Cascadian Therapeutics
Oncothyreon Inc. (Form: 10-Q, Received: 11/10/2008 15:20:50)
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-33882
ONCOTHYREON INC.
(Exact name of registrant as specified in its charter)
     
Delaware   26-0868560
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)
     
2601 Fourth Ave, Suite 500    
Seattle, Washington   98121
(Address of principal executive offices)   (Zip Code)
(206) 801-2100
(Registrant’s telephone number, including area code)
     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, as amended, during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No þ
     As of November 6, 2008, the number of outstanding shares of the registrant’s common stock, par value $0.0001 per share, was 19,492,432.
 
 

 


 

ONCOTHYREON INC.
FORM 10-Q FOR THE QUARTER ENDED September 30, 2008
INDEX
         
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    33  
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    34  
    34  
    34  
    48  
    49  
  EX-10.1
  EX-10.2
  EX-10.3
  EX-10.4
  EX-12.1
  EX-31.1
  EX-31.2
  EX-32.1
     In this Form 10-Q, unless otherwise specified, all monetary amounts are in United States dollars, all references to “$” and “U.S. dollars” mean U.S. dollars and all references to “Cdn. $” mean Canadian dollars.

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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
ONCOTHYREON INC.
Condensed Consolidated Balance Sheets
(expressed in thousands of U.S. dollars, except stock amounts)
(Unaudited)
                 
    September 30,     December 31,  
    2008     2007  
ASSETS
               
Current
               
Cash and cash equivalents
  $ 11,378     $ 12,035  
Short-term investments
          12,151  
Accounts receivable
    1,590       2,024  
Government grant receivable
    154       552  
Notes receivable
          364  
Prepaid expenses
    471       528  
Inventory (See Note 5)
    10,228       5,069  
 
           
 
    23,821       32,723  
Plant and equipment, net
    1,460       1,378  
Notes receivable
    214        
Long term deposit
    354        
Goodwill
    2,117       2,117  
 
           
 
  $ 27,966     $ 36,218  
 
           
LIABILITIES
               
Current
               
Accounts payable and accrued liabilities
  $ 5,015     $ 5,768  
Current portion of capital lease obligations
    70       104  
Current portion of deferred revenue
    9,202       5,801  
 
           
 
    14,287       11,673  
Capital lease obligations
    22       66  
Notes payable
    199       199  
Warrant liability (See Note 6)
          64  
Deferred revenue
    13,804       12,167  
Class UA preferred stock, 12,500 shares authorized, 12,500 and 12,500 shares issued and outstanding
    30       30  
 
           
 
    28,342       24,199  
 
           
Contingencies, commitments, and guarantees (See Note 9)
               
 
               
STOCKHOLDERS’ EQUITY (DEFICIT)
               
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding
           
Common stock, $0.0001 par value; 100,000,000 shares authorized, 19,492,432 and 19,485,889 shares issued and outstanding
    325,043       324,992  
Warrants (See Note 6)
    64        
Additional paid-in capital
    14,725       13,636  
Accumulated deficit
    (335,142 )     (321,543 )
Accumulated other comprehensive loss
    (5,066 )     (5,066 )
 
           
 
    (376 )     12,019  
 
           
 
  $ 27,966     $ 36,218  
 
           
(See accompanying notes to the condensed consolidated financial statements)

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ONCOTHYREON INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
                                 
    Three months     Nine months  
    ended September 30,     ended September 30,  
    2008     2007     2008     2007  
Revenue
                               
Contract research and development
  $     $ 30     $     $ 602  
Contract manufacturing
    426       919       2,946       919  
Licensing revenue from collaborative agreements
    376       148       1,028       316  
Licensing, royalties, and other revenue
          2             23  
 
                       
 
    802       1,099       3,974       1,860  
 
                       
 
                               
Expenses
                               
Research and development (See Note 4)
    1,883       1,406       6,917       7,733  
Manufacturing
    422       1,168       3,148       1,168  
General and administrative
    1,941       4,105       7,305       8,230  
Marketing and business development
          27             539  
Depreciation
    111       60       317       162  
Investment and other (income) expense (See Note 8)
    14       395       (114 )     395  
Change in fair value of warrant liability (See Note 6)
          (511 )           (1,179 )
 
                       
 
    4,371       6,650       17,573       17,048  
 
                       
Net loss
    (3,569 )     (5,551 )     (13,599 )     (15,188 )
Other comprehensive income
    31       1,095             3,085  
 
                       
Comprehensive loss
  $ (3,538 )   $ (4,456 )   $ (13,599 )   $ (12,103 )
 
                       
Basic and diluted loss per share
  $ (0.18 )   $ (0.28 )   $ (0.70 )   $ (0.78 )
 
                       
Weighted average number of common shares outstanding
    19,492,432       19,485,889       19,490,011       19,485,889  
 
                       
(See accompanying notes to the condensed consolidated financial statements)

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ONCOTHYREON INC.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(expressed in thousands of U.S. dollars, except number of common shares issued and outstanding)
(Unaudited)
                                                 
                                            Accumulated  
                            Additional             Other  
    Common Stock             Paid-in     Accumulated     Comprehensive  
    Number     Amount     Warrants     Capital     Deficit     Loss  
Balance at December 31, 2006
    19,485,889     $ 324,992     $     $ 11,955     $ (301,203 )   $ (8,309 )
 
                                   
Stock-based compensation
                      1,681              
Net loss
                            (20,340 )      
Unrealized holding loss on available-for-sale-securities
                                  (48 )
Foreign currency translation adjustments
                                  3,291  
 
                                             
Other comprehensive income
                                            3,243  
 
                                   
Balance at December 31, 2007
    19,485,889     $ 324,992     $     $ 13,636     $ (321,543 )   $ (5,066 )
 
                                   
Stock-based compensation
                      1,140              
Net loss
                            (13,599 )      
Release of restricted share units
    6,543       51             (51 )            
Warrants (See Note 6)
                64                    
Unrealized holding loss on available-for-sale securities
                                   
Other comprehensive loss
                                               
 
                                   
Balance at September 30, 2008
    19,492,432     $ 325,043     $ 64     $ 14,725     $ (335,142 )   $ (5,066 )
 
                                   
(See accompanying notes to the condensed consolidated financial statements)

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ONCOTHYREON INC.
Condensed Consolidated Statements of Cash Flows
(expressed in thousands of U.S. dollars)
(Unaudited)
                 
    Nine months ended September 30,  
    2008     2007  
Operating
               
Net loss
  $ (13,599 )   $ (15,188 )
Depreciation
    317       162  
Stock-based compensation expense
    1,140       1,239  
Change in fair value of warrant liability (See Note 6)
          (1,179 )
Gain on disposal of short-term investments
          (47 )
Unearned revenue
    7,060       5,518  
Recognition of unearned revenue
    (2,022 )     (316 )
Net change in non-cash working capital balances from operations
               
Accounts receivable
    432       755  
Government grant receivable
    398        
Prepaid expenses
    57       87  
Inventory
    (5,159 )     (3,185 )
Accounts payable and accrued liabilities
    (466 )     1,667  
Long term deposits
    (354 )      
 
           
 
    (12,196 )     (10,487 )
 
           
Investing
               
Purchase of short-term investments
    (22,376 )     (26,247 )
Redemption of short-term investments
    34,248       31,444  
Purchase of plant and equipment
    (686 )     (482 )
Payment of accrued business acquisition cost
          (251 )
Collection of notes receivable
    150        
 
           
 
    11,336       4,464  
 
           
Financing
               
Repayment of share issuance costs
          (174 )
Repayment of capital lease obligations
    (78 )     (40 )
 
           
 
    (78 )     (214 )
 
           
Net cash outflow
    (938 )     (6,237 )
Effect of exchange rate fluctuations on cash and cash equivalents
    281       1,593  
 
           
Decrease in cash and cash equivalents
    (657 )     (4,644 )
Cash and cash equivalents, beginning of period
    12,035       13,409  
 
           
Cash and cash equivalents, end of period
  $ 11,378     $ 8,765  
 
           
Supplemental disclosure of cash flow information
               
Amount of interest paid in the period
  $ 6     $ 2  
Amount of income taxes paid in the period
  $     $  
 
           
(See accompanying notes to the condensed consolidated financial statements)

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ONCOTHYREON INC.
Notes to the Condensed Consolidated Financial Statements
Three and Nine months ended September 30, 2008 and 2007
(expressed in thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
1. DESCRIPTION OF BUSINESS
     Oncothyreon Inc. (the “Company” or “Oncothyreon”) is a biotechnology company incorporated in the State of Delaware on September 7, 2007. Oncothyreon specializes in the development of innovative therapeutic products for the treatment of cancer. Oncothyreon’s goal is to develop and commercialize novel synthetic vaccines and targeted small molecules that have the potential to improve the lives and outcomes of cancer patients. Oncothyreon’s operations are not subject to any seasonality or cyclicality factors.
Change in reporting entity
     On December 10, 2007, Oncothyreon became the successor corporation to Biomira Inc. (“Biomira”) by way of a plan of arrangement approved at a special meeting of the Stockholders of Biomira held in Edmonton, Alberta, Canada on December 4, 2007 and approved by the Alberta Court of Queen’s Bench under Canadian law on December 5, 2007. Biomira was incorporated under the Canada Business Corporations Act in 1985.
     On December 11, 2007, Oncothyreon’s common stock began trading on the NASDAQ Global Market under the symbol ONTY and on the Toronto Stock Exchange under the symbol ONY. Holders of common shares of the former Biomira received one-sixth of a share of common stock of Oncothyreon in exchange for each common share of Biomira, which had the effect of a 6 for 1 reverse stock split of the outstanding common shares. The holder of the 12,500 outstanding Biomira Class A preference shares received one share of Class UA Preferred Stock of Oncothyreon for each Biomira Class A preference share. The condensed consolidated financial statements have been prepared giving effect to the 6 for 1 reverse share exchange, including basic and diluted loss per share, for all periods presented.
     All Biomira common stock options, restricted share units and warrants that were in existence prior to the plan of arrangement were exchanged for common stock options, restricted share units and warrants in Oncothyreon on a 6 for 1 basis with no change in any of the terms and conditions.
     Oncothyreon’s Board of Directors and management, immediately following the plan of arrangement, were the same as Biomira’s immediately before the plan of arrangement became effective.
     In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Accounting for Business Combinations , the plan of arrangement represents a transaction among entities under common control. Assets and liabilities transferred between entities under common control are accounted for at historical cost. Accordingly, the assets and liabilities of the predecessor Biomira have been reflected at their historical cost in the accounts of Oncothyreon. In addition, these condensed consolidated financial statements reflect the historical accounts of Biomira up to December 10, 2007 with the exception of basic and diluted loss per share amounts, descriptions and amounts of all common stock, common stock options, restricted share units and warrants and their corresponding exercise prices where applicable, which have been recast to reflect the 6 for 1 common share exchange effected by the plan of arrangement.
     In these condensed consolidated financial statements, the reference to “Company” means Biomira for periods prior to December 10, 2007 and Oncothyreon for periods thereafter.
2. BASIS OF PRESENTATION
Going concern
     As of September 30, 2008, the Company’s principal sources of liquidity consisted of cash and cash equivalents of $11.4 million, and accounts receivable of $1.6 million. Management believes that the currently available cash, cash equivalents, and short term investments will be sufficient to finance its planned operations into the first quarter of 2009. The Company will require additional capital in order to continue the development of products in its pipeline and to expand its product portfolio.

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     The Company’s ability to continue as a going concern is dependent on its success at raising additional capital sufficient to meet its obligations on a timely basis, and to ultimately attain profitability. Management believes it will raise the necessary funds for the Company’s growth and development activities. However, there is no assurance that it will raise capital sufficient to enable it to continue its planned operations for the next 12 months.
     The Company would expect to seek additional financing from the sale of rights related to its existing product candidates, the sale and issuance of equity or debt securities or through forming strategic partnerships for its products. The Company cannot predict that financing will be available when and if it needs financing, or, if available, that the financing terms will be commercially reasonable. Accordingly, in the event new financing is not obtained, the Company will likely continue to reduce general and administrative expenses and delay research development projects as well as further acquisition of scientific equipment and supplies until it is able to obtain sufficient financing to do so.
     The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since inception, the Company has incurred, and continues to incur, significant losses from operations.
     These factors raise substantial doubt about the Company’s ability to continue as a going concern. The balance sheets do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.
Accounting Basis
     The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial statements. The accounting principles and methods of computation adopted in these condensed consolidated financial statements are the same as those of the audited consolidated financial statements for the year ended December 31, 2007, except as disclosed in Note 3 below.
     Omitted from these statements are certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP. The Company believes all adjustments necessary for a fair statement of the results for the periods presented have been made. The financial results for the three and nine months ended September 30, 2008 are not necessarily indicative of financial results for the full year. The condensed consolidated financial statements and notes presented should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2007 filed on Form 10-K with the United States Securities and Exchange Commission.
     These condensed consolidated financial statements have been prepared using U.S. GAAP, which except as described in Note 12, conform, in all material respects, with Canadian generally accepted accounting principles (“Canadian GAAP”).
Foreign currency translation
     Effective January 1, 2008, the Company’s functional currency changed to the U.S. dollar from the Canadian dollar as a result of the Company’s redomicile into the United States effective December 10, 2007 (See Note 1) and increasing U.S. dollar denominated revenues and expenditures. As the Company’s reporting currency is also the U.S dollar, the September 30, 2008 condensed consolidated financial statements were translated under guidance provided in SFAS No. 52, Foreign Currency Translation; namely, transactions denominated in foreign currencies are recorded in the functional currency at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated into the functional currency at the rate prevailing at the balance sheet date. Gains and losses arising on the revaluation are included in the income statement. The change in functional currency was adopted prospectively with no restatement of comparative balances.
3. ACCOUNTING POLICY CHANGES
Accounting standards adopted in the current year
Fair Value Measurements

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     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements, (“SFAS 157”). SFAS 157 introduces a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities.
     SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS 157 describes three levels of inputs that may be used to measure fair value:
    Level 1 — quoted prices in active markets for identical assets or liabilities;
 
    Level 2 — observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
 
    Level 3 — unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
     The adoption of SFAS 157 did not have any effect on the Company’s financial condition or results of operations, however, SFAS 157 introduced new disclosures about how the Company values certain assets and liabilities. Much of the disclosure is focused on the inputs used to measure fair value, particularly in instances where the measurement uses significant unobservable, i.e., Level 3, inputs. The Company did not own any financial instruments as of September 30, 2008. For financial assets and liabilities, SFAS 157 was effective for fiscal years beginning after November 15, 2007, and the Company has adopted the standard for those assets and liabilities as of January 1, 2008. The impact of adoption was not significant.
The Fair Value Option for Financial Assets and Financial Liabilities
     Effective January 1, 2008, the Company adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”) . SFAS 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. The Company has not elected to apply SFAS 159 to any assets or liabilities, therefore the adoption of SFAS 159 had no impact on the Company’s financial position or results of operations for the current or comparative periods presented.
Accounting for Non Refundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities
     Effective January 1, 2008, the Company adopted Emerging Issues Task Force “EITF” Issue No. 07-3, Accounting for Non Refundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (“EITF 07-3”). EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed and is to be applied prospectively for new contracts entered into on or after January 1, 2008. The adoption of EITF 07-3 did not result in a material impact on the Company’s financial position or results of operations.
Accounting standards effective in future periods
GAAP Hierarchy
     In May 2008 the FASB released SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP (the “GAAP hierarchy”). FASB believes that the GAAP hierarchy should be directed to entities because it is the entity, not its auditor, that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. Accordingly, FASB concluded that the GAAP hierarchy should reside in the accounting literature established by the FASB and issued SFAS 162 to achieve that result. SFAS 162 becomes effective 60 days following the Securities and Exchange Commission’s approval of the Public Accounting Oversight

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Board amendment to Interim Auditing Standard, AU Section 411. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS 162 on its consolidated financial statements.
Determination of the Useful Life of Intangible Assets
     In April 2008, the FASB issued FASB Staff Position (“FSP”) No. SFAS 142-3, “ Determination of the Useful Life of Intangible Assets ” (“FSP SFAS 142-3”). FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “ Goodwill and Other Intangible Assets ” (“SFAS 142”). The intent of FSP SFAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R (revised 2007), “ Business Combinations ” (“SFAS 141R”) and other applicable accounting literature. FSP SFAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and must be applied prospectively to intangible assets acquired after the effective date. The Company is currently evaluating the potential impact, if any, of FSP SFAS 142-3 on its consolidated financial statements.
Collaborative Arrangements
     In September 2007, the EITF reached a consensus on EITF Issue No. 07-1, Collaborative Arrangements (“EITF 07-1”). EITF 07-1 addresses the accounting for arrangements in which two companies work together to achieve a commercial objective, without forming a separate legal entity. The nature and purpose of a company’s collaborative arrangements are required to be disclosed, along with the accounting policies applied and the classification and amounts for significant financial activities related to the arrangements. The consensus is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact EITF 07-1 will have on its consolidated financial statements.
Business Combinations
     In December 2007, the FASB issued SFAS No. 141 (Revised), Business Combinations (“SFAS 141R”). SFAS 141R requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value.” SFAS 141R applies to all business combinations, including combinations among mutual entities and combinations by contract alone. Under SFAS 141R, all business combinations will be accounted for by applying the acquisition method. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier application of SFAS 141R is prohibited.
Noncontrolling Interests in Consolidated Financial Statements
     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an Amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the retained interest and gain or loss when a subsidiary is deconsolidated. This statement is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 with earlier adoption prohibited. The Company is currently evaluating the impact of SFAS 160 on its consolidated financial statements.
Disclosures about Derivative Instruments and Hedging Activities
     In March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative Investments and Hedging Activities an amendment to SFAS No. 133 (“SFAS 161”), which requires companies with derivative instruments to disclose information about how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133, and how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows. The required disclosures include the fair value of derivative instruments and their gains or losses in tabular format, information about credit-risk-related contingent features in derivative agreements, counterparty credit risk, and the company’s strategies and objectives for using derivative instruments. The Statement expands the current disclosure framework in SFAS 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). SFAS 161 is effective prospectively for periods beginning on or after November 15, 2008. The Company currently does not utilize derivative instruments and, therefore, does not expect that there will be any impact of SFAS 161 on its consolidated financial statements.

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4. RESEARCH AND DEVELOPMENT
     Government grant funding of $269 (2007-$571) and $1,076 (2007-$1,449) was credited against research and development costs during the three and nine months ended September 30, 2008, respectively.
5. INVENTORY
                 
    September 30,     December 31,  
    2008     2007  
Raw material supplies
  $ 2,761     $ 1,693  
Work-in-process
    6,635       2,454  
Finished goods
    832       922  
 
           
 
  $ 10,228     $ 5,069  
 
           
6. SHARE CAPITAL
Warrants
     Under SFAS 133, share purchase warrants with an exercise price denominated in a currency other than the Company’s functional currency are recorded as liabilities. Changes in the fair value of these warrants are recognized in the consolidated statements of operations.
     As disclosed in Note 2, effective January 1, 2008 the Company’s functional currency changed to the U.S. dollar from the Canadian dollar and therefore the exercise price of the warrants is now denominated in the Company’s functional currency. Accordingly, the previously recognized liability represented by the fair value of the warrants at December 31, 2007 of $64 was credited to stockholders’ equity in the accompanying condensed consolidated balance sheet effective January 1, 2008 and there is no further requirement under SFAS 133 to adjust the warrants to fair value through earnings at each reporting date.
Stock transactions
(a) Loss per Share
     For the three and nine months ended September 30, 2008 and 2007, shares potentially issuable upon the exercise or conversion of director and employee stock options and non-employee director restricted share units, shares issuable upon the occurrence of certain contingencies pursuant to the terms of the May 2, 2001 Merck KGaA agreement, shares issuable upon the occurrence of certain contingencies pursuant to the agreement governing the October 30, 2006 ProlX acquisition, and purchase warrants issued in connection with the July 13, 2004 and September 26, 2006 offerings of equity securities, respectively, have been excluded from the calculation of diluted loss per share because the effect would have been anti-dilutive.
(b) Registration Statement
     On March 20, 2008, the Company filed a shelf registration statement on Form S-3 to issue up to $50 million in common stock, preferred stock, debt securities, depositary shares, warrants, units and guarantees. On July 29, 2008, the Company filed a post-effective amendment to such registration statement to give it the flexibility to offer and sell its common stock and preferred stock through the issuance of subscription rights to its stockholders on a pro rata basis. On September 2, 2008, the Company announced its intention to offer 5,100,000 shares of its common stock in a fully-underwritten, public offering pursuant to its effective shelf registration statement. As of the date of this report on Form 10-Q, the Company had not been able to consummate such offering given adverse market conditions.
7. STOCK-BASED COMPENSATION
Stock Option Plan
     The Company sponsors a Stock Option Plan under which a maximum fixed reloading percentage of 10% of the issued and outstanding common stock of the Company may be granted to employees, directors, and service providers. Prior to April 1, 2008 the exercise price of each option equals the closing market value at the date immediately preceding the date of the grant in Canadian

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dollars as quoted on the Toronto Stock Exchange. The exercise price of options granted subsequent to April 1, 2008 equals the closing price of the Company’s shares of common stock on the NASDAQ Global Market on the day of the option grant. In general, options issued under the plan vest in equal amounts over four years on the anniversary date of the grant, and expire eight years following the date of the initial grant.
     During the three and nine month periods ended September 30, 2008, the Company granted zero and 150,600 (2007 —zero and 246,266) stock options, respectively.
     The Company uses the Black-Scholes option pricing model to value the options at each grant date, using the following weighted average assumptions:
                                 
