the Optionee terminates, any unexercised portion
of the Option shall immediately terminate.
7. The Optionee shall not, while employed by or otherwise providing services
to the Company (or a subsidiary thereof) or the Management Company, or at
any time thereafter, disclose to any person, firm or corporation any
confidential information concerning the business affairs of the Company,
whether for his own benefit, or to the detriment, or intended or probable
detriment, of the Company. The provisions of this paragraph shall be in
addition to any other confidentiality agreement the Optionee has entered
into with the Company (or a subsidiary thereof) or the Management Company.
8. If the Optionee dies while any Options are exercisable, the Option may
then be exercised by his legal heirs or personal representatives, to the
same extent as if the Optionee was alive and a director, senior officer,
consultant, dependant contractor or an employee of the Company or a
subsidiary thereof or of the Management Company, on or before the earlier
of a period of 12 months after the Optionee's death or the Expiry Date but
only for such shares as the Optionee was entitled to as at the date of the
death of the Optionee.
9. Subject to paragraph 8, the Option shall be non-transferable and non-
assignable.
10. The Optionee covenants and agrees that he will complete, sign and deliver
the documents prescribed by the policies of the Canadian Venture Exchange.
11. The granting and exercise of the Option by the Optionee are subject to
the required approvals of:
(a) the British Columbia Securities Commission or, if the Company is listed
thereon, the Canadian Venture Exchange;
(b) any other regulatory authority having jurisdiction; and
(c) if the Optionee is a consultant of the Company, then by the
shareholders of the Company,
provided, however, that in the event that such approvals are not obtained
within 12 months of the date of this Agreement, then this Agreement shall
from that date be null and void and of no further force and effect. For the
purposes of this Agreement, the term "insider" shall have the meaning
ascribed to it in the Securities Act (British Columbia).
12. Any amendment of the Option shall be subject to such approval as may be
required by the policies of the Canadian Venture Exchange (if the Company's
shares are listed thereon at the time of such amendment) in effect at the
time of the amendment. The Optionee acknowledges that it is a Canadian
<PAGE>
Venture Exchange requirement that a reduction in the exercise price of the
Option requires disinterested shareholder approval (as defined in the
Canadian Venture Exchange Corporate Finance Manual) if the Optionee is an
insider of the Company at the time of the amendment.
13. In the event of any subdivision, consolidation or other change in the share
capital of the Company while any portion of the Option is outstanding, the
number of shares under Option to the Optionee and the exercise price
thereof shall be deemed adjusted in accordance with such subdivision,
consolidation or other change in the share capital of the Company.
14. In the event that the Company shall amalgamate, consolidate with, or merge
into another corporation, the Optionee will thereafter receive, upon
exercise of the Option, the securities or property to which a holder of the
number of shares then deliverable upon the exercise of the Option would
have been entitled upon such amalgamation, consolidation or merger and the
Company will take steps in connection with such amalgamation, consolidation
or merger as may be necessary to ensure that the provisions hereof shall
thereafter be applicable, as near as reasonably may be, in relation to any
securities or property thereafter deliverable upon the exercise of the
Option. A sale of all or substantially all of the assets of the Company for
a consideration (apart from the assumption of obligations), a substantial
portion of which consists of securities, shall be deemed a consolidation,
amalgamation or merger for the purposes of this Agreement.
15. This Agreement shall enure to the benefit of and be binding upon the
parties and upon the successors or assigns of the Company and the
executors, administrators, and the Optionee's legal personal
representatives.
16. The Optionee acknowledges that neither the Option nor the shares issuable
upon exercise of the Option have been registered under the United States
Securities Act of 1933, as amended (the "1933 Act") and may not be offered
or resold in the United States unless registered under the 1933 Act and the
securities laws of all applicable states of the United States or an
exemption from such registration requirements is available. The
certificates representing any shares issued upon exercise of the Option may
contain a restrictive legend substantially in the following form:
"The securities represented by this certificate have not been registered
under the United States Securities Act of 1933, as amended (the "1933
Act"), and may not be offered or sold in the United States or to U.S.
Persons or for the account or benefit of a U.S. Person or exercised by
or on behalf of a U.S. Person, unless registered under the 1933 Act or
unless an exemption from such registration is available."
17. This Agreement shall be exclusively governed by the laws of British
Columbia and the laws of Canada applicable therein and is subject to the
exclusive jurisdiction of the courts of the said Province.
18. This Agreement may be signed by the parties in counterparts, both of
which together shall form one and the same instrument and each of which so
signed shall be deemed to be an original. This Agreement may be delivered
by fax.
IN WITNESS WHEREOF the parties have executed this Agreement the day and year
first above written notwithstanding its actual date of execution.
<PAGE>
SIGNED, SEALED AND DELIVERED by )
MARIO KASAPI in the presence of: ) (Signed)
) ------------------------------------
(signed) ) MARIO KASAPI
-------------------------------------- )
Signature of Witness )
)
)
-------------------------------------- )
Print Name )
IMMUNE NETWORK RESEARCH LTD.
by its Authorized Signatory:
--------------------------------------
Name: (signed)
-------------------------------
Title:
-------------------------------
<PAGE>
THIS INCENTIVE STOCK OPTION AGREEMENT is made as of the 20th day of April,
2000.
BETWEEN:
IMMUNE NETWORK RESEARCH LTD., having an office
---------------------------
located at 3650 Wesbrook Mall, Vancouver, BC,
Canada, V6S 2L2
(the "Company")
AND:
DANNY LOWE, of 202-1128 West Broadway, Vancouver, BC,
----------
Canada, V6H 1G5
(the "Optionee")
WHEREAS the Optionee is a director, senior officer, consultant, dependant
contractor or a bona fide employee of the Company or a subsidiary thereof, or an
employee of a company under contract to provide management services to the
Company (the "Management Company") and requires as a condition of holding such
position that the parties enter into this Agreement on the terms and conditions
set forth;
THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements
herein contained, the parties agree as follows:
1. The Company hereby grants to the Optionee, as an incentive and in
consideration of his services and not in lieu of salary or any other
compensation, subject to the terms and conditions hereinafter set forth,
the irrevocable right and option (the "Option") to purchase from time to
time up to a total of 380,000 fully paid and non-assessable common shares
in the capital stock of the Company.
2. Subject to the provisions of paragraphs 5, 6 and 8 hereof, the Option
shall be exercisable by the Optionee in whole or in part at any time before
4:00 p.m. (Vancouver time) on April 19, 2005 (the "Expiry Date") at an
exercise price of $1.20 per share. The Option is exercisable on a quarterly
basis as to 25% of the Option at the end of each three month period
commencing from the date of this Agreement.
3. In order to exercise the Option, the Optionee shall give written notice
to the Company of his intention to exercise his Option in whole or in part,
such notice to be accompanied by bank draft or money order payable to the
Company for the full amount of the purchase price of the shares then being
purchased. The Company will issue for the Optionee's collection a share
certificate registered in the name of the Optionee for the number of shares
purchased.
4. The Optionee acknowledges that the shares acquired on exercise of the
Option will be subject to a four month hold period commencing from the date
of this Agreement, within which period the shares may not be traded,
transferred or otherwise disposed of. The certificate issued evidencing the
shares acquired upon an exercise of the Option will bear the restrictive
legend prescribed by the Canadian Venture Exchange.
5. The parties represent that the Optionee is a director, senior officer,
<PAGE>
consultant, dependant contractor or an employee of the Company or a
subsidiary thereof or an employee of the Management Company. Subject to the
provisions of paragraphs 5 and 8, the Option shall terminate at the close
of business on the date which is 30 calendar days after the Optionee ceases
to be a director, senior officer, consultant, dependant contractor or an
employee of the Company or a subsidiary thereof or ceases to be an employee
of the Management Company and any unexercised portion of the Option may not
be exercised by the Optionee after such time.
6. If at any time the Optionee shall be dismissed by the Company or the
Management Company for cause or if the Company's contract with the
Management Company or with the Optionee terminates, any unexercised portion
of the Option shall immediately terminate.
7. The Optionee shall not, while employed by or otherwise providing services
to the Company (or a subsidiary thereof) or the Management Company, or at
any time thereafter, disclose to any person, firm or corporation any
confidential information concerning the business affairs of the Company,
whether for his own benefit, or to the detriment, or intended or probable
detriment, of the Company. The provisions of this paragraph shall be in
addition to any other confidentiality agreement the Optionee has entered
into with the Company (or a subsidiary thereof) or the Management Company.
8. If the Optionee dies while any Options are exercisable, the Option may
then be exercised by his legal heirs or personal representatives, to the
same extent as if the Optionee was alive and a director, senior officer,
consultant, dependant contractor or an employee of the Company or a
subsidiary thereof or of the Management Company, on or before the earlier
of a period of 12 months after the Optionee's death or the Expiry Date but
only for such shares as the Optionee was entitled to as at the date of the
death of the Optionee.
9. Subject to paragraph 8, the Option shall be non-transferable and non-
assignable.
10. The Optionee covenants and agrees that he will complete, sign and deliver
the documents prescribed by the policies of the Canadian Venture Exchange.
11. The granting and exercise of the Option by the Optionee are subject to
the required approvals of:
(a) the British Columbia Securities Commission or, if the Company is listed
thereon, the Canadian Venture Exchange;
(b) any other regulatory authority having jurisdiction; and
(c) if the Optionee is a consultant of the Company, then by the
shareholders of the Company,
provided, however, that in the event that such approvals are not obtained
within 12 months of the date of this Agreement, then this Agreement shall
from that date be null and void and of no further force and effect. For the
purposes of this Agreement, the term "insider" shall have the meaning
ascribed to it in the Securities Act (British Columbia).
12. Any amendment of the Option shall be subject to such approval as may be
required by the policies of the Canadian Venture Exchange (if the Company's
shares are listed thereon at the time of such amendment) in effect at the
time of the amendment. The Optionee acknowledges that it is a Canadian
<PAGE>
Venture Exchange requirement that a reduction in the exercise price of the
Option requires disinterested shareholder approval (as defined in the
Canadian Venture Exchange Corporate Finance Manual) if the Optionee is an
insider of the Company at the time of the amendment.
13. In the event of any subdivision, consolidation or other change in the share
capital of the Company while any portion of the Option is outstanding, the
number of shares under Option to the Optionee and the exercise price
thereof shall be deemed adjusted in accordance with such subdivision,
consolidation or other change in the share capital of the Company.
14. In the event that the Company shall amalgamate, consolidate with, or merge
into another corporation, the Optionee will thereafter receive, upon
exercise of the Option, the securities or property to which a holder of the
number of shares then deliverable upon the exercise of the Option would
have been entitled upon such amalgamation, consolidation or merger and the
Company will take steps in connection with such amalgamation, consolidation
or merger as may be necessary to ensure that the provisions hereof shall
thereafter be applicable, as near as reasonably may be, in relation to any
securities or property thereafter deliverable upon the exercise of the
Option. A sale of all or substantially all of the assets of the Company for
a consideration (apart from the assumption of obligations), a substantial
portion of which consists of securities, shall be deemed a consolidation,
amalgamation or merger for the purposes of this Agreement.
15. This Agreement shall enure to the benefit of and be binding upon the
parties and upon the successors or assigns of the Company and the
executors, administrators, and the Optionee's legal personal
representatives.
16. The Optionee acknowledges that neither the Option nor the shares issuable
upon exercise of the Option have been registered under the United States
Securities Act of 1933, as amended (the "1933 Act") and may not be offered
or resold in the United States unless registered under the 1933 Act and the
securities laws of all applicable states of the United States or an
exemption from such registration requirements is available. The
certificates representing any shares issued upon exercise of the Option may
contain a restrictive legend substantially in the following form:
"The securities represented by this certificate have not been registered
under the United States Securities Act of 1933, as amended (the "1933
Act"), and may not be offered or sold in the United States or to U.S.
Persons or for the account or benefit of a U.S. Person or exercised by
or on behalf of a U.S. Person, unless registered under the 1933 Act or
unless an exemption from such registration is available."
17. This Agreement shall be exclusively governed by the laws of British
Columbia and the laws of Canada applicable therein and is subject to the
exclusive jurisdiction of the courts of the said Province.
18. This Agreement may be signed by the parties in counterparts, both of
which together shall form one and the same instrument and each of which so
signed shall be deemed to be an original. This Agreement may be delivered
by fax.
IN WITNESS WHEREOF the parties have executed this Agreement the day and year
first above written notwithstanding its actual date of execution.
<PAGE>
SIGNED, SEALED AND DELIVERED by )
DANNY LOWE in the presence of: ) (Signed)
) ------------------------------------
(signed) ) DANNY LOWE
-------------------------------------- )
Signature of Witness )
)
)
-------------------------------------- )
Print Name )
IMMUNE NETWORK RESEARCH LTD.
by its Authorized Signatory:
--------------------------------------
Name: (signed)
-------------------------------
Title:
-------------------------------
<PAGE>
THIS INCENTIVE STOCK OPTION AGREEMENT is made as of the 20th day of April,
2000.
BETWEEN:
IMMUNE NETWORK RESEARCH LTD., having an office
---------------------------
located at 3650 Wesbrook Mall, Vancouver, BC,
Canada, V6S 2L2
(the "Company")
AND:
RON PATON, of 802-1250 Quayside Drive, New
---------
Westminister, BC, Canada, V3M 6E2
(the "Optionee")
WHEREAS the Optionee is a director, senior officer, consultant, dependant
contractor or a bona fide employee of the Company or a subsidiary thereof, or an
employee of a company under contract to provide management services to the
Company (the "Management Company") and requires as a condition of holding such
position that the parties enter into this Agreement on the terms and conditions
set forth;
THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements
herein contained, the parties agree as follows:
1. The Company hereby grants to the Optionee, as an incentive and in
consideration of his services and not in lieu of salary or any other
compensation, subject to the terms and conditions hereinafter set forth,
the irrevocable right and option (the "Option") to purchase from time to
time up to a total of 380,000 fully paid and non-assessable common shares
in the capital stock of the Company.
2. Subject to the provisions of paragraphs 5, 6 and 8 hereof, the Option
shall be exercisable by the Optionee in whole or in part at any time before
4:00 p.m. (Vancouver time) on April 19, 2005 (the "Expiry Date") at an
exercise price of $1.20 per share. The Option is exercisable on a quarterly
basis as to 25% of the Option at the end of each three month period
commencing from the date of this Agreement.
3. In order to exercise the Option, the Optionee shall give written notice
to the Company of his intention to exercise his Option in whole or in part,
such notice to be accompanied by bank draft or money order payable to the
Company for the full amount of the purchase price of the shares then being
purchased. The Company will issue for the Optionee's collection a share
certificate registered in the name of the Optionee for the number of shares
purchased.
4. The Optionee acknowledges that the shares acquired on exercise of the
Option will be subject to a four month hold period commencing from the date
of this Agreement, within which period the shares may not be traded,
transferred or otherwise disposed of. The certificate issued evidencing the
shares acquired upon an exercise of the Option will bear the restrictive
legend prescribed by the Canadian Venture Exchange.
5. The parties represent that the Optionee is a director, senior officer,
<PAGE>
consultant, dependant contractor or an employee of the Company or a
subsidiary thereof or an employee of the Management Company. Subject to the
provisions of paragraphs 5 and 8, the Option shall terminate at the close
of business on the date which is 30 calendar days after the Optionee ceases
to be a director, senior officer, consultant, dependant contractor or an
employee of the Company or a subsidiary thereof or ceases to be an employee
of the Management Company and any unexercised portion of the Option may not
be exercised by the Optionee after such time.
6. If at any time the Optionee shall be dismissed by the Company or the
Management Company for cause or if the Company's contract with the
Management Company or with the Optionee terminates, any unexercised portion
of the Option shall immediately terminate.
7. The Optionee shall not, while employed by or otherwise providing services
to the Company (or a subsidiary thereof) or the Management Company, or at
any time thereafter, disclose to any person, firm or corporation any
confidential information concerning the business affairs of the Company,
whether for his own benefit, or to the detriment, or intended or probable
detriment, of the Company. The provisions of this paragraph shall be in
addition to any other confidentiality agreement the Optionee has entered
into with the Company (or a subsidiary thereof) or the Management Company.
8. If the Optionee dies while any Options are exercisable, the Option may
then be exercised by his legal heirs or personal representatives, to the
same extent as if the Optionee was alive and a director, senior officer,
consultant, dependant contractor or an employee of the Company or a
subsidiary thereof or of the Management Company, on or before the earlier
of a period of 12 months after the Optionee's death or the Expiry Date but
only for such shares as the Optionee was entitled to as at the date of the
death of the Optionee.
9. Subject to paragraph 8, the Option shall be non-transferable and non-
assignable.
10. The Optionee covenants and agrees that he will complete, sign and deliver
the documents prescribed by the policies of the Canadian Venture Exchange.
11. The granting and exercise of the Option by the Optionee are subject to
the required approvals of:
(a) the British Columbia Securities Commission or, if the Company is listed
thereon, the Canadian Venture Exchange;
(b) any other regulatory authority having jurisdiction; and
(c) if the Optionee is a consultant of the Company, then by the
shareholders of the Company,
provided, however, that in the event that such approvals are not obtained
within 12 months of the date of this Agreement, then this Agreement shall
from that date be null and void and of no further force and effect. For the
purposes of this Agreement, the term "insider" shall have the meaning
ascribed to it in the Securities Act (British Columbia).
12. Any amendment of the Option shall be subject to such approval as may be
required by the policies of the Canadian Venture Exchange (if the Company's
shares are listed thereon at the time of such amendment) in effect at the
time of the amendment. The Optionee acknowledges that it is a Canadian
<PAGE>
Venture Exchange requirement that a reduction in the exercise price of the
Option requires disinterested shareholder approval (as defined in the
Canadian Venture Exchange Corporate Finance Manual) if the Optionee is an
insider of the Company at the time of the amendment.
13. In the event of any subdivision, consolidation or other change in the share
capital of the Company while any portion of the Option is outstanding, the
number of shares under Option to the Optionee and the exercise price
thereof shall be deemed adjusted in accordance with such subdivision,
consolidation or other change in the share capital of the Company.
14. In the event that the Company shall amalgamate, consolidate with, or merge
into another corporation, the Optionee will thereafter receive, upon
exercise of the Option, the securities or property to which a holder of the
number of shares then deliverable upon the exercise of the Option would
have been entitled upon such amalgamation, consolidation or merger and the
Company will take steps in connection with such amalgamation, consolidation
or merger as may be necessary to ensure that the provisions hereof shall
thereafter be applicable, as near as reasonably may be, in relation to any
securities or property thereafter deliverable upon the exercise of the
Option. A sale of all or substantially all of the assets of the Company for
a consideration (apart from the assumption of obligations), a substantial
portion of which consists of securities, shall be deemed a consolidation,
amalgamation or merger for the purposes of this Agreement.
15. This Agreement shall enure to the benefit of and be binding upon the
parties and upon the successors or assigns of the Company and the
executors, administrators, and the Optionee's legal personal
representatives.
16. The Optionee acknowledges that neither the Option nor the shares issuable
upon exercise of the Option have been registered under the United States
Securities Act of 1933, as amended (the "1933 Act") and may not be offered
or resold in the United States unless registered under the 1933 Act and the
securities laws of all applicable states of the United States or an
exemption from such registration requirements is available. The
certificates representing any shares issued upon exercise of the Option may
contain a restrictive legend substantially in the following form:
"The securities represented by this certificate have not been registered
under the United States Securities Act of 1933, as amended (the "1933
Act"), and may not be offered or sold in the United States or to U.S.
Persons or for the account or benefit of a U.S. Person or exercised by
or on behalf of a U.S. Person, unless registered under the 1933 Act or
unless an exemption from such registration is available."
17. This Agreement shall be exclusively governed by the laws of British
Columbia and the laws of Canada applicable therein and is subject to the
exclusive jurisdiction of the courts of the said Province.
18. This Agreement may be signed by the parties in counterparts, both of
which together shall form one and the same instrument and each of which so
signed shall be deemed to be an original. This Agreement may be delivered
by fax.
IN WITNESS WHEREOF the parties have executed this Agreement the day and year
first above written notwithstanding its actual date of execution.
<PAGE>
SIGNED, SEALED AND DELIVERED by )
RON PATON in the presence of: ) (Signed)
) ------------------------------------
(signed) ) RON PATON
-------------------------------------- )
Signature of Witness )
)
)
-------------------------------------- )
Print Name )
IMMUNE NETWORK RESEARCH LTD.
by its Authorized Signatory:
--------------------------------------
Name: (signed)
-------------------------------
Title:
-------------------------------
<PAGE>
EXHIBIT 3-3
EXCLUSIVE LICENSE AGREEMENT
---------------------------
BETWEEN SAN DIEGO REGIONAL CANCER CENTER
----------------------------------------
AND
---
IMMUNE NETWORK RESEARCH LTD.
----------------------------
TABLE OF CONTENTS Page
ARTICLE 1 DEFINITIONS 3
ARTICLE 2 GRANT 7
ARTICLE 3 COLLABORATIVE RESEARCH & INVENTION RIGHTS 8
ARTICLE 4 LICENSE FEE & ROYALTIES 8
ARTICLE 5 BIOLOGICAL MATERIALS 9
ARTICLE 6 SUBLICENSES 10
ARTICLE 7 REPORTS & REMITTANCES 10
ARTICLE 8 PATENT PROSECUTION & MAINTENANCE 11
ARTICLE 9 PATENT INFRINGEMENT 12
ARTICLE 10 DEFENSE OF PATENT RIGHTS 13
ARTICLE 11 COMMERCIAL EFFORTS 13
ARTICLE 12 COMPULSORY LICENSES 13
ARTICLE 13 TERM 14
ARTICLE 14 TERMINATION 15
ARTICLE 15 RIGHTS & DUTIES UPON TERMINATION 15
ARTICLE 16 USE OF TRADEMARKS & TRADENAMES 16
ARTICLE 17 WARRANTIES 17
ARTICLE 18 ASSIGNABILITY 18
ARTICLE 19 NOTICES 18
ARTICLE 20 GOVERNING LAWS 19
ARTICLE 21 ARBITRATION & JURISDICTION 19
ARTICLE 22 ATTORNEY'S FEES 20
ARTICLE 23 CONFIDENTIALITY 20
ARTICLE 24 NON-DISTRIBUTION OF BIOLOGICAL MATERIALS 21
ARTICLE 25 WAIVER 22
ARTICLE 26 EXPORTS 22
ARTICLE 27 SEPARABILITY 23
ARTICLE 28 MISCELLANEOUS 23
SUMMARY TABLE 25
<PAGE>
Page 2
APPENDIX A LISTING OF PATENTS /APPLICATIONS INCLUDED IN PATENT RIGHTS
EXCLUSIVE LICENSE AGREEMENT BETWEEN
-----------------------------------
SAN DIEGO REGIONAL CANCER CENTER
--------------------------------
AND
---
IMMUNE NETWORK RESEARCH LTD.
----------------------------
This License Agreement (hereinafter, the "Agreement") is made and is effective
the day of the last of the Parties to sign (hereinafter, the "Agreement Date")
by and between San Diego Regional Cancer Center, a California research
institution having a business address at 3099 Science Park Road, Suite 200, San
Diego, California, 92121 USA (hereinafter, "SDRCC") and Immune Network Research
Ltd., a British Columbia company having a business address at 2-2095 W. 45th
Avenue, Vancouver, British Columbia, V6M 2H8 CANADA (hereinafter, "INR").
WHEREAS, SDRCC researchers Sybille Muller, Ph.D. and Haito Wang, M.D.
(hereinafter, the "Researchers") have conducted research to develop a
technology, generally characterised as "Antibody IFT' and described in U.S.
Patent Application Number 07/848,327 entitled "an anti-idiotypic antibody and
its use in diagnosis and therapy in HIV related disease" (hereinafter, the
"Patent Technology") more particularly defined below, and;
WHEREAS, SDRCC warrants that it is the owner, by assignment from the Researchers
of complete, undivided right, title and interest in the Patent Technology, and;
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 3
WHEREAS SDRCC warrants that it possesses the requisite authority to enter into
this Agreement and that no additional conveyance from any third party is
required to perfect this Agreement, and;
WHEREAS, SDRCC desires that the Patent Technology be developed and brought to
market so that its benefits can be enjoyed by the general public, and;
WHEREAS INR desires an exclusive license to use and sublicense the, inter alia,
Patent Technology from SDRCC, and SDRCC is willing to grant such rights;
NOW, THEREFORE, in consideration of the obligations expressed herein, the
Parties ascribe to the recitals set forth above and agree as follows:
ARTICLE I - DEFINITIONS
-----------------------
1.01 "Affiliate", as used herein shall mean any corporation, firm, partnership
or other business entity controlled by, controlling, or under common control
with INK For this purpose, "control" means direct or indirect beneficial
ownership of or the right to vote at least fifty percent (50%) of the voting
stock or at least fifty percent (50%) interest in the income of such corporation
or other business entity.
1.02 "Diagnostic Licensed Product", as used herein, means any composition of
matter, product of that composition of matter, or component part of a product
of that composition of matter, or any similar item, which is made, used or sold
in the Territory and which uses a process, composition, material, procedure or
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 4
method covered by any one or combination of the Patent Rights, which product is
used for diagnostic purposes.
1.03 "Gross Sales", as used herein, shall mean the gross receipts, royalties,
fees or other valuable consideration of any kind, received by or credited to the
benefit of INR or an Affiliate as a result of a Sale including but not
limited to interest, late charges, time-price differentials or any other
receipts or credits of a similar or related nature received by INR or an
Affiliate as a consequence of a Sale.
1.04 "Licensed Product" as used herein, shall mean either or both Diagnostic
Licensed Product and Therapeutic Licensed Product as the context requires.
1.05 "Net Sales", as used herein, shall mean Gross Sales, less the following
deductions:
(a) amounts actually repaid by reason of timely rejections or returns;
(b) Sales taxes charged and received; and
(c) shipping and shipping insurance charges paid by INR,
except that the aggregate value of said deductions in any royalty payment period
shall not exceed 15% of Gross Sales for that period.
1.06 "New Disclosure", as used herein, shall mean any invention, discovery,
concept, idea, information or improvement, whether or not patentable related to
the Technology which is, to any 25 degree, made, developed or conceived by
researchers at SDRCC.