    Three months ended   Nine months ended
    September 30,   September 30,
    2008   2007   2008   2007
CDN$ — Weighted average grant-date fair value for stock options granted in CDN$
  $     $     $ 3.84     $ 6.47  
US$ — Weighted average grant-date fair value for stock options granted in US$
  $     $     $ 2.93     $  
Expected dividend rate
    N/A       N/A       0 %     0 %
Expected volatility
    N/A       N/A       114.19 %     102.52 %
Risk-free interest rate
    N/A       N/A       3.09 %     4.21 %
Expected life of options in years
    N/A       N/A       6.0       6.0  
8. IMPACT OF FOREIGN CURRENCY TRANSLATION
     Included in investment and other expense of $(14) (2007 — expense of $(395)) and income of $114 (2007 — expense of $(395)) for the three and nine months period ended September 30, 2008, respectively, in the condensed consolidated statements of operations are net foreign exchange losses of $44 (2007 — income $630) and $201 (2007 — income $1,208) respectively.
9. CONTINGENCIES, COMMITMENTS, AND GUARANTEES
Royalties
     In connection with the issuance of the Class UA preferred stock, the Company has agreed to pay a royalty in the amount of 3% of the net proceeds of sale of any products sold by the Company employing technology acquired in exchange for the shares. None of the Company’s products currently under development employ the technology acquired.
     Pursuant to various license agreements, the Company is obligated to pay royalties based both on the achievement of certain milestones and a percentage of revenues derived from the licensed technology.
     In addition, commencing December 31, 2005, the Company is committed to minimum annual payments of $100 during the existence of a royalty term in exchange for a non-exclusive worldwide royalty-bearing license of technology. Upon the achievement of certain milestones, additional payments will be triggered under the terms of the licensing agreement. These payments will be recognized as expense upon performance of obligations defined as milestones in the agreement.
Guarantees
     The Company is contingently liable under a mutual undertaking of indemnification with Merck KGaA for any withholding tax liability that may arise from payments under the collaborative agreements.
     In the normal course of operations, the Company indemnifies counterparties in transactions such as purchase and sale contracts for assets or shares, service agreements, director/officer contracts and leasing transactions. These indemnification agreements may require the Company to compensate the counterparties for costs incurred as a result of various events, including environmental liabilities, changes in (or in the interpretation of) laws and regulations, or as a result of litigation claims or statutory sanctions that may be suffered by the counterparties as a consequence of the transaction. The terms of these indemnification agreements vary based upon the contract, the nature of which prevents the Company from making a reasonable estimate of the maximum potential amount that could be required to pay to counterparties. Historically, the Company has not made any significant payments under such indemnification

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agreements and no amounts have been accrued in the accompanying condensed consolidated financial statements with respect to these indemnification guarantees.
     Under the Agreement and Plan of Reorganization between Oncothyreon, Biomira Acquisition Corporation, ProlX and two of the principal stockholders of ProlX, the Company has indemnified the former ProlX stockholders against certain liabilities, including with respect to certain tax liabilities that may arise as a result of actions taken by the Company through 2011. The estimated maximum potential amount of future payments that could potentially result from hypothetical future claims is $15 million. The Company believes the risk of having to make any payments under this agreement to be remote and therefore no amounts have been recorded thereon.
10. FINANCIAL INSTRUMENTS
     Financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, government grant receivable and notes receivable that will result in future cash receipts, as well as accounts payable and accrued liabilities, capital lease obligations, notes payable and Class UA preferred stock that require future cash outlays.
Credit risk
     The Company is exposed to credit risk on its short-term investments in the event of non-performance by counterparties, but does not anticipate such non-performance. The Company monitors the credit risk and credit standing of counterparties on a regular basis and deals with a small number of companies that management believes are reputable and stable. Restricting its portfolio to investment grade securities, and diversifying its investments across industries, geographic regions, and types of securities mitigates the Company’s exposure to concentration of credit risk.
Interest rate risk
     The Company’s short-term investments are primarily comprised of fixed interest securities. The Company’s earnings from its short-term investments are exposed to interest rate risk since individual investments held within the portfolio re-price to market interest rates as they mature and new investments are purchased. A 100 basis points decline in interest rates, occurring January 1, 2008 and sustained throughout the period ended September 30, 2008, would result in a decline in investment income of approximately $120 for that same period.
Foreign exchange risk
     The Company purchases goods and services denominated primarily in U.S. and Canadian currencies and, to a lesser extent, in certain European currencies. To manage its Canadian dollar exposure to foreign exchange risk, the Company has considered, but generally does not utilize, derivative instruments. The effect of exchange rate fluctuations may adversely affect the Company’s results in the future. A 10% strengthening of the Canadian dollar against the U.S. dollar, occurring January 1, 2008 and sustained throughout the period ended September 30, 2008, would result in an increase in expenses of approximately $950. This analysis assumes that all other variables, in particular interest rates, remain constant.
     At September 30, 2008, the Company has Canadian dollar denominated cash and cash equivalents of $865 and therefore, the carrying value of cash and cash equivalents may also be impacted by exchange rate fluctuations. At September 30, 2008, a 10% strengthening of the Canadian dollar against the U.S. dollar would result in a decrease in net loss of approximately $90 for the period ended September 30, 2008.
     During 2008 and the comparative periods presented, the Company did not enter into any foreign exchange forward or other derivative contracts in order to reduce its exposure to fluctuating foreign currency exchange rates. As there were no open foreign exchange forward or other derivative contracts at September 30, 2008 and December 31, 2007, no assets or liabilities with respect to such contracts have been recorded in the condensed consolidated balance sheets as at those dates.
Short-term investments
     The Company’s short term investments are typically invested in short-term obligations of the U.S. Treasury and Government of Canada, and commercial paper. When available, the Company uses quoted market prices to determine the fair value of its marketable securities included in Level 1. When quoted market prices are unavailable, the Company uses quotes provided by its fund manager

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based on recent trading activity and other relevant information. At September 30, 2008 the Company did not hold any short term investments.
Accounts receivable, government grant receivable and accounts payable and accrued liabilities
     The carrying amounts of accounts receivable, government grant receivable and accounts payable and accrued liabilities approximate their fair values due to the short-term nature of these financial instruments.
Notes receivable
     The fair value of notes receivable are assumed to be equal to their carrying value as the interest rate charged approximates market.
Capital lease obligations
     The estimated fair value of the capital lease obligations is based on the present value of expected future cash flows discounted using an estimate of the Company’s current borrowing rate. As at September 30, 2008 fair value was estimated to be $90.
Notes payable and class UA preferred stock
     The fair values of notes payable and class UA preferred stock are assumed to be equal to their carrying value as the amounts that will be paid and the timing of the payments cannot be determined with any certainty.
Limitations
     Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment; therefore, they cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
     Additional disclosure as required by SFAS 157 for assets and liabilities measured at fair value on a recurring basis are summarized below:
                         
    Fair Value Measurements at September 30, 2008
                Significant other   Significant
            Quoted prices in   observable   unobservable
    Total carrying   active markets   inputs   inputs
    value   (Level 1)   (Level 2)   (Level 3)
Short term investments
  $     $—   $       $—
Capital lease obligations
    92       —     90         —
11. SEGMENTED INFORMATION
     The Company is engaged world wide primarily in the biotechnology health care industry in a single business segment—research and development of therapeutic products for the treatment of cancer. Operations and long-lived assets by geographic region for the periods indicated are as follows:
                                 
    Three months     Three months     Nine months     Nine months  
    ended     ended     ended     ended  
    September 30,     September 30,     September 30,     September 30,  
    2008     2007     2008     2007  
Revenue from operations in
                               
Canada
  $ 4     $ 6     $ 12     $ 36  
United States
    797             3,920        
Barbados
          1,076       28       1,773  
Europe
    1       17       14       51  
 
                       
 
  $ 802     $ 1,099     $ 3,974     $ 1,860  
 
                       
Depreciation
                               
Canada
  $ 70     $ 49     $ 224     $ 140  
United States
    41       11       93       22  
 
                       
 
  $ 111     $ 60     $ 317     $ 162  
 
                       

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    September 30,     December 31,  
    2008     2007  
Long-lived assets
               
Canada
  $ 705     $ 833  
United States
    2 ,873       2,662  
 
           
 
  $ 3,577     $ 3,495  
 
           
     Long-lived assets consist of plant and equipment and goodwill.
     The Company derives significant revenue from certain customers. The number of customers that individually accounts for more than 10% of revenue and total revenue from transactions with those customers is as follows:
                 
    Customers   Revenue
Nine months ended September 30, 2007
    1     $ 1,827  
Nine months ended September 30, 2008
    1     $ 3,962  
12. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES AND CANADA
These condensed consolidated financial statements have been prepared in accordance with U.S. GAAP that differs in some respects from Canadian GAAP. The following adjustments and disclosures would be required in order to present these condensed consolidated financial statements in accordance with Canadian GAAP.
                                 
    Three months     Three months     Nine months     Nine months  
    ended     ended     ended     ended  
    September 30,     September 30,     September 30,     September 30,  
    2008     2007     2008     2007  
Consolidated statements of operations and other comprehensive income
                               
Net loss – U.S. GAAP
  $ (3,569 )   $ (5,551 )   $ (13,599 )   $ (15,188 )
Intangible assets (1), (2)
    (884 )     (768 )     (2,450 )     (2,181 )
Future income taxes (1)
    446       323       1, 266       1,374  
Acquired in-process research and development, net of future income taxes (2)
          93             528  
Change in fair value of warrants (3)
          (511 )           (1,179 )
 
                       
Net loss – Canadian GAAP
  $ (4,007 )   $ (6,414 )   $ (14,783 )   $ (16,646 )
 
                       
Weighted average number of common shares outstanding
    19,492,432       19,485,889       19,490,011       19,485,889  
 
                       
Loss per common share
                               
Basic and diluted loss per share – U.S. GAAP
  $ (0.18 )   $ (0.28 )   $ (0.70 )   $ (0.78 )
Basic and diluted loss per share – Canadian GAAP
  $ (0.21 )   $ (0.33 )   $ (0.76 )   $ (0.85 )
 
                       
                 
    Nine months     Nine months  
    ended     ended  
    September 30,     September 30,  
    2008     2007  
Other comprehensive (loss) income – U.S. GAAP
  $     $ 3,085  
Foreign currency translation adjustments
          4,178  
 
           
Other comprehensive (loss) income – Canadian GAAP
  $     $ 7,263  
 
           

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    September 30,   December 31,
    2008   2007
            Canadian           Canadian
    U.S. GAAP   GAAP   U.S. GAAP   GAAP
Consolidated balance sheets
                               
Intangible assets (1), (2)
  $     $ 35,522     $     $ 37,972  
Future income tax liability (1)
          9,202             10,468  
Warrant liability (3)
                64        
Common Stock (1), (3)
    325,043       324,188       324,992       324,137  
Additional paid-in capital (3)
    14,725       22,692       13,636       21,603  
Deficit (1), (2), (3)
    (335,142 )     (324,468 )     (321,543 )     (309,685 )
Accumulated other comprehensive loss
    (5,066 )     (1,246 )     (5,066 )     (1,246 )
Warrants
    64       4,778             4,778  
Total Stockholders’ equity
    (376 )     25,944       12,019       39,587  
     The cumulative effect of these adjustments on consolidated stockholder’s equity is as follows:
                 
    September 30,     December 31,  
    2008     2007  
Stockholders’ equity (deficit) – U.S. GAAP
  $ (376 )   $ 12,019  
Intangible assets (1), (2)
    35,522       37,972  
Future income taxes (1)
    (9,202 )     (10,468 )
Warrant liability reclassification (3)
          64  
 
           
Stockholders’ equity – Canadian GAAP
  $ 25,944     $ 39,587  
 
           
     The only effect of these differences on accumulated other comprehensive loss are foreign currency translation adjustments arising before the Company’s change in functional currency as follows:
                 
    Nine months     Nine months  
    ended     ended  
    September 30,     September 30,  
    2008     2007  
Accumulated other comprehensive loss – U.S. GAAP
  $ (5,066 )   $ (5,224 )
Foreign currency translation adjustments
    3,820       3,596  
 
           
Accumulated other comprehensive loss – Canadian GAAP
  $ (1,246 )   $ (1,628 )
 
           
                 
    Nine months     Nine months  
    ended     ended  
    September 30,     September 30,  
    2008     2007  
Consolidated statements of cash flow – Canadian GAAP
               
Cash and cash equivalents, beginning of period
  $ 12,035     $ 13,409  
Cash used in operating activities (2)
    (12,196 )     (9,960 )
Cash provided by investing activities (2)
    11,336       3,937  
Cash used in financing activities
    (78 )     (214 )
Effect of exchange rate fluctuations on cash and cash equivalents
    281       1,593  
 
           
Cash and cash equivalents, end of period
  $ 11,378     $ 8,765  
 
           
 
(1)   Business acquisitions
     Under U.S. GAAP, the acquisition of Biomira USA Inc. (formerly OncoTherapeutics Inc.) in 1995 was valued at the stock market price of the shares issued at the date of closing. Under Canadian GAAP, the acquisition is valued at the fair value of the net assets acquired at the time the agreement was negotiated. The effect of this difference is that under U.S. GAAP the value of the net shares issued was higher, increasing the research and development acquired on acquisition by an equal amount. In addition, under U.S. GAAP, acquired technologies, which require regulatory approval to be commercialized and which have no proven alternative future uses are considered in-process research and development, and are immediately expensed on the date of acquisition. Under Canadian GAAP, the acquired technologies are considered to be development assets which are capitalized and amortized over their expected useful lives.

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     On October 30, 2006, Oncothyreon acquired a 100% interest in ProlX. Under U.S. GAAP, ProlX’s acquired technologies, which are primarily comprised of patents and technologies which require regulatory approval to be commercialized and which have no proven alternative future uses, are considered in-process research and development and are immediately expensed upon acquisition. The intangible assets acquired include $24,920 of acquired technologies that do not have an alternative future use given their specialized nature and limited alternative use. Under Canadian GAAP, the acquired technologies are considered to be development assets which are capitalized and amortized over their expected useful lives. In addition, a future income tax liability is recognized on the acquired technologies and amortized over their expected useful lives as an income tax recovery.
(2) Intangible assets acquired from others for use in research and development
     Under U.S. GAAP, amounts paid for intangible assets used solely in research and development activities with no alternative future use are expensed and are reported as operating activities in the consolidated statements of cash flows. Under Canadian GAAP, finite life intangible assets, such as patents and licenses, acquired from others for use in research and development activities, are deferred and recognized over the period of the related development project for which reasonable certainty exits and are reported as investing activities in the consolidated statements of cash flows.
(3) Warrants
     Under U.S. GAAP, the application of SFAS 133 requires share purchase warrants with an exercise price denominated in a currency other than the Company’s functional currency to be recorded as liabilities. Changes in the fair value of the warrants are required to be recognized in income through realized gains or losses each reporting period. Under Canadian GAAP, the fair value of the warrants on the issue date is recorded as a reduction to the proceeds from the issuance of common shares and convertible debentures, with the offset to the warrant component of stockholders’ equity. The warrants are not re-valued under Canadian GAAP.
     As disclosed in Note 2, effective January 1, 2008 the Company changed its functional currency to the U.S. dollar from the Canadian dollar and therefore the exercise price of the warrants is now denominated in the Company’s functional currency. Accordingly, under U.S. GAAP the previously recognized liability associated with the fair value of the warrants as at December 31, 2007 of $64 was reclassified to stockholders’ equity on January 1, 2008.
Canadian GAAP accounting standards adopted in the current year
Inventories
     In June 2007, the Accounting Standards Board (“AcSB”) of the Canadian Institute of Chartered Accountants (“CICA”) issued Handbook Section 3031, Inventories . Section 3031 prescribes the measurement of inventory at the lower of cost and net realizable value. The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Section 3031 applies to interim and annual consolidated financial statements for fiscal years beginning on or after January 1, 2008. The adoption of Section 3031 resulted in a change to the Company’s accounting policy for raw material supplies to be valued at the lower of cost and net realizable value, instead of at the lower of cost and replacement cost under the Company’s previous accounting policy; however this change did not result in a material impact on the Company’s financial position or results of operations, for the current and prior periods presented.
Financial instruments – Disclosures and Presentations
     In December 2006, the AcSB of the CICA issued Handbook Section 3862, Financial Instruments — Disclosures , which modifies the disclosure requirements of Section 3861, Financial Instruments – Disclosures and Presentation , and Section 3863, Financial Instruments – Presentations , which carries forward unchanged the presentation requirements for financial instruments of Section 3861. Section 3862 requires entities to provide disclosures in their financial statements that enable users to evaluate the significance of financial instruments on the entity’s financial position and its performance, and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks. Section 3863 establishes standards for presentation of financial instruments and non-financial derivatives. It deals with the classification of related interest, dividends, losses and gains, and circumstances in which financial assets and financial liabilities are offset. Sections 3862 and 3863 apply to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007. The adoption of these revised Sections did not result in a material impact on the Company’s financial position or results of operations. The above additional disclosures with respect to the potential impact of risks arising from financial instruments as required by the Section 3862 are provided in Note 10.

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Capital Disclosures
     In November 2006, the AcSB of the CICA issued Handbook Section 1535, Capital Disclosures . Section 1535 establishes standards for disclosing information about an entity’s capital and how it is managed. The standard is effective for interim and annual consolidated financial statements relating to fiscal years beginning on or after October 1, 2007. The adoption of Section 1535 did not result in a material impact on the Company’s financial position or results of operations; however, the additional disclosures as required by Section 1535 have been provided below.
     Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements .
     The Company monitors capital with the objective of having sufficient cash, cash equivalents and short-term investments to fund budgeted expenditures over a minimum of the next 12 months. The Company issues additional equity securities as required to finance its operations.
     At September 30, 2008 cash, cash equivalents and short-term investments were approximately $11,378. The Company’s cash equivalents and short-term investments are invested in money market funds, short-term obligations of the certain provinces and commercial paper.
Going Concern
     In April 2007, the CICA approved amendments to Handbook Section 1400, “ General Standards of Financial Statement Presentation ”. These amendments require management to assess an entity’s ability to continue as a going concern. When management is aware of material uncertainties related to events or conditions that may cast doubt on an entity’s ability to continue as a going concern, those uncertainties must be disclosed. In assessing the appropriateness of the going concern assumption, the standard requires management to consider all available information about the future, which is at least, but not limited to, 12 months from the balance sheet date. The adoption of these amendments did not result in a material impact on the Company’s financial position or results of operations.
Canadian GAAP accounting standards effective in future years
Goodwill and Intangible Assets
     In February 2008, the CICA issued Handbook Section 3064, Goodwill and Intangible Assets Section 3064, which replaces Section 3062, Goodwill and Intangible Assets , and Section 3450, Research and Development Costs , establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. The provisions relating to the definition and initial recognition of intangible assets, including internally generated intangible assets, are equivalent to the corresponding provisions of International Financial Reporting Standard IAS 38, Intangible Assets . Section 3064 is effective for the Company’s interim and annual consolidated financial statements commencing January 1, 2009. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
Financial Statement Concepts
     In February 2008, the CICA adopted conforming amendments based on Section 3064. The amendments clarify the relationship between incurring expenditures and creating assets. Incurring expenditures may or may not provide evidence that future economic benefits have been obtained and, therefore, is not conclusive proof that the definition of an asset has or has not been achieved. In addition, the amendments clarify that the application of the matching concept does not allow the recognition of items in the balance sheet which do not meet the definition of assets or liabilities. The effective date of these amendments is interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008. Earlier adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
13. OTHER INFORMATION
     Concurrent with the change in the reporting entity (Note 1) the Company commenced preparing its financial statements in U.S. GAAP and adopted the U.S. dollar as the reporting currency.

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     The following presents the conversion of the Company’s comparative financial information from Canadian dollars and Canadian GAAP to U.S. dollars and U.S. GAAP:
a) Consolidated statement of operations and other comprehensive income for the nine months ended September 30, 2007:
                 
    As previously        
    reported     As restated  
    Canadian     U.S. GAAP  
    GAAP CDN $     U.S. $  
Revenue
               
Contract research and development
  $ 665     $ 602  
Contract manufacturing
    1,016       919  
Licensing revenue from collaborative agreements
    349       316  
Licensing, royalties, and other revenue
    25       23  
 
           
 
    2,055       1,860  
 
           
Expenses
               
Research and development
    7,961       7,733  
Manufacturing
    1,290       1,168  
General and administrative
    9,093       8,230  
Marketing and business development
    595       539  
Depreciation
    2,589       162  
Investment and other income
    436       395  
Change in fair value of warrant liability
          (1,179 )
 
           
 
    21,964       17,048  
 
           
Loss before income taxes
    (19,909 )     (15,188 )
 
           
Income tax recovery:
               
Future
    1,518        
 
           
Net loss
    (18,391 )     (15,188 )
Other comprehensive (loss) income
    (52 )     3,085  
 
           
Comprehensive loss
  $ (18,443 )   $ (12,103 )
 
           
Basic and diluted loss per share
  $ (0.96 )   $ (0.78 )
 
           
Weighted average number of common shares outstanding
    19,485,889       19,485,889  
 
           

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b) Consolidated statement of cash flows for the nine months ended September 30, 2007:
                 
    As previously        
    reported     As restated  
    Canadian     U.S. GAAP  
    GAAP CDN $     U.S. $  
Operating
               
Net loss
  $ (18,391 )   $ (15,188 )
Depreciation
    2,589       162  
Future income tax recovery
    (1,518 )      
Stock-based compensation expense
    1,369       1,239  
Change in fair value of warrant liability
          (1,179 )
Gain on sale of short-term investments
    (52 )     (47 )
Unearned revenue
    6,068       5,518  
 
               
Recognition of unearned revenue
    (349 )     (316 )
Foreign exchange gain on notes payable
    (34 )      
Foreign exchange loss on notes receivable
    60        
Foreign exchange loss on cash and cash equivalents
    362        
Net change in non-cash working capital balances from operations
               
Accounts receivable
    834       755  
Prepaid expenses
    96       87  
Inventory
    (3,519 )     (3,185 )
Accounts payable and accrued liabilities
    1,842       1,667  
 
           
 
    (10,643 )     (10,487 )
 
           
Investing
               
Purchase of short-term investments
    (28,998 )     (26,247 )
Redemption of short-term investments
    34,739       31,444  
Purchase of plant and equipment
    (533 )     (482 )
Payment of accrued business acquisition costs
    (277 )     (251 )
Purchase of intangible assets
    (583 )      
 
           
 
    4,348       4,464  
 
           
Financing
               
Repayment of share issuance costs
    (192 )     (174 )
Repayment of capital lease obligation
    (44 )     (40 )
 
           
 
    (236 )     (214 )
 
           
Net cash outflow
    (6,531 )     (6,237 )
Effect of exchange rate fluctuations on cash and cash equivalents
    (362 )     1,593  
 
           
Decrease in cash and cash equivalents
    (6,893 )     (4,644 )
Cash and cash equivalents, beginning of period
    15,626       13,409  
 
           
Cash and cash equivalents, end of period
  $ 8,733     $ 8,765  
 
           
Supplemental disclosure of cash flow information
               
Amount of interest paid in the period
  $ 2     $ 2  
Amount of income taxes paid in the period
  $     $  
 
           

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
      The information in this Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our condensed consolidated financial statements and related notes included in Part I, Item 1 of this quarterly report. This discussion contains forward-looking statements based on current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this quarterly report in Part II, Item 1A – “Risk Factors,” and elsewhere in this quarterly report . These statements, like all statements in this quarterly report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments.
Overview
     We are a clinical-stage biopharmaceutical company focused primarily on the development and commercialization of therapeutic products for the treatment of cancer. Our goal is to develop and commercialize novel synthetic vaccines and targeted small molecules that have the potential to improve the lives and outcomes of cancer patients. Our cancer vaccines are designed to stimulate the immune system to attack cancer cells, while our small molecule compounds are designed to inhibit the activity of specific cancer-related proteins. We are advancing our product candidates through in-house development efforts and strategic collaborations with leading pharmaceutical companies. We believe the quality and breadth of our product candidate pipeline, strategic collaborations and scientific team will enable us to become an integrated biopharmaceutical company with a diversified portfolio of novel commercialized therapeutics for major diseases.
     Our lead product candidate is Stimuvax, which is a cancer vaccine currently in Phase 3 development for non-small cell lung cancer. We have an exclusive, worldwide collaboration agreement with Merck KGaA of Darmstadt, Germany, or Merck KGaA, for the development and commercialization of Stimuvax. Our pipeline of clinical and preclinical stage proprietary small molecule product candidates includes PX-12, PX-478 and PX-866 and was acquired by us in October 2006 in connection with our acquisition of ProlX Pharmaceuticals Corporation, or ProlX. The most advanced of our small molecule candidates are PX-12, which is currently in Phase 2 development for pancreatic cancer, and PX-478 for which we initiated a Phase 1 clinical trial in advanced metastatic cancer in August 2007. We initiated a Phase 1 trial for PX-866 for advanced metastatic cancer in June 2008. We have not licensed any rights to our small molecules to any third party and retain all development, commercialization, and manufacturing rights. In addition to our product candidates, we have developed novel vaccine technology that we may develop ourselves and/or license to others. On September 2, 2008, we announced a prioritization plan to focus our resources and capital on the clinical development of PX-478 and PX-866. We currently intend to seek a partner for further clinical development of PX-12, as the next stage of development for PX-12 will require substantial resources and time, which would be more suitable in partnership with a larger pharmaceutical company.
     In 2001, we entered into exclusive supply and collaboration agreements with Merck KGaA to develop and market Stimuvax, subject to certain development and co-promotion rights we retained. In connection with the entry into these agreements, Merck KGaA made an equity investment in us in 2001, was obligated to make additional cash payments, generally contingent on satisfaction of specified milestones, and to pay us a royalty on Stimuvax sales, if any.
     In August 2007, we amended our agreements with Merck KGaA such that Merck KGaA would fully assume responsibility for the further clinical development and marketing of Stimuvax. Under the amended agreements, we converted the U.S. and Canadian co-promotion interest to a specified royalty rate, which is higher than the rate Merck KGaA had agreed to pay in markets outside of North America under the original agreements. The amended agreements also contain development and sales-based milestone payments as well as revised payments related to manufacturing scale-up and process transfer. Under the amended agreements, we retained responsibility for the manufacture of Stimuvax, including process development and scale-up for commercial manufacturing. The execution of the amended agreements also triggered a milestone payment to us of $2.5 million, before associated payments to third parties of $0.1 million, which was received in September 2007. In December 2007, we announced that we had completed the transfer of certain assays and methodology related to Stimuvax to Merck KGaA triggering a payment to us of $5.0 million. In May 2008 we completed the transfer of certain additional assays and manufacturing technology related to Stimuvax which triggered a payment to us of $3.0 million.

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     Merck KGaA will exclusively purchase Stimuvax from us; with respect to purchases for commercial sales, the purchase price will be subtracted from our royalty.
     We have not developed a therapeutic product to the commercial stage. As a result, our revenue has been limited to date, and we do not expect to recognize any material revenue for the foreseeable future. Our near term prospects will depend significantly on the development of Stimuvax and our small molecule compounds. In particular, our ability to generate revenue in future periods will depend substantially on the progress of ongoing clinical trials for Stimuvax and our small molecule compounds, our ability to obtain development and commercialization partners for our small molecule compounds, Merck KGaA’s success in obtaining regulatory approval for Stimuvax, our success in obtaining regulatory approval for our small molecule compounds, and Merck KGaA’s and our respective abilities to establish commercial markets for these drugs.
     Any adverse clinical results relating to Stimuvax or any decision by Merck KGaA to discontinue its efforts to develop and commercialize the product would have a material and adverse effect on our future revenues and results of operations and would be expected to have a material adverse effect on the trading price of our common stock. Our small molecule compounds are much earlier in the development stage than Stimuvax, and we do not expect to realize any revenues associated with the commercialization of our products for the foreseeable future.
     The continued research and development of our product candidates will require significant additional expenditures, including preclinical studies, clinical trials, manufacturing costs and the expenses of seeking regulatory approval. We rely on third parties to conduct a portion of our preclinical studies, all of our clinical trials and all of the manufacturing of cGMP material. We expect expenditures associated with these activities to increase in future years as we continue the development of our product candidates. We expect expenditures associated with the manufacture of Stimuvax to be substantially offset by payments from Merck KGaA.
     We have incurred substantial losses since our inception. As of September 30, 2008, our accumulated deficit totaled $335.1 million. Financial results for the three months ended September 30, 2008 reflect a consolidated net loss from operations of $3.6 million or ($0.18) per share compared to $5.6 million or ($0.28) per share for the same period in 2007. We recognized net losses of $13.6 million or ($0.70) per share and $15.2 million or ($0.78) per share for the nine months ended September 30, 2008 and 2007, respectively. We expect to continue to incur substantial net losses as we expand our research and development activities with respect to our small molecules and processes for commercial scale manufacturing of our products. To date we have funded our operations principally through the sale of our equity securities, cash received through our strategic alliance with Merck KGaA, government grants, debt financings, and equipment financings. Because we have limited revenues and substantial research and development and operating expenses, we expect that we will in the future seek additional working capital funding from the sale of equity or debt securities.
     Our ability to continue as a going concern is dependent on our success at raising additional capital sufficient to meet our obligations on a timely basis, and to ultimately attain profitability. We believe we will raise the necessary funds for our growth and development activities. However, there is no assurance that we will raise capital sufficient to enable us to continue our planned operations for the next 12 months. On September 2, 2008, we announced our intention to offer 5,100,000 shares of our common stock in a fully-underwritten, public offering pursuant to our effective shelf registration statement. As of the date of this report on Form 10-Q, we have not been able to consummate such offering given adverse market conditions.
     The current financing environment in the United States, particularly for biotechnology companies like us, is exceptionally challenging and we can provide no assurances as to when such environment will improve. While we may continue to seek additional financing from the sale and issuance of equity or debt securities we are also exploring other financing alternatives, and may sell rights related to our existing product candidates, form strategic partnerships for our product candidates or enter into other transactions designed to improve our cash position. We cannot predict that financing will be available when and as we need financing or, if available, that the financing terms will be commercially reasonable. Accordingly, in the event new financing is not obtained, we will likely continue to reduce general and administrative expenses and delay research development projects as well as further acquisition of scientific equipment and supplies until we are able to obtain sufficient financing to do so.
     On August 20, 2008, we disclosed that we had received a letter from The Nasdaq Stock Market indicating that (i) we did not comply with the requirements for continued listing on The NASDAQ Global Market because we did not meet the maintenance standard in Marketplace Rule 4450(b)(1)(A) that specifies, among other things, that the market value of our common stock be at least $50 million and (ii) in accordance with the Marketplace Rule 4450(e)(4), we had a 30-calendar-day period in which to regain compliance. On September 16, 2008, we received a Staff Determination Letter from The Nasdaq Stock Market indicating that we had not regained compliance.

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     We appealed this initial delisting determination to a hearing conducted by a NASDAQ Listing Qualifications Panel, or the Panel, on October 23, 2008. The Panel has not yet rendered a decision regarding our appeal. In the event of an unfavorable determination by the Panel, we would alternatively apply to have our common stock transferred to the Nasdaq Capital Market, as long as we satisfy the requirements for continued inclusion on the Nasdaq Capital Market set forth in the NASDAQ Marketplace Rules. There can be no assurance that the Panel will grant our request for continued listing on The NASDAQ Global Market, nor can there be assurance that our shares will alternatively be approved for listing on the NASDAQ Capital Market.
     On December 10, 2007, we became the successor corporation to Biomira Inc., a Canadian corporation, by way of a plan of arrangement effected pursuant to Canadian law. Pursuant to the plan of arrangement, shareholders of the former Biomira received one share of our common stock for each six common shares of Biomira that they held. For the quarter and nine months ended September 30, 2008, this Management’s Discussion and Analysis of Financial Condition and Results of Operations and our condensed consolidated financial statements and related notes included elsewhere in this quarterly report have been prepared after giving effect to the six for one share exchange. The condensed consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations have been prepared using U.S. dollars as the reporting currency.

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Key Financial Metrics
Revenue
     Historically, our revenue has been derived from our contract research and development activities, payments under our collaborative agreements, and miscellaneous licensing, royalty and other revenues from ancillary business and operating activities. In addition, in connection with the entry into the amended collaboration and supply agreements with Merck KGaA in August 2007, we retained responsibility for the manufacture of Stimuvax and Merck KGaA agreed to exclusively purchase Stimuvax from us. As a result, our financial reporting from August 7, 2007, the date of the signed amended agreements, reflects the revenue related to the supply of Stimuvax separately as contract manufacturing revenue. Previously, these amounts were reported under contract research and development revenue. Our collaboration with Merck KGaA has contributed the substantial majority of our revenue, accounting for 99.4%, and 99.6% of total revenue in the three months ended September 30, 2008 and 2007, and 99.7% and 98.2% for the nine months ended September 30, 2008 and 2007, respectively.
      Contract Research and Development . Contract research and development revenue represents Merck KGaA’s contribution toward shared costs associated with Stimuvax clinical trials and clinical trial material provided to Merck KGaA related to Stimuvax. Effective March 1, 2006, we transitioned responsibility for all Stimuvax clinical development and regulatory activities and the related costs thereon to Merck KGaA. In January 2007, Merck KGaA initiated a global Phase 3 clinical trial under our collaboration assessing the efficacy and safety of Stimuvax as a potential treatment for inoperable non-small cell lung cancer. We expect the clinical trial to include approximately 1,300 patients in approximately 30 countries. Because of the change in our responsibilities for Stimuvax clinical trials, our contract research and development revenue has been recently reduced as we no longer receive reimbursements for shared clinical trial costs.
      Contract Manufacturing . Our contract manufacturing revenue represents amounts that were previously reported as reimbursements of a portion of the Stimuvax manufacturing costs as contract research development revenue. As a result of our amended agreements with Merck KGaA and the fact that we are now responsible for supplying Merck KGaA with supplies of Stimuvax, our financial reporting from August 7, 2007, the date of the signed agreements, reflects the revenue for the supply of Stimuvax as contract manufacturing revenue. Previously, these amounts were reported under contract research and development revenue. We expect revenue associated with this activity to increase in future periods as patient enrollment increases in the Phase 3 clinical trial that Merck KGaA is currently conducting for Stimuvax.
      Licensing Revenue from Collaborative Agreements . Licensing revenue from collaborative agreements represents the amortization over the remaining patent life of upfront payments received under our agreements with Merck KGaA as well as amortization of other payments made upon achievement of development milestones relating to signing of the agreements, transfers of know-how, clinical trials, regulatory approvals, and commercial development of Stimuvax. The milestone payments that have been previously received will be fully amortized by 2019.
      Other Revenue . Other revenue includes revenue from sales of compounds and processes from patented technologies to third parties. We did not generate any revenue from the sale of such compounds or processes during the three month period ended September 30, 2008. Revenue generated in the nine months ended September 30, 2008 was not material to our results of operations.
Expenses
      Research and Development/Manufacturing . Research and development/manufacturing expense consists of costs associated with research activities as well as costs associated with our product development efforts, conducting preclinical studies, and sale of clinical trial material. These expenses include external research and development expenses incurred pursuant to agreements with third party manufacturing organizations; technology access and licensing fees related to the use of proprietary third party technologies; employee and consultant-related expenses, including salaries, stock-based compensation expense; third party supplier expenses and an allocation of facility costs.
     To date, we have recognized research and development expenses, including those paid to third parties, as they have been incurred.
     We credit funding received from government research and development grants against research and development expense. These credits totaled $0.3 million and $0.6 million in the three months ended September 30, 2008 and 2007 and $1.1 million and $1.4 million for the nine months ended September 30, 2008 and 2007, respectively. These grants were Small Business Innovation Research, or SBIR, grants that we assumed in connection with our acquisition of ProlX on October 30, 2006. We have successfully applied for and received approval for a further $1.0 million grant for the period ended July 31, 2009.
     Most of our research and development programs are at an early stage and may not result in any approved products. Product

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candidates that appear promising at early stages of development may not reach the market for a variety of reasons. For example, Merck KGaA cancelled our collaboration relating to Theratope after receiving Phase 3 clinical trial results. We had made substantial investments over several years in the development of Theratope and terminated all development activities following the cancellation of our collaboration. Similarly, any of our continuing product candidates may be found to be ineffective or cause harmful side effects during clinical trials, may take longer to complete clinical trials than we have anticipated, may fail to receive necessary regulatory approvals, and may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality. As part of our business strategy, we may enter into collaborative agreements with larger third party pharmaceutical companies to complete the development and commercialization of our small molecule or other product candidates, and it is unknown whether or on what terms we will be able to secure collaboration arrangements for any product candidate. In addition, it is difficult to provide the impact of collaboration arrangements, if any, on the development of product candidates. Establishing collaborative product development relationships with large pharmaceutical companies may or may not accelerate the time to completion or reduce our costs with respect to the development and commercialization of any product candidate.
     As a result of these uncertainties and the other risks inherent in the drug development process, we cannot determine the duration and completion costs of current or future clinical stages of any of our product candidates. Similarly, we cannot determine when, if, or to what extent we may generate revenue from the commercialization and sale of any product candidate. The timeframe for development of any product candidate, associated development costs, and the probability of regulatory and commercial success vary widely. As a result, other than with respect to Stimuvax, which is subject to our obligations under the agreements with Merck KGaA, we continually evaluate our product candidates and make determinations as to which programs to pursue and how much funding to direct to specific candidates. These determinations are typically made based on consideration of numerous factors, including our evaluation of scientific and clinical trial data and an ongoing assessment of the product candidate’s commercial prospects. We anticipate that we will continue to develop our portfolio of product candidates, which will increase our research and development expense in future periods. We do not expect any of our current candidates to be commercially available before 2012, if at all.
     As of the date of the amended collaboration and supply agreements with Merck KGaA, we began to report costs associated with the manufacturing and sale of Stimuvax clinical trial material as manufacturing expense. Previously, these amounts were aggregated with other research and development expenses. We expect manufacturing expense associated with this activity to increase in future periods as patient enrollment increases in the Phase 3 clinical trial Merck KGaA is currently conducting for Stimuvax.
      General and Administrative . General and administrative expense consists principally of salaries, benefits, stock-based compensation expense, and related costs for personnel in our executive, finance, accounting, information technology, and human resource functions. Other general and administrative expenses include professional fees for legal, consulting, and accounting services and an allocation of our facility costs.
      Marketing and Business Development . Marketing and business development expense consists principally of salaries, benefits, stock-based compensation expense, and related costs for marketing and business development personnel, including travel costs, research subscriptions, and other marketing administrative costs.
      Depreciation . Depreciation expense consists of depreciation of the cost of plant and equipment such as scientific, office, manufacturing, and computer equipment as well as depreciation of leasehold improvements.
      Investment and other income . Investment and other income consists of interest and other income on our cash and short-term investments and foreign exchange gains and losses. Our short term investments typically consist of Canadian or U.S. federal, state, or provincial debt securities, investment grade corporate debt securities and commercial paper, and term deposits or similar instruments of trust companies and banks, all with original maturities of between 90 days and one year at the time of purchase. Our short term investments and cash balances are denominated in either U.S. or Canadian dollars, and the relative weighting between U.S. and Canadian dollars will vary from time to time based on market conditions and our operating requirements in the two countries. We have historically not engaged in hedging transactions with respect to our U.S. and Canadian dollars investment assets or cash balances.
      Interest expense . Interest expense consists of interest payments under capital lease agreements for computer equipment.
      Change in fair value of warrants . Change in fair value of warrants relates to outstanding warrants to acquire shares of common stock. The exercise prices of the warrants are denominated in U.S. dollars. Share purchase warrants with an exercise price denominated in a currency other than our functional currency, which, prior to January 1, 2008, was the Canadian dollar, are recorded as liabilities. Changes in the fair value of the warrants are then reflected in our statement of operations.

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Critical Accounting Policies and Significant Judgments and Estimates
     We have prepared this Management’s Discussion and Analysis of Financial Condition and Results of Operations based on our condensed consolidated financial statements, which have been included elsewhere in this report. The preparation of our financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and judgments that can affect the reported amounts of assets and liabilities as of the dates of our consolidated financial statements as well as the reported amounts of revenue and expense during the periods presented. Significant estimates and assumptions are required in the determination of revenue recognition, in particular revenue related to our agreements with Merck KGaA. Significant estimates and assumptions are also required to determine stock-based compensation, the change in fair value of warrants and foreign currency translation. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates. For any given individual estimate or assumption we make, there may also be other estimates or assumptions that are reasonable. We believe that the estimates and judgments upon which we rely are reasonable based upon historical experience and information available to us at the time that we make these estimates and judgments. To the extent there are material differences between these estimates and actual results, our consolidated financial statements will be affected. Although we believe that our judgments and estimates are appropriate, actual results may differ from these estimates.
     Effective January 1, 2008, we changed our functional currency to the U.S. dollar from the Canadian dollar as a result of our redomicile into the United States effective December 10, 2007 and the corresponding increasing U.S. dollar denominated revenues and expenditures. As our reporting currency is also the U.S. dollar, the September 30, 2008 condensed consolidated financial statements were translated under guidance provided in SFAS 52, Foreign Currency Translation; namely, transactions denominated in foreign currencies are recorded in the functional currency at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated into the functional currency at the rate prevailing at the balance sheet date. Gains and losses arising on the revaluation are included in the income statement. The change in functional currency was adopted prospectively with no restatement of comparative balances.
     Our critical accounting policies and significant estimates are detailed in our annual report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 20, 2008, as amended. There have been no material changes in our critical accounting policies and estimates and judgments since that date.
Results of Operations for the Three and Nine Month Periods Ended September 30, 2008 and September 30, 2007
     The following table sets forth selected consolidated statements of operations data for each of the periods indicated.
Overview
                                                 
    Three Months Ended           Nine Months Ended    
    September 30,   %   September 30,   %
    2008   2007   Change   2008   2007   Change
    (In millions, except per           (In millions, except per        
    share amounts)           share amounts)        
Revenue
  $ 0.8     $ 1.1       (27.3 )%   $ 4.0     $ 1.9       110.5 %
Expenses
    4.4       7.1       (38.0 )%     17.6       18.2       3.3 %
Change in fair value of warrant liability
          (0.5 )     N/M +           (1.2 )     N/M +
Net loss
  $ 3.6     $ 5.5       (34.5 )%   $ 13.6     $ 17.0       (20.0 )%
Other comprehensive (income) loss
          (1.1 )     N/M +           (3.1 )     N/M +
Comprehensive loss
  $ 3.5     $ 4.4       (20.5 )%   $ 13.6     $ 12.1       (12.4 )%
Basic and diluted loss per share
  $ 0.18     $ 0.28       (35.7 )%   $ 0.70     $ 0.78       (10.3 )%
 
+   Not meaningful
     As discussed in more detail below, the decrease in our net loss for the three months ended September 30, 2008 relative to the prior year period was primarily attributable to a decrease in operating costs. Our operating results were also affected by the amendments to the collaborative and supply agreements with Merck KGaA.
     The decrease in our net loss for the nine months ended September 30, 2008 compared to the prior year period was attributable to an increase in revenue from the sale of clinical trial material to Merck KGaA to support the Phase 3 trial of Stimuvax.