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 5
1.07 "Party", when used in the singular, shall mean SDRCC or INR as the context
requires and when used in the plural, shall mean SDRCC and INR.
1.08 "Patent Rights", as used herein, shall include all of the following
intellectual property rights:
(a) the United States patent applications, and all patent applications in other
jurisdictions claiming priority from said United States patent application
owned by SDRCC related to the Patent Technology. Appendix A of this
Agreement lists those patent applications which are included as of the
Agreement Date, however, it is acknowledged by the Parties that certain new
related patent applications may be filed after the Agreement 10 Date and
shall be incorporated into this definition without modification to this
(b) United States and foreign patents issued from the applications described in
part (a) of this paragraph and those patents issuing from any and all
divisional, continuation and 15 continuations-in-part patent applications
claiming priority from those patent applications described in part (a) of
this agreement.
(c) claims of U.S. and foreign continuation-in-part applications, and of the
resulting patents, which are directed to subject matter specifically
described in the U.S. and foreign applications described in part (a) of
this paragraph;
(d) claims of all foreign patent applications, and of the resulting patents,
which are directed to subject matter specifically described in the parent
U.S. patent and/or patent applications listed in (a), (b), or (c) above;
(e) any and all reissues of the U.S. patents described in (a), (b), or (c)
above;
1.09 "Proprietary Information", as used herein, shall mean any information
relating directly or indirectly to:
(a) the Patent Technology, and not generally known to the public, provided to
INR by SDRCC or the Researchers, and
(b) confidential aspects of INR's business, provided to SDRCC by INR;
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 6
conveyed in written, graphic, oral or physical form including but not limited to
scientific knowledge, know-how, processes, inventions, techniques, formulae,
products, business operations, market data, customer requirements, data, plans
or other records, or software.
1.10 "Sale" or "Sales", as used herein, shall mean the sale, lease or other
transfer by INR or Affiliate to a Third Party of any right of ownership or use
in a Licensed Product.
1.11 "Technology", as used herein, shall mean without limitation, Proprietary
Information, patent applications, know-how, experimental data and Technology
Biological Materials, owned by SDRCC which is covered by or related to the
Patent Rights.
1.12 "Technology Biological Materials" , as used herein, shall mean the IF7
hybridoma clone described in ATCC Accession # HB11286 /S/ L.L.
---------
1.13 "Territory", as used herein, shall mean all countries of the world in which
SDRCC has Patent Rights.
1.14 "Therapeutic Licensed Product" as used herein, means any composition of
matter, product of that composition of matter, or component part of a product of
that composition of matter, or any similar item, which is made, used or Sold in
the Territory and which uses a process, composition, material, procedure or
method covered by any one or combination of the Patent Rights, which product is
used for therapeutic purposes
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 7
1.15 "Third Party", as used herein, shall mean corporate entities or individuals
other than SDRCC or INR and its Affiliates.
ARTICLE 2 - GRANT
-----------------
2.01 SDRCC hereby grants to INR, subject to the terms and conditions of this
Agreement, an exclusive license to use and sublicense the Technology, and to
make or have made Licensed Products, in the Territory and to market, distribute,
and sell Licensed Products worldwide.
2.02 SDRCC at the written request of INR will amend this Agreement from time to
time to provide a current definition of Technology, recognizing that the above
definition is limited by that certain information now known to INR and SDRCC.
SDRCC hereby grants INR the right to use and sublicense the newly identified
technology to the extent the newly identified technology contributes to the
commercialization of the Technology, is not encumbered to a Third Party and is
not patentably distinct from the Patent Technology.
2.03 If newly identified technology is created by SDRCC and is patentably
distinct from the Technology then INR and SDRCC shall negotiate in good faith to
grant INR an exclusive license to the newly identified technology. In any such
additional technology license, INR shall pay to SDRCC that royalty agreed to in
this contract on any Licensed Products which uses the newly identified
technology.
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 8
ARTICLE 3 - COLLABORATIVE RESEARCH & INVENTION RIGHTS
-----------------------------------------------------
3.01 No research or development collaboration between SDRCC and INR is
contemplated in or required by the terms of this Agreement.
3.02 Any amendment to this Agreement as described in Paragraph 2.03 will provide
for the dispensation, ownership and licensing of New Disclosures
ARTICLE 4 - LICENSE FEE & ROYALTIES
-----------------------------------
4.01 For the license granted to INR under this Agreement, INR will pay to SDRCC
an earned 10 royalty equal two percent (2%)to of Net Sales of Therapeutic
Licensed Products and an earned royalty equal to five percent (5%)of Net Sales
of Diagnostic Licensed Products.
4.02 INR will pay to SDRCC royalties on Net Sales in respect of the first six
months of each calendar year no later than the following July 31. INR will pay
to SDRCC royalties on Net Sales during the second six calendar months of each
year no later than the following January 31.
4.03 INR will pay to SDRCC a license fee of $10,000 promptly upon receipt by INR
of an executed copy of this Agreement from SDRCC.
4.04 All monies due SDRCC under this Agreement shall be paid in United States
Dollars. The rate of exchange to be used in computing the equivalent of each
royalty payment in United States Dollars
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 9
shall be the rate of exchange in effect at the Chase Manhattan Bank on the last
business day of the calendar half-year for which the royalty payment is due.
4.05 All fees and royalties due SDRCC under this Agreement not received when due
will be subject to interest charged at 10.0% per annum calculated monthly on the
first day of each calendar month. Payments received by SDRCC will be applied
first to the outstanding interest due and then to the outstanding principal due.
Payment of such interest shall not limit SDRCC from exercising any other rights
it may have as a consequence of the lateness of any payment.
ARTICLE 5 - BIOLOGICAL MATERIALS
--------------------------------
5.01 For no additional consideration, SDRCC will transfer to INR possession but
not title to the Technology Biological Materials.
5.02 INR acknowledges that the supply by SDRCC to INR of the Technology
Biological Materials is limited to pre-production use only. INR will arrange for
production of the commercial quantities of Technology Biological Materials it
requires to produce Licensed Product, or as Licensed Product itself.
5.03 INR is under no obligation to use Technology Biological Materials and will
be subject to no further fee or royalty for their use other than those set forth
herein.
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 10
ARTICLE 6 - SUBLICENSE
----------------------
6.01 INR may grant sublicenses to Third Parties. INR will pay to SDRCC in
respect of any Sale of Licensed Product by a sublicensee the same royalty which
would otherwise have been paid to SDRCC had the Sale of Licensed Product been
made by INR. If a sublicensee of INR pays to INR a royalty in excess of that
shown in paragraph 4.01 of this Agreement, all such amounts will accrue solely
to the benefit of INR.
ARTICLE 7 - REPORTS & REMITTANCES
---------------------------------
7.01 INR shall keep and require its Affiliates to keep complete and accurate
records of all Sales and Net Sales of Licensed Product. SDRCC may examine,
through a certified public accountant acceptable to INR, such records at the
place of business of INR or its Affiliates during regular business hours not
more than once per year during the life of this Agreement and for two (2) years
after its termination. SDRCC shall bear the cost of each audit except that if
the audit determines that INR understated the royalties due to SDRCC for any
period by an amount greater than five percent (5%), the cost of the audit and
review shall be borne by INR-
7.02 INR shall identify a person responsible for communicating with SDRCC under
the reporting requirements of this Agreement.
7.03 INR shall keep SDRCC informed of its progress on the commercialization and
marketing of Licensed Product hereunder. INR shall make Technology
commercialization progress reports to
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 11
SDRCC on January 31 of each year this Agreement is in effect. The progress
reports will cover the previous calendar year.
7.04 INR shall deliver to SDRCC a true accounting of all Sales of Licensed
Product made by INR or its' sublicensees during the preceding calendar half year
at the same time as it pays the royalties due pursuant to paragraph 4.02. Each
accounting shall show Licensed Product pricing, Sales, Gross Sales, itemized
deductions as allowed herein and Net Sales, on a country-by-country, Licensed
Product-by-Licensed Product basis. INR shall promptly supplement said reports
with such additional information as SDRCC may reasonably request. SDRCC will
keep confidential all accounting information and documentation provided to it by
INR hereunder as provided in Article 25.
ARTICLE 8 - PATENT PROSECUTION & MAINTENANCE
--------------------------------------------
8.01 Subject to the provisions herein, INR shall prosecute and maintain the
Patent Rights. Using counsel of its choice, and be solely responsible for
payment of direct costs associated therewith.
9.02 INR will at the request of SDRCC provide SDRCC with updates and all
written correspondence relating to the prosecution and maintenance of the Patent
Rights so that SDRCC may be informed and apprised of the continuing status of
the pending applications and issued patents. SDRCC will keep this information
and documentation confidential as provided in Article 25.
8.03 INR will reimburse SDRCC for the direct cost associated with the
prosecution and maintenance of the Patent Rights to date up to a maximum of
$14,000 (the "SDRCC Patent Costs"),
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 12
except that SDRCC will apply the option amount of $10,000 paid by INR to SDRCC
in November, 1992 to the first $10,000 of the SDRCC Patent Costs and INR will
promptly pay up to $4,000 of the balance of the SDRCC Patent Costs upon receipt
of copies of the invoices paid by SDRCC.
ARTICLE 9 - PATENT INFRINGEMENT
-------------------------------
9.01 If either party becomes aware of alleged or actual infringement of Patent
Rights by a Third Party, the one party having identified such activity shall
promptly notify the other party in writing.
9.02 INR and SDRCC shall cooperate with one another at no expense to the other
party to investigate such alleged infringement.
9.03 If INR determines in its sole judgement that such alleged infringement is
actually affecting or is likely to affect the potential or actual Sales of
Licensed Products, INR shall create and deliver to SDRCC a written plan of
action to deal with such alleged infringement. This action plan will be subject
to Article 25 herein. INR shall keep SDRCC informed in a timely way of the
progress of such action plan. If patent infringement litigation occurs, INR may
name SDRCC as party of interest in such Patent Rights. SDRCC is under no
obligation to join such suit as co-party and SDRCC may only join such suit as
co-party with the express written consent of INR.
9.04 If INR brings an infringement action against a Third Party, this action
shall be at no cost to SDRCC unless SDRCC joins the suit as a co-party as
provided above.
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 13
9.05 INR and Affiliates shall include on or with their Licensed Product package
insert a list of all relevant issued or granted Patents and the phrase, "other
patents pending", if in fact there are Patents pending.
ARTICLE 10 - DEFENSE OF PATENT RIGHTS
-------------------------------------
10.01 If a Third Party initiates a suit against INR claiming infringement of a
Third Party patent involving the manufacture, use, sale, distribution, marketing
or other utilization of Licensed Product, INR shall promptly notify SDRCC of
such event in writing. Except in the case of a conflict of interest, SDRCC and
INR shall assist one another and cooperate in any such litigation at the other's
request without expense to the requesting Party.
ARTICLE 11 - COMMERCIAL EFFORTS
-------------------------------
11.01 INR shall use commercially reasonable efforts to develop and sell the
Licensed Products. INR may exercise prudent business judgement in meeting its
obligations hereunder.
ARTICLE 12 - COMPULSORY LICENSES
--------------------------------
12.01 The Parties understand and agree that inventions covered by this Agreement
may be subject to the rights and limitations of Public Law (PL) 96-517 and
implementing regulations prescribed by the Federal Office of Management and
Budget. PL 96-517, enacted in December 1980, enabled nonprofit organizations and
small business firms to own and commercialize inventions arising from federally
supported research and/or development provided the Government be granted a
world-wide, non-exclusive, royalty-free license for the Technology.
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 14
12.02 If SDRCC receives notice from any governmental agency in any country or
territory having valid authority and jurisdiction that a royalty-free compulsory
license regarding all or any portion of the Patent Rights has been or must be
granted, SDRCC shall immediately give notice to INR of such action.
12.03 Notwithstanding any other provision of this Agreement, INR shall in no
event be obligated to pay any royalty or other compensation whatsoever to SDRCC
for sales of Licensed Product in those countries of the Territory in which such
compulsory royalty free licenses have been granted from the effective date of
the grant of any such license.
ARTICLE 13 - TERM
-----------------
13.01 The grant of licence contained in this Agreement shall be in full force
and effect from the Agreement Date and shall remain in effect for seventeen (17)
years or until the last remaining Patent Rights expire, whichever is later,
unless otherwise terminated by operation of law or pursuant to the terms and
conditions of this Agreement.
13.02 INR may continue to utilize the Technology after the expiration of the
last remaining Patent Rights. INR shall not have any further royalty or other
payment obligation to SDRCC after expiration of the Patent Rights.
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 15
ARTICLE 14 - TERMINATION
------------------------
14.01 SDRCC may terminate this Agreement if, at any time, INR files in any court
a petition seeking to declare bankruptcy or insolvency or for reorganization or
for an arrangement for the appointment of a receiver or trustee of INR or of its
assets.
14.02 If either Party is in breach of any of the provisions of this Agreement
the citing Party will submit to the responding Party a written notification of
such breach. The responding Party shall have ninety (90) days from the date of
notification to remedy the breach. If the breach is not corrected within this
period, the citing Party shall have the right to terminate this Agreement in its
entirety upon delivery of notice to the responding Party. Upon receipt by the
responding Party of such notice, the license granted hereunder shall be deemed
terminated.
14.03 Subject to the terms and conditions of this Agreement, INR may terminate
this Agreement upon sixty (60) days written notice to SDRCC.
ARTICLE 15 - RIGHTS & DUTIES UPON TERMINATION
---------------------------------------------
15.01 Upon termination of this Agreement, SDRCC may retain any sums already paid
by INR hereunder, and INR shall pay all sums accrued or due hereunder.
15.02 If this Agreement terminates pursuant to Article 14, INR must dispose of
all Licensed Products on hand at the time of termination. INR shall pay SDRCC a
royalty on such Net Sales as set forth in this Agreement.
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 16
15.03 If this Agreement terminates on a date which precedes the expiration of
all of the Patent Rights, INR shall return any and all confidential
documentation, information, compositions, or Technology Biological Materials
stored by any method, in its possession that were transferred to INR by SDRCC,
without retaining copies or samples thereof.
15.04 Termination of this Agreement shall terminate all outstanding grants,
obligations and liabilities between the Parties arising from this Agreement,
except those described in Articles 1 (DEFINITIONS), 15 (RIGHTS AND DUTIES UPON
TERMINATION), 21 (ARBITRATION), 22 (ATTORNEY'S FEES), 23 (CONFIDENTIALITY), 24
(NON-DISTRIBUTION), and Paragraphs 4.05 (Interest on payments due), 7.01
(Audits), 7.03 and 7.04 (Reporting), 20.01 (Indemnity), and 21.01 (Governing
Laws).
15.05 Except to the extent provided in Section 15.02 concerning Licensed Product
on hand at Termination, the grant under Article 2 of this Agreement shall cease
as of the date of termination.
ARTICLE 16 - USE OF TRADEMARKS & TRADENAMES
-------------------------------------------
16.01 Nothing contained in this Agreement shall be construed as conferring any
right to use, in advertising, publicity or other promotional activities with
respect to the Technology or Licensed Product, any name, trade name, trademark
or other designation of either Party hereto, including any contraction,
abbreviation or simulation of any of the foregoing, unless the express written
permission of the other Party has been obtained, which permission shall not be
unreasonably withheld. The use of the name of San Diego Regional Cancer Center,
"SDRCC", or the names of the Researchers' by
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 17
INR in connection with such marketing is expressly prohibited unless written
permission is obtained from the party or person whose name it is proposed be
used.
16.02 INR, at its sole expense, shall be responsible for the selection,
registration and maintenance of all trademarks and trade names which it employs
in connection with any Licensed Product and shall own and control such
trademarks and trade names during the life of this Agreement as well as after
its termination or expiration. The terms "trademark" and "trade name" shall
include, without limitation, the name or names of any Licensed Product, the
design of the packaging of any Licensed Product, and the appearance of any
Licensed Product.
ARTICLE 17 - WARRANTIES
-----------------------
17.01 SDRCC warrants that it has the lawful right to grant the license set forth
herein, and that no consent, license or other conveyance is required from SDRCC,
the Researchers or any other person to effectively convey the Technology; or
otherwise to grant the license, to INR set forth herein.
17.02 Nothing in this Agreement shall be construed as:
(a) a warranty or representation by SDRCC as to the validity or scope of any of
the Patent Rights;
(b) a warranty or representation by SDRCC that anything made, used, sold or
otherwise disposed of under any license granted in this Agreement is or
shall be free from infringement of patents or proprietary rights of Third
Parties;
(c) a warranty or representation that use of the Technology will not infringe
any third party patent or other rights; or
(d) an obligation of SDRCC to bring or prosecute actions or suits against Third
Parties for infringement,
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 18
except that SDRCC hereby represents that it is not aware of any challenge, or
any basis for a challenge, to the validity or scope of any of the Patent Rights.
17.03 Except as expressly set forth in this Agreement, SDRCC makes no
representations and extends no warranties of any kind, either expressed or
implied.
ARTICLE 18 - ASSIGNABILITY
--------------------------
18.01 SDRCC may assign this Agreement without the consent of INR.
18.02 INR may assign its rights under this Agreement with the prior written
consent of SDRCC, which consent will not be unreasonably withheld if the
assignee agrees to comply with all of the terms and conditions of this Agreement
and to cure any existing defaults of the Agreement before the assignment may
take effect.
ARTICLE 19 - NOTICES
--------------------
19.01 Any payment, notice or other communication required or permitted to be
given to either Party hereto shall be deemed properly given, received, and
effective five days after the date deposited in the U.S. or Canadian postal
office and sent by first-class certified mail, with postage prepaid and return
receipt requested to the respective address given below, or to such other
address as either Party shall designate by written notice given to the other
Party, or if hand delivered to the following addresses:
For SDRCC: San Diego Regional Cancer Center
Suite 200
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 19
3099 Science Park Road
San Diego, California 92121
USA
Attention: Lionel Landry
Title: Vice-President, Administration
For INR: Immune Network Research Limited
2-2095 W. 45th Ave.
Vancouver, BC Canada
V6M 2H8
Attention: President
ARTICLE 20 - GOVERNING LAWS
---------------------------
20.01 This Agreement shall be interpreted and construed in accordance with the
laws of the Province of British Columbia, Canada.
ARTICLE 21 - ARBITRATION & JURISDICTION
---------------------------------------
21.01 If a dispute arises out of or relating to any provision of this agreement,
the Parties will meet and negotiate in good faith to settle the dispute.
21.02 If the Parties are unable to settle the matter in dispute by negotiation,
the dispute shall at the request of either Party be settled by arbitration to be
conducted in Vancouver, British Columbia, Canada. The arbitration shall be in
accordance with the rules of the British Columbia International Commercial
Arbitration Centre as of the date the arbitration is filed. Judgement upon any
award rendered through arbitration may be entered in any court of competent
jurisdiction.
21.03 SDRCC and INR shall submit to jurisdiction in Vancouver, British Columbia,
Canada.
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 20
ARTICLE 22 - ATT0RNEYS FEES
---------------------------
22.01 In the event of any arbitration or legal action between the Parties hereto
arising from this Agreement the prevailing Party shall be entitled to
reimbursement from the other Party of all costs and legal fees associated with
such arbitration or legal action.
ARTICLE 23 - CONFIDENTIALITY
----------------------------
23.01 Except to the extent expressly authorized in this Agreement, for the term
of this Agreement and for five (5) years thereafter, the Party receiving
Proprietary Information from the Party providing it shall keep the Proprietary
Information completely confidential and shall not publish or otherwise disclose
such information except to the extent that it can be established by the
receiving Party by competent proof that such information:
(a) was already known to the receiving Party, other than under an obligation of
confidentiality, at the time of disclosure by the disclosing Party;
(b) was generally available to the public or otherwise part of the public
domain at the time of its disclosure to the receiving Party;
(c) became generally available to the public or otherwise part of the public
domain after its disclosure and other than through any act or omission of
the receiving Party in breach of this Agreement;
(d) was subsequently lawfully disclosed to the receiving Party by a Third
Party.
23.02 Each Party may disclose the other Party's Proprietary Information to the
extent only that disclosure is reasonably necessary to prosecute or defend
litigation, comply with applicable governmental regulations, or conduct clinical
trials, subject in all cases to not less than ten (10) days' prior written
notification to the other Party.
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 21
23.03 INR and SDRCC may use each other's Proprietary Information only under the
following restrictions:
(a) the Parties may duplicate or reproduce the disclosed proprietary
information; if duplicated or reproduced in whole or in part, the disclosed
information must carry a proprietary notice similar to that with which it
was submitted to the receiving Party.
(b) any person employed by the receiving Party and utilizing the confidential
information will be advised of, and is subject to, the confidentiality
conditions in this Agreement.
23.04 Each Party shall protect the Proprietary Information of the other from
further disclosure by taking precautions equivalent to the precautions used to
protect its own confidential information.
ARTICLE 24 - NON-DISTRIBUTION OF BIOLOGICAL MATERIALS
-----------------------------------------------------
24.01 Certain of the Technology Biological Materials provided to INR by SDRCC
will be transferred on a restricted non-distribution basis. SDRCC shall identify
those particular Technology Biological Materials for which transfer,
distribution, sale or other disposal by INR to Third Parties or Affiliates is
expressly forbidden without prior written consent of SDRCC. INR will advise any
person employed by INR and utilizing the Technology Biological Materials that
they are subject to the transfer restriction conditions of this Agreement.
24.02 INR will comply with all applicable governmental regulatory and statutory
requirements regarding use of the Technology Biological Materials.
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 22
24.03 INR will use the Technology Biological Materials described in paragraph
26.01 solely for the development of Licensed Product and for no other commercial
purpose. Examples of permitted use includes:
(a) the diagnosis of patient samples for consideration; or
(b) the testing of Third Parties' diagnostic kits, assays or assay components.
24.04 The Technology Biological Materials transferred to INR are experimental in
nature. SDRCC makes no warranties, representation or undertaking with respect to
their utility, efficacy, nontoxicity, safety or appropriateness for a particular
purpose.
ARTICLE 25 - WAIVER
-------------------
25.01 No omission or delay of either Party in requiring due and punctual
fulfilment of the obligations of any other Party shall be deemed to constitute
a waiver by such Party of its rights to require such due and punctual
fulfilment, or any other of its remedies hereunder.
ARTICLE 26 - EXPORTS
--------------------
26.01 INR warrants that neither it nor its Affiliates, agents or distributors
will export or re-export, directly or indirectly, Licensed Product to countries
unless allowed and authorized by the laws of the United States of America and
the laws of Canada.
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 23
ARTICLE 27 - SEPARABILITY
-------------------------
27.01 If any part of this Agreement is held illegal, void or ineffective, the
remaining portions hereof shall remain in full force and effect
.
27.02 If any term or provision of this Agreement is in conflict with any
applicable statute or law then such term or provision shall be deemed
inoperative only to the extent that it may conflict therewith and shall be
deemed to be modified to conform with such statute or law.
27.03 If the terms and conditions of this Agreement are materially altered in
the opinion of either Party acting reasonably as a result of Paragraphs 27.01
and 27.02, the Parties will negotiate in good faith to amend the terms and
conditions of this Agreement so as to resolve any inequities which have
resulted.
ARTICLE 28 - MISCELLANEOUS
--------------------------
28.01 The headings of the several sections are inserted for convenience and
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
28.02 This Agreement shall not be binding upon the Parties until it has been
signed by or on behalf of each Party, in which event, it shall be effective as
of the Agreement Date.
28.03 No amendment or modification hereof shall be valid or binding upon the
Parties unless made in writing and signed.
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 24
28.04 This Agreement embodies the entire understanding of the Parties and shall
supersede all previous communications, representations or understandings, either
oral or written, between the Parties relating to the subject matter hereof.
IN WITNESS WHEREOF, both SDRCC and INR have executed this Agreement, in
duplicate originals by their respective officers hereunto duly authorized, on
the day and year hereinafter written.
SAN DIEGO REGIONAL CANCER CENTER IMMUNE NETWORK RESEARCH LTD.
By: /S/ Lionel Landry By: /S/ Dr. Geoff Hoffmann
------------------ -----------------------
Name Lionel Landry Name: Dr. Geoff Hoffmann
Title: Vice-President Administration Title: President
Date: April 23, 1993 Date: April 16, 1993
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 25
SUMMARY TABLE
-------------
Description Paragraph Date Due
----------- --------- --------
ROYALTIES
Diagnostic Licensed Product 5% 4.01 January 31 and July 31
Therapeutic Licensed Product 2% 4.01 January 31 and July 31
REPORTS from INR
Progress on Commercialization 7.03 January 31
Net Sales of Licensed Product 7.04 January 31 and July 31
WRITTEN NOTIFICATION from INR
Patent prosecution & maintenance 8.02 Upon written request
reports
nel.fou.FRM/L&O
8/3/92
<PAGE>
Page 26
APPENDIX A
Listing of patents and patent applications comprising Patent Rights
Country Type Status Reference #
------- ---- ------ -----------
United States Application Pending 07/8481327
nel.fou.FRM/L&O
8/3/92
<PAGE>
Exhibit 3-4
EXHIBIT 3-4
REDACTED
--------
THIS ADDENDUM AGREEMENT is made as of the 4th day of April, 2000.
BETWEEN:
BRIDGE PHARMA, INC., a Florida corporation, having an office at 902
Contento Street, Sarasota, Florida, USA 34242
("Bridge")
AND:
IMMUNE NETWORK RESEARCH LTD., a British Columbia company having an
office at 3650 Wesbrook Mall, Vancouver, British Columbia, V6S 2L2
("IMM")
WHEREAS:
A. Bridge and IMM entered into a joint venture agreement dated August 12,
1999 (the "JV Agreement");
B. The parties wish to enter into this Agreement to provide that the
compounds described in Schedule "A" to this Agreement, the uses of such
compounds and the intellectual property shall be covered by the JV Agreement.
THIS AGREEMENT WITNESSES that in consideration of the mutual covenants herein
contained, the parties agree as follows:
1. The parties agree that subsection 1.3 of the JV Agreement is amended such
that the definition of "BRIDGE BACKGROUND TECHNOLOGY" shall include the
compounds described in Schedule "A" to this Agreement, the uses of such
compounds and the associated intellectual property as described in the patent
applications listed in the attached Schedule "A" or in any future continuations
or extensions of said patent applications.