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     A portion of our operating expenses are denominated in Canadian dollars, which was our functional currency in the quarter ended September 30, 2007, and increases in the value of the Canadian dollar relative to the U.S. dollar had an adverse effect on our expenses when expressed in U.S. dollars on our condensed consolidated statements of operations. Effective January 1, 2008, the U.S. dollar became both our functional and reporting currency, but we expect to continue to incur certain expenses in Canadian dollars associated with our Canadian operations and will therefore continue to be subject to foreign currency exchange risks.
Revenue
                                                 
    Three Months Ended             Nine Months Ended        
    September 30,             September 30,        
    2008     2007     % Change     2008     2007     % Change  
    (In millions)             (In millions)          
Contract research and development
  $     $       N/M +   $     $ 0.6       N/M +
Contract manufacturing
    0.4       0.9       (55.6 )%     2.9       0.9       222.2 %
License revenue from collaborative agreements
    0.4       0.2       100.0 %     1.0       0.3       233.3 %
 
                                       
 
  $ 0.8     $ 1.1       (27.3 )%   $ 3.9     $ 1.8       116.7 %
 
                                       
 
+   Not meaningful
     The decrease in contract research and development revenue during the nine months ended September 30, 2008 relative to the comparable period in 2007 was due to the cessation of the clinical research collaboration with Merck as described in the section captioned “—Key Financial Metrics—Revenue,” above.
     Our contract manufacturing revenue decreased for the three months ended September 30, 2008 relative to the comparable period in 2007 as a result of a lower number of lots released relative to the comparable period in 2007. Contract manufacturing revenue increased for the nine months ended September 30, 2008 relative to the comparable period in 2007 as a result of the amended collaboration and supply agreements, which we signed with Merck KGaA in August 2007. Under the terms of such agreements, we have the responsibility of manufacturing Stimuvax and Merck KGaA has agreed to exclusively purchase Stimuvax from us.
     The increased licensing revenue from collaborative agreements represents the amortization of milestone payments received during 2007 and 2008. These upfront milestone payments received under our agreements with Merck KGaA are deferred and recognized over the remaining patent life. The milestone payments that have been previously received will be fully amortized by 2019.
Research and Development / Manufacturing Expenses
                                                 
    Three Months Ended             Nine Months Ended        
    September 30,             September 30,        
    2008     2007     % Change     2008     2007     % Change  
    (In millions)             (In millions)          
Research and development
  $ 1.9     $ 1.4       35.7 %   $ 6.9     $ 7.7       (10.4 )%
Manufacturing
    0.4       1.2       (66.7 )%     3.1       1.2       158.3 %
 
                                       
 
  $ 2.3     $ 2.6       (11.5 )%   $ 10.0     $ 8.9       12.4 %
 
                                       
     The combined research and development /manufacturing expenses were lower in the three months ended September 30, 2008 due to the lower number of lots released relative to the comparable period in the previous year. The increase in our combined research and development / manufacturing expense during the nine month period relative to the comparable period in 2007 relates primarily to the manufacturing and sale of clinical trial material associated with the amended agreements with Merck KGaA relating to Stimuvax which came into effect in the second half of 2007.
     As noted in the section captioned “—Key Financial Metrics—Revenue,” effective August 7, 2007, the date of amended agreements with Merck KGaA, clinical trial material costs related to the supply of Stimuvax to Merck KGaA have been presented separately in the condensed consolidated statements of operations as manufacturing expense. Previously, these costs were reported under research and development expenses. As a result, the decrease in research and development expense in the quarter ended September 30, 2008 relative to the prior year period was primarily attributable to the change in our business relationship with Merck

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KGaA reflected in the amended agreements.
General and Administrative Expense
                                                 
    Three Months Ended           Nine Months Ended    
    September 30,           September 30,    
    2008   2007   % Change   2008   2007   % Change
    (In millions)           (In millions)        
General and administrative
  $ 1.9     $ 4.1       -53.7 %   $ 7.3     $ 8.2       11.0 %
     The decrease in general and administrative expense for the three and nine month period ended September 30, 2008 relative to the comparable prior year periods was attributable higher professional fees incurred in the prior year for the reincorporation into the United States.
Marketing and Business Development Expense
                                                 
    Three Months Ended           Nine Months Ended    
    September 30,           September 30,    
    2008   2007   % Change   2008   2007   % Change
    (In millions)           (In millions)        
Marketing and Business Development
  $     $       %   $     $ 0.5       N/M+  
     We eliminated our marketing and business development organization in March 2007, as we increased our focus on the ongoing development of our newly acquired portfolio of small molecule compounds. As a result, our marketing and business development expense has been reduced to zero from $0.5 million.
Depreciation Expense
                                                 
    Three Months Ended           Nine Months Ended    
    September 30,           September 30,    
    2008   2007   % Change   2008   2007   % Change
    (In millions)           (In millions)        
Depreciation
  $ 0.1     $ 0.1       %   $ 0.3     $ 0.2       50.0 %
     The relatively flat depreciation expense reflects the fact that we have not made any substantial capital expenditures or equipment purchases in the last two years.
Investment and Other Income
                                                 
    Three Months Ended           Nine Months Ended    
    September 30,           September 30,    
    2008   2007   % Change   2008   2007   % Change
    (In millions)           (In millions)        
Investment and Other Income/(Expense)
  $     $ (0.3 )     N/M+     $ 0.1     $ (0.4 )     125.0 %
 
+   Not meaningful
     The increase in investment and other income in the nine months ended September 30, 2008 compared to the previous year was primarily attributable to foreign exchange losses recognized during the three months ended September 30, 2007.
Change in Fair Value of Warrant Liability
                                                 
    Three Months Ended           Nine Months Ended    
    September 30,           September 30,    
    2008   2007   % Change   2008   2007   % Change
    (In millions)           (In millions)        
Change in fair value of warrant liability
  $     $ 0.5       N/M+     $     $ 1.2       N/M+  
     Effective January 1, 2008, we changed our functional currency to the U.S. dollar from the Canadian dollar. Since the exercise price of the warrants is now denominated in our functional currency, there is no further requirement under SFAS 133, Accounting for Derivative Instruments and Hedging Activities , to adjust the warrants to fair value through earnings at each reporting date.

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Liquidity and Capital Resources
Cash, cash equivalents, short term investments and working capital
     As of September 30, 2008, our principal sources of liquidity consisted of cash and cash equivalents of $11.4 million, and accounts receivable of $1.6 million. Our cash equivalents and short-term investments are typically invested in money market funds, short-term obligations of the U.S. Treasury and Government of Canada, and commercial paper. Of our cash and cash equivalents at September 30, 2008, approximately $0.9 million was denominated in Canadian dollars and was reflected on our balance sheet based at applicable conversion rates on September 30, 2008. Our accounts receivable primarily represent invoices issued to Merck KGaA related to clinical trial materials. Our primary source of cash has historically been proceeds from the issuance of equity securities, debt and equipment financings, and payments to us under licensing and collaboration agreements. These proceeds have been used to fund our losses. Our cash, cash equivalents and short-term investments were $11.4 million as of September 30, 2008 compared to $24.2 million as of December 31, 2007, a decrease of $12.8 million or 52.9% which reflects net operating expenditures during the period.
     As of September 30, 2008, our working capital ( defined as current assets less current liabilities) was $9.5 million compared to $21.1 million as of December 31, 2007, a decrease of $11.6 million or 55.0%. The decrease in working capital is primarily attributable to a $12.8 million decrease in cash, cash equivalents and short-term investments, a $0.4 decrease in government grant receivable, a $0.4 million decrease in accounts receivable, $0.4 million decrease in notes receivable and a $3.4 million increase in current portion of deferred revenue, which was offset in part by a $0.7 million decrease in accounts payable and accrued liabilities and a $5.2 million increase in inventory.
     We believe that our currently available cash and cash equivalents will be sufficient to finance our operations into the first quarter of 2009.
     On March 20, 2008, we filed a shelf registration statement on Form S-3 to issue up to $50 million in common stock, preferred stock, debt securities, depositary shares, warrants, units and guarantees. On July 29, 2008, we filed a post-effective amendment to such registration statement to give us the flexibility to offer and sell our common stock and preferred stock through the issuance of subscription rights to our stockholders on a pro rata basis. On September 2, 2008, we announced our intention to offer 5,100,000 shares of our common stock in a fully-underwritten, public offering pursuant to our effective shelf registration statement. As of the date of this report on Form 10-Q, we have not been able to consummate such offering given adverse market conditions.
     We will require additional capital in order to continue the development of products in our pipeline and to expand our product portfolio. The current financing environment in the United States, particularly for biotechnology companies like us, is exceptionally challenging and we can provide no assurances as to when such environment will improve. While we may continue to seek additional financing from the sale and issuance of equity or debt securities we are also exploring other financing alternatives, and may sell rights related to our existing product candidates, form strategic partnerships for our product candidates or enter into other transactions designed to improve our cash position. We cannot predict that financing will be available when and as we need financing or, if available, that the financing terms will be commercially reasonable. Accordingly, in the event new financing is not obtained, we will likely continue to reduce general and administrative expenses and delay research development projects as well as further acquisition of scientific equipment and supplies until we are able to obtain sufficient financing to do so. If we are unable to raise additional financing when and if we require, it would raise substantial doubt about the Company’s ability to continue as a going concern.
Cash Flows From Operating Activities
     We used $12.2 million of cash in operating activities for the nine months ended September 30, 2008, an increase of $1.7 million compared to $10.5 million for the nine months ended September 30, 2007 which is attributable to the higher inventory level.
Cash Flows From Investing Activities
     Cash flow from investing activities was $11.3 million for the nine months ended September 30, 2008, an increase of $6.8 million over cash flow from investing activities of $4.5 million for the nine months ended September 30, 2007. The increase in cash inflows from investing activities was attributable primarily to increased net redemptions of short-term investments.
Cash Flows From Financing Activities
     We used $78,000 of cash in financing activities during the nine months ended September 30, 2008, a decrease of $136,000 over the $214,000 used in the nine months ended September 30, 2007. The decrease was attributable to payment in the first quarter of 2007 of offering expenses associated with our December, 2006 issuance of common stock.

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Contractual Obligations and Contingencies
     In our operations, we have entered into long-term contractual arrangements from time to time for our facilities, debt financing, the provision of goods and services, and acquisition of technology access rights, among others. The following table presents contractual obligations arising from these arrangements as of September 30, 2008:
                                         
    Payments Due by Period  
            Less than                    
    Total     1 Year     1-3 Years     4-5 Years     After 5 Years  
    (In thousands)  
Operating leases — premises
  $ 6,599     $ 850     $ 1,666     $ 1,300     $ 2,783  
Capital lease obligations (including interest)
    90       69       21              
 
                             
Total contractual obligations
  $ 6,689     $ 919     $ 1,687     $ 1,300     $ 2,783  
 
                             
     The lease for our corporate facilities in Edmonton, Alberta expired on June 30, 2007, and we have continued to occupy the premises on a month-to-month basis. During the quarter ended June 30, 2007, we entered into an offer to lease approximately 32,000 square feet with the Edmonton Economic Development Corporation. The offer to lease contemplates a lease term extending through to June 30, 2012 with an average base annual rent of $0.3 million with an option to renew for a further five year term. The base annual rent under the offer to lease has been reflected in the above schedule of contractual obligations.
     In July 2007, Biomira Marketing Inc., our wholly-owned subsidiary, entered a lease agreement for an office facility in Bellevue, Washington. The lease has a term extending through November 2008 and provides for a monthly base rent of $8,200 for the first 12 months increasing to $8,500 for the remaining six months. In May of 2008, we entered into a sublease agreement for an office facility in Seattle, Washington totaling approximately 17,000 square feet where we intend to consolidate certain of our operations. The sublease expires in December 17, 2011. In May of 2008 we also entered into a lease agreement directly with the landlord beginning on December 18, 2011 for a period of 84 months to December 18, 2017. The sublease provides for a base rent of $33,324 increasing to $36,354. The lease provides for a base rent of $47,715 increasing to $52,259 in 2018.
     In September 2007, we entered into a new three year capital lease for computer equipment.
     In connection with the acquisition of ProlX, we assumed two loan agreements under which approximately $0.2 million was outstanding as of December 31, 2007 and September 30, 2008. One loan, in the aggregate principal amount of $0.1 million, requires repayment only if we commercialize the product or service developed with the funds provided under the loan agreement. For purposes of the loan, a product or service is considered to be commercialized as of the date we receive FDA approval for the product or service or upon receipt of consideration for the sale or license of the product or service. In addition, if we commercialize a product or service developed with funding under the loan agreement, we are required to conduct manufacturing in the Commonwealth of Pennsylvania or pay a transfer fee equal to three times the amount of the funding. A second loan, in the aggregate principal amount of $0.1 million, is repayable on similar terms as the first loan if we commercialize a product or service developed with funding received under the second loan. In addition, under the second loan agreement, if we commercialize a product or service funded under the second loan, we are obligated to maintain a “significant presence,” defined as 80% of our personnel, in the Commonwealth of Pennsylvania for a period of ten years or to pay a transfer fee equal to three times the amount of the funding. Finally, if we become obligated to repay the loans as a result of having commercialized a product or service, the aggregate amount repayable will equal the original funded amount multiplied by a factor ranging from one to two, subject to certain conditions. As the timing of any future payments under these loans cannot be determined with any certainty, the related repayments have not been reflected in the above schedule of contractual obligations.
     In connection with the acquisition of ProlX, we may become obligated to issue additional shares of our common stock to the former stockholders of ProlX upon satisfaction of certain milestones. We may become obligated to issue shares of our common stock with a fair market value of $5.0 million (determined based on a weighted average trading price at the time of issuance) upon the initiation of the first Phase 3 clinical trial for a ProlX product. We may become obligated to issue shares of our common stock with a fair market value of $10.0 million (determined based on a weighted average trading price at the time of issuance) upon regulatory approval of a ProlX product in a major market. Finally, under certain circumstances, if prior to October 30, 2008 we enter into a collaboration agreement for a ProlX product in a specified non-oncology indication, we may become obligated to pay the former ProlX stockholders 50% of any collaboration consideration we realize from the collaboration.
     Under certain licensing arrangements for technologies incorporated into our product candidates, we are contractually committed to payment of ongoing licensing fees and royalties, as well as contingent payments when certain milestones as defined in the agreements have been achieved.

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Guarantees and Indemnification
     In the ordinary course of our business, we have entered into agreements with our collaboration partners, vendors, and other persons and entities that include guarantees or indemnity provisions. For example, our agreements with Merck KGaA and the former stockholders of ProlX contain certain tax indemnification provisions, and we have entered into indemnification agreements with our officers and directors. Based on information known to us as of September 30, 2008, we believe that our exposure related to these guarantees and indemnification obligations is not material.
Off-Balance Sheet Arrangements
     During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for another contractually narrow or limited purpose.
Recent Accounting Pronouncements
     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157 Fair Value Measurements (“SFAS 157”). SFAS 157 introduces a framework for measuring fair value and expands required disclosure about fair value measurements of assets and liabilities.
     SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability, an exit price, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS 157 describes three levels of inputs that may be used to measure fair value:
    Level 1 — quoted prices in active markets for identical assets or liabilities;
 
    Level 2 — observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
 
    Level 3 — unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
     The adoption of SFAS 157 did not have any effect on our financial condition or results of operations, however, SFAS 157 introduced new disclosures about how we value certain assets and liabilities. Much of the disclosure is focused on the inputs used to measure fair value, particularly in instances where the measurement uses significant unobservable, i.e., Level 3, inputs. All of our financial instruments as of September 30, 2008 are valued based on other observable inputs. For financial assets and liabilities, SFAS 157 was effective for fiscal years beginning after November 15, 2007, and we have adopted the standard for those assets and liabilities as of January 1, 2008. The impact of adoption was not significant.
     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 allows entities the option to measure eligible financial instruments at fair value as of specified dates. Such election, which may be applied on an instrument by instrument basis, is typically irrevocable once elected. We have not elected to apply SFAS 159 to any assets or liabilities, therefore the adoption of SFAS 159 did not result in a material impact on our financial position or results of operations.
     In June 2007, the Emerging Issues Task Force, or EITF, issued EITF Issue No. 07-3, Accounting for Non Refundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (“EITF 07-3”) . EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. The adoption of EITF 07-3 did not result in a material impact on our financial position or results of operations.

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     In May 2008 the Financial Accounting Standard Board (“FASB”) released SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (“GAAP”) in the United States (the “GAAP hierarchy”). FASB believes that the GAAP hierarchy should be directed to entities because it is the entity, not its auditor, that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. Accordingly, FASB concluded that the GAAP hierarchy should reside in the accounting literature established by the FASB and issued SFAS 162 to achieve that result. SFAS 162 becomes effective 60 days following the SEC’s approval of the Public Accounting Oversight Board amendment to AU Section 411.
     We are currently evaluating the potential impact, if any, of the adoption of SFAS 162 on its consolidated financial statements.
     In April 2008, the FASB issued FASB Staff Position (“FSP”) No. SFAS 142-3, “ Determination of the Useful Life of Intangible Assets ” (“FSP SFAS 142-3”). FSP SFAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “ Goodwill and Other Intangible Assets ” (“SFAS 142”). The intent of FSP SFAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141R (revised 2007), “ Business Combinations ” (“SFAS 141R”) and other applicable accounting literature. FSP SFAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and must be applied prospectively to intangible assets acquired after the effective date. We are currently evaluating the potential impact, if any, of FSP SFAS 142-3 on its consolidated financial statements.
     In September 2007, the EITF reached a consensus on EITF Issue No. 07-1, Collaborative Arrangements (“EITF 07-1”). EITF 07-1 addresses the accounting for arrangements in which two companies work together to achieve a commercial objective, without forming a separate legal entity. The nature and purpose of a company’s collaborative arrangements are required to be disclosed, along with the accounting policies applied and the classification and amounts for significant financial activities related to the arrangements. The consensus is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact of EITF 07-1 on our consolidated financial statements.
     In December 2007, the FASB issued SFAS No. 141 (Revised), Business Combinations , (“SFAS 141R”). SFAS 141R requires most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at fair value. SFAS 141R applies to all business combinations, including combinations among mutual entities and combinations by contract alone. Under SFAS 141R, all business combinations will be accounted for by applying the acquisition method. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier application of SFAS 141R is prohibited.
     In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the retained interest and gain or loss when a subsidiary is deconsolidated. This statement is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 with earlier adoption prohibited. We are currently evaluating the impact of SFAS 160 on our consolidated financial statements.
     In March 2008, the FASB issued SFAS No. 161, which amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities, (“SFAS 161”). SFAS 161 requires each company with derivative instruments to disclose information about how and why it uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133, and how derivative instruments and hedged items affect its financial position, financial performance, and cash flows. The required disclosures include the fair value of derivative instruments and their gains or losses in tabular format, information about credit risk-related contingent features in derivative agreements, counterparty credit risk, and the company’s strategies and objectives for using derivative instruments. SFAS 161 expands the current disclosure framework in SFAS 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”). SFAS 161 is effective prospectively for periods beginning on or after November 15, 2008. We do not utilize derivative instruments and, therefore, do not expect that there will be any impact on our consolidated financial statements.

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Item 3. Qualitative and Quantitative Disclosures about Market Risks
Foreign Currency Exchange Risk
     As of September 30, 2008 and December 31, 2007, approximately $0.9 million and $10.9 million respectively, of our cash, cash equivalents, and short-term investments were denominated in Canadian dollars. As a result, the carrying value of our cash, cash equivalents, and short-term investments may be impacted by exchange rate fluctuations. In addition, we purchase goods and services denominated primarily in U.S. and Canadian currencies and, to a lesser extent, in certain European currencies. To manage our Canadian dollar exposure to foreign exchange risk, we have considered, but generally do not utilize, derivative instruments. The effect of exchange rate fluctuations may adversely affect our results in the future. During 2008 and the comparative periods presented, we did not enter into any foreign exchange forward or other derivative contracts in order to reduce our exposure to fluctuating foreign currency exchange rates.
Interest Rate Sensitivity
     We had cash, cash equivalents, and short-term investments totaling $11.4 million and $24.2 million as of September 30, 2008 and December 31, 2007. These amounts were invested primarily in money market funds, short term obligations of certain Provinces of Canada, and commercial paper. We do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short term nature of our cash, cash equivalents, and short-term investments. Declines in interest rates, however, would reduce future investment income.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
     Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness, as of the end of the period covered by this quarterly report, of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The purpose of this evaluation was to determine whether as of the evaluation date our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in our filings with the SEC under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
     Based on their evaluation, our management has concluded, as discussed in our annual report on Form 10-K, that a material weakness existed in our internal control over financial reporting as of December 31, 2007 and as a result our disclosures controls and procedures were not effective. Our management has concluded that, as of September 30, 2008, the material weakness remains present.
Changes in Internal Control Over Financial Reporting
     There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Remediation
     In response to the material weakness in our internal controls noted in our annual report on Form 10-K, we have formalized procedures relating to the preparation of the schedules supporting financial statement disclosure and enhanced the review process for such schedules. Specifically, the schedules supporting financial statement disclosure will be subject to an additional level of review. While we have implemented procedures to remedy the material weakness, due to changes in personnel, we have not fully remediated this material weakness. We expect that this will be remediated when we have recruited the full complement of professional staff and have them in place for a three month period. We expect this to occur by the fourth quarter of the fiscal year 2008; however such procedures will not be tested until close of 2008.
Inherent Limitation on the Effectiveness of Internal Controls
     The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
     We are not a party to any material legal proceedings with respect to us, our subsidiaries, or any of our material properties. From time to time, we may become involved in legal proceedings in the ordinary course of our business.
Item 1A. Risk Factors
      Set forth below and elsewhere in this quarterly report, and in other documents we file with the SEC are descriptions of risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. Because of the following factors, as well as other variables affecting our operating results, past financial performance should not be considered a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods. The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also affect our results of operations and financial condition.
Risks Relating to our Business
   Our ability to continue as a going concern is dependent on our success at raising additional capital sufficient to meet our obligations on a timely basis. If we fail to obtain additional financing when needed, we may be unable to complete the development, regulatory approval and commercialization of our product candidates.
     We have expended and continue to expend substantial funds in connection with our product development activities and clinical trials and regulatory approvals. Funds generated from our operations will be insufficient to enable us to bring all of our products currently under development to commercialization. Accordingly, we need to raise additional funds from the sale of our securities, partnering arrangements or other financing transactions in order to finance the commercialization of our product candidates. There is no assurance that we will raise capital sufficient to enable us to continue our operations for the next 12 months. On September 2, 2008, we announced our intention to offer shares of our common stock in a fully-underwritten public offering; however, as of the date of this Quarterly Report on Form 10-Q, we have not been able to consummate such offering due to adverse market conditions. In addition, our ability to sell our securities would likely be hampered if we are unable to maintain the listing of our common stock on The Nasdaq Stock Market. Further, the current financing environment in the United States, particularly for biotechnology companies like us, is exceptionally challenging and we can provide no assurances as to when such environment will improve. For these reasons, among others, we cannot be certain that additional financing will be available when and as needed or, if available, that it will be available on acceptable terms. If financing is available, it may be on terms that adversely affect the interests of our existing stockholders. If adequate financing is not available, we may need to continue to reduce or eliminate our expenditures for research and development, testing, production and marketing for some of our product candidates. Our actual capital requirements will depend on numerous factors, including:
    our commercialization activities and arrangements;
 
    the progress of our research and development programs;
 
    the progress of our pre-clinical and clinical testing;
 
    the time and cost involved in obtaining regulatory approvals for our product candidates;
 
    the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights with respect to our intellectual property;
 
    the effect of competing technological and market developments;
 
    the effect of changes and developments in our existing collaborative, licensing and other relationships; and
 
    the terms of any new collaborative, licensing and other arrangements that we may establish.
     We may not be able to secure sufficient financing on acceptable terms. If we cannot, we may need to delay, reduce or eliminate

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some or all of our research and development programs, any of which would be expected to have a material adverse effect on our business, operating results, and financial condition. These factors raise substantial doubt about our ability to continue as a going concern.
   Our near-term success is highly dependent on the success of our lead product candidate, Stimuvax, and we cannot be certain that it will receive regulatory approval or be successfully commercialized.
     Our lead product candidate, Stimuvax, is currently being evaluated in a Phase 3 clinical trial for the treatment of non-small cell lung cancer, or NSCLC, and will require the successful completion of this and possibly other clinical trials before submission of a biologic license application, or BLA, or its foreign equivalent for approval. This process can take many years and require the expenditure of substantial resources. Pursuant to our agreement with Merck KGaA of Darmstadt, Germany, or Merck KGaA, Merck KGaA is responsible for the regulatory approval process and any subsequent commercialization of Stimuvax. Merck KGaA may not advance the development and commercialization of Stimuvax as quickly as we would hope. Clinical trials involving the number of sites and patients required for Food and Drug Administration, or FDA, approval of Stimuvax may not be successfully completed. If these clinical trials fail to demonstrate that Stimuvax is safe and effective, it will not receive regulatory approval. Even if Stimuvax receives regulatory approval, it may never be successfully commercialized. If Stimuvax does not receive regulatory approval or is not successfully commercialized, we may not be able to generate revenue, become profitable or continue our operations. Any failure of Stimuvax to receive regulatory approval or be successfully commercialized would have a material adverse effect on our business, operating results, and financial condition and could result in a substantial decline in the price of our common stock.
   Stimuvax and our other vaccine product candidates are based on novel technologies, which may raise new regulatory issues that could delay or make FDA approval more difficult.
     The process of obtaining required FDA and other regulatory approvals, including foreign approvals, is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. Stimuvax and our other vaccine therapies are novel; therefore, regulatory agencies may lack experience with them, which may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of Stimuvax and our other active vaccine products under development.
     To date, the FDA has not approved for commercial sale in the United States any active vaccine designed to stimulate an immune response against cancer. Consequently, there is no precedent for the successful commercialization of products based on our technologies in this area.
   We have a history of net losses, we anticipate additional losses and we may never become profitable.
     We have incurred net losses in each fiscal year since we commenced our research activities in 1985. For the year ended December 31, 2007 and the three and nine months ended September 30, 2008, we incurred a net loss of approximately $20.3 million and $3.6 million and $13.6 million respectively. In addition, as of September 30, 2008, our accumulated deficit was approximately $335.1 million. Our losses have resulted primarily from expenses incurred in research and development of our product candidates. We do not know when or if we will complete our product development efforts, receive regulatory approval for any of our product candidates, or successfully commercialize any approved products. As a result, it is difficult to provide the extent of any future losses or the time required to achieve profitability, if at all. Any failure of our products to complete successful clinical trials and obtain regulatory approval and any failure to become and remain profitable would adversely affect the price of our common stock and our ability to raise capital and continue operations.
   There is no assurance that we will be granted regulatory approval for any of our product candidates.
     Merck KGaA is currently testing our lead product candidate, Stimuvax, in an ongoing Phase 3 clinical trial for the treatment of NSCLC. PX-12 is currently in a Phase 2 clinical trial for pancreatic cancer and a Phase 1b trial in patients with advanced metastatic cancer which we initiated in June of 2008 to explore a more prolonged infusion regime. In addition, we have recently initiated a Phase 1 clinical trial for PX-478 and PX-866. Our other product candidates remain in the pre-clinical testing stages. The results from pre-clinical testing and clinical trials that we have completed may not be predictive of results in future pre-clinical tests and clinical trials, and there can be no assurance that we will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals. A number of companies in the biotechnology and pharmaceutical industries, including our company, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. Regulatory approval may not be obtained for any of our product candidates. If our product candidates are not shown to be safe and effective in clinical trials, the resulting delays in developing

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other product candidates and conducting related pre-clinical testing and clinical trials, as well as the potential need for additional financing, would have a material adverse effect on our business, financial condition and results of operations.
   We are dependent upon our collaborative relationship with Merck KGaA to develop and commercialize our lead product candidate, Stimuvax.
     Under our collaboration with Merck KGaA for our lead product candidate, Stimuvax, Merck KGaA is responsible for the development and worldwide commercialization of Stimuvax and the costs associated with such development and commercialization. We are responsible for manufacturing clinical supplies, and if Stimuvax is approved, commercial supplies of the product, and Merck KGaA is obligated to purchase such supplies from us. Any future payments, including royalties to us, will depend on the extent to which Merck KGaA advances Stimuvax through development and commercialization. With respect to control over decisions and responsibilities, the collaboration provides for a steering committee, consisting of representatives of Merck KGaA and us. Ultimate decision-making authority as to most matters within the collaboration, however, is vested in Merck KGaA, with the exception of matters relating to manufacturing with respect to which we have ultimate decision-making authority. Merck KGaA has the right to terminate the collaboration agreement, upon 30 days’ written notice, if, in Merck KGaA’s reasonable judgment, Merck KGaA determines that there are issues concerning the safety or efficacy of Stimuvax which materially adversely affect Stimuvax’s medical, economic or competitive viability, provided that if we do not agree with such determination we have the right to cause the matter to be submitted to binding arbitration. Our ability to receive any significant revenue from Stimuvax is dependent on the efforts of Merck KGaA. If Merck KGaA fails to fulfill its obligations under this agreement, we would need to obtain the capital necessary to fund the development and commercialization of Stimuvax or enter into alternative arrangements with a third party. We could also become involved in disputes with Merck KGaA, which could lead to delays in or termination of our development and commercialization of Stimuvax and time-consuming and expensive litigation or arbitration. If Merck KGaA terminates or breaches its agreement with us, or otherwise fails to complete its obligations in a timely manner, the chances of successfully developing or commercializing Stimuvax would be materially and adversely affected.
   We currently rely on third party manufacturers to supply our product candidates, which could delay or prevent the clinical development and commercialization of our product candidates.
     We currently depend on a single manufacturer, Baxter International Inc., or Baxter, for the supply of our lead product candidate, Stimuvax, and on Corixa Corp. (now part of GlaxoSmithKline plc, or GSK) for the manufacture of the adjuvant in Stimuvax. We also currently depend on other manufacturers for certain other biopharmaceutical components of Stimuvax and for the manufacture of our small molecule product candidates. Any disruption in production, inability of these third party manufacturers to produce adequate quantities to meet our needs or other impediments with respect to development or manufacturing could adversely affect our ability to continue our research and development activities or successfully complete pre-clinical studies and clinical trials, delay submissions of our regulatory applications or adversely affect our ability to commercialize our product candidates in a timely manner, or at all.
     For example, if Stimuvax is not approved by 2015, Corixa/GSK may terminate its obligation to supply the adjuvant to us. In this case, we would retain the necessary licenses from Corixa/GSK required to have the adjuvant manufactured for us, but the transfer of the process to a third party would delay the development and commercialization of Stimuvax, which would materially harm our business.
     Our product candidates have not yet been manufactured on a commercial scale. In order to commercialize a product candidate, the third party manufacturer may need to increase its manufacturing capacity, which may require the manufacturer to fund capital improvements to support the scale up of manufacturing and related activities. We may be required to provide all or a portion of these funds. The third party manufacturer may not be able to successfully increase its manufacturing capacity for our product candidate for which we obtain marketing approval in a timely or economic manner, or at all. If any manufacturer is unable to provide commercial quantities of a product candidate, we will need to successfully transfer manufacturing technology to a new manufacturer. Engaging a new manufacturer for a particular product candidate could require us to conduct comparative studies or utilize other means to determine equivalence between product candidates manufactured by a new manufacturer and those previously manufactured by the existing manufacturer, which could delay or prevent our ability to commercialize our product candidates. If any of these manufacturers is unable or unwilling to increase its manufacturing capacity or if we are unable to establish alternative arrangements on a timely basis or on acceptable terms, the development and commercialization of our product candidates may be delayed or there may be a shortage in supply.
     Any manufacturer of our products must comply with current Good Manufacturing Practices, or cGMP, requirements enforced by the FDA through its facilities inspection program or by foreign regulatory agencies. These requirements include quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our products may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. We have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and

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civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products.
   The continuing threat of terrorist attacks on the United States and current concern regarding the possibility of further chemical/biological terrorist threats could interfere with the manufacturing and distribution of our product candidates.
     Certain ingredients of our product candidates are manufactured by third parties in the United States or other countries who ship these ingredients to third party manufacturing locations, which currently are in the United States. The continuing threat of terrorist attacks on the United States and current concern regarding the possibility of further chemical/biological terrorist threats have resulted in increased scrutiny of shipments of many materials into the United States from Canada and abroad. As a consequence, it is possible that there could be delays in the shipment of the components and materials made outside the United States and shipped to the manufacturing locations in the United States, or in the reshipment from within the United States to our Canadian locations and to Merck KGaA for distribution within and outside the United States.
   Any failure or delay in commencing or completing clinical trials for our product candidates could severely harm our business.
     Each of our product candidates must undergo extensive pre-clinical studies and clinical trials as a condition to regulatory approval. Pre-clinical studies and clinical trials are expensive and take many years to complete. The commencement and completion of clinical trials for our product candidates may be delayed by many factors, including:
    our or our collaborators’ ability to obtain regulatory approval to commence a clinical trial;
 
    our or our collaborators’ ability to manufacture or obtain from third parties materials sufficient for use in pre-clinical studies and clinical trials;
 
    delays in patient enrollment and variability in the number and types of patients available for clinical trials;
 
    poor effectiveness of product candidates during clinical trials;
 
    safety issues or side effects;
 
    governmental or regulatory delays and changes in regulatory requirements, policy and guidelines; and
 
    varying interpretation of data by the FDA and similar foreign regulatory agencies.
     It is possible that none of our product candidates will complete clinical trials in any of the markets in which we and/or our collaborators intend to sell those product candidates. Accordingly, we and/or our collaborators may not receive the regulatory approvals necessary to market our product candidates. Any failure or delay in commencing or completing clinical trials or obtaining regulatory approvals for product candidates would prevent or delay their commercialization and severely harm our business and financial condition.
   The failure to enroll patients for clinical trials may cause delays in developing our product candidates.
     We may encounter delays if we or our collaboration partners are unable to enroll enough patients to complete clinical trials. Patient enrollment depends on many factors, including, the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites and the eligibility criteria for the trial. Moreover, when one product candidate is evaluated in multiple clinical trials simultaneously, patient enrollment in ongoing trials can be adversely affected by negative results from completed trials. Our product candidates are focused in oncology, which can be a difficult patient population to recruit.
   We rely on third parties to conduct our clinical trials. If these third parties do not perform as contractually required or otherwise expected, we may not be able to obtain regulatory approval for or be able to commercialize our product candidates.
     We rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, to assist in conducting our clinical trials. We have, in the ordinary course of business, entered into agreements with these third parties. Nonetheless, we are responsible for confirming that each of our clinical trials is conducted in accordance with its general

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investigational plan and protocol. Moreover, the FDA and foreign regulatory agencies require us to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for our product candidates.
   Even if regulatory approval is received for our product candidates, the later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions, including withdrawal of the product from the market.
     Approval of a product candidate may be conditioned upon certain limitations and restrictions as to the drug’s use, or upon the conduct of further studies, and may be subject to continuous review. After approval of a product, if any, there will be significant ongoing regulatory compliance obligations, and if we or our collaborators fail to comply with these requirements, we and/or our collaborators could be subject to penalties, including:
    warning letters;
 
    fines;
 
    product recalls;
 
    withdrawal of regulatory approval;
 
    operating restrictions;
 
    disgorgement of profits;
 
    injunctions; and
 
    criminal prosecution.
     Regulatory agencies may require us or our collaborators to delay, restrict or discontinue clinical trials on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. In addition, we or our collaborators may be unable to submit applications to regulatory agencies within the time frame we currently expect. Once submitted, applications must be approved by various regulatory agencies before we or our collaborators can commercialize the product described in the application. All statutes and regulations governing the conduct of clinical trials are subject to change in the future, which could affect the cost of such clinical trials. Any unanticipated costs or delays in our clinical studies could delay our ability to generate revenues and harm our financial condition and results of operations.
   Failure to obtain regulatory approval in foreign jurisdictions would prevent us from marketing our products internationally.
     We intend to have our product candidates marketed outside the United States. In order to market our products in the European Union and many other non-U.S. jurisdictions, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. To date, we have not filed for marketing approval for any of our product candidates and may not receive the approvals necessary to commercialize our product candidates in any market. The approval procedure varies among countries and can involve additional testing and data review. The time required to obtain foreign regulatory approval may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory agencies in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory agencies in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval process in other jurisdictions, including approval by the FDA. The failure to obtain regulatory approval in foreign jurisdictions could harm our business.

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   Our product candidates may never achieve market acceptance even if we obtain regulatory approvals.
     Even if we receive regulatory approvals for the commercial sale of our product candidates, the commercial success of these product candidates will depend on, among other things, their acceptance by physicians, patients, third party payors such as health insurance companies and other members of the medical community as a therapeutic and cost-effective alternative to competing products and treatments. If our product candidates fail to gain market acceptance, we may be unable to earn sufficient revenue to continue our business. Market acceptance of, and demand for, any product that we may develop and commercialize will depend on many factors, including:
    our ability to provide acceptable evidence of safety and efficacy;
 
    the prevalence and severity of adverse side effects;
 
    availability, relative cost and relative efficacy of alternative and competing treatments;
 
    the effectiveness of our marketing and distribution strategy;
 
    publicity concerning our products or competing products and treatments; and
 
    our ability to obtain sufficient third party insurance coverage or reimbursement.
     If our product candidates do not become widely accepted by physicians, patients, third party payors and other members of the medical community, our business, financial condition and results of operations would be materially and adversely affected.
   If we are unable to obtain, maintain and enforce our proprietary rights, we may not be able to compete effectively or operate profitably.
     Our success is dependent in part on obtaining, maintaining and enforcing our patents and other proprietary rights and will depend in large part on our ability to:
    obtain patent and other proprietary protection for our technology, processes and product candidates;
 
    defend patents once issued;
 
    preserve trade secrets; and
 
    operate without infringing the patents and proprietary rights of third parties.
     As of September 30, 2008, we owned approximately 12 United States and corresponding foreign patents and patent applications and held exclusive or partially exclusive licenses to over 14 United States and corresponding foreign patents and patent applications. The degree of future protection for our proprietary rights is uncertain. For example:
    we might not have been the first to make the inventions covered by any of our patents, if issued, or our pending patent applications;
 
    we might not have been the first to file patent applications for these inventions;
 
    others may independently develop similar or alternative technologies or products and/or duplicate any of our technologies and/or products;
 
    it is possible that none of our pending patent applications will result in issued patents or, if issued, these patents may not be sufficient to protect our technology or provide us with a basis for commercially-viable products and may not provide us with any competitive advantages;
 
    if our pending applications issue as patents, they may be challenged by third parties as infringed, invalid or unenforceable under U.S. or foreign laws;
 
    if issued, the patents under which we hold rights may not be valid or enforceable; or

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    we may develop additional proprietary technologies that are not patentable and which may not be adequately protected through trade secrets, if for example a competitor were to independently develop duplicative, similar or alternative technologies.
     The patent position of biotechnology and pharmaceutical firms is highly uncertain and involves many complex legal and technical issues. There is no clear policy involving the breadth of claims allowed in patents or the degree of protection afforded under patents. Although we believe our potential rights under patent applications provide a competitive advantage, it is possible that patent applications owned by or licensed to us will not result in patents being issued, or that, if issued, the patents will not give us an advantage over competitors with similar products or technology, nor can we assure you that we can obtain, maintain and enforce all ownership and other proprietary rights necessary to develop and commercialize our product candidates. For example, PX-12 was described in a publication over a year before the earliest priority date of a patent application covering PX-12 in the United States. Therefore, claims to the PX-12 composition cannot be obtained in the U.S. or in a foreign country. Similarly, claims covering the composition of PX-478 were only filed in the U.S. and Canada, which will prevent us from being able to obtain claims covering the composition of PX-478 in other foreign jurisdictions, including Europe.
     Even if any or all of our patent applications issue as patents, others may challenge the validity, inventorship, ownership, enforceability or scope of our patents or other technology used in or otherwise necessary for the development and commercialization of our product candidates. We may not be successful in defending against any such challenges. Moreover, the cost of litigation to uphold the validity of patents to prevent infringement or to otherwise protect our proprietary rights can be substantial. If the outcome of litigation is adverse to us, third parties may be able to use the challenged technologies without payment to us. There is no assurance that our patents, if issued, will not be infringed or successfully avoided through design innovation. Intellectual property lawsuits are expensive and would consume time and other resources, even if the outcome were successful. In addition, there is a risk that a court would decide that our patents, if issued, are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of a patent were upheld, a court would refuse to stop the other party from using the inventions, including on the ground that its activities do not infringe that patent. If any of these events were to occur, our business, financial condition and results of operations would be materially and adversely effected.
     In addition to the intellectual property and other rights described above, we also rely on unpatented technology, trade secrets, trademarks and confidential information, particularly when we do not believe that patent protection is appropriate or available. However, trade secrets are difficult to protect and it is possible that others will independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our unpatented technology, trade secrets and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality and invention assignment agreement at the commencement of an employment or consulting relationship with us. However, it is possible that these agreements will not provide effective protection of our confidential information or, in the event of unauthorized use of our intellectual property or the intellectual property of third parties, provide adequate or effective remedies or protection.
     If our vaccine technology or our product candidates, including Stimuvax, conflict with the rights of others, we may not be able to manufacture or market our product candidates, which could have a material and adverse effect on us and on our collaboration with Merck KGaA.
     Issued patents held by others may limit our ability to develop commercial products. All issued patents are entitled to a presumption of validity under the laws of the United States. If we need licenses to such patents to permit us to develop or market our product candidates, we may be required to pay significant fees or royalties, and we cannot be certain that we would be able to obtain such licenses on commercially reasonable terms, if at all. Competitors or third parties may obtain patents that may cover subject matter we use in developing the technology required to bring our products to market, that we use in producing our products, or that we use in treating patients with our products. We know that others have filed patent applications in various jurisdictions that relate to several areas in which we are developing products. Some of these patent applications have already resulted in the issuance of patents and some are still pending. We may be required to alter our processes or product candidates, pay licensing fees or cease activities. Certain parts of our vaccine technology, including the MUC1 antigen, originated from third party sources. These third party sources include academic, government and other research laboratories, as well as the public domain. If use of technology incorporated into or used to produce our product candidates is challenged, or if our processes or product candidates conflict with patent rights of others, third parties could bring legal actions against us, in Europe, the United States and elsewhere, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. Additionally, it is not possible to predict with certainty what patent claims may issue from pending applications. In the United States, for example, patent prosecution can proceed in secret prior to issuance of a patent. As a result, third parties may be able to obtain patents with claims relating to our product candidates which they could attempt to assert against us. Further, as we develop our products, third parties may assert that we infringe the patents currently held or licensed by them and it is difficult to provide the outcome of any such action.

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     There has been significant litigation in the biotechnology industry over patents and other proprietary rights and if we become involved in any litigation, it could consume a substantial portion of our resources, regardless of the outcome of the litigation. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license, grant cross-licenses and pay substantial royalties in order to continue to manufacture or market the affected products.
     There is no assurance that we would prevail in any legal action or that any license required under a third party patent would be made available on acceptable terms or at all. Ultimately, we could be prevented from commercializing a product, or forced to cease some aspect of our business operations, as a result of claims of patent infringement or violation of other intellectual property rights, which could have a material and adverse effect on our business, financial condition and results of operations.
   If any products we develop become subject to unfavorable pricing regulations, third party reimbursement practices or healthcare reform initiatives, our ability to successfully commercialize our products will be impaired.
     Our future revenues, profitability and access to capital will be affected by the continuing efforts of governmental and private third party payors to contain or reduce the costs of health care through various means. We expect a number of federal, state and foreign proposals to control the cost of drugs through government regulation. We are unsure of the form that any health care reform legislation may take or what actions federal, state, foreign and private payors may take in response to the proposed reforms. Therefore, it is difficult to provide the effect of any implemented reform on our business. Our ability to commercialize our products successfully will depend, in part, on the extent to which reimbursement for the cost of such products and related treatments will be available from government health administration authorities, such as Medicare and Medicaid in the United States, private health insurers and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved health care products, particularly for indications for which there is no current effective treatment or for which medical care typically is not sought. Adequate third party coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product research and development. If adequate coverage and reimbursement levels are not provided by government and third party payors for use of our products, our products may fail to achieve market acceptance and our results of operations will be harmed.
   Foreign governments often impose strict price controls, which may adversely affect our future profitability.
     We intend to seek approval to market our future products in both the United States and foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product. In some foreign countries, particularly in the European Union, prescription drug pricing is subject to government control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our future product to other available therapies. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
   We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.
     The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or others selling our products. If we cannot successfully defend ourselves against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
  decreased demand for our product candidates;
 
  impairment of our business reputation;
 
  withdrawal of clinical trial participants;
 
  costs of related litigation;
 
  substantial monetary awards to patients or other claimants;
 
  loss of revenues; and
 
  the inability to commercialize our product candidates.

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     Although we currently have product liability insurance coverage for our clinical trials for expenses or losses up to a $10 million aggregate annual limit, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any or all expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. On occasion, large judgments have been awarded in class action lawsuits based on products that had unanticipated side effects. A successful product liability claim or series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.
   We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.
     Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the design, development and commercialization of our product candidates. We expect any product candidate that we commercialize with our collaborative partners or on our own will compete with existing, market-leading products and products in development.
      Stimuvax . Currently, no product has been approved for maintenance therapy following induction chemotherapy for Stage III NSCLC, which is the indication for which Stimuvax is being developed. However, it is possible that existing or new agents will be approved for this indication. In addition, there are three vaccines in development for the treatment of NSCLC, including GSK’s MAGE A3 vaccine in Phase 3, IDM Pharma Inc.’s EP-2101 in Phase 2 and Transgene S.A.’s TG-4010, also in Phase 2. To our knowledge, these vaccines are not currently being developed in the same indication as Stimuvax. However, subsequent development of these vaccines, including Stimuvax, may result in direct competition.
      Small Molecule Products . PX-478 is a HIF-1 alpha inhibitor and we believe that at least one other company, Enzon Pharmaceutical, Inc., has a HIF-1 alpha anti-sense compound that is currently in Phase 1. There are also several approved targeted therapies for cancer and in development against which our small molecule products might compete. For example, Avastin is a direct inhibitor of vascular endothelial growth factor, or VEGF, and PX-478 is expected to lower levels of VEGF.
     Many of our potential competitors have substantially greater financial, technical and personnel resources than we have. In addition, many of these competitors have significantly greater commercial infrastructures than we have. Our ability to compete successfully will depend largely on our ability to:
    design and develop products that are superior to other products in the market;
 
    attract qualified scientific, medical, sales and marketing and commercial personnel;
 
    obtain patent and/or other proprietary protection for our processes and product candidates;
 
    obtain required regulatory approvals; and
 
    successfully collaborate with others in the design, development and commercialization of new products.
     PX-866 is an inhibitor of phosphoinositide 3-kinase (PI3K). We are aware of several companies that have entered clinical trials with competing compounds targeting the same protein. Among those are Novartis (clinical phase I/II), Semafore (phase I), Exelixis (phase I), Genentech (phase I), and Calistoga (phase I).
     Established competitors may invest heavily to quickly discover and develop novel compounds that could make our product candidates obsolete. In addition, any new product that competes with a generic market-leading product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome severe price competition and to be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.