2. Subject to receipt of Canadian Venture Exchange acceptance, IMM agrees
that it will increase its funding obligation referred to in subsections 4.4 and
8.4.2 of the JV Agreement from US$2,000,000 to US$3,500,000 if and when Bridge
and IMM both agree on the selection of at least one compound from those listed
in Schedule "A" hereto to proceed to clinical studies.
3. Except as modified herein, all other provisions of the JV Agreement shall
remain in full force.
4. This Agreement may be executed in counterparts, each of which shall be
deemed to be an original and both of which shall constitute one agreement. This
Agreement may be delivered by fax.
IN WITNESS WHEREOF the parties have duly executed this Agreement as of the day
and year first above written notwithstanding its actual date of execution.
BRIDGE PHARMA, INC.
By its authorized signatory:
(Signed)
IMMUNE NETWORK RESEARCH LTD.
By its authorized signatory
(Signed)
<PAGE>
REDACTED
SCHEDULE "A"
Intellectual properties included in the ADDENDUM AGREEMENT to the Joint Venture
between BRIDGE PHARMA, Inc. and IMMUNE NETWORK RESEARCH Limited.
The intellectual properties include, in addition to the Patent Documents listed
in the original Joint Venture Agreement of August 12, 1999, a Provisional Patent
Application, called that was filed on
-------------------------- -----------------
and given Number by the Patent and Trademark Office. A copy of this
-----------
provisional patent application is attached and is part of this SCHEDULE A.
The chemical entities of the Joint Venture Agreement includes the compounds of
the original Joint Venture Agreement of August 12, 1999,
------------------------
and all optically active and racemic forms thereof. These
----------------------
compounds are having the chemical formula:
[GRAPHIC OMITTED]
and including stereochemically isomeric forms thereof and pharmaceutically
acceptable salts thereof, wherein:
R is a member selected from the group consisting of:
-------------------------------------------------
and
- A - B - is a moiety having the formula:
(a)
-------------------------------------------------
(b)
-------------------------------------------------
(c)
-------------------------------------------------
(d)
-------------------------------------------------
(e)
-------------------------------------------------
(f)
-------------------------------------------------
or
(g)
-------------------------------------------------
<PAGE>
Exhibit 3-9
Immune Network Research Ltd.
3650 Wesbrook Mall
Vancouver, B.C. V6S 2L2
December 20, 1999
ImmPheron, Inc., Heinz Kohler, Sybille Muller
5235 Athens-Boonesboro Road
Lexington, Kentucky 40509
Attention: Heinz Kohler
Dear Sirs:
Re: Transfer of Interest
This letter (the "Agreement") is intended to record the general terms and
conditions of our mutual agreement concerning the purchase by Immune Network
Research Ltd. ("IMM") of all right title and interest held by ImmPheron, Inc.
("IMP") in a research joint venture project (the "1F7 Project"), and the
intellectual property related thereto (the "1F7 Technology"), governed by an
agreement dated December 15, 1997, as amended (the "JV Agreement").
1 Subject to the terms of this Agreement, IMP will transfer to IMM all of
IMP's right, title and interest in the 1F7 Project, the JV Agreement and
the intellectual property related thereto (the "IMP 1F7 Interest") for the
total purchase price of US$100,000 (the "Purchase Price"). The IMP 1F7
Interest will be deemed to have been transferred to IMM upon its receipt
of the acceptance of the Canadian Venture Exchange referred to in section
6 of this Agreement.
2. The Purchase Price will be paid as follows:
(a) US$4,000 upon the execution and delivery of the Agreement;
(b) four consecutive monthly instalments of US$2,000, payable on the last
business day of each month commencing in January 2000;
(c) US$88,000 payable on the date which is seven months following the date
this Agreement is fully signed and delivered.
3. In addition to the Purchase Price, IMM will pay IMP the sum of US$10,000
within thirty (30) business days of the commencement of the North American
1F7 phase 1 clinical trials.
4. IMP will retain a royalty interest equal to 4% of IMM's net earnings
related to the 1F7 Technology. Royalty payments will be calculated and
payable on a quarterly basis.
5. IMP, Heinz Kohler and Sybille Muller shall maintain and extend the
scientific and commercial liaisons that the 1F7 Project currently enjoys.
142322
<PAGE>
Page 2
6. This Agreement is subject to IMM's receipt of acceptance to its filing
from the Canadian Venture Exchange.
7. IMM and IMP agree to negotiate, in good faith, the terms of a formal
agreement to supercede this Agreement. The parties acknowledge that this
Agreement creates a binding obligation upon each of them and will remain
in effect until superceded by such formal agreement.
8. This Agreement shall enure to the benefit of and be binding upon each of
us and our respective heirs, successors and permitted assigns.
9. This Agreement shall be construed in accordance with the laws of British
Columbia and the laws of Canada applicable therein.
If the above terms and conditions accurately record your understanding of our
agreement, please so acknowledge by signing this Agreement in the space provided
and returning it to us at your earliest convenience.
Yours truly,
Immune Network Research Ltd.
By its authorized signatory:
/s/ Allen Bain
---------------------------------------
Allen Bain
The foregoing is hereby confirmed, acknowledged and accepted on December 21,
1999:
ImmPheron, Inc.
By its authorized signatory:
Heinz Kohler, Sybille Muller
---------------------------------------
Print Name:
/s/ Heinz Kohler
---------------------------------------
Heinz Kohler
/s/ Sybille Muller
---------------------------------------
Sybille Muller
142322
<PAGE>
Exhibit 3-10
LETTER OF AGREEMENT
-------------------
Between Immune Network Research Ltd. (IMM) and Meditech Pharmaceuticals Inc.
(MPI):
1. MPI will grant IMM an irrevocable option to obtain an exclusive license to
make, have made, promote, sell, and distribute Viraplex and MTCH-24, and
any derivatives or formulations of Viraplex and MTCH-24, under the
following terms:
a) The region of the license will be worldwide, excluding the United States
of America.
b) The term of the option will be one (1) year from the date of this letter
of agreement.
c) IMM will pay MPI a license fee of US $100,000 upon exercise of the
option and execution of a superceding license agreement, to be
negotiated in good faith upon exercise of the options.
d) Under a superceding license agreement IMM will pay MPI a royalty of net
sales of 7% for MTCH-24, or any derivatives or formulations of MTCH-24,
and 4% for Viraplex, or any derivatives or formulations of Viraplex.
2. MPI will grant IMM an irrevocable option, for a term of one (1) year, to
purchase 10 million shares of MPI common stock at an exercise price of US
$0.03. Effective upon the exercise by IMM of this option, IMM is granted
two demand registration rights, the cost of registration to be borne by
---------------------------------------
IMM and unlimited "piggy-back" and S-3 registration rights, subject to
---
usual and customary terms and conditions for venture capital transactions.
A more detailed description of the terms and conditions if the registration
rights granted hereunder shall be set forth in a superceding registration
rights agreement to be negotiated by the parties no later than the earlier
to occur of the execution of the superceding license agreement referenced
in Section 1(d) or one month from the exercise by IMM of the option granted
in this Section 2. However, in the event that a superceding registration
rights agreement is not executed by the parties for any reason, this
agreement shall be enforceable in accordance with its terms.
3. IMMM will pay MPI US$25,000 within 2 business days of IMM's receipt from
the Canadian Venture Exchange of its written acceptance of the filing of
this agreement.
4. IMM will initiate R&D activities on Viraplex and MTCH-24, with expenditures
of no less than US $20,0000, subject to termination under paragraph 6. All
data from IMM's R&D activities will be provided to MPI.
5. MPI will provide any pre-clinical and clinical data in their possession or
under their control for Viraplex and MTCH-24.
6. IMM may terminated this agreement at any time, in which case IMM will not
retain any rights on the intellectual property of the MPI.
<PAGE>
7. This agreement is subject to regulatory approval for IMM and Board approval
for both parties.
8. The parties will issue a joint announcement of this agreement.
9. MPI will, promptly upon execution of this agreement, nominate IMM's
president to MPI's board of directors.
IN WITNESS of their understanding, agreement and consent, the parties have
signed this binding agreement in Arizona as if the 3 day of February 2000.
------- --- -------- -----
/s/ Gerald N. Kern /s/ Allen Bain
------------------------------------- -------------------------------------
Gerald N. Kern Dr. Allen Bain
President & CEO President
MEDITECH PHARMACEUTICALS INC. IMMUNE NETWORK RESEARCH LTD.
<PAGE>
Exhibit 3-11
EXHIBIT 3-11
Agreement entered into March 27, 2000
with CroMedica Global, Inc.
<PAGE>
REDACTED
--------
AGREEMENT
This Agreement, is made by and between Immune Network Research Ltd.,
(hereinafter "INR"), with offices at 3650 Wesbrook Mall, Vancouver, British
Columbia, V6S 2L2 and CroMedica Global Inc. located at 730 View Street, Suite
600, Victoria, British Columbia V8W 3Y7.
WHEREAS, INR desires to have certain research conducted (as described herein)
with respect to the compound known as "Dapsone" (the "Investigation") in
accordance with the protocols, numbers , attached hereto as Exhibit
------------
A, which exhibit is incorporated by reference herein together with all
amendments thereto, (hereinafter, the "Protocols"); and
WHEREAS, CroMedica is experienced in such research and has the personnel
available to perform these services for INR;
NOW THEREFORE, in consideration of the premises and of the mutual promises and
undertakings herein contained, the parties intending to be legally bound do
hereby agree as follows:
I. SCOPE OF SERVICES
-----------------
The Investigation shall consist of the services set forth in Exhibit "B"
(Scope of Services & Obligations), which exhibit is incorporated by
reference and is deemed to be part of this Agreement. CroMedica shall not
undertake any additional work without a written modification of this
Agreement pursuant to Section XIV (Modifications). To the extent that any
conflict exists between the terms of this Agreement and Exhibit "B" (Scope
of Services & Obligations), the terms of this Agreement shall take
precedence.
CroMedica agrees to conduct, and to cause its employees, officers,
directors and representatives to conduct, the Investigation in accordance
with the terms of this Agreement (as applicable to the particular
Investigation), the Protocols, and all applicable Federal, State, and
local laws, including without limitation, the Food and Drug Administration
("FDA") of the United States, all relevant Regulatory Authorities, and
using the International Committee for Harmonization ("ICH") guidelines
pertaining to clinical investigations and the use of investigational drugs
in humans.
II. PERFORMANCE SCHEDULE
--------------------
The Performance Schedule by which CroMedica shall perform the services
specified in this Agreement is set forth in Exhibit "C" (Payment and
Performance Schedule),which exhibit is incorporated by reference and is
deemed to be part of this Agreement.
<PAGE>
Page 2
III. COMPENSATION
------------
A. CroMedica Compensation
----------------------
This is a fixed price contract. The price shall be either
US$13,199,286 or US$13,849,286, exclusive of all applicable taxes,
depending on whether the Option A or the Option B pricing and payment
terms described in Exhibit "C" shall apply. The Option A pricing and
payment terms will apply if [REDACTED] is developed by INR for
purposes of the Investigation. The Option B pricing and payment terms
will apply if [REDACTED] is not developed by INR for purposes of the
Investigation.
INR shall pay to CroMedica the contract price as follows:
1. as to the sum of US$2,000,000 by the delivery of a secured
debenture (the "Debenture") in the form appended hereto as Exhibit
"D"; and
2. as to the balance of the contract price, by payments made in
accordance with the pricing and payment terms described in Exhibit
"C" for either Option A or Option B, as the case may be.
It is further agreed by both parties that CroMedica be granted a first
right of refusal on all of INR's clinical trials, other than the first
human trial, involving the INR compound "1F7" monoclonal antibody for
the treatment of HIV infection.
IV. PROTOCOLS
---------
The Investigation shall be conducted in accordance with the Protocols.
CroMedica shall make no change in the Protocols during the course of the
Investigation without the prior written approval of INR, except where
necessary to eliminate apparent immediate hazards to human subjects. INR
shall have the right at any time to initiate such changes in the
Protocols, as INR deems necessary or appropriate, including suspending the
Investigation temporarily or permanently.
V. CONTACT PERSONS AND STAFFING
----------------------------
CroMedica shall assign a sufficient number of personnel to complete the
Scope of Services set forth on Exhibit "B" (Scope of Services &
Obligations).
<PAGE>
Page 3
INR and CroMedica have designated appropriate personnel to be available to
CroMedica to answer questions and resolve problems relating to the
Investigation. The names of these individuals, and the respective
subjects on which they may be consulted, are set forth in Exhibit "E"
(Contact Persons).
Either party may change the designated contact person by providing written
notice to the other party in accordance with the provisions of paragraph
XIII of this agreement.
VI. PERIOD OF PERFORMANCE
---------------------
This Agreement shall take effect as of the last date of execution by the
last of the parties to execute this Agreement, and shall remain in effect
until the completion of the services performed by CroMedica under the
Agreement, or until earlier termination in accordance with the Section on
Termination, below.
VII. TERMINATION
-----------
A. INR's Right to Terminate
------------------------
INR reserves the right to terminate this Agreement in whole or in
part, with or without cause, upon 30 days written notice to CroMedica.
In the event this Agreement is terminated by INR prior to completion,
CroMedica shall use its best efforts to conclude or transfer the
project, as directed by INR, as expeditiously as possible. CroMedica
shall not undertake further work, incur additional expenses, or enter
into further commitments with regard to the Investigation after
receiving such notice of termination from INR, except as mutually
agreed upon by the parties. Upon termination of the Agreement,
CroMedica shall return to INR all of INR's property (as defined in the
Section covering Property Ownership) in CroMedica's possession or under
CroMedica's control, unless otherwise agreed to in writing.
B. CroMedica's Right to Terminate
------------------------------
CroMedica may terminate this Agreement upon default of any material
provision of this Agreement; provided, however, that prior to
terminating, CroMedica shall notify INR in writing of such default, and
shall allow INR thirty (30) days to remedy such default if such default
is capable of being remedied. In the event that INR fails to remedy
the default within the 30-day period, CroMedica may terminate the
Agreement effective immediately.
C. Compensation to CroMedica upon Termination
------------------------------------------
In the event of a termination under this Section, CroMedica shall be
entitled to compensation as follows:
1. All payments due and owing under this Agreement at the time of
CroMedica's receipt of the notice of termination.
<PAGE>
Page 4
2. Reimbursement for any noncancelable services and commitments
entered into by CroMedica in order to carry out this Agreement,
provided CroMedica provides INR with documentation of completion
of work or expenses incurred.
3. Should the termination of this agreement be instituted by INR
as a result of: an external development partnership, licensing
agreement, corporate merger or acquisition, a termination fee
equal to 30% of the remaining contract payments would be due to
CroMedica.
A termination by INR for any other reason, except by reason of a
breach of a material term of this agreement by CroMedica, will
result in a termination fee equal to 10% of the remaining
contract payment becoming due to CroMedica.
Termination of this Agreement by either party shall not affect the
rights and obligations of the parties accrued prior to the effective
date of termination. The rights and duties under Articles III, IV,
VII, VIII, IX, X, XI, XII, XIV, XVI, XVII, XVIII, XIX, XX and XXI
shall survive the termination or expiration of this Agreement.
VIII. CONFIDENTIAL INFORMATION
------------------------
A. Definition
----------
For purposes of this Agreement, "Confidential Information" means any
knowledge or information that is (1) acquired by CroMedica from INR
prior to or during the course of the Investigation, or (2) prepared,
developed or generated by CroMedica during the course of the
Investigation; provided, however, that "Confidential Information" does
not include knowledge or information that CroMedica can demonstrate by
written records was known by it prior to the receipt of such knowledge
or information from INR, or that is publicly disclosed by INR either
prior to or subsequent to receipt of the knowledge or information by
CroMedica.
B. Non-Disclosure
--------------
CroMedica (1) shall not publish, disseminate, or otherwise disclose to
any third party (except as may be required by this Agreement or by
law) any Confidential Information without the prior written consent of
INR; (2) shall use the same care and discretion in maintaining the
confidentiality of the Confidential Information that CroMedica uses
with similar information that it considers confidential; provided that
such care and discretion shall not be less than the standard of care
<PAGE>
Page 5
and discretion that would be employed by a prudent person under
similar circumstances; (3) shall restrict the dissemination of the
Confidential Information within its own organization to persons who
have a need to know and have agreed to abide by the confidentiality
provisions of this Agreement; and (4) shall not, without the prior
written consent of INR, make any use whatever of the Confidential
Information except for the purpose of conducting the Investigation.
In the event CroMedica is required by applicable law to disclose
Confidential Information to a proper authority, CroMedica shall
first notify INR, and CroMedica and INR shall then attempt in good
faith to agree upon a mutually satisfactory way to disclose such
Confidential Information as necessary for this limited purpose.
CroMedica shall ensure that its employees, officer, directors,
affiliates, agents and representatives comply with the terms of this
Article IIIV and otherwise with the terms of this Agreement.
C. Return of Confidential Information
----------------------------------
At the expiration or earlier termination of this Agreement, CroMedica
shall return to INR all written Confidential Information, and all
written material that incorporates any Confidential Information.
D. Survival of Obligation of Confidentiality
-----------------------------------------
The obligation of confidentiality set forth in this Section shall
continue for ten years following the date of expiration or earlier
termination, for any reason, of this Agreement, and shall be binding
upon permitted assignees, administrators and other legal
representatives of CroMedica.
E. CroMedica shall obtain INR's prior written permission before using
INR's name, symbols and/or marks in any form of publicity in
connection with the Investigation. The foregoing sentence shall
not exclude legally required disclosure by CroMedica or reports
generated in the normal course of business by CroMedica.
IX. PROPERTY OWNERSHIP
------------------
A. Rights in Property
------------------
All materials, documents, data, software and information of every kind
and description supplied to CroMedica by INR or prepared, developed, or
generated by CroMedica pursuant to this Agreement, (except for CroMedica
procedural manuals, personnel data, methods, procedures, and policies)
shall be the sole and exclusive property of INR and INR shall have the
right to make whatever use it deems desirable of any such property.
CroMedica shall not, without the prior written consent of INR, publish,
disseminate, or otherwise disclose to any third party any such property
(except such disclosure as may be required by law), or use any such
property for any purpose other than the performance of this Agreement.
B. Retention of Property
---------------------
Unless otherwise required by law or the terms of this Agreement, any
property specified in Subsection A, above, that CroMedica shall have
in its possession shall be maintained by CroMedica for a period of not
less than five (5) years from the date of receipt thereof and shall be
organized in such manner that it will be ready for immediate
reference.
<PAGE>
Page 6
INR shall have the right at any time to examine or obtain from
CroMedica copies of any or all such property. After five (5) years,
CroMedica may dispose of such property in accordance with instructions
provided by INR. If INR fails to provide such instructions, CroMedica
shall so notify INR, and if instructions are still not forthcoming
within thirty (30) days of such notification, CroMedica may destroy
such property.
C. Survival of Obligation
----------------------
The rights and obligations set forth in this Section shall survive the
expiration or earlier termination, for any reason, of this Agreement,
and shall be binding upon permitted assignees, administrators and
other legal representatives of CroMedica.
X. RIGHTS IN INTELLECTUAL PROPERTY AND PATENTS
-------------------------------------------
A. Inventions, Discoveries, and Know-How
-------------------------------------
With respect to any and all inventions, discoveries, and know-how
(including, without limitation, all ideas, improvements, and
creations) that are conceived, gained, or reduced to practice by
CroMedica in the course of performing its obligations under this
Agreement, CroMedica agrees:
1. To disclose promptly to INR or its nominee any such inventions,
discoveries and know-how;
2. To assign and transfer to INR all rights, title, and interest in
and to any and all such inventions, discoveries, and know-how upon
the request of INR; and
3. To perform any and all lawful acts that in the judgment of INR are
necessary or desirable to secure or maintain for the benefit of INR
adequate patent and other property rights in the United States and
all foreign countries with respect to any such inventions,
discoveries and know-how, including, without limitation, making or
delivering to INR United States and foreign patent applications,
powers of attorney, assignments, oaths and affirmations, and
applications for securing, protecting or registering any property
rights relating to such inventions, discoveries and know-how, and
cooperating with INR in the defense of patents related to such
inventions, discoveries and know-how in infringement actions.
INR shall compensate CroMedica at standard hourly rates for the time
devoted to said activities and reimburse it for all reasonable
expenses incurred.
B. Copyrights
----------
CroMedica agrees to assign to INR all right, title, and interest in
and to any Work, as defined below, including without limitation all
right, title, and interest in and to copyright of the Work, in the
United States or anywhere throughout the world, in the name of INR (or
<PAGE>
Page 7
otherwise, as directed by INR), for the sole benefit of INR, and to
secure renewals or extensions of such copyrights in INR's name (or
otherwise, as directed by INR). CroMedica shall execute any
assignments or other documents that INR deems necessary to
effectuate the purposes of this Subsection B. For purposes of this
Section, "Work" means all reports, documents, research, drafts,
materials, computer software, and data that are recorded in any form
(including, without limitation, written, electronic, or photographic
form) and that are prepared, developed, or generated by CroMedica in
the course of performing its obligations under this Agreement.
C. Survival of Obligations
-----------------------
The obligations imposed by this Section shall survive the expiration
or earlier termination, for any reason, of this Agreement with respect
to inventions, discoveries and know-how conceived, gained, or reduced
to practice by CroMedica, and Work prepared, developed, or generated
by CroMedica, in the course of performing this Agreement. Such
obligations shall be binding upon permitted assignees, administrators
and other legal representatives of CroMedica. It is agreed that
neither CroMedica nor INR transfers to the other by operation of this
Agreement any patent right, copyright, or other proprietary right of
either party, except as specifically set forth in this Agreement.
XI. INDEMNIFICATION
---------------
A. Indemnification of INR
----------------------
CroMedica shall hold harmless and indemnify INR, its employees, agents
and assigns, from and against all claims, costs, complaints, or
lawsuits for damages that arise or are alleged to arise as a result of
the negligence or malfeasance of CroMedica, or any of its employees,
agents, or representatives, in conducting the Investigation, or from
CroMedica's failure to adhere to the terms of the Protocols or this
Agreement, or to applicable regulations. For purposes of this Article
XI only, investigators are not agents or representatives of CroMedica.
B. Indemnification of CroMedica
----------------------------
INR shall indemnify and hold harmless CroMedica, its representatives
and employees, from and against all claims, costs, complaints, or
lawsuits for damages that arise as a result of personal injury or
death that is alleged to have been caused by or attributed to any
substance provided by INR and dispensed or administered in accordance
with the provisions of the Protocols; provided that:
1. INR shall be promptly notified of any such claim, complaint, or
lawsuit;
2. INR shall have the right, in its sole discretion, to undertake the
defense, compromise, or settlement, at its own expense and by its
<PAGE>
Page 8
own counsel, of any such claim, complaint, or lawsuit; and
3. CroMedica shall cooperate fully in the investigation and
defense of any such claim, complaint, or lawsuit.
The indemnification provided for in this Subsection B shall not apply
to any loss, damage, cost or expense that is caused in whole by or is
attributable in whole to the negligence or malfeasance of CroMedica,
or any of its employees, agents, or representatives.
XII. INSURANCE
---------
Both parties shall maintain in force at all times during the term of
this Agreement, with an insurance company acceptable to the other
party, the following insurance, including any special terms indicated
and shall, prior to signing this Agreement, provide to the other party
certificates of insurance for each type of insurance specifying that
the other party will receive no less than thirty (30) days' notice of
cancellation, non-renewable or material change.
a) Comprehensive General Liability insurance including products and
completed operations, personal injury, broad form property damage
including completed operations, independent contractors, and
blanket contractual liability with the product/completed operations
exclusion removed. Combined Single Limit for bodily injury and
property damage - $5,000,000.
b) Workers' Compensation Insurance Coverage - statutory.
c) Professional Liability Insurance - Covering all claims for damages
arising out of errors and omissions in the performance of
professional duties of the respective parties under this
Agreement. The Limits of Liability shall be $1 million per claim.
XIII. NOTICES AND PAYMENTS
--------------------
Except as otherwise provided herein, any notice or other
communications or any payment required under this Agreement shall be
delivered by hand, first class mail, a nationally recognized
overnight courier service, or facsimile transmission, to the party at
the address listed below:
If to INR: Dr. Allen Bain
--------------
Immune Network Research Ltd.
----------------------------
3650 Wesbrook Mall
------------------
Vancouver, British Columbia V6S 2L2
------------------------------------
Fax (604) 222-5542
If to CroMedica: Ken Newport
-----------
CroMedica Global Inc.
---------------------
600-730 View Street
-------------------
Victoria, British Columbia V8W 3Y7
----------------------------------
Fax (250) 480-0819
<PAGE>
Page 9
Any such notice shall be effective (1) in the case of a hand
delivery, when received; (2) in the case of an overnight delivery
service, on the next business day after being placed in the
possession of such delivery service, with delivery charges prepaid;
(3) in the case of the mail, five business days after deposit in the
postal system, first class postage prepaid; and (4) in the case of
facsimile transmission, when electronic indication of receipt is
received.
XIV. MODIFICATIONS
-------------
No changes shall be made in this Agreement except by written
agreement of the parties, signed by authorized representatives. INR's
authorized representative shall be designated in Attachment 3
(Contact Persons).
XV. ENTIRE AGREEMENT
----------------
This Agreement, together with its Attachments, including the
Protocols, shall be the entire and complete understanding between the
parties in regard to the covered subject matter. This Agreement
merges all prior discussions between the parties and neither party
shall be bound by conditions, definitions, warranties,
understandings, or representations concerning such subject matter
except as provided in this Agreement or as specified on or subsequent
to the effective date of this Agreement in a writing signed by
properly authorized representatives of both the parties.
XVI. ASSIGNMENT
----------
Neither party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the prior written
consent of the other party. Notwithstanding the previous sentence,
INR may assign its obligations under this Agreement to any affiliate
of INR or in connection with the transfer or sale of all or
substantially all of its assets or business relating to the drug(s)
being studied hereunder or its merger or consolidation with another
organization, provided that the rights of CroMedica under this
Agreement are not materially prejudiced and that INR shall remain
liable for the obligations under this Agreement if the assignee shall
fail to fulfill such obligations.
XVII. INDEPENDENT CONTRACTOR
----------------------
CroMedica shall function as an independent contractor and shall not
hold itself out as an agent of INR in any way.
XVIII. GOVERNING LAW
-------------
This Agreement shall be construed, interpreted and enforced under the
laws of the Province of British Columbia.
<PAGE>
Page 10
XIX. WAIVER
------
The failure of a party in any instance to insist on the strict
performance of the terms of this Agreement shall not be construed to
be a waiver or relinquishment of any of the terms of this Agreement,
either at the time of the party's failure to insist upon strict
performance or at any subsequent time.
XX. SEVERANCE
---------
Each clause of this Agreement is a distinct and severable clause and
if any clause is deemed illegal, void, or unenforceable, the
validity, legality, or enforceability of any other clause or portion
of this Agreement shall not be affected thereby.
XXI. HEADINGS
--------
All headings contained in this Agreement appear only for convenience
and reference. They do not define, limit, extend, or describe the
scope of this Agreement or the intent of any of its provisions.
XXII REGULATORY APPROVALS
--------------------
This agreement is subject to INR receiving all required regulatory
approvals and consents, including any approvals required from the
Canadian Venture Exchange, within sixty (60) days of the date of this
agreement. INR covenants that is will use it best efforts to obtain
all such regulatory approvals and consents, and agrees that this
condition shall be deemed to have been waived by INR if it has not
provided CroMedica with written notice within the said sixty (60) day
period that an applicable consent or approval has not been obtained by
INR.
XXIII COUNTERPART EXECUTION AND DELIVERY BY FACSIMILE
-----------------------------------------------
This Agreement may be executed in counterparts, both of which together
shall form one and the same instrument and each of which shall be
deemed to be an original. This Agreement may be delivered by
facsimile.
ACCEPTED AND AGREED:
IMMUNE NETWORK RESEARCH LTD. CROMEDICA GLOBAL INC.
BY: Matt Sadler" BY: C.H. Stead"
------------------------------ ------------------------------
TITLE: Project Director TITLE: VP Finance & CFO
------- -------
DATED: March 27, 2000 DATED: March 23, 2000
-------------------------- --------------------------
<PAGE>
EXHIBIT "B"
[REDACTED - ENTIRE PAGE]
<PAGE>
Exhibit "B"
CONTINUED
Should the regulatory agencies require additional studies or a change in the
scope of currently proposed studies, INR explicitly acknowledges that additional
fees will be negotiated. Similarly, should any study yield additional
information about safety, requiring additional studies or a change in the scope
of currently proposed studies, INR explicitly acknowledges that additional fees
will be negotiated.
The CRO undertakes, where relevant to:
- Be responsible for the proper and timely co-ordination, management and
conduct of the Study in accordance with the following section entitled
"Obligations of CRO";
- Appoint suitably-qualified and experienced investigators, trial monitors
and physicians to conduct the Study;
- Provide standard operating procedures and visit reports as evidence of
measures undertaken to co-ordinate, manage and conduct the Study;
- Co-operate fully with all other persons, entities and bodies involved in
the performance of the Study, whether or not appointed by INR;
- Provide INR with appropriate evidence showing regular monitoring of trial
centres, source documents and clinical laboratories to both confirm and
document adequate and appropriate adherence of all study procedures to what
has been laid down by the Protocols, by Good Clinical Practice and by Good
Laboratory Practice;
- Be responsible for all the data management of the Study including the
collection, compilation and analysis of all Study Data;
- Ensure that all serious adverse events are reported to INR and the ethics
committee strictly in accordance with the Protocols;
- Collate, store and retain Documentation in the format and for the minimum
period required by GCP;
- Provide INR with a written status report on the progress of the Study, to
include blinded Study Data, at such regular intervals as INR deems
appropriate and at any time to provide additional information upon request
throughout the duration of the Study;
- Procure that the Study investigators, trial centres and all individuals or
bodies subcontracted to provide some or all of the Services comply in all
respects with the Protocols and this Agreement and enter into appropriate
confidentiality agreements;
- Procure, encapsulate and package clinical trial material for all testing in
the currently marketed form in which Dapsone is used; and
- Appoint a Project Manager to the projects to be approved by INR, such
approval not to be unreasonably withheld.
<PAGE>
OBLIGATIONS OF THE CRO
The CRO will, where applicable, procure that the Study is at all times
conducted:
a) in accordance with the Protocols and any amendments thereto;
b) using quantities of the Compound supplied by INR or CroMedica, as
applicable;
c) using the numbers and types of patients selected in accordance with the
criteria stated in the Protocols;
d) only after all necessary legal, regulatory and other approvals have been
granted and strictly in accordance with the terms of any such approvals;
e) in accordance with the standards of Good Clinical Practice ("GCP") as
laid down from time to time by the Committee for Proprietary Medicinal
Products ("CPMP"); and
f) all applicable state, federal and local laws and regulations and all
policies of the Food and Drug Administration ("FDA") and all other relevant
Regulatory Authorities.
The CRO will use its best endeavours to ensure that the individual trial centres
shall accept full responsibility (as consignee) for the use of the Compound
supplied by CroMedica on behalf of INR and to ensure that the Compound is used
solely at the trial centre for the purpose of performing the Study.
<PAGE>
OBLIGATIONS OF INR
INR undertakes:
a) to provide such assistance to the CRO as the CRO shall reasonably require
in order to undertake the Study and fulfill its obligations and
responsibilities under this Agreement;
b) to provide to CroMedica, as available, for submission by CroMedica to the
appropriate Regulatory Authorities such toxicology and safety data relating
to the Compound as may reasonably be required by that Regulatory Authority
and to provide to the Study investigators such information relating to the
Compound as they may reasonably require for the conduct of the Study.
<PAGE>
EXHIBIT "C"
PAYMENT AND PERFORMANCE SCHEDULE
CroMedica will invoice INR in the amounts specified in the attached pricing and
payment term schedules, plus all applicable taxes. Payments will be made by INR
by wire-transfer into an account specified by CroMedica within thirty (30) days
of the invoice date. Interest shall accrue and be payable by INR on all overdue
amounts at a rate equal to 2% per month (24% per annum).
INR reserves the right to renegotiate the payment schedule if there is a
material non-compliance with the work schedule.
SUMMARY
(All figures in U.S. Dollars)
The pricing and payment terms shall be in accordance with either of the attached
alternatives:
Option A - represents the payment profile where [REDACTED].
Option B - represents the payment profile where [REDACTED].
<PAGE>
EXHIBIT "E"
CONTACT PERSONS
Immune Network Research Ltd. Dr. Allen Bain
Immune Network Research Ltd.
3650 Wesbrook Mall
Vancouver, British Columbia
V6S 2L2
Fax (604) 222-5542
CroMedica Global Inc. Ken Newport
CroMedica Global Inc.
730 View Street, Suite 600
Victoria, British Columbia
V8W 3Y7
Fax (250) 480-0819
<PAGE>
EXHIBIT A
PROTOCOLS
Protocol to be inserted, once signed off by both parties.
<PAGE>
EXHIBIT 3-12
Debenture issued on March 27, 2000
in favour of CroMedica Global, Inc.
<PAGE>
SECURED DEBENTURE
Issued to: CroMedica Global Inc.
730 View Street
Suite 600
Victoria, British Columbia
V8W 3Y7
Facsimile No. (250) 480-0819
Issued by: Immune Network Research Ltd.
3650 Wesbrook Mall
Vancouver, British Columbia
V6S 2L2
Facsimile No. (604) 222-5542
UP TO US$2,000,000.00 (two million us dollars) March 23, 2000
1. Principal Amount. Immune Network Research Ltd (the "Company") for value
----------------
received hereby promises to pay to CroMedica Global Inc. ("CroMedica"), at
its address specified above, the principal amount of up to a maximum of
---------------
U.S. $2,000,000.00 in the manner hereinafter provided, together with all
other moneys (including interest) which may from time to time be owing
hereunder or pursuant hereto. The principal amount due and owing pursuant
to this Debenture shall be determined in accordance with the terms of an
agreement (the "Services Agreement") between the Company and CroMedica
dated March 23, 2000 for the provision of clinical trial services, as
follows:
(a) US$1,000,000.00 shall be due and owing under this Debenture upon the
execution by CroMedica and the Company of the Services Agreement,
subject to the payment provisions of section; and
(b) the principal amount due and owing under this Debenture shall increase
by either:
(i) an additional US$200,000.00 on each of the first day of June, July,
August, September and October, 2001 if the Option A pricing and
payment terms described in Exhibit "C" of the Services Agreement
applies; or
(ii) an additional US$200,000.00 on each of the first day of October,
November and December, 2001, and January and February, 2002 if the
Option B pricing and payment terms described in Exhibit "C" of the
Services Agreement applies,
such that the maximum principal amount secured by this Debenture shall not
exceed US$2,000,000.
<PAGE>
Page 2
2. Principal Payments. Subject to the provisions of this Debenture, the
------------------
principal amount of this Debenture from time to time outstanding shall
become due and payable by monthly instalments, each in the amount of U.S.
$83,333.33, payable on the 1st day of each month from and including October
1, 2001 to and including August 1, 2003, except that:
(a) if the Option A pricing and payment terms described in Exhibit "C" of
the Services Agreement applies, then the payment due and payable on
June 1, 2002 shall be US$166,666.66 and not US$83,333.33; and
(b) if the Option B pricing and payment terms described in Exhibit "C" of
the Services Agreement applies, then the payment due and payable on
September 1, 2002 shall be US$166,666.66 and not US$83,333.33.
3. Interest. Interest shall be payable on the 1st day of each and every
--------
month commencing on October 1, 2001 on the balance from time to time
outstanding of the principal amount of this Debenture, any overdue
interest and any other moneys due and payable hereunder, both before and
after maturity, default or judgment, at the rate of interest per annum (the
"Interest Rate") which is five percent (5%) greater than the Prime Rate for
the applicable period calculated and compounded monthly, computed from the
respective dates that the principal becomes owing in accordance with
section 1 of this Debenture until payment in full of all moneys owing
hereunder. CroMedica shall notify the Company at least five (5) days prior
to each interest payment date of the Prime Rate for the applicable period
but the non-receipt of any such notice by the Company or the failure of
CroMedica to give such notice shall in no way limit or negate the
obligation of the Company to pay interest on such payment date.
4. Redemption. The Company may redeem this Debenture prior to maturity
----------
either in whole at any time or, when not in default hereunder or under the
Services Agreement, in part from time to time on not less than thirty (30)
days' written notice to CroMedica at a price equal to the principal amount
being redeemed, together in each case with accrued and unpaid interest on
such principal amount to the date fixed for redemption and, in the case of
redemption in whole, all other moneys owing hereunder for services
performed or to be performed by CroMedica in accordance with the Services
Agreement. Except as described in this section 4, the Company shall have no
other right of prepayment.
5. Partial Payments. In case less than the total principal amount of this
----------------
Debenture is redeemed at any time, the principal amount so redeemed shall
be credited against the principal payable hereunder in inverse order of
maturity.
6. Security. As security for the payment of the principal, interest and all
--------
other moneys from time to time payable under this Debenture, and the
performance by the Company of all its obligations hereunder, but subject to
Permitted Encumbrances and to the exception as to leaseholds hereinafter
contained, the Company hereby grants a security interest in and grants,
assigns, mortgages and charges, as and by way of a first, fixed and
specific mortgage and charge to and in favour of CroMedica all real and
immoveable property, both freehold and leasehold, now owned or hereafter
acquired by the Company, together with all buildings, erections, fixed
machinery and fixed equipment presently situated thereon or which may at
any time hereafter be constructed or placed thereon or used in connection
therewith;
And for the same consideration and purposes and subject to the same
exceptions, the Company hereby grants a security interest in, and charges
as and by way of a first floating charge to and in favour of CroMedica, all
<PAGE>
Page 3
of the undertaking of the Company and all of its property and assets for
the time being, both present and future, and of whatsoever nature and
wherever situate (other than property and assets from time to time
effectively subjected to the fixed and specific mortgages and charges
created hereby, including
(a) all inventory of whatever kind and wheresoever situate ("Inventory");
(b) all equipment (other than Inventory) of whatever kind and wherever
situate, including, without limitation, all machinery, tools,
apparatus, plant, furniture, fixtures and vehicles of whatsoever nature
or kind;
(c) all Goods (including parts, accessories, attachments, special tools,
additions and accessions thereto), Chattel Paper, Documents of Title
(whether negotiable or not), Instruments, Intangibles and Securities;
(d) all book accounts and book debts and generally all accounts, debts,
dues, claims, choses in action and demands of every nature and kind
howsoever arising or secured including letters of credit and advices of
credit, which are now due, owing or accruing or growing due to or owned
by or which may hereafter become due, owned or accruing or growing due
to or owing by the Corporation ("Debts");
(e) all deeds, documents, writings, papers, books of account and other
books relating to or being records of Debts, Chattel Paper or Documents
of Title or by which such are or may hereafter be secured, evidenced,
acknowledged or made payable;
(f) all contractual rights and insurance claims;
(g) all monies other than trust monies lawfully belonging to others;
(h) all goodwill, patents, trade marks, copyrights and other industrial and
intellectual property; and
(i) all statutory licences, quotas and other transferable rights.
.
The terms "Goods", "Chattel Paper", "Documents of Title", "Instruments",
"Intangibles", "Securities", "proceeds", "Inventory" and "accessions"
whenever used herein shall be interpreted pursuant to their respective
meanings when used in the Personal Property Security Act (British
Columbia), as amended from time to time.
Provided that such floating charge shall not prevent the Company from time
to time until the security hereby constituted shall have become enforceable
from selling, leasing or otherwise disposing of the property, rights and
assets included in such floating charge or from making expenditures with a
view to the expansion of its business or from giving security constituting
Permitted Encumbrances, all in the ordinary course of its business and
subject to the provisions of this Debenture.
Notwithstanding any other provision of this Debenture, the security
interests constituted hereby and by any supplemental security granted to
CroMedica shall not be subordinate to, nor is there any intention to
subordinate such security interests to, any Permitted Encumbrances or
security interests held by others.
<PAGE>
Page 4
All security interests created by this Debenture attach immediately upon
execution of the Debenture. The Corporation acknowledges that value has
been given and that it has rights in the Mortgaged Premises (as defined
below) sufficient for a security interest to attach. The attachment of the
floating charge has not been postponed and the floating charge shall attach
to any particular property intended to be subject to it as soon as the
Company has rights in such property.
All property and assets of the Company whether specifically charged or
subjected to the floating charge are hereinafter referred to as the
"Mortgaged Premises".
7. Exception as to Leaseholds. It is hereby declared that the last day of
--------------------------
any term of years reserved by any lease or sublease, verbal or written, or
any agreement therefor, now held or hereafter acquired by the Company is
excepted out of the Mortgaged Premises, but the Company shall stand
possessed of any such reversion upon trust to assign and dispose thereof
as CroMedica may direct.
8. Payments and Notice. Any payments not received by CroMedica by two
-------------------
o'clock p.m. on a Business Day shall be deemed to have been received on the
next Business Day. Any notice required or desired to be given hereunder or
under any instrument supplemental hereto shall be in writing and may be
given by personal delivery, by facsimile or other means of electronic
communication or by sending the same by registered mail, postage prepaid,
to CroMedica or to the Company at their respective addresses set out above
and, in the case of electronic communication, to the facsimile numbers set
out above. Any notice so delivered shall be conclusively deemed given when
personally delivered and any notice sent by facsimile or other means of
electronic transmission shall be deemed to have been delivered on the
Business Day following the sending of the notice, and any notice so mailed
shall be conclusively deemed given on the fifth Business Day following the
day of mailing, provided that in the event of a known disruption of postal
service, notice shall not be given by mail. Any address for notice or
payments herein referred to may be changed by notice in writing given
pursuant hereto.
9. Covenants. This Debenture is issued subject to and with the benefit of
---------
all the covenants, terms and conditions in Exhibit "A" hereto which Exhibit
forms a part hereof.
10. Maximum Recovery. If any amounts, whether on account of interest or
----------------
additional consideration, becomes payable to or is received by CroMedica
pursuant to this Debenture which would exceed the maximum amount
recoverable under applicable law on moneys secured by this Debenture:
(a) any amounts so payable shall be reduced and are hereby limited to the
maximum amount recoverable under applicable law;
(b) any amounts so received by CroMedica shall, at CroMedica's option,
either be returned to the Company or, notwithstanding Section 4 hereof,
be deemed to have been received by CroMedica as a partial redemption of
this Debenture and shall be credited against principal payable
hereunder in inverse order of maturity; and
(c) if paragraph (a) requires the reduction in an amount or amounts payable
to CroMedica, CroMedica in its sole discretion shall determine which
amount or amounts shall be reduced to ensure compliance with this
Section 11.
11. Extensions and Amendments. Any agreement for the extension of the time
-------------------------
of payment of the moneys hereby secured or any part thereof made at, before
or after maturity, and prior to the execution of a discharge or release of
<PAGE>
Page 5
this Debenture, or any agreement for altering the term, rate of interest
(whether increased or decreased), the amount of the principal payments
hereunder or any other covenant or condition hereof, need not be registered
in any office of public record but shall be effectual and binding upon the
Company and upon every subsequent mortgagee, chargee, encumbrancer or other
person claiming an interest in the Mortgaged Premises or any part thereof
when executed by the Company and delivered to CroMedica.
12. Receipt. The Company hereby acknowledges receipt of a true copy of this
-------
Debenture and, to the extent permitted by law, waives all rights to receive
from CroMedica a copy of any financing statement or financing change
statement filed, or any verification statement received, at any time in
respect of this Debenture or any supplemental or collateral security
granted to CroMedica.
13. Binding Effect, Governing Law and Headings. These presents are binding
------------------------------------------
upon the parties hereto and their respective successors and assigns. This
Debenture shall be governed by and construed in accordance with the laws of
the Province of British Columbia and the laws of Canada applicable therein.
The division of this Debenture into sections and the insertion of headings
are for convenience of reference only and shall not affect the construction
or interpretation of this Debenture.
14. Invalidity, etc. Each of the provisions contained in this Debenture is
----------------
distinct and severable and a declaration of invalidity, illegality or
unenforceability of any such provision or part thereof by a court of
competent jurisdiction shall not affect the validity or enforceability of
any other provision of this Debenture.
(The remainder of this page has intentionally been left blank.)
<PAGE>
IN WITNESS WHEREOF the Company has executed this Debenture.
IMMUNE NETWORK RESEARCH LTD.
By: /s/ Matt Sadler
Name: Matthew Sadler
Title: Project Director
c/s
By: /s/ Rupinder Bagri
Name: Rupinder Bagri
Title: Corporate Communications
Exhibit "A" - Covenants, Terms and Conditions
<PAGE>
EXHIBIT "A"
COVENANTS, TERMS AND CONDITIONS
-------------------------------
1. THE COMPANY HEREBY DECLARES, COVENANTS AND AGREES THAT IT:
(a) As to Title - it is the sole legal and beneficial owner of the
-----------
Mortgaged Premises and owns the same free of all encumbrances other than
Permitted Encumbrances;
(b) Further Assurances - shall at its expense on the request of CroMedica,
------------------
execute and deliver to CroMedica such further assurances and documents as
CroMedica may require to perfect CroMedica's security in all or any part
of the Mortgaged Premises, or to specifically charge any or all of the
property then subject to the floating charge created hereby;
(c) Pay Costs - shall pay all costs and expenses (including legal fees on a
---------
solicitor and own client basis) of CroMedica incidental to or which in
any way relate to the enforcement of this Debenture; all such costs and
expenses and other monies payable hereunder, together with interest at
the Interest Rate, shall be payable on demand and shall upon being
incurred by CroMedica be secured hereby and constitute a charge on the
Mortgaged Premises and any proceeds of realization;
(d) To Maintain Corporate Existence and Security - shall maintain its
--------------------------------------------
corporate existence, shall maintain the security hereby created as a
valid and effective security at all times so long as any moneys are
outstanding hereunder, shall carry on and conduct its business in a
proper and efficient manner and in accordance with all applicable law,
shall not materially alter the kind of business carried on by it, shall
advise CroMedica promptly in writing of any proposed change in its name;
(e) Not to Remove - prior to the removal of any of the Mortgaged Premises
-------------
from the province in which it is situated at the date of this Debenture,
the Company shall effect such further registrations and obtain such other
consents and give such other security, at the sole cost and expense of
the Company, as may be required or desirable to protect or preserve the
security hereby created, and the Company shall forthwith notify CroMedica
of the intended removal and the action proposed to be taken.
2. Waiver of Covenants. CroMedica may waive any breach by the Company of
-------------------
any of the provisions contained in this Debenture or any default by the
Company in the observance or performance of any covenant or condition
required to be observed or performed by the Company hereunder, provided
that no such waiver or any other act, failure to act or omission by
CroMedica shall extend to or be taken in any manner to affect any
subsequent breach or default or the rights of CroMedica resulting
therefrom.
3. Performance of Covenants by CroMedica. If the Company shall fail to
-------------------------------------
perform any covenant on its part herein contained, CroMedica may in its
absolute discretion perform any such covenant capable of being performed
by it. If any such covenant requires the payment of money or if the
Mortgaged Premises or any part thereof shall become subject to any charge
ranking in priority to the lien hereof, CroMedica may make such payment
and/or pay or discharge such charge, but shall be under no obligation to
do so. All sums so paid by CroMedica, together with interest at the
<PAGE>
Page 8
Interest Rate, shall be payable on demand and shall constitute a charge
upon the Mortgaged Premises. No such performance or payment shall relieve
the Company from any default hereunder or any consequences of such
default.
4. No Merger or Novation. The taking of any judgment or the exercise of any
---------------------
power of seizure or sale shall not operate to extinguish the liability of
the Company to perform its obligations hereunder or to pay the moneys
hereby secured, shall not operate as a merger of any covenant herein
contained or affect the right of CroMedica to interest at the Interest
Rate in effect from time to time hereunder, and the acceptance of any
payment or other security shall not constitute or create any novation.
The execution and delivery of this Debenture or of any instruments or
documents supplemental hereto shall not operate as a merger of any
representation, warranty, term, condition or other provision contained
in any other obligation or indebtedness of the Company to CroMedica.
5. Events of Default. The whole of the principal balance remaining unpaid
-----------------
together with interest and all other moneys secured by this Debenture
shall, at the option of CroMedica, become immediately due and payable and
the security hereby created shall become enforceable in each of the
following events (each event being herein called an "event of default"):
(a) if the Company defaults in payment of the principal of or interest on
this Debenture or on any other indebtedness of the Company to
CroMedica when the same becomes due;
(b) if the Company defaults in the performance or observance of any of
the covenants or conditions contained in this Debenture or the
Services Agreement, provided such default is not remedied within
thirty (30) days of CroMedica advising the Company in writing of such
default;
(c) if the Services Agreement is terminated for any reason whatsoever;
(d) if the Company admits in writing its inability to pay its debts
generally as they mature or institutes any proceeding or takes any
corporate action or executes any agreement or notice of intention to
authorize its participation in or commencement of any proceeding (i)
seeking to adjudicate it a bankrupt or insolvent, or (ii) seeking
liquidation, dissolution, winding up, reorganization, arrangement,
protection, relief or composition of it or any of its property or
debt or making a proposal with respect to it under any law relating
to bankruptcy, insolvency, reorganization or compromise of debts or
other similar laws (including, without limitation, any application
under the Companies' Creditors Arrangement Act or any reorganization,
arrangement or compromise of debt under the laws of its jurisdiction
of incorporation);
(e) any proceeding is commenced against or affecting the Company:
(i) seeking to adjudicate it a bankrupt or insolvent;
(ii) seeking liquidation, dissolution, winding up, reorganization,
arrangement, protection, relief or composition of it or any of
its property or debt or making a proposal with respect to it
under any law relating to bankruptcy, insolvency,
reorganization or compromise of debts or other similar laws
(including, without limitation, any reorganization, arrangement
or compromise of debt under the laws of its jurisdiction of
incorporation); or
<PAGE>
Page 9
(iii) seeking appointment of a receiver, trustee, agent, custodian or
other similar official for it or for any part of its properties
and assets, including the Mortgaged Premises or any part
thereof;
(f) if an encumbrancer or secured creditor shall appoint a receiver or
agent over any part of the Mortgaged Premises, or take possession of
any part of the Mortgaged Premises or if any execution, distress or
other process of any court becomes enforceable against any of the
property of the Company, or a distress or like process is levied upon
any of such property;
(g) if the Company takes any corporate proceedings for its dissolution,
liquidation or amalgamation with another company or if the corporate
existence of the Company shall be terminated by expiration,
forfeiture or otherwise;
6. Enforcement. Upon the happening of any event of default, CroMedica shall
-----------
have the following rights, powers and remedies in addition to any other
rights, powers and remedies which otherwise may be available to it in
law:
(a) to enter upon and take possession of all or any part of the Mortgaged
Premises;
(b) to preserve and maintain the Mortgaged Premises and make such
replacements thereof and additions thereto as it shall deem
advisable;
(c) to exercise all powers necessary to the performance of all functions
provided for herein including without limitation the powers to
purchase on credit, to borrow money in the Company's name or in its
own name and to advance its own money to the Company at such rates of
interest as it may deem reasonable;
(d) to sell, for cash or credit or part cash and part credit, lease or
dispose of all or any part of the Mortgaged Premises whether by
public auction or by private sale or lease in such manner as
CroMedica may determine, provided that it shall not be incumbent on
CroMedica to sell, lease or dispose of the said property but that it
shall be lawful for CroMedica peaceably to use and possess the same
without hindrance or interruption by the Company, or any other
person or persons whomsoever, and to receive income from such
property and to convey, transfer and assign to a purchaser or
purchasers the title to any undertaking, property and assets so sold
and provided further that in the case of a sale on credit CroMedica
shall only be liable to account to the Company, any subsequent
encumbrancers and others for moneys actually received by CroMedica;
and
(e) to appoint by instrument any person or persons to be a Receiver of
all or any portion of the undertaking, property and assets hereby
charged, to fix the Receiver's remuneration and to remove any
Receiver so appointed and appoint another or others in his stead.