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   If we are unable to enter into collaborations with partners to perform sales and marketing functions, or build these functions ourselves, we will not be able to commercialize our product candidates.
     We currently do not have any internal sales, marketing or distribution capabilities. In order to commercialize any of our product candidates, we must either acquire or internally develop a sales, marketing and distribution infrastructure or enter into collaborations with partners to perform these services for us. Under our agreements with Merck KGaA, Merck KGaA is responsible for developing and commercializing Stimuvax, and any problems with that relationship could delay the development and commercialization of Stimuvax. Additionally, we may not be able to enter into collaborations with respect to our product candidates not covered by the Merck KGaA agreements on commercially acceptable terms, if at all. Factors that may inhibit our efforts to commercialize our product candidates without collaboration partners include:
    our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
 
    the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;
 
    the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
 
    unforeseen costs and expenses associated with creating a sales and marketing organization.
     If we are not able to partner with a third party and are not successful in recruiting sales and marketing personnel or in building a sales and marketing and distribution infrastructure, we will have difficulty commercializing our product candidates, which would adversely affect our business and financial condition.
   If we lose key personnel, or we are unable to attract and retain highly-qualified personnel on a cost-effective basis, it would be more difficult for us to manage our existing business operations and to identify and pursue new growth opportunities.
     Our success depends in large part upon our ability to attract and retain highly qualified scientific, clinical, manufacturing, and management personnel. In addition, any difficulties retaining key personnel or managing this growth could disrupt our operations. Future growth will require us to continue to implement and improve our managerial, operational and financial systems, and continue to retain, recruit and train additional qualified personnel, which may impose a strain on our administrative and operational infrastructure. In particular, we are in the process of recruiting a Chief Medical Officer to oversee our clinical development programs. The competition for qualified personnel in the biopharmaceutical field is intense. We are highly dependent on our continued ability to attract, retain and motivate highly-qualified management, clinical and scientific personnel. Due to our limited resources, we may not be able to effectively recruit, train and retain additional qualified personnel. If we are unable to retain key personnel or manage our growth effectively, we may not be able to implement our business plan.
     Furthermore, we have not entered into non-competition agreements with all of our key employees. In addition, we do not maintain “key person” life insurance on any of our officers, employees or consultants. The loss of the services of existing personnel, the failure to recruit additional key scientific, technical and managerial personnel in a timely manner, and the loss of our employees to our competitors would harm our research and development programs and our business.
   Our business is subject to increasingly complex environmental legislation that has increased both our costs and the risk of noncompliance.
     Our business may involve the use of hazardous material, which will require us to comply with environmental regulations. We face increasing complexity in our product development as we adjust to new and upcoming requirements relating to the materials composition of many of our product candidates. If we use biological and hazardous materials in a manner that causes contamination or injury or violates laws, we may be liable for damages. Environmental regulations could have a material adverse effect on the results of our operations and our financial position. We maintain insurance under our general liability policy for any liability associated with our hazardous materials activities, and it is possible in the future that our coverage would be insufficient if we incurred a material environmental liability.

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   If we fail to establish and maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired, which would adversely affect our consolidated operating results, our ability to operate our business, and our stock price.
     Ensuring that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. Failure on our part to have effective internal financial and accounting controls would cause our financial reporting to be unreliable, could have a material adverse effect on our business, operating results, and financial condition, and could cause the trading price of our common stock to fall dramatically. We and our independent registered public accounting firm have recently identified a material weakness in our internal controls. As a result of this material weakness, our chief executive officer and chief financial officer have determined that, as of December 31, 2007, our internal controls over financial reporting were not effective to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external reporting in accordance with generally accepted accounting principles in the United States, or U.S. GAAP.
     Specifically, an error was discovered in a schedule supporting the foreign currency translation necessary to present in a note to our consolidated financial statements the summary of significant differences between generally accepted accounting principles in the United States and Canada. Due to this error, we concluded that a material weakness in internal control over financial reporting existed because there is a reasonable possibility that a material misstatement of the interim and annual financial statements would not have been prevented or detected on a timely basis.
     Remedying this material weakness and maintaining proper and effective internal controls requires substantial management time and attention and will result in our incurring substantial incremental expenses, including with respect to increasing the breadth and depth of our finance organization to ensure that we have personnel with the appropriate qualifications and training in certain key accounting roles and adherence to certain control disciplines within the accounting and reporting function. In particular, we have recruited and continue to recruit financial personnel in order to improve our internal controls. We are also relying on an outside consulting firm to assist us in developing our internal controls over financial reporting. Any failure to remedy our identified control deficiency or any additional errors or delays in our financial reporting would have a material adverse effect on our business and results of operations and could have a substantial adverse impact on the trading price of our common stock.
     Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our management does not expect that our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company will have been detected. As discussed in our 2007 Annual Report on Form 10-K, as amended, our management, together with our independent registered chartered accountants, has identified a control deficiency in the past and may identify additional deficiencies in the future.
     We are expending significant resources in maintaining and improving the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act. We cannot be certain that the actions we are taking to improve our internal controls over financial reporting will be sufficient or that we will be able to implement our planned processes and procedures in a timely manner. In future periods, if the process required by Section 404 of the Sarbanes-Oxley Act reveals further material weaknesses or significant deficiencies, the correction of any such material weaknesses or significant deficiencies could require additional remedial measures which could be costly and time-consuming. In addition, we may be unable to produce accurate financial statements on a timely basis. Any of the foregoing could cause investors to lose confidence in the reliability of our consolidated financial statements, which could cause the market price of our common stock to decline and make it more difficult for us to finance our operations and growth.
   We may expand our business through the acquisition of companies or businesses or in-licensing product candidates that could disrupt our business and harm our financial condition.
     We may in the future seek to expand our products and capabilities by acquiring one or more companies or businesses or in-licensing one or more product candidates. Acquisitions and in-licenses involve numerous risks, including:
    substantial cash expenditures;

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    potentially dilutive issuance of equity securities;
 
    incurrence of debt and contingent liabilities, some of which may be difficult or impossible to identify at the time of acquisition;
 
    difficulties in assimilating the operations of the acquired companies;
 
    diverting our management’s attention away from other business concerns;
 
    entering markets in which we have limited or no direct experience; and
 
    potential loss of our key employees or key employees of the acquired companies or businesses.
     In our recent history, we have not expanded our business through in-licensing and we have completed only one acquisition; therefore, our experience in making acquisitions and in-licensing is limited. We cannot assure you that any acquisition or in-license will result in short-term or long-term benefits to us. We may incorrectly judge the value or worth of an acquired company or business or in-licensed product candidate. In addition, our future success would depend in part on our ability to manage the rapid growth associated with some of these acquisitions and in-licenses. We cannot assure you that we would be able to make the combination of our business with that of acquired businesses or companies or in-licensed product candidates work or be successful. Furthermore, the development or expansion of our business or any acquired business or company or in-licensed product candidate may require a substantial capital investment by us. We may not have these necessary funds or they might not be available to us on acceptable terms or at all. We may also seek to raise funds by selling shares of our capital stock, which could dilute our current stockholders’ ownership interest, or securities convertible into our capital stock, which could dilute current stockholders’ ownership interest upon conversion.
Risks Related to the Ownership of Our Common Stock
   Our common stock may become ineligible for listing on The NASDAQ Stock Market, which would materially adversely affect the liquidity and price of our common stock.
     Our common stock is currently listed for trading in the United States on The NASDAQ Global Market. We have in the past and could in the future be unable to meet The NASDAQ Global Market listing requirements, particularly if (i) the market value of our common stock is not at least $50 million or, in the alternative, the value of our total assets and total revenue is not at least $50 million or (ii) our common stock fails to trade at or above $1.00 per share for an extended period of time.
     On August 20, 2008 we disclosed that we had received a letter from The Nasdaq Stock Market indicating that (i) we did not comply with the requirements for continued listing on The NASDAQ Global Market because we did not meet the maintenance standard in Marketplace Rule 4450(b)(1)(A) that specifies, among other things, that the market value of its common stock be at least $50 million and (ii) in accordance with the Marketplace Rule 4450(e)(4), we had a 30-calendar-day period in which to regain compliance. On September 16, 2008 we received a Staff Determination Letter from The Nasdaq Stock Market indicating that we had not regained compliance.
     We appealed this initial delisting determination to a hearing conducted by a NASDAQ Listing Qualifications Panel, or the Panel, on October 23, 2008. The Panel has not yet rendered a decision regarding our appeal. In the event of an unfavorable determination by the Panel, we would alternatively apply to have our common stock transferred to the Nasdaq Capital Market, as long as we satisfy the requirements for continued inclusion on the Nasdaq Capital Market set forth in the NASDAQ Marketplace Rules. There can be no assurance that the Panel will grant our request for continued listing on The NASDAQ Global Market, nor can there be assurance that our shares will alternatively be approved for listing on the NASDAQ Capital Market.
     In addition, on November 2, 2007, we received a letter from NASDAQ notifying Biomira, our predecessor corporation, that for the 30 consecutive trading days preceding the date of the letter, the bid price of Biomira’s common stock had closed below the $1.00 per share minimum required for continued inclusion on The NASDAQ Global Market pursuant to NASDAQ Marketplace Rule 4450(a)(5). On January 2, 2008, we were notified by NASDAQ that our common stock had regained compliance with the minimum bid requirement for continued listing on The NASDAQ Global Market.
   The trading price of our common stock may be volatile.

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     The market prices for and trading volumes of securities of biotechnology companies, including our securities, have been historically volatile. The market has from time to time experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The market price of our common shares may fluctuate significantly due to a variety of factors, including:
  the results of pre-clinical testing and clinical trials by us, our collaborators and/or our competitors;
 
  technological innovations or new therapeutic products;
 
  governmental regulations;
 
  developments in patent or other proprietary rights;
 
  litigation;
 
  public concern as to the safety of products developed by us or others;
 
  comments by securities analysts;
 
  the issuance of additional shares of common stock, or securities convertible into, or exercisable or exchangeable for, shares of our common stock in connection with financings, acquisitions or otherwise;
 
  the incurrence of debt;
 
  general market conditions in our industry or in the economy as a whole; and
 
  political instability, natural disasters, war and/or events of terrorism.
     In addition, the stock market has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
   Because we do not expect to pay dividends on our common stock, stockholders will benefit from an investment in our common stock only if it appreciates in value.
     We have never paid cash dividends on our common shares and have no present intention to pay any dividends in the future. We are not profitable and do not expect to earn any material revenues for at least several years, if at all. As a result, we intend to use all available cash and liquid assets in the development of our business. Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, if any, capital requirements, operating and financial conditions and on such other factors as our board of directors deems relevant. As a result, the success of an investment in our common stock will depend upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.
   Future sales of shares by existing stockholders could cause our stock price to decline.
     As of September 30, 2008, we had outstanding 19,492,432 common shares. Of these shares, 2,979,623 common shares, approximately 15.3%, were held by former ProlX stockholders, including 800,239 common shares held by D. Lynn Kirkpatrick and 813,633 common shares held by Garth Powis. Dr. Kirkpatrick and Dr. Powis are married. The former ProlX stockholders were permitted to begin selling the shares they acquired in the acquisition in compliance with Rule 144 on the one year anniversary of the closing date, or October 30, 2007. As a result of the arrangement, all shares of our common stock received by former ProlX stockholders, other than Dr. Kirkpatrick and Dr. Powis, are freely tradeable and not subject to the restrictions of Rule 144. Because they are deemed our “affiliates,” the shares issued to Dr. Kirkpatrick and Dr. Powis are subject to the restrictions on sale imposed by Rule 144 for as long as they remain our “affiliates.” If any substantial amount of our common stock, including former ProlX

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stockholders, is sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline. Our average trading volume is not large, and sales of large blocks of shares can have an adverse impact on the trading price of our common stock.
   We expect to raise additional capital in the future; however, such capital may not be available to us on reasonable terms, if at all, when or as we require additional funding. If we issue additional shares of our common stock or other securities that may be convertible into, or exercisable or exchangeable for, our common stock, our existing stockholders would experience further dilution.
     We expect that we will seek to raise additional capital from time to time in the future. Such financings may involve the issuance of debt, equity and/or securities convertible into or exercisable or exchangeable for our equity securities. These financings may not be available to us on reasonable terms or at all when and as we require funding. If we are able to consummate such financings, the terms of such financings may adversely affect the interests of our existing stockholders. Any failure to obtain additional working capital when required would have a material adverse effect on our business and financial condition and would be expected to result in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders.
   Changes in financial accounting standards related to share-based payments are expected to continue to have a significant effect on our reported results.
     On January 1, 2006, we adopted SFAS 123, Share-Based Payment , Revised 2004, or SFAS 123(R), which requires that we record compensation expense in the statement of operations for share-based payments, such as employee stock options, using the fair value method. The adoption of this new standard has had and is expected to continue to have a significant effect on our reported results of operations, although it will not affect our cash flows, and could adversely impact our ability to provide accurate guidance on our future reported financial results due to the variability of the factors used to estimate the values of share-based payments. If factors change and we employ different assumptions or different valuation methods in the application of SFAS 123(R) in future periods, the compensation expense that we record under SFAS 123(R) may differ significantly from what we have recorded in the current period, which could create volatility in the way we report earnings, and therefore, negatively affect our stock price and our stock price volatility.
   Our operating results may be affected by currency exchange rate fluctuations.
     Of our cash and cash equivalents as of September 30, 2008, approximately $0.9 million were denominated in Canadian dollars. A portion of our operating expenses, are denominated in Canadian dollars. We do not hedge our exposure to foreign currency risks.
   We can issue shares of preferred stock that may adversely affect the rights of a stockholder of our common stock.
     Our certificate of incorporation authorizes us to issue up to 10,000,000 shares of preferred stock with designations, rights, and preferences determined from time-to-time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of holders of our common stock. For example, an issuance of shares of preferred stock could:
  adversely affect the voting power of the holders of our common stock;
 
  make it more difficult for a third party to gain control of us;
 
  discourage bids for our common stock at a premium;
 
  limit or eliminate any payments that the holders of our common stock could expect to receive upon our liquidation; or
 
  otherwise adversely affect the market price or our common stock.
 
    We have in the past, and we may at any time in the future, issue additional shares of authorized preferred stock.

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Item 6. Exhibits
         
Exhibit    
Number   Description
       
 
  10.1    
Offer Letter with Gary Christianson, dated June 29, 2007.
       
 
  10.2    
Sublease Agreement between Muze Inc. and Oncothyreon Inc., dated May 9, 2008.
       
 
  10.3    
Lease Agreement between Selig Holdings Company and Oncothyreon Inc., dated May 9, 2008.
       
 
  10.4    
Amendment Number 1 to Adjuvant License Agreement and Adjuvant Supply Agreement between Corixa Corporation, d/b/a GlaxoSmithKline Biologicals N.A. and Biomira Management Inc., dated August 8, 2008.
       
 
  12.1    
Ratio of Earnings to Fixed Charges.
       
 
  31.1    
Certification of Chief Executive Officer and President Pursuant to Exchange Act Rule 13a-14(a).
       
 
  31.2    
Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a).
       
 
  32.1    
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES
     In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  ONCOTHYREON INC.
(Registrant)
 
 
Date: November 10, 2008  /s/ Edward A. Taylor    
  Vice President, Finance and Administration,   
  Chief Financial Officer and Corporate Secretary   

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INDEX OF EXHIBITS
         
Exhibit    
Number   Description
       
 
  10.1    
Offer Letter with Gary Christianson, dated June 29, 2007.
       
 
  10.2    
Sublease Agreement between Muze Inc. and Oncothyreon Inc., dated May 9, 2008.
       
 
  10.3    
Lease Agreement between Selig Holdings Company and Oncothyreon Inc., dated May 9, 2008.
       
 
  10.4    
Amendment Number 1 to Adjuvant License Agreement and Adjuvant Supply Agreement between Corixa Corporation, d/b/a GlaxoSmithKline Biologicals N.A. and Biomira Management Inc., dated August 8, 2008.
       
 
  12.1    
Ratio of Earnings to Fixed Charges.
       
 
  31.1    
Certification of Chief Executive Officer and President Pursuant to Exchange Act Rule 13a-14(a).
       
 
  31.2    
Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a).
       
 
  32.1    
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Exhibit 10.1
June 29, 2007
     
 
  Personal & Confidential
 
  Without Prejudice
 
  delivered by e-mail
Gary Christianson, PE

Hamilton, Montana 59840
Dear Gary:
     I am pleased to offer you the full-time position of Chief Operating Officer for Biomira Management (the “ Company ”), a subsidiary of the Biomira group of companies.
     The following confirms our offer
     1.  Salary : Your salary will be US$ 240,000 (two hundred and forty thousand dollars) per annum and will be reviewed annually. Salaries are paid twice a month, by direct deposit, on the 15th and the second last banking day of each month.
     2.  Variable Pay : You will be eligible for variable pay at the 35% (thirty five percent) Target level. The Variable Pay plan is governed by the “Biomira Inc. (Canada) Employee Incentive Program” document and the terms of this document will govern. Goals for the plan are established at the beginning of the year, and payment is made following the close of the year.
     3.  Stock Options : You are eligible to participate in the Biomira’s non-qualified Stock Option Plan. The plan is governed by the “Biomira Inc. Amended and Restated Share Option Plan” (the “ Option Plan ”) and the terms of this document will govern. A total of 100,000 (one hundred thousand) optioned shares of the Company will be granted at the first Board of Directors meeting following your acceptance of this offer.
     The options will vest in accordance with the schedule set forth in the Company’s standard stock option agreement which is 1/4 per year over 4 years, and will expire 8 years after issue.
     4.  Vacation : We will provide an annual vacation of 4 (four) weeks.

 


 

     5.  Severance : In the event your employment is terminated for reasons other than “cause” as the term is interpreted according to the laws of the State where you were based immediately prior to your termination severance will apply.
          (i) Lump sum payment of nine month’s base salary, less required withholding, and,
          (ii) Lump sum payment equivalent of variable pay at target for nine months following termination, less required withholding, and,
          (iii) Health Insurance coverage for a period of nine months.
     “Cause” for the purpose of this agreement shall include but not be limited to (i) willful engaging in illegal conduct or gross misconduct which is injurious to the Company or an affiliated company, (ii) being convicted of, or entering a plea of nolo contendere or guilty to, a felony or a crime of moral turpitude; (iii) engaging in fraud, misappropriation, embezzlement or any other act or acts of dishonesty resulting or intended to result directly or indirectly in a gain or personal enrichment to you at the expense of the Company or an affiliated company, (iv) material breach of any written policies of the Company or an affiliated company, or (v) willful and continual failure substantially to perform your duties with the Company, which failure has continued for a period of at least 30 days after written notice by the Company.
     6.  Employed Benefit Plan : You will become eligible for our US benefit plan. The plan provides extended health care, dental, life insurance, accidental death & dismemberment, and long-term disability coverage. These plans are governed by various plan documents which are provided by the Company’s benefits carrier.
     7.  Retirement Savings Plan : You will become eligible for Biomira matching contributions into the company’s 401(k) plan. Biomira will match your contributions into the plan, up to a maximum of 3% of your monthly gross salary (subject to maximums as deemed by law). Contributions to this plan are made through payroll deductions. This plan is governed by plan documents provided by our carrier for this benefit.
     8.  Relocation : Your primary work location will be in the Seattle area, with travel to other Biomira facilities and to various Biomira partners an expected activity. If you relocate to Seattle within one year of beginning employment, Biomira will pay your reasonable relocation expenses. If you voluntarily leave employment at Biomira within one year of moving, you will need to reimburse Biomira for these costs. Commuting expenses from your home to Seattle will be your responsibility.

 


 

     9.  Confidentiality Agreement : To protect the company’s proprietary interests, all of Biomira’s employees are required to sign a Confidentiality Agreement as a condition of employment.
     10.  Health and Safety : Biomira is vitally interested in the health and safety of all workers and is conducting its business in an environmentally responsible manner. Protection of employees from injury at the workplace and occupational disease, white ensuring that business is conducted in an environmentally responsible manner are continuing objectives. As part of our policy promoting the safety of our staff and the products they manufacture, as a condition of our employment and continued employment, you will be required to comply with all health assessment and medical testing relevant to your position.
     11.  Debarment : As a condition of employment and to protect the company’s interests, you hereby certify that you have not been debarred and are not subject to debarment under section 306 of the United State Food, Drug, and Cosmetic Act (21 USC 355a) or comparable provision of any other applicable law.
     12.  Other Terms & Conditions : This offer letter fully conveys the details of our offer. All other terms and conditions of employment not mentioned herein are consistent with Biomira Inc.’s corporate policies.
     13.  Commencement Date : For your duties in conjunction with this offer of employment, the commencement date for this position is on or before August 1, 2007.
     We look forward to you joining our team at Biomira. To confirm acceptance, please sign below, retain a copy for your records, and return the original to me. If you have any questions, please do not hesitate to contact me.
Sincerely,
/s/ Robert L. Kirkman, M.D.
Robert L. Kirkman, M.D.
President & CEO
Accepted this 29 th day of June, 2007
     
/s/ Gary Christianson
   
 
Gary Christianson, PE
   

 

Exhibit 10.2
SUBLEASE AGREEMENT
     This Sublease Agreement (“Sublease”), dated as of May 9, 2008, is made between Muze Inc., a Delaware corporation (“Sublandlord”), and Oncothyreon Inc., a Delaware corporation (“Subtenant”).
RECITALS
     A. Pursuant to that certain Fourth and Vine Office Lease dated September 8, 2006 between Selig Holdings Company, a Washington limited liability company, as lessor (“Landlord”) and Sublandlord as lessee (together with all modifications, amendments, riders and exhibits thereto, the “Lease”), a copy of which is attached hereto as Exhibit A, Landlord leased to Sublandlord 18,177 rentable square feet of space known as Suite 500 (the “Premises”) in the building known as The Fourth and Vine Building, located at 2601 Fourth Avenue, Seattle, Washington 98121 (the “Building”).
     B. Sublandlord wishes to sublease the Premises to Subtenant. The Premises are shown cross-hatched on Exhibit B attached hereto (the “Subleased Premises”).
     NOW, THEREFORE, in consideration of the mutual covenants contained in this Sublease, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, Sublandlord and Subtenant hereby agree as follows:
AGREEMENT
     1.  Sublease
          Sublandlord hereby subleases to Subtenant and Subtenant hereby subleases from Sublandlord, for the Term, at the rental, and upon all of the conditions set forth herein, the Subleased Premises, together with the right to use, in common with others entitled thereto, the hallways, stairways and elevators necessary for access to the Subleased Premises and the lavatories nearest to the Subleased Premises, as well as any other Building Common Areas described in the Lease.
     2.  Term and Possession
          2.1 Term
          The term of this Sublease (“Term”) shall commence on the later of May 9, 2008 and the date by which Sublessor has delivered possession of the Subleased Premises in the condition required herein (“Commencement Date”) unless this Sublease is sooner terminated pursuant to its terms or the Lease is sooner terminated pursuant to its terms. The Term shall expire on December 17, 2011, concurrent with the Lease (“Expiration Date”). For the avoidance of doubt, Subtenant shall have no right to renew or extend this Sublease in any way following the Expiration Date, Sublandlord’ s rights under the Lease shall terminate as of the Expiration Date and Section 40 of the Lease shall not be applicable to either party hereunder. Any right of first refusal or expansion granted to Sublandlord pursuant to Sections 43 and 44 of the Lease or Section 16 of the First

 


 