7. Powers of Receiver.
-------------------
(a) Any Receiver shall have all of the powers of CroMedica set out in
Section 6 of this Exhibit and, in addition, shall have the following
powers:
(i) to carry on the business of the Company and to enter into any
compromise or arrangement on behalf of the Company; and
<PAGE>
Page 10
(ii) without the prior written consent of the Company to borrow
money in its name or in the Company's name, for the purpose of
carrying on the business of the Company and for the
preservation and realization of the undertaking, property and
assets of the Company including, without limitation, the right
to pay persons having prior charges or encumbrances on
properties on which the Company may hold charges or
encumbrances, with any amount so borrowed and any interest
thereon to be a charge upon the Mortgaged Premises in priority
to this Debenture;
(b) Any Receiver appointed pursuant to the provisions hereof shall be
deemed to be an agent of the Company for the purposes of:
(i) carrying on and managing the business and affairs of the
Company, and
(ii) establishing liability for all of the acts or omissions of the
Receiver while acting in any capacity hereunder and CroMedica
shall not be liable for such acts or omissions,
provided that, without restricting the generality of the foregoing, the
Company irrevocably authorizes CroMedica to give instructions to the
Receiver relating to the performance of its duties as set out herein.
8. Application of Moneys. All moneys actually received by CroMedica or by
---------------------
the Receiver pursuant to Sections 6 and 7 of this Exhibit shall be
applied:
(a) first, in payment of claims, if any, of secured creditors of the
Company, including any claim of the Receiver pursuant to clause 7,
ranking in priority to the charges created by this Debenture;
(b) second, in payment of all costs, charges and expenses of and
incidental to the appointment of the Receiver (including legal fees
on a solicitor and its own client basis) and the exercise by the
Receiver or CroMedica of all or any of the powers granted to them
under this Debenture, including the reasonable remuneration of the
Receiver or any agent or employee of the Receiver or any agent of
CroMedica and all outgoings properly paid by the Receiver or
CroMedica in exercising their powers as aforesaid;
(c) third, in or towards the payment to CroMedica of all moneys due to
it by the Company in such order as CroMedica in its sole discretion
may determine; and
(d) fourth, subject to applicable law, any surplus shall be paid to the
Company.
9. Restriction on Company and its Officers and Directors. Upon the Company
-----------------------------------------------------
receiving notice from CroMedica of the taking of possession of the
Mortgaged Premises or the appointment of a Receiver, all the powers,
functions, rights and privileges of each of the directors and officers
of the Company with respect to the properties, business and undertaking
of the Company shall cease unless specifically continued by the written
consent of CroMedica.
10. Discharge and Satisfaction. Upon payment by the Company to CroMedica of
--------------------------
all moneys hereby secured, these presents shall cease and become null
and void and the Mortgaged Premises shall revest in the Company without
<PAGE>
Page 11
any acknowledgement or formality, but CroMedica shall upon the request
and at the expense of the Company, execute and deliver to the Company a
full release and discharge of this Debenture and its security.
11. Interpretation. As used herein the following expressions shall have the
--------------
following meanings:
(a) "Business Day" means any day except Saturday, Sunday or a statutory
holiday in the Province of British Columbia;
(b) "Interest Rate" means the rate of interest specified in Section 3
of the Debenture;
(c) "Prime Rate" means, at any time, the rate of interest expressed as
an annual rate, established by the head office of the Bank of
Montreal from time to time as its reference rate of interest to
determine the interest rates it will charge for loans in Canadian
dollars to Canadian customers;
(d) "Receiver" shall include one or more of a receiver, receiver-
manager or receiver and manager of all or a portion of the
undertaking, property and assets of the Company appointed by
CroMedica pursuant to this Debenture;
(e) "CroMedica" means CroMedica Global Inc., its successors and assigns
and, where applicable, includes those for whom it acts as nominee
or agent;
(f) "Permitted Encumbrances" means any of the following:
(i) liens for taxes, assessments, governmental charges or levies
not at the time due;
(ii) rights reserved to or vested in any municipality or
governmental or other public authority by the terms of any
lease, licence, franchise, grant or permit, or by any
statutory provision, to terminate the same or to require
annual or other periodic payments as a condition to the
continuance thereof; and
(iii) any lien or encumbrance the validity of which is being
contested by the Company in good faith.
<PAGE>
<PAGE>
Exhibit 3-14
EXHIBIT 3-14
Share Purchase Warrant Indenture dated March 9, 2000
with Montreal Trust Company of Canada
<PAGE>
IMMUNE NETWORK RESEARCH LTD.
- and -
MONTREAL TRUST COMPANY OF CANADA
SHARE PURCHASE WARRANT INDENTURE
March 9, 2000
Maitland & Company
Vancouver
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
DEFINITIONS AND INTERPRETATION 1
1.1 Definitions 1
1.2 Interpretation 5
1.3 Schedule 5
1.4 Time of the Essence 5
1.5 Applicable Law 6
1.6 Currency 6
ARTICLE 2
ISSUE OF UNIT WARRANTS 6
2.1 Issue of Unit Warrants 6
2.2 Terms of Unit Warrants 6
2.3 Fractional Unit Warrants 6
2.4 Form of Warrant Certificates 6
2.5 Delivery of Warrant Certificates 7
2.6 Issue in Substitution of Unit Warrants 7
2.7 Conditions for Replacement of Unit Warrants 7
2.9 Unit Warrants to Rank Pari Passu 7
2.10 Signing of Unit Warrants 7
2.11 Certification by the Trustee 8
2.12 Certification Not a Representation or Warranty 8
ARTICLE 3
EXCHANGE AND OWNERSHIP OF UNIT WARRANTS 8
3.1 Exchange of Warrant Certificates 8
3.2 Place for Exchange of Warrant Certificates 8
3.3 Charges for Exchange 8
3.4 Ownership of Unit Warrants 9
ARTICLE 4
REGISTRAR AND TRANSFER AGENCIES 9
4.1 Appointment of Trustee as Registrar 9
4.2 Register 9
4.3 Register to be Open for Inspection 9
4.4 List of Warrantholders 9
4.5 Obligations of Trustee 9
ARTICLE 5
TRANSFER OF SPECIAL WARRANT CERTIFICATES 10
5.1 Transfer of Warrant Certificates 10
5.2 Validity of Transfer 10
ARTICLE 6
EXERCISE OF UNIT WARRANTS 10
6.1 Exercise During Exercise Period 10
<PAGE>
6.2 Method of Exercise of Unit Warrants 10
6.3 Surrender of Unit Warrants 10
6.4 Completion and Execution of Exercise Form 11
6.5 Resale Restriction Legends 11
6.6 Effect of Exercise of Unit Warrants 11
6.7 Delivery of Warrant Share Certificates 11
6.8 No Fractional Warrant Shares 11
6.9 Expiration of Unit Warrants 12
6.10 Accounting and Recording 12
6.11 Cancellation of Surrendered Unit Warrants 12
ARTICLE 7
ADJUSTMENT OF EXCHANGE NUMBER 12
7.1 Definitions 12
7.2 Adjustment of Exchange Number 12
7.3 Share Reorganization 12
7.4 Rights Offering 13
7.5 Special Distribution 14
7.6 Capital Reorganization 15
7.7 Reclassification of Common Shares 16
7.8 Subscription Rights Adjustment Rules 16
7.9 Postponement of Subscription 17
7.10 Notice of Certain Events 17
7.11 Protection of Trustee 18
7.12 Entitlement to Common Shares on Exercise of Unit Warrant 18
7.13 Proceedings Prior to Any Action Requiring Adjustment 18
7.14 Notice of Special Matters 18
ARTICLE 8
RIGHTS AND COVENANTS 19
8.1 General Covenants of the Company 19
8.2 Trustee's Remuneration and Expenses 19
8.3 Right to Dividends or Distributions 20
8.4 Performance of Covenants by Trustee 20
8.5 Securities Qualification Requirements 20
ARTICLE 9
ENFORCEMENT 20
9.1 Suits by Warrantholders 20
9.2 Immunity of Shareholders, Officers & Directors 21
9.3 Waiver of Default 21
ARTICLE 10
MEETINGS OF WARRANTHOLDERS 21
10.1 Right to Convene Meetings 21
10.2 Notice 22
10.3 Chairman 22
<PAGE>
10.4 Quorum 22
10.5 Power to Adjourn 22
10.6 Show of Hands 22
10.7 Poll 23
10.8 Voting 23
10.9 Regulations 23
10.10 Company and Trustee may be Represented 24
10.11 Powers Exercisable by Special Resolution 24
10.12 Meaning of "Special Resolution" 25
10.13 Powers Cumulative 25
10.14 Minutes 25
10.15 Instruments in Writing 26
10.16 Binding Effect of Resolutions 26
10.17 Holdings by Company Disregarded 26
ARTICLE 11
SUPPLEMENTAL INDENTURES AND SUCCESSOR COMPANIES 26
11.1 Provision for Supplemental Indentures for Certain Purposes 26
11.2 Successor Companies 27
ARTICLE 12
CONCERNING THE TRUSTEE 27
12.1 Trust Indenture Legislation 27
12.2 Rights and Duties of Trustee 28
12.3 Evidence, Experts and Advisers 28
12.4 Securities, Documents and Monies Held by Trustee 29
12.5 Action by Trustee to Protect Interests 29
12.6 Trustee not Required to Give Security 29
12.7 Protection of Trustee 30
12.8 Replacement of Trustee 30
12.9 Conflict of Interest 31
12.10 Acceptance of Trust 31
12.11 Indemnity 31
12.12 Survival on Termination 32
ARTICLE 13
GENERAL 32
13.1 Notice to Company and Trustee 32
13.2 Notice to Warrantholders 33
13.3 Satisfaction and Discharge of Indenture 34
13.4 Sole Benefit of Parties and Warrantholders 34
13.5 Counterparts and Formal Date 34
Schedule "A": Form of Warrant Certificate
<PAGE>
THIS WARRANT INDENTURE is dated as of March 9, 2000
BETWEEN:
IMMUNE NETWORK RESEARCH LTD., a body corporate amalgamated in the Province of
British Columbia, having an office at 3650 Wesbrook Mall, Vancouver, British
Columbia, V6S 2L2,
(the "Company" );
A N D:
MONTREAL TRUST COMPANY OF CANADA, a Canadian trust company incorporated under
the laws of British Columbia, located at located at 4th Floor, 510 Burrard
Street, Vancouver, British Columbia, V6C 3B9,
(the "Trustee");
WHEREAS:
A. Pursuant to the Agency Agreement (hereinafter defined), and in accordance
with the provisions of the Special Warrant Indenture (hereinafter defined),
the Company proposes to issue, upon the exercise or deemed exercise of the
Special Warrants (hereinafter defined), share purchase warrants ("Unit
Warrants") each exercisable by the holder on the terms set out in this
Indenture into securities of the Company as described in this Indenture;
B. All acts and deeds necessary have been done and performed to make the
Unit Warrants, when issued as provided in this Indenture, legal, valid and
binding upon the Company with the benefits and subject to the terms of this
Indenture; and
C. The foregoing recitals are made as representations and statements of fact by
the Company and not by the Trustee;
NOW THEREFORE THIS INDENTURE WITNESSES that in consideration of the mutual
covenants herein, the parties agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Indenture, unless otherwise specified:
(a) "Agency Agreement" means the agency agreement dated as of March 9, 2000,
between the Company and the Agent relating to the offering of Special
Warrants;
(b) "Agent" means Groome Capital.com Inc.;
(c) "Applicable Legislation" means the provisions of the Company Act (British
Columbia) as from time to time amended, and any statute of Canada or its
provinces and the regulations under those statutes relating to trust
indentures or the rights, duties or obligations of corporations and
trustees under trust indentures as are from time to time in force and
applicable to this Indenture;
<PAGE>
Page 2
(d) "Applicable Securities Laws" means, collectively, the applicable securities
laws of the Qualifying Provinces, the regulations, rules, rulings and
orders made thereunder, the applicable policy statements issued by the
Commissions and the securities legislation and policies of each other
relevant jurisdiction and the applicable rules, regulations and policies of
the Exchange;
(e) "business day" means a day that is not a Saturday, Sunday, or civic or
statutory holiday in British Columbia;
(f) "Closing" means the closing of the Private Placement;
(g) "Closing Date" means March 9, 2000, or such other day as may be mutually
agreed upon between the Company and the Agent;
(h) "Commissions" means the Alberta Securities Commission, the British Columbia
Securities Commission, the Ontario Securities Commission, and the
Commission de valeurs mobilie du Quebec (Quebec Securities Commission);
(i) "Common Shares" means fully paid and non-assessable common shares without
par value in the capital of the Company; provided that if the exercise
rights are subsequently adjusted or altered pursuant to section 7.7 or 7.8,
"Common Shares" will thereafter mean the shares or other securities or
property that a Warrantholder is entitled to on an exchange after the
adjustment;
(j) "Company's auditors" means such firm of chartered accountants as may be
duly appointed as the auditors of the Company.
(k) "Convertible Security" means a security of the Company (other than the
Special Warrants or Unit Warrants) convertible into or exchangable for or
otherwise carrying the right to acquire Common Shares;
(l) "Current Market Price" at any date means the average of the closing prices
of the Common Shares at which the Common Shares have traded on the
Exchange, or, if the Common Shares in respect of which a determination of
current market price is being made are not listed on the Exchange, on such
stock exchange on which such shares are listed as may be selected for such
purpose by the directors and approved by the Trustee, or, if the Common
Shares are not listed on any stock exchange, then on the over-the-counter
market, during the 20 consecutive trading days (on each of which at least
500 Common Shares are traded in board lots) ending on the third trading day
prior to such date, and the weighted average price will be determined by
dividing the aggregate sale price of all Common Shares sold in board lots
on the exchange or market, as the case may be, during the 20 consecutive
trading days by the number of Common Shares sold, or in the event that at
any date the Common Shares are not listed on any exchange or on the over-
the-counter market, the current market price shall be as determined by the
directors and approved by the Trustee;
(m) "director" means a director of the Company for the time being, and unless
otherwise specified herein, "by the directors" means action by the
directors of the Company as a board or, whenever duly empowered, action by
any committee of such board;
<PAGE>
Page 3
(n) "Dividends Paid in the Ordinary Course" means dividends paid in any
financial year of the Company, whether in (i) cash, (ii) shares of the
Company, (iii) warrants or similar rights to purchase any shares of the
Company or property or other assets purchasable as of the date of
distribution of such warrants or similar rights, or (iv) property or other
assets of the Company, as the case may be, as determined by action by the
directors except that, in the case of warrants or similar rights to
purchase Common Shares or securities convertible into or exchangeable for
Common Shares, such fair market value of the warrants or similar rights
shall be equal to the number of Common Shares which may be purchased
thereby (or the number of Common Shares issuable upon conversion or
exchange) as of the date of distribution of such warrants or similar
rights, multiplied by the Current Market Price of the Common Shares on the
date of such distribution, provided that the value of such dividends does
not in such financial year exceed the greater of:
(i) the lesser of 50% of the retaining earnings of the Company as at
the end of the immediately preceding financial year and 200% of the
aggregate amount of dividends paid by the Company on the Common
Shares in the 12 month period ending immediately prior to the first
day of such financial year; and
(ii) 100% of the consolidated net earnings from continuing operations of
the Company, before any extraordinary items, for the 12 month period
ending immediately prior to the first day of such financial year
(such consolidated net earnings from continuing operations to be
computed in accordance with generally accepted accounting principles
in Canada consistent with those applied in the preparation of the
most recent audited financial statements of the Company);
(o) "Effective Date" means the date of this Warrant Indenture;
(p) "Exchange" means the Canadian Venture Exchange;
(q) "Exchange Number" means the number of Warrant Shares to be received by a
Holder upon exercise of the Unit Warrants, as may be adjusted under the
provisions of this Indenture;
(r) "Exercise Period" means the period during which a Unit Warrant may be
exercised, commencing on the date of issuance of the Unit Warrant and
ending at 4:30 p.m. (Vancouver time) on the day which is 18 months from the
Closing Date;
(s) "person" means an individual, a corporation, a partnership, trust,
trustee, executor, administrator, legal representative or any
unincorporated organization and words importing persons have a similar
meaning;
(t) "Private Placement" means the offering of the Special Warrants pursuant to
the Agency Agreement;
(u) "Qualifying Provinces" means the Provinces of Alberta, British Columbia,
Ontario and Quebec;
(v) "shareholder" means a holder of record or one or more Common Shares;
(w) "Special Resolution" has the meaning given in sections 10.12 and 10.15;
<PAGE>
Page 4
(x) "Special Warrants" means the special warrants authorized to be created by
the Company and issued and certified under the Special Warrant Indenture
entitling the holder to acquire one Unit;
(y) "Special Warrant Indenture" means the special warrant indenture, dated for
reference March 9, 2000, entered into between the Company and the Trustee
governing the Special Warrants;
(z) "trading day" with respect to a stock exchange means a day on which the
stock exchange is open for business;
(aa) "Trustee" means Montreal Trust Company of Canada, or any lawful successor
thereto including through the operation of section 12.8;
(ab) "Unit" means a unit of the Company issuable, for no additional
consideration, upon the exercise or deemed exercise of the Special
Warrants, each consisting of one Unit Share and one-half of one Unit
Warrant, subject to adjustment as provided under Article 7;
(ac) "Unit Warrants" means the share purchase warrants of the Company to be
issued as part of the Units upon the exercise or deemed exercise of the
Special Warrants, with each whole Unit Warrant entitling the holder to
purchase one additional Common Share, at a price of $1.40 per Common Share,
at any time up to 4:30 p.m. (Vancouver time) on the day which is 18 months
from the Closing Date;
(ad) "Warrant Certificates" means the certificates evidencing the Unit Warrants,
substantially in the form attached as Schedule "A" to this Indenture, or
such other form as may be approved under section 2.4;
(ae) "Warrant Exercise Date" with respect to any Unit Warrant means the date of
exercise of the Unit Warrants pursuant to section 6.3;
(af) "Warrant Share" means a Common Share issuable upon the exercise of one
Unit Warrant, subject to adjustment as provided in Article 7;
(ag) "Warrant Share Certificates" means the certificates evidencing the
Warrant Shares;
(ah) "Warrant Share Purchase Price" means $1.40 per Warrant Share;
(ai) "Warrantholders" or "Holders" means the registered holders of Unit Warrants
for the time being;
(aj) "Warrantholders' Request" means an instrument signed in one or more
counterparts by Warrantholders holding, in the aggregate, not less than 25%
of the aggregate number of Unit Warrants then outstanding, requesting the
Trustee to take some action or proceeding specified therein; and
(ak) "written request of the Company" and "certificate of the Company" mean
respectively a written request and certificate signed in the name of the
Company by any one director or officer and may consist of one or more
instruments so executed.
<PAGE>
Page 5
1.2 Interpretation
For the purposes of this Indenture and unless otherwise provided or unless the
context otherwise requires:
(a) "this Indenture", "this Warrant Indenture", "herein", "hereby" and similar
expressions mean or refer to this Warrant Indenture and any indenture, deed
or instrument supplemental or ancillary hereto; and the expressions
"Article", "section" or "subsection" followed by a number or letter mean
and refer to the specified Article, section or subsection of this
Indenture;
(b) words importing the singular include the plural and vice versa and words
importing the masculine gender include the feminine and neuter genders;
(c) the division of this Indenture into Articles, sections, subsections and
paragraphs, the provision of a table of contents and the insertion of
headings are for convenience of reference only and will not affect the
construction or interpretation of this Indenture;
(d) the word "including", when following any general statement, term or matter,
is not to be construed to limit such general statement, term or matter to
the specific items or matters set forth immediately following such word or
to similar items or matters, whether or not non-limiting language (such as
"without limitation" or "but not limited to" or words of similar import) is
used with reference thereto but rather refers to all other items or matters
that could reasonably fall within the broadest possible scope of such
general statement, term or matter;
(e) any reference to a statute includes and, unless otherwise specified herein,
is a reference to such statute and to the regulations made pursuant
thereto, with all amendments made thereto and in force from time to time,
and to any statute or regulations that may be passed which has the effect
of supplementing or superseding such statute or such regulation;
(f) any capitalized term in this Indenture which is not defined in section 1.1
will have the meanings ascribed elsewhere in this Indenture; and
(g) in the event that any day on which the Exercise Period expires or on or
before which any action is required to be taken hereunder is not a business
day, then the Exercise Period will expire on or the action will be required
to be taken on or before the next succeeding day that is a business day.
1.3 Schedule
The schedule attached to this Indenture is incorporated herein by reference.
1.4 Time of the Essence
Time is of the essence in this Indenture.
<PAGE>
Page 6
1.5 Applicable Law
This Indenture and the Warrant Certificates will be construed and enforced in
accordance with the laws of the Province of British Columbia and the laws of
Canada applicable therein, and will be treated in all respects as British
Columbia contracts.
1.6 Currency
Except as otherwise stated, all dollar amounts herein are expressed in Canadian
dollars.
ARTICLE 2
ISSUE OF UNIT WARRANTS
2.1 Issue of Unit Warrants
A total of up to 7,727,272 whole Unit Warrants, each of which entitles the
holder to acquire one Common Share, at a price of $1.40 each, are hereby created
and authorized to be issued. Subject to section 2.2 and Articles 5 and 6, upon
receipt by the Company of notice of exercise or deemed exercise of the Special
Warrants in accordance with the provisions of the Special Warrant Indenture,
the Company will execute and the Trustee will certify up to 7,727,272 Unit
Warrants. Notwithstanding the foregoing, if the penalty provisions of Article 8
of the Special Warrant Indenture are effected, then the number of whole Unit
Warrants referred to in this section 2.1 shall be deemed to be 8,500,000 (rather
than 7,727,272).
2.2 Terms of Unit Warrants
Subject to the provisions of Articles 5 and 6, each whole Unit Warrant will
entitle the holder thereof, upon exercise at any time during the Exercise Period
and payment to the Issuer of the Warrant Share Purchase Price by way of
certified cheque or bank draft, to be issued, subject to adjustment in
accordance with Article 7, one Warrant Share.
2.3 Fractional Unit Warrants
Notwithstanding any adjustments provided for in this Indenture, the Company
shall not be required upon the exercise of any Unit Warrants to issue fractional
Warrant Shares in satisfaction of its obligations hereunder. Where a fractional
Warrant Share, but for this section 2.3, would have been issued upon exercise
of a Unit Warrant, in lieu thereof there shall be paid to the holder an amount
equal (rounded to the nearest $0.01) to the product obtained by multiplying such
fractional share interest by the Current Market Price at the date of delivery of
each respective Warrant Certificate, which payment shall be made within ten
business days of such delivery. Notwithstanding the foregoing, the Company
shall not be required to make any payment, calculated as aforesaid, that is less
than $5.00.
2.4 Form of Warrant Certificates
Unit Warrants will be issued in registered form only and will be evidenced only
by Warrant Certificates, which will be substantially in the form attached as
Schedule "A" or in such other form as may be approved by the Company, the Agent
and the Trustee, will be dated as of the Exercise Date (as defined in the
<PAGE>
Page 7
Special Warrant Indenture), regardless of their actual dates of issue, and will
bear such distinguishing letters and numbers as the Company will prescribe with
the approval of the Trustee and will bear such legends as may be required under
the Applicable Securities Laws and shall be issuable in any denomination
excluding fractions.
2.5 Delivery of Warrant Certificates
The Warrant Certificates will be delivered to the Warrantholders in accordance
with the provisions of the Special Warrant Indenture.
2.6 Issue in Substitution of Unit Warrants
If any of the Warrant Certificates becomes mutilated, lost, destroyed or stolen
(the "Old Certificate"), the Company, subject to applicable law and to section
2.7, will issue and the Trustee will certify and deliver a new Warrant
Certificate of like date and tenor as the Old Certificate, upon surrender of, in
place of and upon cancellation of the mutilated Old Certificate or in
substitution for the lost, destroyed or stolen Old Certificate, and the
substituted Warrant Certificate will be in a form approved by the Trustee and
will be entitled to the benefit hereof and rank equally in accordance with its
terms with all other Warrant Certificates issued or to be issued under this
Indenture.
2.7 Conditions for Replacement of Unit Warrants
The applicant for the issue of a new Warrant Certificate pursuant to section 2.6
will bear the cost of the issue thereof and in case of loss, destruction or
theft will, as a condition precedent to the issue thereof furnish to the Company
and to the Trustee such evidence of ownership and of the loss, destruction or
theft of the Warrant Certificate so lost, destroyed or stolen as will be
satisfactory to the Company and to the Trustee in their discretion and the
applicant may also be required to furnish an indemnity and surety bond or such
security in amount and form satisfactory to them in their discretion, and will
pay the reasonable charges of the Company and the Trustee in connection with the
issue of the new Warrant Certificate.
2.8 Warrantholder not a Shareholder
Nothing in this Indenture or in the holding of a Unit Warrant evidenced by a
Warrant Certificate, or otherwise, will be construed as conferring upon a
Warrantholder any right or interest whatsoever as a shareholder, including but
not limited to the right to vote at, to receive notice of, or to attend meetings
of shareholders or any other proceedings of the Company or the right to receive
any dividend and other distribution.
2.9 Unit Warrants to Rank Pari Passu
Each Unit Warrant will rank pari passu with all other Unit Warrants, whatever
may be the actual date of issue.
2.10 Signing of Unit Warrants
The Warrant Certificates will be signed by any one of the directors or officers
of the Company and need not be under the seal of the Company. The signatures of
any of these directors or officers may be mechanically reproduced in facsimile
<PAGE>
Page 8
and Warrant Certificates bearing those facsimile signatures will be binding upon
the Company as if they had been manually signed by the directors or officers.
Notwithstanding that any of the persons whose manual or facsimile signature
appears on any Warrant Certificate as a director or officer may no longer hold
office at the date of the Warrant Certificate or at the date of certification or
delivery thereof, any Warrant Certificate signed as aforesaid will, subject to
section 2.11, be valid and binding upon the Company.
2.11 Certification by the Trustee
No Warrant Certificate will be issued or, if issued, will be valid for any
purpose or entitle the Holder to the benefit hereof until it has been certified
by manual signature by or on behalf of the Trustee in the form of the
certificate set out in Schedule "A" hereto, and the certification by the Trustee
upon any Warrant Certificate will be conclusive evidence as against the Company
that the Warrant Certificate so certified has been duly issued under this
Indenture and that the Holder is entitled to the benefit of this Indenture.