Addendum shall be granted to Subtenant hereunder (collectively, the “Expansion Rights”), provided however, that any Expansion Rights shall not be subject to the Lease or this Sublease and shall be negotiated in good faith and set forth in a separate written agreement between Subtenant and Landlord and any such agreement shall have no force and effect whatsoever on Sublandlord.
          2.2 Condition of Subleased Premises
          Sublandlord shall deliver to Subtenant possession of the Subleased Premises on the Commencement Date in good, vacant, broom clean condition (“Possession”). For the avoidance of doubt, Sublandlord is in full compliance with Section 8 of the Lease as of the date of this Sublease. If for any reason Sublandlord does not deliver Possession to Subtenant on or prior to May 15, 2008, rent shall abate until delivery of Possession. If Sublandlord does not deliver Possession of the Subleased Premises on or prior to June 1, 2008, Subtenant shall have a right to terminate this Sublease.
     3.  Base Rent, Operating Expenses, Security Deposit and First Month’s Rent
          3.1 Base Rent
          Subtenant shall pay to Sublandlord “Base Rent” in the amount of Thirty Three Thousand Twenty-four and 50/100 Dollars ($33,324.50) simultaneously with the execution of this Sublease, which pre-paid Base Rent shall be applicable to the first month of the Term in which Base Rent is payable (August 2008), and thereafter as follows:
         
Period   Base Rent
Commencement Date through July 31, 2008
  $ 0  
August 1, 2008 through December 17, 2008
  $ 33,324.50  
December 18, 2008 through December 17, 2009
  $ 34,839.25  
December 18, 2009 through December 17, 2011
  $ 36,354.00  
     The monthly installments of Base Rent shall be prorated on a per diem basis for the first or last month of the Term if the Commencement Date or Expiration Date is not the first day or last day of a calendar month. For avoidance of doubt, the parties agree that (i) Subtenant shall not be required to pay Base Rent, Operating Services and Real Estate Taxes from the Commencement Date through July 31, 2008 and (ii) without limiting the foregoing, that Sublandlord currently pays One Thousand Six Hundred Ninety Dollars per month as its Pro-Rata Share of Operating Services for HVAC OT and Subtenant shall be responsible for the HVAC OT payments charged to Sublandlord, if any, as of the Rent Commencement Date.
          3.2 Operating Expenses and Real Estate Taxes
               (a) In addition to Base Rent, Subtenant shall pay during the Term its Pro-Rata Share of Operating Services and Real Estate Taxes as set forth in the Lease, as incorporated herein; provided, however, that notwithstanding anything to the contrary in this Sublease, Subtenant shall not be required to pay any Operating Services or Real Estate Taxes or perform any obligation that is (i) fairly allocable to any period of time prior to the Commencement Date or following the

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expiration or sooner termination of this Sublease or (ii) payable as a result of a default by Sublandlord of any of its obligations under the Lease.
               (b) Sublandlord shall promptly deliver to Subtenant all invoices and statements submitted to Sublandlord by Landlord that document payments of Operating Services or Real Estate Taxes for which Subtenant is responsible. Subtenant shall have the right afforded Sublandlord under paragraph 19 of the Lease Addendum to the Lease to examine the books and records of Landlord for the purpose of verifying the accuracy of Landlord’s statement of Operating Services. If Landlord does not grant Subtenant a reasonable opportunity to do so, then Sublandlord shall, on behalf of Subtenant and Sublandlord, make such examination and Subtenant shall reimburse Sublandlord the reasonable costs of so doing.
               (c) Subtenant shall be entitled to a credit against future installments of Operating Services and Real Estate Taxes if and to the extent that Sublandlord shall have received such credit from Landlord and to the extent such credit is fairly allocable to the Operating Services and Real Estate Taxes attributable to the Subleased Premises.
          3.3 Security Deposit
          Notwithstanding Section 3.1 of this Sublease, Subtenant shall pay to Sublandlord, simultaneously with the execution of this Sublease, a security deposit of One Hundred Thousand Dollars ($100,000) (the “Security Deposit”). Promptly following the Expiration Date, Sublandlord shall return the Security Deposit to Subtenant. The Security Deposit shall be sent by wire transfer to the following account:
     4.  Use of Premises
          The Premises shall be used and occupied only for general office, laboratory and research and development purposes and for any other purpose permitted under the Lease. Notwithstanding anything to the contrary in this Sublease or the Lease, Sublandlord waives any right of distraint, distress for rent or landlord’s lien that may arise at law. Notwithstanding anything to the contrary in this Sublease or the Lease, as incorporated herein, subject to the written consent of Landlord, Sublandlord hereby consents to Subtenant’s construction of the Subtenant Improvements (as more particularly described in Exhibit E, attached hereto).
     5.  Incorporation by Reference
          5.1 Subject to Lease
          This Sublease is subject to all of the terms and conditions of the Lease by and between Sublandlord and Landlord.
          5.2 Excluded Sections
          Notwithstanding anything to the contrary set forth in this Sublease, (a) the following provisions of the Lease shall not be incorporated herein and shall not be binding on Subtenant:

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Sections 2 – 5, 17, 18 (last four sentences of first paragraph only), 37, 38, 40-42, 45, and Section 17 and Exhibit B-2 of the Lease Addendum; (b) references in the following provisions of the Lease to “Lessor” shall mean “Landlord” as defined herein: Sections 6, 7, 10, 11, 14, 15, 19, 26, 43, 44, and Sections 14, 16, and 21 (last sentence only) of the Lease Addendum; (c) wherever there is a requirement to pay the costs and expenses of “Landlord,” Subtenant shall only be obligated to pay Landlord’s costs and expenses and not both Sublandlord’s and Landlord’s costs and expenses; and (d) Sublandlord shall use commercially reasonable efforts to assist Subtenant in the exercise of Subtenant’s rights under Sections 43 and 44 of the Lease and Section 16 of the Lease Addendum, as incorporated herein, including but not limited to, the timely delivery of notices to and from Subtenant and Landlord.
          5.3 Interpretation
          The terms, conditions and respective obligations of Sublandlord and Subtenant to each other under this Sublease shall be the terms and conditions of the Lease, as incorporated herein, except for those provisions of the Lease which are directly contradicted by this Sublease, in which event the terms of this Sublease shall control over the Lease. Therefore, for the purposes of this Sublease, and except as set forth above, (a) wherever in the Lease the word “Lessor” is used it shall be deemed to mean the Sublandlord herein and wherever in the Lease the word “Lessee” is used it shall be deemed to mean the Subtenant herein, (b) each reference in such incorporated sections to “Lease” shall be deemed a reference to “Sublease”.
     6.  Sublandlord’s Representations and Warranties
          Sublandlord represents and warrants to Subtenant as follows:
          (a) The Lease is in full force and effect and has not been modified, supplemented or amended, and a true, correct and complete copy of the Lease is attached hereto as Exhibit A.
          (b) Sublandlord has the right to and is in full and complete possession of the Premises.
          (c) Sublandlord has fulfilled all its duties under the Lease and is not in default under the Lease.
          (d) To the best of Sublandlord’s knowledge Landlord has fulfilled all its duties under the Lease and is not in default under the Lease.
          (e) Sublandlord has not assigned, transferred or delegated any of its right or duties under the Lease or pledged or encumbered any of its interest in, or right under the Lease.
          (f) Sublandlord has reviewed the Lease (as that term is defined in the Lease), the Lease does not in any way prohibit this Sublease, and no provision of the Lease could adversely affect the Subleased Premises or Subtenant’s rights or obligations under this Sublease.

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          (g) Landlord has consented to the Sublease pursuant to the letter agreement attached hereto as Exhibit C.
          (h) Sublandlord has all right, power and authority necessary to enter into and deliver this Sublease and to perform its obligations hereunder.
     7.  Covenants Regarding Lease
          (a) Sublandlord shall not commit or suffer any act or omission that will result in a violation of or a default under any of the provisions of the Lease.
          (b) Sublandlord shall exercise commercially reasonable efforts in attempting to cause Landlord to perform its obligations and give any required consents under the Lease for the benefit of Subtenant. Such reasonable good faith efforts shall include, without limitation: (a) upon Subtenant’s written request, immediately notifying Landlord of its nonperformance under the Lease, and requesting that Landlord perform its obligations under the Lease; and (b) permitting Subtenant to commence a lawsuit or other action in Sublandlord’s name to obtain the performance required from Landlord under the Lease; provided, however, that if Subtenant commences a lawsuit or other action, Subtenant shall pay all costs and expenses incurred in connection therewith, and Subtenant shall indemnify Sublandlord against, and hold Sublandlord harmless from, all reasonable costs and expenses incurred by Sublandlord in connection therewith.
          (c) Sublandlord agrees to deliver to Subtenant a copy of any notice received from Landlord relating to the Subleased Premises within three (3) days of its receipt thereof.
          (d) In the event that Sublandlord defaults under its obligations to be performed under the Lease or this Sublease, Subtenant shall have the right to cure the default before the date Sublandlord’s applicable cure period expires. If such default is cured by Subtenant, Sublandlord shall reimburse Subtenant for such amounts within ten (10) days after notice and demand therefor from Subtenant, together with interest at the interest rate specified in the Lease. If Sublandlord fails to reimburse Subtenant within such ten (10) day period, Subtenant may deduct such amounts from subsequent installments of rent due to Sublandlord under this Sublease.
          (e) Sublandlord shall not voluntarily terminate the Lease without Subtenant’s prior written consent. Sublandlord expressly waives any and all rights it may have to terminate the Lease arising under Section 45 thereof.
          (f) Sublandlord shall not amend the Lease in any way that would affect the Subleased Premises or Subtenant’s rights or obligations under this Sublease without Subtenant’s prior written consent. Sublandlord shall in no event extend the Term of the Lease without the prior written consent of Subtenant, and Sublandlord expressly waives any and all rights it may have to extend the Term of the Lease arising under Section 40 of the Lease or Section 17 of that certain Lease Addendum dated September 8, 2006 by and between Landlord and Sublandlord (the “First Addendum”).
     8.  Indemnification and Insurance

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          8.1 Subtenant’s Indemnification
          Subtenant shall indemnify, defend and hold harmless Sublandlord as set forth in Section 23 of the Lease, as incorporated herein.
          8.2 Sublandlord’s Indemnification
          Sublandlord shall indemnify, defend and hold harmless Subtenant as set forth in Section 23 of the Lease, as incorporated herein.
          8.3 Subtenant’s Insurance
          Subtenant shall keep in force such casualty, general liability and business interruption insurance as a prudent tenant occupying and using the Premises would keep in force and effect. Sublandlord shall be named as an additional insured under each such policy of liability insurance obtained by Subtenant. Subtenant shall furnish certificates of insurance issued by the applicable insurance carriers, not local agents thereof, evidencing all of the foregoing insurance coverages prior to or upon execution of this Sublease. All of the above-described policies shall provide that the insurance carrier will endeavor to provide no less than thirty (30) days prior written notice of cancellation, or non-renewal shall be given to Sublandlord. The failure of Subtenant to comply with any of the terms of these policies shall not adversely affect Sublandlord’s coverage thereunder. Certificates of insurance evidencing any modification, renewal or replacement of any of these insurance coverages shall be furnished to Sublandlord within ten (10) days after such modification, renewal or replacement.
          8.4 Release and Waiver of Subrogation
          Notwithstanding anything to the contrary herein, Sublandlord and Subtenant hereby release each other, and their respective agents, employees, subtenants, and contractors, from all liability for damage to any property that is caused by or results from a risk which is actually insured against or which would normally be covered by “all risk” property insurance, without regard to the negligence or willful misconduct of the entity so released. Each party shall use its best efforts to cause each insurance policy it obtains to provide that the insurer thereunder waives all right of recovery by way of subrogation as required herein in connection with any injury or damage covered by the policy. If the insurance policy cannot be obtained with the waiver of subrogation, or if the waiver of subrogation is available only at additional cost and the party for whose benefit the waiver is not obtained does not pay the additional cost, then the party obtaining the insurance immediately shall notify the other party of that fact.
     9.  Notices
          All notices and demands that may or are to be required or permitted are to be given by either party on the other hereunder shall be in writing. All notices and demands by Sublandlord to Subtenant shall be personally delivered or sent by a nationally recognized private carrier of overnight mail (e.g. FedEx) or by United States Certified Mail, return receipt requested and postage

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prepaid, to the parties at the addresses listed below or at such other addresses as the parties may designate by notice from time to time.
     
To Sublandlord:
  Muze Inc.
 
  304 Hudson Street
 
  New York, NY 10013
 
  Attention: General Counsel
 
   
To Subtenant:
  Prior to the Commencement Date :
 
   
 
  Oncothyreon Inc.
 
  110 1l0th Avenue NE, Suite 685
 
  Bellevue, WA 98004
 
  Attention:                     
 
   
 
  After the Commencement Date :
 
   
 
  Oncothyreon Inc.
 
  2601 Fourth Avenue
 
  Suite 500
 
  Seattle, Washington 98121
 
  Attn:                     
     10.  Quite Enjoyment
          Provided that Subtenant is not in default of any term or provision of the Lease or this Sublease beyond applicable notice and cure periods, Subtenant shall have peaceful and quiet enjoyment of the Subleased Premises without interference from Sublandlord or any person or entity claiming by, through or under Sublandlord, subject to the terms and conditions of this Sublease.
     11.  Attorney’s Fees
          If Sublandlord or Subtenant shall commence an action against the other arising out of or in connection with this Sublease, the prevailing party shall be entitled to recover its costs of suit and reasonable attorney’s fees.
     12.  Broker’s Payments
          Upon execution of this Agreement, Sublandlord shall pay the following unconditional payments to the following listing agents:
          (a) Eighteen Thousand One Hundred Seventy Seven Dollars ($18,177.00) to Douglas Hanafin of Washington Partners, Inc. for services rendered as the listing agent for Sublandlord hereunder, in full satisfaction of all fees due relating to this Sublease.

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          (b) Fifty Thousand Dollars ($50,000.00) to The Staubach Agency for services rendered as the agent for Subtenant hereunder, in full satisfaction of all fees due relating to this Sublease.
     13.  Entire Agreement
          This Sublease, the Exhibits attached hereto and the Lease, to the extent incorporated herein by reference, constitute the entire agreement between Sublandlord and Subtenant with respect to the Subleased Premises and may not be amended or altered except by written agreement executed by both parties.
     14.  Binding on Successors
          This Sublease shall bind the parties’ heirs, successors, representatives and permitted assigns.
     15.  Assignment of Rights
          Sublandlord hereby assigns to Subtenant all warranties given and indemnities made by Landlord to Sublandlord under the Lease which would reduce Subtenant’s obligations hereunder, and shall cooperate with Subtenant to enforce all such warranties and indemnities.
     16.  Authorization to Direct Sublease Payments
          Subtenant shall have the right to pay all rent and other sums owing by Subtenant to Sublandlord hereunder for those items which also are owed by Sublandlord to Landlord under the Lease directly to Landlord, provided Subtenant has direct knowledge that Sublandlord has failed or shall fail to make any payment required to be made by Sublandlord to Landlord under the Lease and Sublandlord fails to provide adequate proof or assurance of payment within ten (10) business days after Subtenant’s written demand requesting such proof. Subtenant shall provide to Sublandlord concurrently with any payment to Landlord reasonable evidence of such payment. Any sums paid directly by Subtenant to Landlord in accordance with this paragraph shall be credited toward the amounts payable by Subtenant to Sublandlord under this Sublease.
          17. Surrender
          Provided that Subtenant and Landlord enter into a direct lease for the Subleased Premises, Subtenant shall not be required to surrender the Subleased Premises to Sublandlord in connection with the expiration or earlier termination of this Sublease, nor shall any provision of this Sublease, or the Master Lease (as incorporated herein) dealing with the terms and conditions of such surrender apply, unless this Sublease is terminated by Landlord or by Sublandlord (with Subtenant’s consent) due to Subtenant’s default under this Sublease.
     18.  Furniture, Fixtures and Equipment
          Subtenant shall have the right to use during the Term the office furnishings, fixtures and equipment within the Subleased Premises which are identified on Exhibit D attached hereto (the

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“FF&E”) at no additional cost to Subtenant. Upon the expiration or earlier termination of this Sublease, Sublandlord shall sell and transfer the FF&E to Subtenant for the sum of One Dollar ($1.00) pursuant to a commercially reasonable bill of sale.
     19.  Compliance with Laws
          Notwithstanding anything to the contrary in the Lease, as incorporated herein, Subtenant shall not be required to comply with or cause the Subleased Premises to comply with any laws, rules, regulations or insurance requirements requiring the construction of alterations unless such compliance is necessitated solely due to Subtenant’s particular use of the Subleased Premises.
     20.  Hazardous Materials
          To the best knowledge of Sublandlord, no Hazardous Materials are present in or about the Subleased Premises and no action, proceeding, or claim is pending or threatened concerning any Hazardous Materials or pursuant to any laws. Sublandlord shall indemnify, defend, protect and hold Subtenant, its agents, officers, directors and shareholders, harmless from and against all claims, actions, losses, costs, damages, liabilities (including, without limitation, sums paid in settlement of claims), and expenses (including, without limitation, reasonable attorneys’, fees), arising out of or based upon the presence of any Hazardous Materials on, under, in or about the Subleased Premises, except to the extent the same results from Subtenant’s release or emission of Hazardous Materials in or about the Subleased Premises in violation of laws. As used herein, “Hazardous Material” shall mean any material which is now or hereafter regulated by any governmental authority or which poses a hazard to the environment or human life.

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     IN WITNESS WHEREOF, the parties hereto hereby execute this Sublease as of the day and year first above written.
         
SUBLANDLORD:    
 
       
MUZE INC., a Delaware corporation    
 
       
By:
  /s/ Lee Jin Ho    
 
 
 
   
Name:
  Lee Jin Ho    
Title:
  VP Marketing    
 
       
SUBTENANT:    
 
       
ONCOTHYREON INC., a Delaware corporation    
 
       
By:
  /s/ Robert Kirkman, M.D.    
 
 
 
   
Name:
  Robert Kirkman, M.D.    
Title:
  CEO    

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STATE OF WASHINGTON
 
 
  ) ss.
COUNTY OF KING
 
     On this 9 th day of May, 2008, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared Robert Kirkman, M.D., to me known to be the person who signed as CEO of Oncothyreon, the corporation that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that he was duly elected, qualified and acting as said officer of the corporation, that he was authorized to execute said instrument and that the seal affixed, if any, is the corporate seal of said corporation.
     IN WITNESS WHEREOF I have hereunto set my hand and official seal the day and year first above written.
         
 
  /s/ Marcia K. Newlun    
 
 
 
Signature
   
 
       
 
  NOTARY PUBLIC in and for the State of Washington, residing at Redmond).    
 
  My appointment expires: March 9, 2009.    
     
STATE OF WASHINGTON
 
 
  ) ss.
COUNTY OF KING
 
     On this 9 th day of May, 2008, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared Lee Jin Ho, to me known to be the person who signed as VP Marketing of Muze, the corporation that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that he was duly elected, qualified and acting as said officer of the corporation, that he was authorized to execute said instrument and that the seal affixed, if any, is the corporate seal of said corporation.
     IN WITNESS WHEREOF I have hereunto set my hand and official seal the day and year first above written.
         
 
  /s/ Danielle L. Greenwell    
 
 
 
Signature
   
 
       
 
  NOTARY PUBLIC in and for the State of Washington, residing at Seattle).
My appointment expires: January 29, 2011.
   

 


 

EXHIBIT A
LEASE

 


 

FOURTH AND VINE
OFFICE LEASE
     THIS LEASE (the “Lease”), made the 8 th day of September, 2006, by and between SELIG HOLDINGS COMPANY, a Washington limited liability company, whose address is 1000 Second Avenue, Suite 1800, Seattle, Washington, 98104-1046, (“Lessor”) and MUZE, INC., a New York corporation, whose address is 304 Hudson Street, 8 th Floor, New York, New York 10013, Attention CFO (“Lessee”).
     1.  DESCRIPTION . In consideration of the terms, covenants and conditions contained in this Lease and the obligation of Lessee to pay the Rent (as hereinafter defined), Lessor leases to Lessee and Lessee leases from Lessor that certain space consisting of 18,177 rentable square feet and 17,087 usable square feet situated on the 5th floor (the “Premises”) of Lessor’s building located at 2601 Fourth Avenue, City of Seattle, State of Washington 98121 (the “Building”), the legal description of which is:
Lots 5, 6, 7 and 8, Block 33 Bell and Denny’s Second Addition to City of Seattle, heretofore laid off by A. A. Denny and William N. Bell according to plat recorded in Volume 1 of plats, page 77 in King County Washington.
Suite 500
     Lessee shall have the nonexclusive right to use in common with other tenants in the Building the following areas (“Common Areas”) appurtenant to the Premises:
          (i) The Building’s common entrances, lobbies, restrooms, elevators, stairways and access ways, loading docks, ramps, drives and platforms and any passageways and service ways thereto, and the common pipes, conduits, wires and appurtenant equipment serving the Premises;
          (ii) Loading and unloading areas, trash areas, parking areas, roadways, sidewalks, walkways, parkways, driveways and landscaped areas and similar areas and facilities appurtenant to the Building.
     2. The term of this Lease shall be for a period of 60 months (the “Term”). The Lease shall begin on the first business day of the week following the earliest of (i) the date that the improvements to the Premises have achieved Substantial Completion (defined below), (ii) the date the improvements to the Premises would have achieved Substantial Completion but for Tenant Delays (as defined below), or (iii) the date Tenant accepts possession of the Premises for purposes of conducting its business there from (the “Term Commencement Date”). The term “Substantial Completion” shall mean completion of construction to the extent that the Premises may be occupied for the conduct of Lessee’s business subject to future completion of minor punch list items.
     Notwithstanding the above, provided the Lessor has received final, approved and signed off Final Plans, Lessor agrees except in the event of Tenant Delay (as defined below) or Force Majeure (as defined below), to have the Premises in a state of completion sufficient for Lessee to set up its furniture and equipment, install cabling and bring its server room on line not later than 90 days after

 