2.12 Certification Not a Representation or Warranty
The certification of the Trustee on Warrant Certificates issued under this
Indenture will not be construed as a representation or warranty by the Trustee
as to the validity of this Indenture or of the Warrant Certificates (except the
due certification thereof) and the Trustee will in no respect be liable or
answerable for the use made of the Unit Warrants or any of them or of the
consideration therefor, except as otherwise specified in this Indenture.
ARTICLE 3
EXCHANGE AND OWNERSHIP OF UNIT WARRANTS
3.1 Exchange of Warrant Certificates
Any Warrant Certificate representing a certain number of Unit Warrants may, upon
compliance with the reasonable requirements of the Trustee, be exchanged for one
or more Warrant Certificates representing an equal aggregate number of Unit
Warrants.
3.2 Place for Exchange of Warrant Certificates
Unit Warrants may be exchanged only at the principal transfer office of the
Trustee in the city of Vancouver, Canada or at any other place that is
designated by the Company with the Trustee's approval. Any Unit Warrants
tendered for exchange will be surrendered to the Trustee and cancelled. The
Company will sign all Warrant Certificates necessary to carry out exchanges as
aforesaid and those Warrant Certificates will be certified by or on behalf of
the Trustee.
3.3 Charges for Exchange
For each Warrant Certificate exchanged, the Trustee, except as otherwise herein
provided, will charge if required by the Company a reasonable sum for each new
Warrant Certificate issued. The party requesting the exchange, as a condition
precedent to such exchange, will pay such charges and will pay or reimburse the
Trustee or the Company for all exigible transfer taxes or governmental or other
similar transfer charges required to be paid in connection with such exchange.
<PAGE>
Page 9
3.4 Ownership of Unit Warrants
The Company and the Trustee and their respective agents may deem and treat the
holder of any Unit Warrant as the absolute owner of that Unit Warrant for all
purposes, and the Company and the Trustee and their respective agents will not
be affected by any notice or knowledge to the contrary except where so required
by court order or by statute, concerning which the Company and the Trustee shall
be entitled to rely upon advice from legal counsel. Subject to the provisions
of this Indenture and applicable law, the holder of any Unit Warrant will be
entitled to the rights evidenced by that Unit Warrant free from all equities or
rights of set-off or counterclaim between the Company and the original or any
intermediate holder thereof and all persons may act accordingly and the receipt
from any Holder for the Warrant Shares or monies obtainable pursuant thereto
will be a good discharge to the Company and the Trustee for the same and neither
the Company nor the Trustee will be bound to inquire into the title of any
Holder except where so required by court order or by statute, concerning which
the Company and the Trustee shall be entitled to rely upon advice from legal
counsel.
ARTICLE 4
REGISTRAR AND TRANSFER AGENCIES
4.1 Appointment of Trustee as Registrar
The Company hereby appoints the Trustee as registrar of the Unit Warrants. The
Company may hereafter with the consent of the Trustee, appoint one or more other
additional registrars of the Unit Warrants.
4.2 Register
The Trustee shall maintain a register, at its principal transfer office in the
city of Vancouver, in which will be entered the names and addresses of the
Warrantholders and other particulars of the Unit Warrants held by each of them
respectively and of all transfers of Unit Warrants permitted by this Indenture.
4.3 Register to be Open for Inspection
The register referred to in section 4.2 will at all reasonable times be open for
inspection by the Company by the Trustee and by any Warrantholder. The register
required to be kept at the city of Vancouver will not be closed at any time.
4.4 List of Warrantholders
The Trustee will, when requested so to do by the Company, furnish the Company
with a list of names and addresses of the Warrantholders showing the number of
Unit Warrants held by each Warrantholder.
4.5 Obligations of Trustee
Except as required by law, neither the Trustee nor any other registrar nor the
Company will be charged with notice of or be bound to see to the execution of
any trust, whether express, implied or constructive, in respect of any Unit
Warrant.
<PAGE>
Page 10
ARTICLE 5
TRANSFER OF SPECIAL WARRANT CERTIFICATES
5.1 Transfer of Warrant Certificates
Subject to compliance with all applicable securities laws and requirements of
regulatory authorities, including without limitation, any undertaking required
to be given to the Exchange by the transferor and transferee, the holder of a
Unit Warrant may at any time and from time to time have the Unit Warrants
transferred by the Trustee in accordance with the conditions herein and such
reasonable requirements as the Trustee may prescribe. Any such transfer shall
be duly noted in the register of Unit Warrants maintained by the Trustee. Upon
compliance with the foregoing requirements, the Trustee shall issue to the
transferee a Warrant Certificate representing the Unit Warrants transferred.
Compliance with all applicable securities laws and requirements of regulatory
authorities shall be the Holder's responsibility and not that of the Trustee.
5.2 Validity of Transfer
No transfer of Unit Warrants will be valid unless made by the Holder or the
Holder's executors or administrators or other legal representatives or the
Holder's attorney duly appointed by an instrument in writing in form and
executed in a manner satisfactory to the registrar, and upon compliance with
such requirements as the registrar may prescribe.
ARTICLE 6
EXERCISE OF UNIT WARRANTS
6.1 Exercise During Exercise Period
The holder of a Warrant Certificate may exercise the Unit Warrants represented
by the Warrant Certificate at any time and from time to time in whole or in part
during the Exercise Period. Any such exercise will be subject to the Holder
providing such assurances and executing such documents as may, in the reasonable
opinion of the Company or the Trustee, be required to ensure compliance with
Applicable Securities Laws.
6.2 Method of Exercise of Unit Warrants
A Warrantholder may, during the Exercise Period, exercise the right under a Unit
Warrant to acquire a Warrant Share by surrendering to the Trustee at its
principal transfer office in the city of Vancouver or at any other place or
places that may be designated by the Company with the approval of the Trustee, a
certificate or certificates representing one whole Unit Warrant for each whole
Unit Warrant exercised, together with the full Warrant Share Purchase Price
payable and a fully completed and duly executed exercise form in the form
attached to the Unit Warrant Certificate.
6.3 Surrender of Unit Warrants
The Unit Warrants will only be deemed to have been surrendered upon personal
delivery of the applicable Warrant Certificate(s) and accompanying documents to,
or if sent by mail or other means of transmission, upon actual receipt thereof
by the Trustee.
<PAGE>
Page 11
6.4 Completion and Execution of Exercise Form
Any exercise form referred to in section 6.3 will be signed by the Warrantholder
or the Warrantholder's executors or administrators, successors or other legal
representatives or an attorney of the Warrantholder duly appointed by an
instrument in writing satisfactory to the Trustee. The exercise form attached to
the Warrant Certificate will be completed to specify the number of Unit Warrants
being exercised and the address to which the Warrant Share Certificates should
be delivered if different from that appearing on the Warrant Certificate
surrendered. If any of the Warrant Shares to be acquired are to be issued to a
person or persons other than the Warrantholder, the Warrantholder will pay, as a
condition to the issue and delivery of the certificates evidencing the Warrant
Shares, to the Trustee or to its agent, on behalf of the Company, all exigible
transfer taxes or governmental or other charges required to be paid in respect
of the transfer of the Unit Warrants or Warrant Shares.
6.5 Resale Restriction Legends
If, at the time of exercise of the Unit Warrants, there remain restrictions on
resale under applicable securities legislation on the Warrant Shares acquired,
the Company may, on the advice of counsel, endorse the certificates representing
the Warrant Shares with respect to those restrictions, and prior to the issuance
of any such certificates the Trustee shall consult with the Company to determine
whether such endorsing or legending is required.
6.6 Effect of Exercise of Unit Warrants
Upon exercise of the Unit Warrants and compliance by the Warrantholder with
sections 6.4 and 6.5 subject to sections 6.9, 6.10 and 7.9, the holder of the
Unit Warrants will be entitled to receive, upon payment of the Warrant Share
Purchase Price, one Warrant Share for each whole Unit Warrant exercised, subject
to adjustment as provided in this Indenture, and the Trustee will cause the
holder thereof to be entered forthwith on its register of shareholders as the
holder of the Warrant Shares on the Warrant Exercise Date.
6.7 Delivery of Warrant Share Certificates
Upon the due exercise of the Unit Warrants as described in this Article 6, the
Company will, within five business days after the Warrant Exercise Date, without
charge therefor except as provided in section 6.5, forthwith cause to be mailed
to Holders at such person's address specified in the exercise form, or if not
specified in the exercise form, then at the address recorded in the register of
Unit Warrants, certificates for the appropriate number of Warrant Shares to
which the Holder is entitled.
6.8 No Fractional Warrant Shares
Notwithstanding any adjustments provided for in this Indenture, the Company
shall not be required upon the exercise of the Unit Warrants to issue fractional
Warrant Shares in satisfaction of its obligations hereunder. Where a fractional
Warrant Share, but for this section 6.9, would have been issued upon the
exercise of a Unit Warrant, in lieu thereof, there shall be paid to the holder
an amount equal (rounded to the nearest $0.01) to the product obtained by
multiplying such fractional share interest by the closing price of the Common
Shares on the Exchange (or if the Common Shares are not then listed thereon on
such other exchange on which the Common Shares are then listed, or, if not
listed on, in the over-the-counter market as designated by the directors) for
<PAGE>
Page 12
the last trading day prior to the Warrant Exercise Date at the date of delivery
of each respective certificate, which payment shall be made within ten business
days of such delivery. Notwithstanding the foregoing, the Company shall not be
required to make any payment, calculated as aforesaid, that is less than $5.00.
6.9 Expiration of Unit Warrants
The Unit Warrants and the rights thereunder shall terminate and be of no further
effect upon their exercise and all rights under any Unit Warrant which have not
been exercised prior to the expiry of the Exercise Period will cease and
terminate and the Unit Warrant will be void and of no effect.
6.10 Accounting and Recording
The Trustee will promptly notify the Company in writing with respect to Unit
Warrants exercised. The Trustee will, within five business days of each Warrant
Exercise Date, specify the particulars of the Unit Warrants exercised which will
include the names and addresses of the Holders whose Unit Warrants have been
exercised and the Warrant Exercise Date, and will deliver to the Company the
Warrant Share Purchase Price.
6.11 Cancellation of Surrendered Unit Warrants
All Warrant Certificates surrendered to the Trustee in accordance with the
provisions of this Indenture will be cancelled by the Trustee and upon request
therefor of the Company, the Trustee will furnish the Company with written
confirmation of the Warrant Certificates so cancelled and the number of Warrant
Shares which could have been acquired pursuant to each.
ARTICLE 7
ADJUSTMENT OF EXCHANGE NUMBER
7.1 Definitions
In this Article the terms "record date" and "effective date" means the close of
business on the relevant date.
7.2 Adjustment of Exchange Number
The Exchange Number (or the number and kind of shares or securities to be
received upon exercise in the case of sections 7.6 and 7.7) will be subject to
adjustment from time to time in the events and in the manner provided in this
Article.
7.3 Share Reorganization
If and whenever at any time from the date of issuance of the Unit Warrants
during the Exercise Period the Company:
(a) issues to all or substantially all the holders of the Common Shares, by
way of a stock dividend or other distribution, other than Dividends Paid in
the Ordinary Course, Common Shares or Convertible Securities; or
<PAGE>
Page 13
(b) subdivides, redivides or changes its outstanding Common Shares into a
greater number of shares; or
(c) combines, consolidates or reduces its outstanding Common Shares into a
smaller number of shares,
(any of those events being a "Share Reorganization"), the Exchange Number will
be adjusted effective immediately after the record date at which the holders of
Common Shares are determined for the purposes of the Share Reorganization to a
number that is the product of (1) the Exchange Number in effect on the record
date and (2) a fraction:
(i) the numerator of which will be the number of Common Shares outstanding
after giving effect to the Share Reorganization; and
(ii) the denominator of which will be the number of Common Shares
outstanding on the record date before giving effect to the Share
Reorganization.
For the purposes of determining the number of Common Shares outstanding at any
particular time for the purpose of this section 7.3 there will be included that
number of Common Shares which would have resulted from the conversion at that
time of all outstanding Convertible Securities (which, for greater certainty,
includes the Warrant Shares issuable upon exercise of the Unit Warrants then
outstanding).
7.4 Rights Offering
If and whenever at any time from the date of issuance of the Unit Warrants
during the Exercise Period the Company issues rights, options or warrants to all
or substantially all the holders of the Common Shares pursuant to which those
holders are entitled to subscribe for, purchase or otherwise acquire Common
Shares or Convertible Securities within a period of 45 days from the date of
issue thereof at a price, or at a conversion price, of less than 95% of the
Current Market Price at the record date for such distribution (any such issuance
being a "Rights Offering" and Common Shares that may be acquired in exercise of
the Rights Offering, or upon conversion of the Convertible Securities offered by
the Rights Offering, being the "Offered Shares"), the Exchange Number will be
adjusted effective immediately after the record date at which holders of Common
Shares are determined for the purposes of the Rights Offering to an Exchange
Number that is the product of (1) the Exchange Number in effect on the record
date and (2) a fraction:
(a) the numerator of which will be the sum of:
(i) the number of Common Shares outstanding on the record date; and
(ii) the number of Offered Shares offered pursuant to the Rights Offering
or the maximum number of Offered Shares into which the Convertible
Securities so offered pursuant to the Rights Offering may be
converted, as the case may be;
and
(b) the denominator of which will be the sum of:
(i) the number of Common Shares outstanding on the record date; and
<PAGE>
Page 14
(ii) the number arrived at when either the product of:
(A) the number of Offered Shares so offered and the price at which
those shares are offered; or
(B) the conversion price of the Offered Shares and the maximum
number of Offered Shares for or into which the Convertible
Securities so offered pursuant to the Rights Offering may be
converted, as the case may be, is divided by the Current Market
Price of the Common Shares on the record date.
Any Offered Shares owned by or held for the account of the Company will be
deemed not to be outstanding for the purpose of any computation; if all the
rights, options or warrants are not so issued or if all rights, options or
warrants are not exercised prior to the expiration thereof, the Exchange Number
will be readjusted to the Exchange Number in effect immediately prior to the
record date, and the Exchange Number will be further adjusted based upon the
number of Offered Shares (or Convertible Securities into Offered Shares)
actually delivered upon the exercise of the rights, options or warrants, as the
case may be, but subject to any other adjustment required hereunder by reason of
any event arising after that record date.
7.5 Special Distribution
If and whenever at any time from the date of issuance of the Unit Warrants
during the Exercise Period the Company will issue or distribute to all or
substantially all the holders of Common Shares:
(a) shares of any class other than shares distributed to holders of Common
Shares pursuant to their exercise of options to receive dividends in the
form of such shares in lieu of Dividends Paid in the Ordinary Course on the
Common Shares;
(b) rights, options or warrants other than Unit Warrants and other than rights,
options or warrants exercisable within 45 days from the date of issue
thereof at a price, or at a conversion price, of at least 95% of the
Current Market Price at the record date for such distribution;
(c) evidences of indebtedness; or
(d) any other assets including shares of other corporations (excluding cash
dividends that Warrantholders receive under section 8.3) and that issuance
or distribution does not constitute a Share Reorganization or a Rights
Offering,
(any of those events being a "Special Distribution"), the Exchange Number will
be adjusted effective immediately after the record date at which the holders of
Common Shares are determined for purposes of the Special Distribution to an
Exchange Number that is the product of (1) the Exchange Number in effect on the
record date and (2) a fraction:
(i) the numerator of which will be the product of (A) the sum of the number of
Common Shares outstanding on the record date plus the number of Common
Shares which the Warrantholders would be entitled to receive upon exercise
of all their outstanding Unit Warrants if they were exercised on the
record date and (B) the Current Market Price thereof on that date; and
<PAGE>
Page 15
(ii) the denominator of which will be the product of:
(A) the sum of the number of Common Shares outstanding on the record date
plus the number of Common Shares which the Special Warrantholders
would be entitled to receive upon exercise of all their outstanding
Special Warrants if they were exercised on the record date; and
(B) the Current Market Price thereof on that date,
less the aggregate fair market value, as determined by the board, whose
determination, absent manifest error, will be conclusive, of the shares,
rights, options, warrants, evidences of indebtedness or other assets
issued or distributed in the Special Distribution.
Any Common Shares owned by or held for the account of the Company will be deemed
not to be outstanding for the purpose of any such computation; to the extent
that the distribution of shares, rights, options, warrants, evidences of
indebtedness or assets is not so made or to the extent that any rights, options
or warrants so distributed are not exercised, the Exchange Number will be
readjusted to the Exchange Number that would then be in effect based upon
shares, rights, options, warrants, evidences of indebtedness or assets actually
distributed or based upon the number of Common Shares or Convertible Securities
actually delivered upon the exercise of the rights, options or warrants, as the
case may be, but subject to any other adjustment required hereunder by reason of
any event arising after the record date.
7.6 Capital Reorganization
If and whenever at any time from the date of issuance of the Unit Warrants
during the Exercise Period there is a reorganization of the Company not
otherwise provided for in section 7.3 or a consolidation or merger or
amalgamation of the Company with or into another body corporate or other entity
including a transaction whereby all or substantially all of the Company's
undertaking and assets become the property of any other body corporate, trust,
partnership or other entity (any such event being a "Capital Reorganization"),
any Warrantholder who has not exercised his Unit Warrants prior to the
effective date of the Capital Reorganization will be entitled to receive and
will accept, upon the exercise of his right at any time after the effective date
of the Capital Reorganization, in lieu of the number of Warrant Shares to which
he would have been entitled upon exercise of the Unit Warrants, the aggregate
number of shares or other securities or property of the Company, or the
continuing, successor or purchasing body corporate, trust, partnership or other
entity, as the case may be, under the Capital Reorganization that the holder
would have been entitled to receive as a result of the Capital Reorganization
if, on the effective date thereof, he had been the holder of the number of
Warrant Shares to which immediately before the transaction he was entitled upon
exercise of the Unit Warrants; no Capital Reorganization will be carried into
effect unless all necessary steps will have been taken so that the holders of
Unit Warrants will thereafter be entitled to receive the number of shares or
other securities or property of the Company, or of the continuing, successor or
purchasing body corporate, trust, partnership or other entity, as the case may
be, under the Capital Reorganization, subject to adjustment thereafter in
accordance with provisions the same, as nearly as may be possible, as those
contained in sections 7.2 to 7.8. If determined appropriate by the Trustee to
give effect to or to evidence the provisions of this section 7.6, the Company,
its successor, or such purchasing body corporate, partnership, trust or other
entity, as the case may be, shall, prior to or contemporaneously with any such
Capital Reorganization, enter into an indenture which shall provide, to the
extent possible, for the application of the provisions set forth in this
Indenture with respect to the rights and interests thereafter of the
<PAGE>
Page 16
Warrantholders to the end that the provisions set forth in this Indenture shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
with respect to any shares, other securities or property to which a
Warrantholder is entitled on the exercise of its acquisition rights thereafter.
Any indenture entered into between the Company and the Trustee pursuant to the
provisions of this section 7.6 shall be a supplemental indenture entered into
pursuant to the provisions of Article 11 hereof. Any indenture entered into
between the Company, any successor to the Company or such purchasing body
corporate, partnership, trust or other entity and the Trustee shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided in this Article 7 and which shall apply to successive
reclassifications, reorganizations, amalgamations, consolidations, mergers,
sales or conveyances.
7.7 Reclassification of Common Shares
If the Company reclassifies or otherwise change the outstanding Common Shares,
the exercise right will be adjusted effective immediately upon the
reclassification becoming effective so that holders of Unit Warrants who
exercise their rights thereafter will be entitled to receive such shares as they
would have received had the Unit Warrants been exercised immediately prior to
the effective date, subject to adjustment thereafter in accordance with
provisions the same, as nearly as may be possible, as those contained in
sections 7.3 to 7.8.
7.8 Subscription Rights Adjustment Rules
The following rules and procedures will be applicable to adjustments made
pursuant to sections 7.3 to 7.7:
(a) the adjustments and readjustments provided for in this Article 7 are
cumulative and subject to subsection 7.8(b), will apply (without
duplication) to successive issues subdivisions, combinations,
consolidations, distributions and any other events that require adjustment
of the Exchange Number or the number or kind of shares or securities to be
issued upon exercise of the Unit Warrants;
(b) no adjustment in the Exchange Number will be required unless the
adjustment would result in a change of at least 1% in the Exchange Number
then in effect provided however, that any adjustments that, except for the
provisions of this subsection 7.8(b) would otherwise have been required to
be made, will be carried forward and taken into account in any subsequent
adjustment;
(c) no adjustment in the Exchange Number will be made in respect of any event
described in subsection 7.3(a) or sections 7.4 or 7.5 if the Warrantholders
are entitled to participate in the event on the same terms mutatis mutandis
as if they had exercised their Unit Warrants immediately prior to the
effective date or record date of the event;
(d) no adjustment in the Exchange Number will be made pursuant to any of
sections 7.3 to 7.7 in respect of the issue of Warrant Shares issuable from
time to time as Dividends Paid in the Ordinary Course;
(e) if a dispute arises with respect to adjustments of the Exchange Number, the
dispute will be conclusively determined by the auditors of the Company or,
if they are unable or unwilling to act, by such firm of independent
chartered accountants as may be selected by the directors of the Company
and any such determination, absent manifest error, will be binding upon the
Company, the Trustee and all Warrantholders;
<PAGE>
Page 17
(f) if during the Exercise Period the Company takes any action affecting the
Common Shares, other than actions described in this Article, which in the
opinion of the board of directors of the Company would materially affect
the rights of the Holder, the Exchange Number will be adjusted in such
manner, if any, and at such time, by action by the directors of the Company
in such manner as they may reasonably determine to be equitable in the
circumstances but subject in all cases to any necessary regulatory
approval. Failure of the taking of action by the directors of the Company
so as to provide for an adjustment on or prior to the effective date of any
action by the Company affecting the Common Shares will be conclusive
evidence that the board of directors of the Company has determined that it
is equitable to make no adjustment in the circumstances; and
(g) if the Company sets a record date to determine the holders of Common Shares
for the purpose of entitling them to receive any dividend or distribution
or any subscription or purchase rights and thereafter legally abandons its
plans to pay or deliver the dividend, distribution or subscription or
purchase rights then no adjustment in the Exchange Number will be required
by reason of the setting of the record date.
7.9 Postponement of Subscription
In any case where the application of any of sections 7.3 to 7.7 results in an
increase of the Exchange Number taking effect immediately after the record date
for or occurrence of a specific event, if any Unit Warrants are exercised after
that record date or occurrence and prior to completion of the event or of the
period for which a calculation is required to be made, the Company may postpone
the issuance, to the Holder, of the Warrant Shares to which the Holder is
entitled by reason of the increase of the Exchange Number but the Warrant Shares
will be so issued and delivered to that holder upon completion of that event or
period, with the number of those Warrant Shares calculated on the basis of the
Exchange Number on the Warrant Exercise Date adjusted for completion of that
event or period, and the Company will forthwith after the Warrant Exercise Date
deliver to the person or persons in whose name or names the Warrant Shares are
to be issued an appropriate instrument evidencing the person's or persons' right
to receive the Warrant Shares.
7.10 Notice of Certain Events
Upon the occurrence of any event referred to in sections 7.3 to 7.8 that
requires an adjustment or readjustment in the Exchange Number, the Company will
promptly thereafter:
(a) file with the Trustee a certificate of the Company specifying the
particulars of the event giving rise to the adjustment or readjustment and,
if determinable, the adjustment and setting forth in reasonable detail a
computation of the adjustment including the method of computation and which
certificate shall be supported by a certificate of the Company's auditors
verifying such calculation; and
(b) give notice to the Warrantholders of the particulars of the event and, if
determinable, the adjustment.
If notice has been given under this section 7.10 and the adjustment is not then
determinable, the Company will promptly after the adjustment is determinable:
(a) file with the Trustee a computation of the adjustment together with a
certificate of the Company's auditors verifying such calculation; and
<PAGE>
Page 18
(b) give notice to the Warrantholders of the adjustment.
7.11 Protection of Trustee
The Trustee:
(a) will not at any time be under any duty or responsibility to any
Warrantholder to determine whether any facts exist which may require any
adjustment contemplated by sections 7.3 to 7.7, or with respect to the
nature or extent of any such adjustment when made, or with respect to the
method employed in making such adjustment;
(b) is not accountable with respect to the validity or value (or the kind or
amount) of any shares or other securities or property which may at any time
be issued or delivered upon the exercise of the rights attaching to any
Unit Warrant;
(c) is not responsible for any failure of the Company to make any cash payment
or to issue, transfer or deliver Common Shares or certificates for the
same upon the surrender of any Unit Warrants for the purpose of the
exercise of such rights or to comply with any of the covenants contained in
this Article 7; and
(d) will not incur any liability or responsibility whatever or be in any way
responsible for the consequence of any breach on the part of the Company of
any of the representations, warranties or covenants in this Indenture
contained or any acts of the agents or servants of the Company.
7.12 Entitlement to Common Shares on Exercise of Unit Warrant
All shares of any class or other securities which a Warrantholder is at the time
in question entitled to receive on the exercise of its Unit Warrant, whether or
not as a result of adjustments made pursuant to this section, shall, for the
purposes of the interpretation of this Indenture be deemed to be shares which
such Warrantholder is entitled to acquire pursuant to such Warrant.
7.13 Proceedings Prior to Any Action Requiring Adjustment
As a condition precedent to the taking of any action which would require an
adjustment in any of the acquisition rights pursuant to any of the Unit
Warrants, including the number of Warrant Shares which are to be received upon
the exercise thereof, the Company shall take any corporate action which may, in
the opinion of counsel, be necessary in order that the Company has unissued and
reserved in its authorized capital and may validly and legally issue as fully
paid and non-assessable all the shares which the Warrantholders are entitled to
receive on the full exercise thereof in accordance with the provisions hereof.
7.14 Notice of Special Matters
The Company covenants with the Trustee that, so long as any Unit Warrant remains
outstanding, it will give notice to the Trustee and to the Warrantholders of its
intention to fix the record date for the issuance of rights, options or warrants
(other than the Unit Warrants) to all or substantially all of the holders of its
outstanding Common Shares. Such notice shall specify the particulars of such
<PAGE>
Page 19
event, to the extent determinable, any adjustment required and the computation
of such adjustment and the record date for such event, provided that the Company
shall only be required to specify in the notice such particulars of the event as
shall have been fixed and determined on the date on which the notice is given.
The notice shall be given in each cash not less than fourteen days prior to such
applicable record date. If any adjustment for which notice is given is not then
determinable, the Company shall, promptly after such adjustment is determinable,
give notice.
ARTICLE 8
RIGHTS AND COVENANTS
8.1 General Covenants of the Company
The Company covenants with the Trustee that so long as any Unit Warrants remain
outstanding and may be exercised for the purchase of Warrant Shares:
(a) the Company will at all times maintain its corporate existence;
(b) the Company will reserve and keep available a sufficient number of
Common Shares for issuance upon the exercise of the Unit Warrants;
(c) the Company will cause the Warrant Shares and the certificates representing
the Warrant Shares to be duly issued in accordance with the Warrant
Certificate and the terms of this Indenture;
(d) all Common Shares that will be issued by the Company upon exercise of the
rights provided for in this Indenture will be issued as fully paid and
non-assessable;
(e) the Company will use its best efforts to ensure that all Common Shares
outstanding or issuable from time to time (including without limitation the
Warrant Shares) continue to be or are listed for trading on the Exchange;
(f) the Company will maintain its status as a reporting issuer in the Province
of British Columbia and a restricted reporting issuer and thereafter as a
reporting issuer in the Province of Alberta and it will make all requisite
filings under applicable Canadian securities legislation and stock exchange
rules to report the exercise of the right to acquire the Warrant Shares
pursuant to the Unit Warrants;
(g) the Company will generally well and truly perform and carry out all the
acts or things to be done by it as provided in this Indenture or as the
Trustee may reasonably require for the better accomplishing and effecting
of the intentions and provisions of this Indenture.
8.2 Trustee's Remuneration and Expenses
The Company covenants that it will pay to the Trustee from time to time
reasonable remuneration for its services under this Indenture and will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in the administration
or execution hereof (including the reasonable compensation and the disbursements
of counsel and all other advisers and assistants not regularly in its employ),
both before any default under this Indenture and thereafter until all duties of
the Trustee under this Indenture will be finally and fully performed, except any
<PAGE>
Page 20
expense, disbursement or advance as may arise from the negligence or wilful
misconduct of the Trustee or of persons for whom the Trustee is responsible.
8.3 Right to Dividends or Distributions
If the Company pays a dividend or makes any distribution to all or substantially
all of the holders of Common Shares or if the Company declares any dividend, or
provides for any distribution, payable to all or substantially all the holders
of Common Shares of record the Exercise Period, the Company agrees that it will
pay the same amount of such dividend of make same distribution of cash, property
or securities as a deposit to the Trustee, as if the Holders were the holders of
the number of Common Shares that they are entitled to receive upon exercise of
the Unit Warrants, and such payments or distributions shall be held and dealt
with by the Trustee in accordance with the provisions of this Indenture.
8.4 Performance of Covenants by Trustee
If the Company fails to perform any of its covenants contained in this
Indenture, the Trustee may notify the Warrantholders of the failure on the part
of the Company or may itself perform any of the said covenants capable of being
performed by it, but will be under no obligation to do so or to notify the
Warrantholders. All sums expended or advanced by the Trustee in so doing will be
repayable as provided in section 8.2. No performance, expenditure or advance by
the Trustee will be deemed to relieve the Company of any default under this
Indenture.
8.5 Securities Qualification Requirements
(a) If, in the opinion of counsel, any instrument (not including a prospectus)
is required to be filed with, or any permission is required to be
obtained from any governmental authority in Canada or any other step is
required under any federal or provincial law of Canada before any Warrant
Shares which a Warrantholder is entitled to acquire pursuant to the
exercise of any Unit Warrant may properly and legally be issued upon due
exercise thereof and thereafter traded, without further formality or
restriction, the Company covenants that it will take such required action.
(b) The Company or, if required by the Company, the Trustee will give notice of
the issue of Warrant Shares pursuant to the exercise of Unit Warrants, in
such detail as may be required, to each securities commission or similar
regulatory authority in each jurisdiction in Canada in which there is
legislation or regulation permitting or requiring the giving of any such
notice in order that such issue and subsequent disposition of Warrant
Shares so issued will not be subject to the prospectus qualification
requirements of such legislation or regulation.
ARTICLE 9
ENFORCEMENT
9.1 Suits by Warrantholders
All or any of the rights conferred upon a Warrantholder by the terms of a Unit
Warrant or of this Indenture may be enforced by the holder by appropriate legal
proceedings but without prejudice to the right that is hereby conferred upon the
Trustee to proceed in its own name to enforce each and all of the provisions
herein contained for the benefit of the holder of Unit Warrants from time to
time outstanding.
<PAGE>
Page 21
9.2 Immunity of Shareholders, Officers & Directors
The Trustee, and by their acceptance of the Warrant Certificates and as part of
the consideration for the issue of the Unit Warrants, the Warrantholders, hereby
waive and release any right, cause of action or remedy now or hereafter existing
in any jurisdiction against any past, present or future shareholder, director,
officer, employee or agent of the Company in their capacity as such, either
directly or through the Company, relating to any obligations, representations,
warranties and covenants under the Unit Warrants or this Indenture, it being
acknowledged that all such obligations, representations, warranties and
covenants are solely those of the Company. Accordingly, the obligations under
the Unit Warrants and this Indenture are not personally binding upon, nor will
resort hereunder be had to, the private properly of any of the past, present or
future directors, officers, shareholders, employees or agents of the Company but
only the property of the Company (or any successor corporation) will be bound in
respect hereof. The protection afforded under this paragraph shall not extend
to misrepresentations knowingly made.
9.3 Waiver of Default
Upon the happening of any default hereunder:
(a) the holders of not less than 51% of the Unit Warrants then outstanding
shall have the power (in addition to the powers exercisable by
extraordinary resolution) by requisition in writing to instruct the Trustee
to waive any default hereunder and the Trustee shall thereupon waive the
default upon such terms and conditions as shall be prescribed in such
requisition; or
(b) the Trustee shall have the power to waive any default hereunder upon such
terms and conditions as the Trustee may deem advisable if, in the Trustee's
opinion, the same shall have been cured or adequate provision made
therefor;
provided that no delay or omission of the Trustee or of the Warrantholders to
exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver of any such default or
acquiescence therein and provided further that no act or omission either of the
Trustee or of the Warrantholders in the premises shall extend to or be taken in
any manner whatsoever to affect any subsequent default hereunder of the rights
resulting therefrom.
ARTICLE 10
MEETINGS OF WARRANTHOLDERS
10.1 Right to Convene Meetings
The Trustee may at any time and from time to time and will, on receipt of a
written request of the Company or of a Warrantholders' Request and upon being
indemnified to its reasonable satisfaction by the Company or by the
Warrantholders signing the Warrantholders' Request against the cost that may be
incurred in connection with the calling and holding of the meeting, convene a
meeting of the Warrantholders. If, within 21 days after receipt of the written
request of the Company or Warrantholders' Request and such indemnity has been
given, the Trustee fails to give notice convening a meeting, the Company or the
Warrantholders, as the case may be, may convene the meeting. Every meeting will
be held in the City of Vancouver or at such other place as may be approved or
determined by the Trustee.
<PAGE>
Page 22
10.2 Notice
At least 10 days' notice of any meeting will be given to the Warrantholders in
the manner provided in section 13.2 and a copy of the notice will be sent by
mail to the Trustee unless the meeting has been called by it, and to the Company
unless the meeting has been called by it. Each notice will state the time when
and the place where the meeting is to be held and will state briefly the general
nature of the business to be transacted thereat and shall contain such
information as is reasonably necessary to enable the Warrantholders to make a
reasoned decision on the matter but it will not be necessary for the notice to
set out the terms of any resolution to be proposed or any of the provisions of
this Article 10.
10.3 Chairman
A person, who need not be a Warrantholder, designated in writing by the Trustee
will chair the meeting and if no person is so nominated, or if the person so
nominated is not present within 15 minutes from the time fixed for the holding
of the meeting, the Warrantholders present in person or by proxy will choose a
person present to chair the meeting.
10.4 Quorum
With respect to the quorum required for a meeting of Warrantholders:
(a) subject to the provisions of section 10.12, at any meeting of the
Warrantholders a quorum will consist of Warrantholders present in person or
by proxy constituting at least 20% of the aggregate number of Unit Warrants
then outstanding, provided at least two persons entitled to vote thereat
are personally present;
(b) if a quorum of the Warrantholders is not present within 30 minutes from the
time fixed for holding any meeting, the meeting, if summoned by the
Warrantholders or on a Warrantholders' Request, will be dissolved; but,
subject to section 10.12, in any other case the meeting will be adjourned
to the same day in the next week (unless that day is not a business day, in
which event the meeting will be reconvened on the next day that is a
business day) at the same time and place and no notice need be given; and
(c) at the adjourned meeting, the Warrantholders present in person or by proxy
will form a quorum and may transact the business for which the meeting was
originally convened, notwithstanding that they may not hold at least 20% of
the aggregate number of Unit Warrants then outstanding.
10.5 Power to Adjourn
The chairman of any meeting at which a quorum of the Warrantholders is present
may, with the consent of the meeting, adjourn the meeting and no notice of the
adjournment need be given except such notice, if any, as the meeting may
prescribe.
10.6 Show of Hands
Every question submitted to a meeting will be decided in the first place by a
majority of the votes given on a show of hands except that votes on an Special
Resolution will be given in the manner provided in section 10.12. At any
<PAGE>
Page 23
meeting, unless a poll is duly demanded as herein provided, a declaration by the
chairman that a resolution has been carried or carried unanimously or by a
particular majority or lost or not carried by a particular majority will be
conclusive evidence of the fact.
10.7 Poll
On every Special Resolution, and on any other question submitted to a meeting
upon which a poll is directed by the chairman or requested by one or more of the
Warrantholders acting in person or by proxy and representing in the aggregate at
least 5% of the aggregate number of Unit Warrants then outstanding, a poll will
be taken in such manner as the chairman will direct. Questions other than an
Special Resolution will be decided by a majority of the votes cast on a poll.
10.8 Voting
On a show of hands every person who is present and entitled to vote, whether as
a Warrantholder or as proxy for one or more absent Warrantholders or both, will
have one vote. On a poll each Warrantholder present in person or represented by
a proxy duly appointed by instrument in writing will be entitled to one vote in
respect of each Unit Warrant then held by him. A proxy need not be a
Warrantholder.
10.9 Regulations
The Trustee or the Company with the approval of the Trustee may from time to
time make or vary such regulations as they will think fit:
(a) the setting of the record date for a meeting for the purpose of determining
Warrantholders entitled to receive notice of and to vote at the meeting;
(b) for the issue of voting certificates by any bank, trust company or other
depositary satisfactory to the Trustee stating that the Unit Warrants
specified therein have been deposited with the depository by a named person
and will remain on deposit until after the meeting, which voting
certificates will entitle the persons named therein to be present and vote
at the meeting and at any adjournment thereof or to appoint a proxy or
proxies to represent them and vote for them at that meeting and at any
adjournment thereof in the same manner and with the same effect as though
the persons so named in the voting certificates were the actual holders of
the Unit Warrants specified therein;
(c) for the deposit of voting certificates and/or instruments appointing
proxies at such place and time as the Trustee, the Company or the
Warrantholders convening the meeting, as the case may be, may in the notice
convening the meeting direct;
(d) for the deposit of voting certificates and/or instruments appointing
proxies at some approved place or places other than the place at which the
meeting is to be held and enabling particulars of the voting certificates
and/or instruments appointing proxies to be sent by mail, cable, fax or
other means of prepaid, transmitted, recorded communication before the
meeting to the Company or to the Trustee at the place where the same is to
be held and for the voting of proxies so deposited as though the
instruments themselves were produced at the meeting;
(e) for the form of instrument appointing a proxy; and
<PAGE>
Page 24
(f) generally for the calling of meetings of Warrantholders and the conduct of
business thereat.
Any regulations so made will be binding and effective and the votes given in
accordance therewith will be valid and will be counted. Except as the
regulations may provide, the only persons who will be recognized at any meeting
as the holders of any Special Warrants, or as entitled to vote or, subject to
section 10.10, be present at the meeting in respect thereof, will be persons who
are the registered holders of Unit Warrants or their duly appointed proxies.
10.10 Company and Trustee may be Represented
The Company and the Trustee by their respective officers or directors, and the
counsel to the Company and the Trustee may attend any meeting of the
Warrantholders, but will have no vote as such.
10.11 Powers Exercisable by Special Resolution
In addition to all other powers conferred upon them by any other provisions of
this Indenture or by law the Warrantholders at a meeting will have the following
powers exercisable from time to time by Special Resolution:
(a) power to agree to any modification, abrogation, alteration, compromise or
arrangement of the rights of Warrantholders and/or the Trustee in its
capacity as trustee under this Indenture or on behalf of the Warrantholders
against the Company, whether those rights arise under this Indenture or the
Unit Warrant certificates;
(b) power to direct or authorize the Trustee to enforce any of the covenants on
the part of the Company contained in this Indenture or the Unit Warrants or
to enforce any of the rights of the Warrantholders in any manner specified
in the Special Resolution or to refrain from enforcing any such covenant or
right;
(c) power to restrain any Warrantholder from taking or instituting any suit,
action or proceeding against the Company for the enforcement of any of the
covenants on the part of the Company contained in this Indenture or the
Unit Warrants or to enforce any of the rights of the Warrantholders except
for a suit or action against the Company to compel payment to a
Warrantholder in respect of monies owing to him in accordance with the
provisions of section 8.3;
(d) power to direct any Warrantholder who, as such, has brought any suit,
action or proceeding to stay or discontinue or otherwise deal with the same
upon payment of the costs, charges and expenses reasonably and properly
incurred by the Warrantholder in connection therewith;
(e) power from time to time and at any time to remove the Trustee and appoint a
successor trustee;
(f) power to amend, alter or repeal any special resolution previously passed or
sanctioned by the Warrantholders; and
(g) power to assent to any compromise or arrangement with any creditor or
creditors or any class or classes of creditors, whether secured or
otherwise, and with holders of any shares or other securities of the
Company.
<PAGE>
Page 25
10.12 Meaning of "Special Resolution"
(a) The expression "Special Resolution" when used in this Indenture means,
subject to the provisions in this subsection 10.12(b) and 10.12(c) and in
sections 10.15 and 10.16 provided, a resolution proposed at a meeting of
the Warrantholders duly convened for that purpose and held in accordance
with the provisions of this Article 10 at which there are present in person
or by proxy Warrantholders holding at least 20% of the aggregate of the
Unit Warrants then outstanding and passed by the affirmative votes of
Warrantholders holding not less than two-thirds of the aggregate number of
Unit Warrants represented at the meeting and voted on the poll upon the
resolution.
(b) If, at any meeting called for the purpose of passing a Special Resolution,
Warrantholders entitled to acquire 51% of the aggregate number of Unit
Warrants then outstanding are not present in person or by proxy within 30
minutes after the time appointed for the meeting, then the meeting, if
convened by Warrantholders or on a Warrantholders' Request, will be
dissolved; but in any other case it will stand adjourned to such day, being
not less than 15 or more than 60 days later, and to such place and time as
may be appointed by the chairman. Not less than 10 days' notice will be
given of the time and place of the adjourned meeting in the manner provided
in section 13.2. The notice will state that at the adjourned meeting the
Warrantholders present in person or by proxy will form a quorum but it will
not be necessary to set forth the purposes for which the meeting was
originally called or any other particulars. At the adjourned meeting the
Warrantholders present in person or by proxy will form a quorum and may
transact the business for which the meeting was originally convened and a
resolution proposed at the adjourned meeting and passed by the requisite
vote as provided in subsection 10.12(a) will be a Special Resolution
within the meaning of this Indenture notwithstanding that Warrantholders
holding at least 20% of the aggregate number of Unit Warrants then
outstanding are not present in person or by proxy at the adjourned meeting.
(c) Votes on a Special Resolution will always be given on a poll and no demand
for a poll on a Special Resolution will be necessary.
10.13 Powers Cumulative
It is hereby declared and agreed that any one or more of the powers or any
combination of the powers in this Indenture stated to be exercisable by the
Warrantholders by Special Resolution or otherwise may be exercised from time to
time and the exercise of any one or more of the powers or any combination of the
powers from time to time will not be deemed to exhaust the right of the
Warrantholders to exercise that power or those powers or combination of powers
then or any other power or powers or combination of powers thereafter from time
to time.
10.14 Minutes
Minutes of all resolutions and proceedings at every meeting of Warrantholders
convened and held pursuant to this Article 10 will be made and duly entered in
books to be provided for that purpose by the Trustee at the expense of the
Company, and any such minutes, if signed by the chairman of the meeting at which
resolutions were passed or proceedings had, or by the chairman of the next
succeeding meeting of the Warrantholders, will be prima facie evidence of the
matters as stated in the minutes and, until the contrary is proved, every
meeting, in respect of the proceedings of which minutes will have been made,
<PAGE>
Page 26
will be deemed to have been duly convened and held, and all resolutions passed
thereat or proceedings taken, to have been duly passed and taken.
10.15 Instruments in Writing
All actions that may be taken and all powers that may be exercised by the
Warrantholders at a meeting held as provided in this Article 10 may also be
taken and exercised by Warrantholders holding not less than two-thirds of the
aggregate number of Unit Warrants then outstanding by an instrument in writing
signed in one or more counterparts by Warrantholders in person or by attorney
duly appointed in writing and the expression "Special Resolution" when used in
this Indenture will include an instrument so signed.
10.16 Binding Effect of Resolutions
Every resolution and every Special Resolution passed in accordance with the
provisions of this Article 10 at a meeting of Warrantholders will be binding
upon all the Warrantholders, whether present at or absent from the meeting, and
every instrument in writing signed by Warrantholders in accordance with section
10.15 will be binding upon all the Warrantholders, whether signatories thereto
or not, and each and every Warrantholder and the Trustee (subject to the
provisions for its indemnity herein contained) will be bound to give effect
accordingly to every resolution and instrument in writing passed or executed in
accordance with these provisions.
10.17 Holdings by Company Disregarded
In determining whether the requisite number of Warrantholders are present for
the purpose of obtaining a quorum or have voted or consented to any resolution,
Special Resolution, consent, waiver, Warrantholders' Request or other action
under this Indenture, Unit Warrants owned by the Company or any subsidiary of
the Company will be deemed to be not outstanding.
ARTICLE 11
SUPPLEMENTAL INDENTURES AND SUCCESSOR COMPANIES
11.1 Provision for Supplemental Indentures for Certain Purposes
From time to time the Company (when authorized by action of the directors) and
the Trustee may, subject to the provisions hereof, and they will, when so
directed hereby, execute and deliver by their proper officers, indentures or
instruments supplemental to this Indenture, which thereafter will form part of
this Indenture, for any one or more or all of the following purposes:
(a) setting forth any adjustments resulting from the application of the
provisions of Article 7;
(b) adding to the provisions of this Indenture such additional covenants and
enforcement provisions as, in the opinion of counsel, are necessary or
advisable, provided that the same are not in the opinion of counsel to the
Trustee prejudicial to the interest of the Warrantholders as a group;
(c) giving effect to any Special Resolution passed as provided in Article 10;
<PAGE>
Page 27
(d) making provisions not inconsistent with this Indenture as may be necessary
or desirable with respect to matters or questions arising under this
Indenture provided that the provisions are not, in the opinion of counsel
to the Trustee, prejudicial to the interests of the Warrantholders as a
group;
(e) adding to or altering the provisions of this Indenture in respect of the
transfer of Unit Warrants, making provision for the exchange of Unit
Warrants, and making any modification in the form of the Unit Warrants that
does not affect the substance of the Unit Warrants;
(f) modifying any of the provisions of this Indenture or relieving the Company
from any of the obligations, conditions or restrictions contained in this
Indenture, provided that no such modification or relief will be or become
operative or effective if in the opinion of counsel to the Trustee the
modification or relief impairs any of the rights of the Warrantholders, as
a group, or of the Trustee, and provided that the Trustee may in its
uncontrolled discretion decline to enter into any supplemental indenture
which in its opinion may not afford adequate protection to the Trustee when
the such supplemental indenture becomes operative; and
(g) for any other purpose not inconsistent with the terms of this Indenture,
including the correction or rectification of any ambiguities, defective
provisions, errors or omissions in this Indenture, provided that in the
opinion of counsel to the Trustee the rights of the Trustee and the
Warrantholders, as a group, are in no way prejudiced thereby.
11.2 Successor Companies
In the case of the consolidation, amalgamation, merger or transfer of the
undertaking or assets of the Company as an entirety or substantially as an
entirety to another corporation ("successor corporation"), the successor
corporation resulting from the consolidation, amalgamation, merger or transfer
(if not the Company) will be bound by the provisions of this Indenture and all
obligations for the due and punctual performance and observance of each and
every covenant and obligation contained in this Indenture to be performed by the
Company and, if requested by the Trustee, the successor corporation will, by
supplemental indenture satisfactory in form to the Trustee and executed and
delivered to the Trustee, expressly assume those obligations.
ARTICLE 12
CONCERNING THE TRUSTEE
12.1 Trust Indenture Legislation
If and to the extent that any provision of this Indenture limits, qualifies or
conflicts with a mandatory requirement of Applicable Legislation, the mandatory
requirement will prevail. The Company and the Trustee agree that each will at
all times, in relation to this Indenture and any action to be taken under this
Indenture, observe and comply with and be entitled to the benefits of Applicable
Legislation.
<PAGE>
Page 28
12.2 Rights and Duties of Trustee
The rights and duties of the Trustee are as follows:
(a) In the exercise of the rights and duties prescribed or conferred by the
terms of this Indenture, the Trustee will act honestly and in good faith
with a view to the best interests of the Warrantholders and will exercise
that degree of care, diligence and skill that a reasonably prudent trustee
would exercise in comparable circumstances. In the absence of negligence
or fraud, the Company shall indemnify and save harmless the Trustee from
all loss, costs or damages it may suffer in administering the trusts of
this Indenture. No provision of this Indenture shall be construed to
relieve the Trustee from liability for its own negligent action, its own
negligent failure to act, or its own negligence or fraud;
(b) The obligation of the Trustee to commence or continue any act, action or
proceeding for the purpose of enforcing any rights of the Trustee or the
Warrantholders under this Indenture will be conditional upon the
Warrantholders furnishing, when required by notice in writing by the
Trustee, sufficient funds to commence or continue the act, action or
proceeding and indemnity reasonably satisfactory to the Trustee to protect
and hold harmless the Trustee against the costs, charges and expenses and
liabilities to be incurred thereby and any loss and damage it may suffer by
reason thereof. None of the provisions contained in this Indenture will
require the Trustee to expend or risk its own funds or otherwise incur
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers unless indemnified and funded as
required in this subsection 12.2(b);
(c) The Trustee may, before commencing action or proceeding, or at any time
during the continuance thereof, require the Warrantholders at whose
instance it is acting to deposit with the Trustee the Warrant Certificates
held by them, for which Warrant Certificates the Trustee will issue
receipts; and
(d) Every provision of this Indenture that by its terms relieves the Trustee of
liability or entitles it to rely upon any evidence submitted to it is
subject to the provisions of the Applicable Legislation, of this section
12.2 and of section 12.4.
12.3 Evidence, Experts and Advisers
(a) In addition to the reports, certificates, opinions and other evidence
required by this Indenture, the Company will furnish to the Trustee such
additional evidence of compliance with any provision of this Indenture, and
in such form, as may be prescribed by Applicable Legislation or as the
Trustee may reasonably require by written notice to the Company.
(b) In the exercise of its rights and duties, the Trustee may, if it is acting
in good faith, rely as to the truth of the statements and the accuracy of
the opinions expressed therein, upon statutory declarations, opinions,
reports, certificates or other evidence furnished to the Trustee pursuant
to any provision of this Indenture or of Applicable Legislation or pursuant
to a request of the Trustee, provided that the Trustee examines the
evidence and determines that the evidence complies with the applicable
requirements of this Indenture.
<PAGE>
Page 29
(c) Whenever Applicable Legislation requires that evidence referred to in
subsection 12.3(a) be in the form of a statutory declaration, the Trustee
may accept a statutory declaration in lieu of a certificate of the Company
required by any provision of this Indenture. Any such statutory declaration
may be made by one or more of the officers of the Company.
(d) The Trustee may employ or retain such counsel, accountants, engineers,
appraisers, or other experts or advisers as it may reasonably require for
the purpose of discharging its duties under this Indenture and may pay
reasonable remuneration for all services so performed by any of them,
without taxation of costs of any counsel, and will not be responsible for
any misconduct on the part of any of them.
(e) The Trustee may, as a condition precedent to any action to be taken by it
under this Indenture, require such opinions, statutory declarations,
reports, certificates or other evidence as it, acting reasonably, considers
necessary or advisable in the circumstances.
(f) Proof of the execution of an instrument in writing, including a
Warrantholder's Request, by any Warrantholder may be made by the
certificate of a notary public, or other officer with similar powers, that
the person signing such instrument acknowledges to the execution thereof,
or by an affidavit of a witness to such execution or in any other manner
which the Trustee may consider adequate.
12.4 Securities, Documents and Monies Held by Trustee
Any securities, documents of title or other instruments that may at any time be
held by the Trustee subject to the trusts hereof may be placed in the deposit
vaults of the Trustee or of any of the Canadian Imperial Bank of Commerce, Bank
of Montreal, Bank of Nova Scotia, The Toronto-Dominion Bank, the Royal Bank of
Canada and the Hongkong Bank of Canada or deposited for safekeeping with any of
those Canadian chartered banks. Unless otherwise expressly provided in this
Indenture, any monies held pending the application or withdrawal thereof under
any provision of this Indenture, may be deposited in the name of the Trustee in
any of the foregoing Canadian chartered banks at the rate of interest then
current on similar deposits or, with the consent of the Company may be (i)
deposited in the deposit department of the Trustee or any other loan or trust
company authorized to accept deposits under the laws of Canada or a province
thereof whose short term debt obligations or deposits have a rating of at least
R1 as rated by Dominion Bond Rating Service, or (ii) invested in securities
issued or guaranteed by the Government of Canada or a province thereof or in
obligations, maturing not more than one year from the date of investment, of or
guaranteed by any of the foregoing Canadian chartered banks or loan or trust
companies. All interest or other income received by the Trustee in respect of
such deposits and investments will belong to the Company.
12.5 Action by Trustee to Protect Interests
The Trustee will have power to institute and to maintain such actions and
proceedings as it may consider necessary or expedient to preserve, protect or
enforce its interests and the interests of the holders of Unit Warrants.
12.6 Trustee not Required to Give Security
The Trustee will not be required to give any bond or security in respect of the
execution of the trusts and powers of this Indenture or otherwise in respect of
the premises.
<PAGE>
Page 30
12.7 Protection of Trustee
By way of supplement to the provisions of any law for the time being relating to
trustees, it is expressly declared and agreed as follows:
(a) the Trustee will not be liable for or by reason of any representations,
statements of fact or recitals in this Indenture or in the Unit Warrants
(except the representation contained in section 12.9 or in the certificate
of the Trustee on the Unit Warrants) or required to verify the same, but
all those statements or recitals are and will be deemed to be made by the
Company;
(b) nothing in this Indenture will impose any obligation on the Trustee to see
to or to require evidence of the registration (or filing or renewal
thereof) of this Indenture or any instrument ancillary or supplemental to
this Indenture;
(c) the Trustee will not be bound to give notice to any person or persons of
the execution of this Indenture;
(d) the Trustee shall not incur any liability or responsibility whatever or be
in any way responsible for the consequence of any breach on the part of the
Company of any of the covenants herein contained or of any acts of any
directors, officers, employees, agents or servants of the Company; and
(e) the Trustee shall not be bound to give any notice or do or take any act,
action or proceeding by virtue of the powers conferred on it hereby unless
it shall have been required to do so under the terms hereof; nor shall the
Trustee be required to take notice of any default hereunder, unless and
until notified in writing of such default, which notice shall distinctly
specify the default desired to be brought to the attention of the Trustee
and in the absence of any such notice the Trustee may for all purposes of
this Indenture conclusively assume that no default has been made in the
observance or performance of any of the representations, warranties,
covenants, agreements or conditions contained herein. Any such notice
shall in no way limit any discretion herein given to the Trustee to
determine whether or not the Trustee shall take action with respect to any
default.
12.8 Replacement of Trustee
(a) The Trustee may resign its trust and be discharged from all further
duties and liabilities under this Indenture by giving to the Company not
less than 90 days' notice in writing or such shorter notice as the Company
may accept as sufficient. The Warrantholders by Special Resolution will
have power at any time to remove the Trustee and to appoint a new Trustee.
In the event of the Trustee resigning or being removed as pursuant to this
subsection 12.8(a) or being dissolved, becoming bankrupt, going into
liquidation or otherwise becoming incapable of acting under this Indenture,
the Company will forthwith appoint a new Trustee unless a new Trustee has
already been appointed by the Warrantholders; failing that appointment by
the Company the retiring Trustee or any Warrantholder may apply to a
Justice of the Supreme Court of British Columbia, on such notice as the
Justice may direct, for the appointment of a new Trustee; but any new
Trustee so appointed the Company or by the Court will be subject to removal
as aforesaid by the Warrantholders. Any new Trustee appointed under any
provision of this section 12.8 will be a corporation authorized to carry on
the business of a trust company in the Province of British Columbia and, if
required by the Applicable Legislation of any other Province, in that other
Province. On any appointment the new Trustee will be vested with the same
<PAGE>
Page 31
powers, rights, duties and responsibilities as if it had been originally
named in this Indenture as Trustee without any further assurance,
conveyance, act or deed; but there will be immediately executed, at the
expense of the Company, all such conveyances or other instruments as may,
in the opinion of counsel, be necessary or advisable for the purpose of
assuring the same of the new Trustee.
(b) Upon the appointment of a new Trustee, the Company will promptly give
notice to the Warrantholders of the new Trustee.
(c) Any corporation into or with which the Trustee may be merged or
consolidated or amalgamated, or any corporation succeeding to the trust
business of the Trustee will be the successor to the Trustee under this
Indenture without any further act on its part or any of the parties
hereto provided that the corporation would be eligible for appointment as
a new Trustee under subsection 12.8(a).
(d) Any Unit Warrants certified but not delivered by a predecessor Trustee may
be certified by the new or successor Trustee in the name of the predecessor
or new or successor Trustee.
12.9 Conflict of Interest
(a) The Trustee represents to the Company that at the time of the execution and
delivery of this Indenture no material conflict of interest exists in the
Trustee's role as a fiduciary under this Indenture and agrees that in the
event of a material conflict of interest it will, within 90 days after
ascertaining that it has a material conflict of interest, either eliminate
the same or resign its trust under this Indenture to a successor trustee
approved by the Company and meeting the requirements set forth in section
12.8. Notwithstanding the foregoing provisions of this section 12.9(a), if
any such material conflict of interest exists or hereafter shall exist, the
validity and enforceability of this Indenture and the Warrant Certificate
shall not be affected in any manner whatsoever by reason thereof.
(b) Subject to subsection 12.9(a), the Trustee, in its personal or any other
capacity may buy, lend upon and deal in securities of the Company, may act
as registrar and transfer agent for the Common Shares and trustee for the
Special Warrants under the Special Warrant Indenture, and generally may
contract and enter into financial transactions with the Company or any
subsidiary of the Company, all without being liable to account for any
profit made thereby.
12.10 Acceptance of Trust
The Trustee hereby accepts the trusts declared and provided for in this
Indenture, agrees to perform the same upon the terms and conditions set out in
this Indenture and agrees to hold all rights, interests and benefits contained
in this Indenture for and on behalf of those persons who become holders of Unit
Warrants from time to time issued pursuant to this Indenture.
12.11 Indemnity
Without limiting any protection or indemnity of the Trustee under any other
provisions hereof, or otherwise at law, the Company hereby agrees to indemnify
and hold harmless the Trustee from and against any and all liabilities, losses,
damages, penalties, claims, actions, suits, costs, expenses and disbursements,
<PAGE>
Page 32
including reasonable legal or advisor fees and disbursements, of whatever kind
and nature which may at any time be imposed on, incurred by or asserted against
the Trustee in connection with the performance of its duties and obligations
hereunder, other than such liabilities, losses, damages, penalties, claims,
actions, suits, costs, expenses and disbursements arising by reason of the
negligence or fraud of the Trustee. This provision shall survive the
resignation or removal of the Trustee, or the termination of the Indenture. The
Trustee shall not be under any obligation to prosecute or to defend any action
or suit in respect of the relationship which, in the opinion of its counsel, may
involve it in expense or liability, unless the Company shall, so often as
required, furnish the Trustee with satisfactory indemnity and funding against
such expense or liability.
12.12 Survival on Termination
The indemnity of the Trustee provided for herein shall survive the termination
of this Indenture and the rights and obligations of the parties hereunder.
12.13 Unit Warrants Owned by the Company or its Subsidiaries
For the purpose of disregarding any Unit Warrants owned legally or beneficially
by the Company or any Subsidiary of the Company in Section 7.4, the Company
shall provide to the Trustee, from time to time, a certificate of the Company
setting forth as at the date of such certificate:
(a) the names (other than the name of the Company) of the registered holders of
Unit Warrants which, to the knowledge of the Company, are owned by or held
for the account of the Company or any Subsidiary of the Company; and
(b) the number of Unit Warrants owned legally or beneficially by the Company or
any Subsidiary of the Company,
and the Trustee, in making the computations in Section 7.4, shall be entitled to
rely on such certificate without any additional evidence.
ARTICLE 13
GENERAL
13.1 Notice to Company and Trustee
(a) Unless otherwise expressly provided in this Indenture, any notice to be
given under this Indenture to the Company or the Trustee will be deemed to
be validly given if delivered or if sent by registered letter, postage
prepaid or if transmitted by fax:
(i) if to the Company:
Immune Network Research Ltd.
3650 Wesbrook Mall
Vancouver, B.C. V6S 2L2
Attention: Dr. Allen Bain
Telephone: (604) 222-5541
Fax: (604) 222-5542
<PAGE>
Page 33
with a copy to:
Maitland & Company
Barristers and Solicitors
700 - 625 Howe Street
Vancouver, B.C. V6C 2T6
Attention: Ronald G. Paton
Telephone: (604) 681 -7474
Fax: (604) 681 -3896
(ii) if to the Trustee:
Montreal Trust Company of Canada
4th Floor, 510 Burrard Street
Vancouver, B.C. V6C 3B9
Attention: Manager, Corporate Trust Department
Telephone: (604) 661-9591
Fax: (604) 665-4079
and any notice given in accordance with the foregoing will be deemed to
have been received on the date of delivery or, if mailed, on the fifth
business day following the day of the mailing of the notice or, if
transmitted by fax, at the time of transmission.
(b) The Company or the Trustee, as the case may be, may from time to time
notify the other, in the manner provided above, of a change of address
which, from the effective date of the notice and until changed by like
notice, will be the address of the Company or the Trustee, as the case
may be, for all purposes of this Indenture.
(c) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Trustee or to the Company under this Indenture could reasonably be
considered unlikely to reach its destination, the notice will be valid and
effective only if it is delivered to an officer of the party to which it is
addressed or if it is delivered to that party at the appropriate address
provided above by cable, telegram, telex, fax or other means of prepaid,
transmitted, or recorded communication and any notice delivered in
accordance with the foregoing will be deemed to have been received on the
date of delivery to the officer or if delivered by cable, telegram, telex,
fax or other means of prepaid, transmitted, recorded communication, on the
first business day following the date of the sending of the notice by the
person giving the notice.
13.2 Notice to Warrantholders
(a) Unless otherwise expressly provided in this Indenture, any notice to be
given under this Indenture to Warrantholders will be deemed to be validly
given if the notice is sent by prepaid mail, addressed to the holder or
delivered by hand or transmitted by fax (or so mailed to certain holders
and so delivered to other holders and so faxed to other holders) at their
respective addresses and fax number appearing on the register maintained by
the Trustee and if in the case of joint holders of any Unit Warrants more
than one address or fax number appears on the register in respect of that
joint holding, the notice will be addressed or delivered, as the case may
<PAGE>
Page 34
be, only to the first address or fax number, as the case may be so
appearing. The Trustee will give, in the same manner as for Warrantholders
set out above, a copy of each such notice to Maitland & Company, Barristers
& Solicitors, 700 - 625 Howe Street, Vancouver, British Columbia, V6C 2T6
(fax no.: (604) 681-3896) (Attention: Ronald G. Paton). Any notice so given
will be deemed to have been given and received on the day of delivery by
hand or fax, or on the next business day if delivered by mail.
(b) If, by reason of strike, lock-out or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Warrantholders could reasonably be considered unlikely to reach its
destination, the notice may be published or distributed once in The Globe
and Mail newspaper, or, in the event of a disruption in the circulation of
that newspaper, once in the National Post provided that in the case of a
notice convening a meeting of the holders of Unit Warrants, the Trustee may
require such additional publications of that notice, in the same or in
other cities or both, as it may deem necessary for the reasonable
protection of the holders of Unit Warrants or to comply with any applicable
requirement of law or any stock exchange. Any notice so given will be
deemed to have been given on the day on which it has been published in all
of the cities in which publication was required (or first published in a
city if more than one publication in that city is required). In
determining, under any provision of this Indenture, the date when notice of
any meeting or other event must be given, the date of giving notice will be
included and the date of the meeting or other event will be excluded.
13.3 Satisfaction and Discharge of Indenture
Upon the date which there shall have been delivered to the Trustee for exercise
all Unit Warrant Certificates certified hereunder and if all certificates
representing Warrant Shares will have been delivered to Warrantholders to the
full extent of the rights attached to all Unit Warrants theretofore certified
under this Indenture and the monies to be paid under this Indenture have been
paid, this Indenture will cease to be of further effect and the Trustee, on
demand of and at the cost and expense of the Company and upon delivery to the
Trustee of a certificate of the Company stating that all conditions precedent to
the satisfaction and discharge of this Indenture have been complied with and
upon payment to the Trustee of the fees and other remuneration payable to the
Trustee, the parties hereto will execute proper instruments acknowledging
satisfaction of and discharging this Indenture. Notwithstanding the foregoing,
the indemnities provided to the Trustee by the Company shall remain in full
force and effect and survive the termination of this Indenture.
13.4 Sole Benefit of Parties and Warrantholders
Nothing in this Indenture or in the Unit Warrants, expressed or implied, will
give or be construed to give to any person other than the parties hereto and the
Warrantholders any legal or equitable right, remedy or claim under this
Indenture, or under any covenant or provision therein contained, all such
covenants and provisions being for the sole benefit of the parties hereto and
the Warrantholders.
13.5 Counterparts and Formal Date
This Indenture may be simultaneously executed in several counterparts, each of
which when so executed will be deemed to be an original and the counterparts
together will constitute one and the same instrument and notwithstanding their
date of execution will be deemed to bear the date as of March 9, 2000.
<PAGE>
Page 35
13.6 Successors
This Agreement shall enure to the benefit of, and be binding upon, the Company
and the Trustee and their respective successors (including successors by reason
of amalgamation, merger, business combination or arrangement) and legal
representatives and nothing expresses or mentioned in this Agreement is intended
and shall be construed to give any other person any legal or equitable right,
remedy or claim under or in respect of this Agreement, or any provision herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person.
IN WITNESS WHEREOF the parties have caused this Indenture to be executed by
their proper officers in that behalf.
IMMUNE NETWORK RESEARCH LTD.
Per: /s/ Allen Bain
-------------------------------------------------
(Authorized Signatory)
MONTREAL TRUST COMPANY OF CANADA
Per: /s/ Nicole Clement /s/ Georgia Stavridis
-------------------------------------------------
(Authorized Signatory)
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE "A"
to the Warrant Indenture between
Immune Network Research Ltd. and
Montreal Trust Company of Canada
dated March 9, 2000
FORM OF WARRANT CERTIFICATE
--------------------------------------------------------------------------------
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND ANY SECURITIES ISSUED UPON
EXERCISE OF SUCH SECURITIES ARE SUBJECT TO A HOLD PERIOD AND RESALE RESTRICTIONS
AND MAY NOT BE TRADED IN BRITISH COLUMBIA UNTIL MIDNIGHT ON MARCH 9, 2001,
EXCEPT AS PERMITTED BY THE SECURITIES ACT (BRITISH COLUMBIA) AND THE RULES MADE
THEREUNDER, PROVIDED THAT THE HOLD PERIOD SHALL EXPIRE AT MIDNIGHT ON JULY 9,
2000, IF, AT THE TIME OF CONVERSION OF THE UNIT WARRANTS REPRESENTED BY THIS
CERTIFICATE, THE ISSUER IS A QUALIFYING ISSUER (AS DEFINED IN BRITISH COLUMBIA
SECURITIES COMMISSION ("BCSC'") BLANKET ORDER AND RULING #98/11 (THE "SHAIF
BOR") AND HAS COMPLIED WITH THE REQUIREMENTS OF BCSC LOCAL POLICY STATEMENT 3-27
(THE "SHAIF LP") AND THE SHAIF BOR. TRADES NOT DONE IN BRITISH COLUMBIA MAY BE
SUBJECT TO HOLD PERIODS AND RESALE RESTRICTIONS UNDER APPLICABLE SECURITES LAWS
AND, IF SO, MAY NOT BE TRADED EXCEPT AS PERMITTED BY SUCH SECURITIES LAWS.
UNIT WARRANTS TO SUBSCRIBE FOR COMMON SHARES
OF
IMMUNE NETWORK RESEARCH LTD.
(Amalgamated under the laws of the Province of British Columbia)
Number of Unit Warrants represented
By this Certificate: < > Certificate Number: SPECIMEN
----------
THIS CERTIFIES THAT, for value received, (the
----------------------------------
"Holder"), is entitled to purchase, at the price of $1.40 per Common Share, one
Common Share of Immune Network Research Ltd. (the "Issuer") for each of the Unit
Warrants evidenced hereby, subject to adjustment as herein set forth, at any
time prior to 4:30 p.m. (Vancouver time) on September 8, 2001 (the "Expiry
Date"):
The following provisions shall be applicable to the Unit Warrants:
1. Interpretation
--------------
1.1 Currency
--------
All dollar amounts referred to herein shall be in lawful money of Canada.
1.2 Defined Terms
-------------
As used herein, the following words and phrases shall have the following
meanings respectively:
(a) "business day" means a day other than a Saturday, Sunday, or any
statutory or civic holiday in the City of Toronto;
(b) "close of business" means 4:30 p.m. (Vancouver time);
(c) "Common Shares" means the fully paid and non-assessable common shares
without par value in the capital of the Issuer whether issued or
unissued, as constituted at the date hereof; provided that in the event
of a change, reclassification, subdivision, redivision, reduction,
combination, or consolidation thereof, or successive such changes,
reclassifications, subdivisions, redivisions, reductions, combinations
or consolidations, and subject to adjustment, if any, having been made
in accordance with the provisions of Section 2.1 hereof, "Common
Shares" shall thereafter mean the shares resulting from such change,
reclassification, subdivision, redivision, reduction or combination;
<PAGE>
Page 2
(d) "Exercise Price" means $1.40 per Common Share, unless such price shall
have been adjusted in accordance with the provisions of Section 2.1
hereof, in which case it shall mean the adjusted price in effect at
such time;
(e) "herein", "hereto", "hereunder", "hereof", "hereby" and similar
expressions mean or refer to this Unit Warrant certificate and not to
any particular section, clause, subclause, subdivision or portion
hereof, and the expressions, "Section", "clause" and "subclause"
followed by a number or letter mean and refer to the specified Section,
clause or subclause hereof;
(f) "Holders" means the registered holders of Unit Warrants for the time
being;
(g) "Time of Expiry" means 4:30 p.m. (Vancouver time) on the Expiry Date;
(h) "Trustee" means Montreal Trust Company of Canada, of Vancouver, British
Columbia, or any other trust corporation as the Issuer may appoint from
time to time as the trustee of the Unit Warrants pursuant to the Unit
Warrant Indenture.
(i) "Unit Warrants" means the warrants evidenced hereby;
(j) "Unit Warrant Indenture" means the indenture dated March 9, 2000
entered into between the Issuer and the Trustee regarding the Unit
Warrants; and
(k) "Unit Warrant Register" means the register to be maintained by the
Trustee in accordance with the Unit Warrant Indenture.
1.3 Manner of Exercise; Issuance of Certificates
--------------------------------------------
The Holder may exercise its right to convert the Unit Warrants evidenced by
this certificate, in whole or in part, for Common Shares hereunder, at any time
prior to the Time of Expiry, by the surrender to the Trustee at 4th Floor, 510
Burrard Street, Vancouver, British Columbia, V6B 3C9 prior to the close of
business on any business day, or at such other address as the Issuer may
designate by notice in writing to the Holder at the address of the Holder
appearing on the Unit Warrant Register, together with (a) a completed
subscription in the form attached as Schedule "A" hereto (the "Unit Warrant
Subscription Form"); and (b) a certified cheque, money order or bank draft
payable to or to the order of the Issuer in lawful money of Canada in an amount
equal to the Exercise Price multiplied by the number of Common Shares for which
subscription is being made.
1.4 No Fractional Shares
--------------------
Notwithstanding any adjustments provided for in Section 2.1 hereof or
otherwise, the Issuer shall not be required upon the exercise of any Unit
Warrants to issue fractional Common Shares in satisfaction of its obligations
hereunder. Reference should be made to the Unit Warrant Indenture for
provisions regarding cash compensation which may be payable to the Holder in
circumstances where a fractional Common Share would, but for this section, have
been issued upon exercise of a Unit Warrant.
2. Adjustments
-----------
The exercise of the Unit Warrants represented hereby is subject to adjustment in
accordance with the provisions of the Unit Warrant Indenture including, without
limitation, Article 7 thereof.
3. Transfer of Unit Warrants
-------------------------
The Unit Warrants evidenced hereby and the securities issuable upon exercise
thereof may be subject to hold periods and resale restrictions under applicable
securities laws and, if so, may not be traded except as permitted by such
securities laws. Holders should consult with the Holder's professional advisor
<PAGE>
Page 3
in order to assess the legal aspects of a transfer of the Unit Warrants
evidenced hereby and/or the securities issuable upon exercise thereof.
Subject to the foregoing, the Holder may transfer the Unit Warrants evidenced
hereby either in whole or in part, using the transfer form in the form attached
as Schedule "B" hereto. Every transfer of Unit Warrants, in order to be
effective, must be in compliance with applicable securities laws and with the
provisions of the Warrant Indenture.
4. Not a Shareholder
-----------------
Nothing in this certificate or in the holding of a Warrant shall be construed as
conferring upon the Holder any right or interest whatsoever as a shareholder of
the Issuer.
5. Partial Exercise
----------------
The Holder may subscribe for and acquire a number of Common Shares less than the
number it is entitled to acquire pursuant to this certificate. In the event of
any such subscription, the Holder shall in addition be entitled to receive,
without charge, a new Warrant certificate in respect of the balance of the
Common Shares which the Holder was entitled to acquire pursuant to this
certificate and which were then not acquired.
6. Provisions of Warrant Indenture
-------------------------------
This certificate and the Unit Warrants represented hereby are subject in their
entirety to the provisions of the Warrant Indenture. Reference is made to the
Unit Warrant Indenture and any instruments supplemental thereto for a full
description of the rights of the holders of the Special Warrants and the terms
and conditions upon which the Unit Warrants are, or are to be issued and held,
with the same effect as if the provisions of the Unit Warrant Indenture and all
instruments supplemental thereto were herein set forth. By acceptance hereof,
the Holder assents to all provisions of the Unit Warrant Indenture. In the
event of a conflict between the provisions of this Unit Warrant Certificate and
the Unit Warrant Indenture, the provisions of the Unit Warrant Indenture shall
govern.
7. Governing Law
-------------
The Unit Warrants shall be governed by, and construed in accordance with, the
laws of the Province of British Columbia and the laws of Canada applicable
therein.
8. Time of the Essence
-------------------
Time shall be of the essence hereof.
9. Number and Gender
-----------------
Words importing the singular number only include the plural and vice versa and
words importing any gender include all genders.
10. Headings
--------
The division of this Warrant certificate into Sections, clauses, subclauses or
other subdivisions and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation hereof.
11. Binding Effect
--------------
The terms and conditions of the Unit Warrants as set out herein shall enure to
the benefit of and be binding upon the registered Holder hereof, its heirs,
executors, administrators, successors and assigns to the extent provided herein
and shall enure to the benefit of and be binding upon the Issuer and its
respective successors and assigns.
<PAGE>
Page 4
12. Severability
------------
In the event any provision hereof shall be void or unenforceable for any reason,
it shall be severed from the remainder of the provisions hereof and such
remainder shall remain in full force and effect notwithstanding such severance.
Any court with jurisdiction over any dispute with respect to the Unit Warrants
may amend the provisions hereof to the minimum extent required to render the
impugned provision valid and enforceable.
13. Language
--------
The parties hereto hereby confirm that they have each requested that this
certificate be drawn up in the English language. Les parties aux prsentes
reconnaissent que chacune d'elles a exig que cette convention et tout autre
document qui y est accessoire solent rdigs en anglais.
14. Certification
-------------
This Unit Warrant Certificate shall not be valid for any purpose whatsoever
unless and until it has been certified by or on behalf of the Trustee.
IN WITNESS WHEREOF the Issuer has caused this certificate to be signed by its
duly authorized officer as of the 9th day of March, 2000.
IMMUNE NETWORK RESEARCH LTD.
By:
----------------------------------
Name: Allen Bain
Title: President
CERTIFIED BY
MONTREAL TRUST COMPANY, Trustee
By:
----------------------------------
<PAGE>
SCHEDULE "A"
------------
EXERCISE AND SUBSCRIPTION FORM
------------------------------
TO: MONTREAL TRUST COMPANY OF CANADA
4th Floor, 510 Burrard Street
Vancouver, B.C. V6C 3B9 Attention: Client Services
---------
RE: UNIT WARRANT CERTIFICATE NUMBER W-
The undersigned holder of the attached Unit Warrant certificate hereby
irrevocably subscribes for Common Shares of IMMUNE
-------------------------------
NETWORK RESEARCH LTD. (the "Issuer") pursuant to the terms of the Unit Warrants
specified in such certificate and the Unit Warrant Indenture dated March 9, 2000
entered into between the Issuer and Montreal Trust Company of Canada, as
trustee, at a price of $1.40 per share, and encloses and tenders herewith a
certified cheque, bank draft or money order payable at par to or to the order of
Immune Network Research Ltd. in lawful money of Canada, for an aggregate
subscription price of $ .
----------------------
DATED this day of .
--------------- -----------------------
(Please complete date including year)
NAME:
------------------------
Signature:
------------------------
Registration
------------------------
Instructions:
------------------------
------------------------
------------------------
[ ] Please check box if the Common Share certificates are to be delivered at
the office of the Issuer, failing which the Common Share certificates will
be mailed to the subscriber at the address set out above.
[ ] If any Unit Warrants represented by this certificate are not being
exercised, a new Unit Warrant certificate will be issued and delivered
with the Common Share certificates.
<PAGE>
SCHEDULE "B"
------------
TRANSFER FORM
-------------
TRANSFER OF THE UNIT WARRANTS IS RESTRICTED - REFER TO THE TERMS OF THE ATTACHED
CERTIFICATE.
FOR VALUE RECEIVED, the undersigned transfers to
--------------------------------------------------------------------------------
(Print name and address of transferee)
--------------------------------------------------------------------------------
the Unit Warrants represented by the attached certificate.
DATED:
------------------------------------
Signature guarantee:
----------------------------------------- ------------------------------
(the Holder's signature must be guaranteed Signature of Registered
by a Canadian chartered bank or trust company Holder (or its representative
or medallion guaranteed by a member of a if the Holder is not an
recognized member guarantee program. individual)
------------------------------
Name of Registered Holder
------------------------------
Name and Title of Person
signing on behalf of the
Holder (if the Holder is not
an individual)
<PAGE>