 

the approval of the Final Plans. During this early access period, Lessor may proceed with its Substantial Completion of the premises provided Lessee’s cabling and server room work is not thereby impeded.
     For purposes of this Lease, the term “Force Majeure” shall mean acts of God, strikes, lockouts, labor troubles, inability to procure materials despite commercially reasonably efforts to do so, orders or directives of governmental bodies, and other similar causes beyond a party’s reasonable control. The term “Tenant Delay” shall mean any delay in the completion of Lessor’s Work as a result of the failure of Lessee without fault of Lessor to provide construction documents to Lessor on or before the date set forth above or any delay in fact to the extent caused by a change requested by Lessee to the construction documents approved by Lessor.
     In the event the Premises are not ready for occupancy on the date set forth above, whether occasioned by Lessor or Lessee, the Lease Term shall be extended in such a manner as to reflect the delay occasioned by the failure of the Premises to be ready for occupancy. In no event shall Lessor or Lessee be liable for any further damages. In the event the Lessor’s Work is not substantially completed on or before February 26, 2007 unless caused by Tenant Delay or Force Majeure, Lessee may terminate this Lease upon ten (10) days written notice to Lessor.
     3.  RENT . Beginning on the Term Commencement Date and on the first day of each calendar month during the Term, Lessee shall pay Lessor rent at the following annual base rental rates: $22.00 per rentable square foot for months 1-24; $23.00 per rentable square foot for months 25-36 and $24.00 per rentable square foot for months 37-60. Rent for any fractional calendar month, at the beginning or end of the term, shall be the pro rated portion of the rent computed on an annual basis.
     4.  FIRST MONTH RENT AND SECURITY DEPOSIT . As consideration for the execution of this Lease by Lessor and Lessee, Lessee shall pay Lessor the sum of $69,678.50. Such amount shall be due within 15 days of Lessee’s receiving a fully executed Lease from Lessor and the Initial SNDA. in the event Lessee fully complies with all the terms and conditions of this Lease, but not otherwise, an amount equal to the first months rent due under this Agreement shall be credited against the first months rent due under this Lease upon the date such payment is due, and the remainder shall be credited against the last month’s rental on the term of this Lease.
     5.  USES . Lessee agrees that Lessee will use and occupy said Premises for general offices and related purposes and for no other purposes.
     6.  RULES AND REGULATIONS . Lessee and their agents, employees, servants or those claiming under Lessee will at all times observe, perform and abide by all of the Rules and Regulations printed on this instrument or which may be hereafter promulgated by Lessor, all of which it is covenanted and agreed by the parties hereto shall be and are hereby made a part of this Lease.
     7.  CARE AND SURRENDER OF PREMISES . Lessee shall take good care of the Premises and shall promptly make all necessary repairs except those required herein to be made by Lessor. At the expiration or sooner termination of this Lease, Lessee, without notice, will

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immediately and peacefully quit and surrender the Premises in broom clean good order, condition and repair (damage by reasonable wear, the elements, or tire or other casualty excepted). Lessee shall be responsible for removal of all personal property from the Premises, (excepting fixtures being that which is attached to the Premises, and property of the Lessor) including, but not limited to, the removal of Lessee installed communication cabling, telephone equipment and signage (but excluding any pre-existing cabling). Lessee shall be responsible for repairing any damage to the Premises caused by such removal. If Lessee fails to remove and restore the Premises at Lease expiration, then Lessor shall have the right to remove said property and restore the Premises and Lessee shall be responsible for all costs associated therewith. Lessee shall also be responsible for those reasonable costs incurred by Lessor for removing debris Lessee may discard in the process of preparing to vacate the Premises and for a final cleaning of the Premises, including, but not limited to, the cleaning, or replacement of carpets if damage is not caused by reasonable wear or casualty, and removal and disposal of Lessee’s personal property remaining in the Premises.
     8.  ALTERATIONS . Lessee shall not make any alterations or improvements in, or additions to said Premises without first obtaining the written consent of Lessor, whose consent shall not be unreasonably withheld, conditioned or delayed. All such alterations, additions and improvements shall be at the sole cost and expense of Lessee and shall become the property of Lessor and shall remain in and be surrendered with the Premises as a part thereof at the termination of this Lease, without disturbance, molestation or injury, reasonable wear and tear excepted.
     9.  RESTRICTIONS . Lessee will not use or permit to be used in said Premises anything that will increase the rate of insurance on said Building or any part thereof, nor anything that may be dangerous to life or limb; nor in any manner deface or injure said Building or any part thereof; nor overload any floor or part thereof; nor permit any objectionable noise or odor to escape or to be emitted from said Premises, or do anything or permit anything to be done upon said Premises in any way tending to create a nuisance or to disturb any other tenant or occupant of any part of said Building. Lessee, at Lessee’s expense, will comply with all health, fire and police regulations respecting the occupancy of said Premises. The Premises shall not be used for lodging or sleeping, and no animals or birds will be allowed in the Building.
     10.  WEIGHT RESTRICTIONS . Safes, furniture or bulky articles may be moved in or out of said Premises only at such hours and in such manner as will least inconvenience other tenants, which hours and manner shall be at the discretion of Lessor. No safe or other article of over 2,000 pounds shall be moved into said Premises without the consent of Lessor, whose consent shall not be unreasonably withheld, conditioned or delayed, and Lessor shall have the right to locate the position of any article of weight in said Premises if Lessor so desires.
     11.  SIGN RESTRICTION . No sign, picture, advertisement or notice shall be displayed, inscribed, painted or affixed to any of the glass or woodwork of the Building without the prior approval of Lessor. Such approval shall not be unreasonably withheld, conditioned or delayed.
     12.  LOCKS . No additional locks shall be placed upon any doors of the Premises. Keys will be furnished to each door lock. At the termination of the Lease, Lessee shall surrender all keys to the Premises whether paid for or not.

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     13.  KEY . Lessor, his janitor, engineer or other agents may retain a pass key to said Premises to enable him to examine the Premises from time to time with reference to any emergency or to the general maintenance of said Premises, provided that Lessor shall be responsible for all acts or omissions of itself, his janitor, engineer or other agents while on the Premises to the extent such acts or omissions cause any damage, loss, cost or expense to Lessee.
     14.  TELEPHONE SERVICE . If Lessee desires telephonic or any other electric connection, Lessor will direct the electricians as to where and how the wires are to be introduced, and without such directions no boring or cutting for wires in installation thereof will be permitted. Lessee shall supply its own requirements for telephone service with respect to the Premises and shall be allowed to select its providers for telecommunications and other services, Lessee or its service providers, without charge, shall be allowed to install data lines, fiber optics, satellite television receivers on the roof of the building at a monthly charge of $100 per rooftop installation, multiple points of entry, and other special telecommunication facilities, including cabling and connections from service providers to the Premises. Lessor shall, without charge, cooperate as needed with Lessee’s telecommunications and other service providers, including, without limitation providing building information, providing closet space in the basement of the building, and signing required authorizations for installation.
     15.  SERVICES . Lessor shall maintain the Premises and the public and common areas of Building, such as lobbies, stairs, corridor and restrooms, and all Building systems, including without limitation, the plumbing, heating, ventilating, air conditioning, elevator and electrical systems in reasonably good order and condition, comparable with other Seattle Class A office space except for damage in excess of ordinary wear and tear occasioned by the act of Lessee.
     Lessor shall furnish Premises 24 hours per day 7 days per week with elevator service as well as electricity for lighting and operation of general office computers and other electronics heat normal office air-conditioning, existing server room HVAC & electrical power, and elevator services, during the ordinary business hours of the Building. Lessor shall also provide lighting and ballast replacement for Lessor furnished lighting, toilet room supplies, window washing with reasonable frequency, and customary janitor service.
     Notwithstanding the above should Lessee require additional server room equipment requiring additional air conditioning units and electrical power, the cost of the operation and maintenance associated with such additional equipment shall be at Lessee’s expense. Lessor agrees that the installation or use of (i) the 12 ton HVAC capacity and (ii) the other Tenant Improvements Installed by Lessor or as shown an the Final Plans will not trigger any separate equipment or Lessee’s paying any additional charges or expenses. Lessor may install a separate electrical meter and bill Lessee separately for such actual water and electrical consumption or charge a reasonable hourly fee (currently $1.25 per hour per heat pump) for hours beyond 12 hours Monday through Friday and four (4) hours on Saturday’s.
     Lessor shall not be liable to Lessee for any loss or damage caused by or resulting from any variation, interruption or any failure of said services due to any cause whatsoever. No temporary interruption or failure of such services due to the making of repairs, alterations, or improvements, or due to accident or strike or conditions or events not under Lessor’s control shall be deemed as an

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eviction of Lessee or relieve Lessee from any of Lessee’s obligations hereunder (except as expressly set forth herein).
     In the event of any lack of attention on the part of Lessor and any dissatisfaction with the service of the Building, or any unreasonable annoyance of any kind, Lessee is requested to make complaints at Lessor’s Building office and not to Lessor’s employees or agents seen within the Building. Lessee is further requested to remember that Lessor is as anxious as Lessee that a high grade service be maintained, and that the Premises be kept in a state to enable Lessee to transact business with the greatest possible ease and comfort. The rules and regulations are not made to unnecessarily restrict Lessee, but to enable Lessor to operate the Building to the best advantage of both parties hereto. To this end Lessor shall have the right to waive from time to time such part or parts of these rules and regulations as in his judgment may not be necessary for the proper maintenance or operation of the Building or consistent with good service, and may from time to time make such further reasonable rules and regulations as in his judgment may be needed for the safety, care and cleanliness of the Premises and the Building and for the preservation of order therein.
     16.  SOLICITORS . Lessor will make an effort to keep solicitors out of the Building, and Lessee will not oppose Lessor in his attempt to accomplish this end.
     17.  FLOOR PLAN . The floor plan and specifications for Lessee’s occupancy shall be attached hereto and marked Exhibit “A” which shall be approved by both Lessor and Lessee, both of whose approval shall not be unreasonably withheld, conditioned or delayed.
     18.  ASSIGNMENT . Lessee will not assign this Lease, or any interest hereunder, and this Lease, or any interest hereunder without Lessor’s consent which shall not be unreasonably withheld, and this Lease, shall not be assigned by operation of law without first obtaining the written consent of Lessor, whose consent shall not be unreasonably withheld, conditioned or delayed. This lease may be assigned without Lessor’s consent to a wholly owned affiliate subsidiary or parent company of Lessee, or to the entity with which or into which Lessee may merge, whether or not Lessee is the survivor of such merger, or to the purchaser of substantially all of the assets of Lessee located at the Premises, provided Lessee shall give Lessor written notice of such assignment. A transfer of Lessee’s stock shall not be deemed an assignment. Lessee will not sublet said Premises or any part thereof and will not permit the use of said Premises by others other than Lessee and the agents of Lessee without first obtaining the written consent of Lessor, whose consent shall not be unreasonably withheld, conditioned or delayed. In the event such written consent shall be given, no other or subsequent assignment or subletting shall be made without the previous written consent of Lessor, whose consent shall not be unreasonably withheld, conditioned or delayed. In the event Lessee desires to assign or sublet the entire Premises for the remainder of the lease term (other than a transfer to an affiliate of or successor-in-interest to Lessee), Lessor shall have the first right, but not the obligation to recapture the Premises. In the event Lessee contemplates a transfer subject to Lessor’s right of recapture, Lessee shall give Lessor notice thereof (the “Intention to Transfer Notice”). Thereafter, Lessor shall have the option, by giving written notice to Lessee within 10 days after receipt of any Intention to Transfer Notice, to recapture the Premises. If Lessor declines, or fails to elect in a timely manner, to recapture the Premises under this Section, then, commencing on the last day of such 10 day period, Lessor shall not have any right to recapture the Premises with

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respect to any such transfer, provided that any such transfer shall be subject to the terms of this Section 18.
     With respect to any requested consent to an assignment or subletting as required by this section, Lessor shall be deemed to have consented if Lessor does not respond to Lessee’s request within fifteen (15) business days after Lessee requests consent.
     Lessor’s consent or refusal of consent shall be in writing and, if Lessor refuses consent, the reasons for refusal shall be stated with particularity, Lessor’s consent to an assignment shall be accompanied by a statement prepared by Lessee and the assignee or sublessee, stating that Lessee is not in default under the Lease (or setting forth in what respects Lessee is in default), that this Lease has not been amended or modified (or setting forth such amendments or modifications), the expiration date of this Lease, and the date to which Rent has been paid.
     19.  OPERATING SERVICES AND REAL ESTATE TAXES . The annual base rental rate per rentable square foot in Paragraph 3 includes Lessee’s proportionate share of Operating Services and Real Estate Taxes for the first twelve months of the Lease term, “Base Year Costs”. Only actual increases from these Base Year Costs, if any, will be passed on to Lessee on a proportionate basis.
DEFINITIONS
Base Year
     For computing the Base Year Costs, the base year shall be the calendar year stated herein or if a specific calendar year is not stated herein then the base year shall be the calendar year in which the Lease term commences. The base year shall be the calendar year 2007.
Comparison Year
     The Comparison Year(s) shall be the calendar year(s) subsequent to the base year.
Operating Services
     “Operating Services” include, but are not limited to, the reasonable charges incurred by Lessor for: Building operation salaries, benefits, reasonable and customary management fee of five percent (5%) of gross income for the Building, Insurance, electricity, janitorial, supplies, telephone, HVAC, repair and maintenance, window washing, water and sewer, security, landscaping, disposal, elevator, etc. Operating Services shall also include the amortization cost of capital investment items and of the installation thereof, which are primarily for the purpose of safety, saving energy or reducing operating costs, or which may be required by governmental authority, (all such costs shall be amortized over the reasonable life of the capital investment item, with the reasonable life and amortization schedule being determined in accordance with generally accepted accounting principles). Notwithstanding anything to the contrary contained herein, Operating Services shall not include any of the following:

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          (i) real estate taxes;
          (ii) legal fees, auditing fees, brokerage commissions, advertising costs, or other related expenses incurred by Lessor in an effort to generate rental income;
          (iii) repairs, alterations, additions, improvements, or replacements made to rectify or correct any defect in the original design, materials or workmanship of the Building or common areas (but not including repairs, alterations, additions, improvements or replacements made as a result of ordinary wear and tear);
          (iv) damage and repairs attributable to fire or other casualty;
          (v) damage and repairs necessitated by the negligence or willful misconduct of Lessor, Lessor’s employees, contractors or agents;
          (vi) executive salaries to the extent that such services are, not in connection with the management, operation, repair or maintenance of the Building;
          (vii) Lessor’s general overhead expenses not related to the Building;
          (viii) legal fees, accountants fees and other expenses incurred in connection with disputes with tenants or other occupants of the Building or associated with the enforcement of the terms of any Leases with tenants or the defense of Lessor’s title to or interest in the Building or any part thereof unless the outcome is to the financial benefit of all tenants;
          (ix) costs (including permit, license and inspection fees) incurred in renovating or otherwise improving, decorating, painting or altering (1) vacant space (excluding common areas) in the Building or (2) space for tenants or other occupants in the Building and costs incurred in supplying any item or service to less than all of the tenants in the Building;
          (x) costs incurred due to a violation by Lessor or any other tenant of the Building of the terms and conditions of a Lease;
          (xi) cost of any specific service provided to Lessee or other occupants of the Building for which Lessor is reimbursed (but not including Operating Services and Real Estate Tax increases above Base Year Costs to the extent reimbursed Lessor) or any other expense for which Lessor is or will be reimbursed by another source (i.e., expenses covered by insurance or warranties);
          (xii) costs and expenses which would be capitalized under generally accepted accounting principles, with the exception of the capital investment items specified hereinabove;
          (xiii) Building management fees in excess of the management fees specified hereinabove;
          (xiv) cost incurred with owning and/or operating the parking lot(s) serving the Building by independent parking operator(s).

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          (xv) fees paid to Lessor or any affiliate of Lessor for goods or services in excess of the fees that would typically be charged by unrelated, independent persons or entities for similar goods and services;
          (xvi) rent called for under any ground Lease or master Lease;
          (xvii) principal and/or interest payments called for under any debt secured by a mortgage or deed of trust on the Building; and
          (xviii) fines, penalties, or other liabilities imposed for violation of law, or regulation or court order;
          (xix) costs incurred in operating, maintaining, and repairing any retail facility;
          (xx) increases in insurance premiums to the extent caused by other tenants;
          (xxi) any insurance deductibles;
          (xxii) impact fees, traffic mitigation payments or other expenses assessed by any governmental authority in connection with designing, permitting or developing the Building;
          (xxiii) costs of relocating any tenant;
          (xxiv) any costs of the initial construction of and landscaping of the Building or the build-out required for Lessee by the terms of this Lease;
          (xxv) cost of acquiring, securing, cleaning or maintaining sculptures, paintings and other works of art;
          (xxvi) charitable or political contributions;
          (xxvii) costs incurred as a result of Lessor’s negligence;
          (xxviii) all items and services for which Lessee or any other Lessee in the Building is required to reimburse Lessor (other than through Lessee’s Pro Rata Share or any other Lessee’s share of Operating Services);
          (xxix) the cost of any work or services performed for any Lessee (including Lessee) at such Lessee’s cost; and
          (xxx) the cost of any work or service performed for any Lessee of the Building (other than Lessee) to a materially greater extent or in a materially more favorable manner than that offered to Lessee.
     Operating Services which vary with occupancy shall be adjusted for the Base Year and all Comparison Year(s) to reflect the greater of actual occupancy or 95% occupancy.

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Real Estate Taxes
     Real Estate Taxes shall be the taxes paid by Lessor in the base year and each respective Comparison Year. Real Estate Taxes shall be a separate category and shall be treated as such.
Proportionate Basis
     Lessee’s share of Base Year and Comparison Year(s) Costs shall be a fraction, the numerator of which shall be the number of rentable square feet contained in the Leased Premises (see Paragraph 1) and the denominator of which shall be the number of rentable square feet in the Building in which the Leased Premises are located (123,445/RSF).
Computation of Adjustments to Base Year Costs
     Any adjustment to Base Year Costs will commence to occur in Month 13 of the Lease term with subsequent adjustments commencing every twelve months of the Lease term or in Months 25, 37, 49, etc. as appropriate under the Lease term. Lessee shall be responsible for any increase between Lessee’s proportionate share of Base Year Costs and Lessee’s proportionate share of each respective Comparison Year(s) Costs. The increase shall be the increase to each expense individually. These costs shall be initially calculated based on estimated (projected) costs with reconciliation to actual costs when annual audited numbers are completed. For the purpose of calculating projected increases to Base Year Costs, Lessor shall review historical data to predict if any estimated increases would be anticipated in a Comparison Year(s). If they are, then commencing in Month 13 and/or every twelve-month period thereafter, Lessor will assess a monthly charge to be paid together with monthly base rent. Once actual cost data for Comparison Year(s) Real Estate Taxes and Operating Services for the entire Building is formulated in accordance with generally accepted accounting principles and adjusted to 95% occupancy (if the Building is less than 95% occupied), then Lessee’s estimated pass-through costs shall be corrected with Lessee or Lessor, as appropriate, reimbursing the other for the difference between the estimated and actual costs, at that time in a lump sum payment. Landlord shall provide a statement (“Actual Statement”) of the actual costs of Operating services by May 1 of each year for the previous calendar year.
     Upon termination of this Lease, the amount of any corrected amount between estimated and actual costs with respect to the final Comparison Year shall survive the termination of the Lease and shall be paid to Lessee or Lessor as appropriate within thirty (30) days after final reconciliation.
     Computation of or adjustment to Operating Services and/or Real Estate Taxes pursuant to this paragraph or to rent pursuant to Paragraph 3 shall be computed based on a three hundred sixty-five (365) day year.
     For an example, see Exhibit “B” attached hereto.
     20.  ADDITIONAL TAXES OR ASSESSMENTS . Should there presently be in effect or should there be enacted during the term of this Lease, any law, statute or ordinance levying any assessments or any tax upon the Leased premises other than federal or state income taxes or estate

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taxes or, Lessee shall reimburse Lessor for Lessee’s proportionate share of said expenses at the same time as rental payments.
     21.  LATE PAYMENTS . Any payment, required to be made pursuant to this Lease, not made on the date the same is due shall bear interest at a rate equal to three percent (3%) above the published prime rate of interest charged from time to time by Bank of America, or its successor or the maximum amount permitted by law, whichever is lower.
     In addition to any interest charged herein, within five (5) days after written notice said payment is over-due then Lessee shall pay a late charge equal to $250. If Lessee is late with its payments more than two times in any twelve (12) month period the late charge shall increase to the greater of three percent (3%) of the amount of such payment or $250.
     22.  RISK . All personal property of any kind or description whatsoever in the demised Premises shall be at Lessee’s sole risk, Lessor shall not be liable for any damage done to or loss of such personal property or damage or loss suffered by the business or occupation of the Lessee arising from any acts or neglect of co-tenants or other occupants of the Building, or of Lessor or the employees of Lessor, or of any other persons, or from bursting, overflowing or leaking of water, sewer or steam pipes, or from the heating or plumbing or sprinklering fixtures, or from electric wires, or from gas, or odors, or caused in any other manner whatsoever except in the case of negligence on the part of Lessor. Lessee shall keep in force throughout the term of this Lease such casualty, general liability and business interruption Insurance as a prudent tenant occupying and using the Premises would keep in force.
     23.  INDEMNIFICATION . Each party will defend, indemnify and hold harmless (the “Indemnitor”) the other party (the “Indemnitee”) from any claim, liability or suit, including reasonable attorney’s fees on and costs incurred by the Indemnitee for any injuries or damages occurring in or about the Premises or on or about the sidewalk, stairs, or thoroughfares adjacent thereto where said damages or injury were caused by the negligence or intentional act of the Indemnitor, its agents, employees, servants, customers or clients. Lessee’s agents, employees, servants, customers or clients. Lessor shall indemnify, defend and hold Lessee harmless from all claims arising from any breach or default in the performance of any obligation to be performed by Lessor under the terms of this Lease, or arising from any negligent act or omission of Lessor or of its agents, employees or invitees, and from and against all costs, attorneys’ fees, expenses and liabilities incurred in or about such claim or any action or proceeding brought thereon. In case any action or proceeding shall be brought against Lessee by reason of any such claim, Lessor, upon notice from Lessee, shall defend the same at Lessor’s expense by counsel reasonably approved in writing by Lessee.
     The foregoing indemnities are specifically and expressly intended to, constitute a waiver of the Indemnitor’s immunity under Washington’s Industrial Insurance Act, RCW Title 51, to the extent necessary to provide the indemnified party with a full and complete indemnity from claims made by the indemnified party and its employees, to the extent provided herein.
     In compliance with RCW 4.24.115 as in effect on the date of this Lease, all provisions of this Lease pursuant to which the Indemnitor agrees to indemnify the Indemnitee against liability for

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damages arising out of bodily injury to Persons or damage to property relative to the construction, alteration, repair, addition to, subtraction from, improvement to, or maintenance of, any building, road, or other structure, project, development, or improvement attached to real estate, including the Premises, (i) shall not apply to damages caused by or resulting from the sole negligence of the Indemnitee, its agents or employees, and (ii) to the extent caused by or resulting from the concurrent negligence of (a) the Indemnitee or the Indemnitee’s agents or employees, and (b) the Indemnitor or the Indemnitor’s agents or employees, shall apply only to the extent of the Indemnitor’s negligence; PROVIDED, HOWEVER, the limitations on indemnity set forth in this Section shall automatically and without further act by either Lessor or Lessee be deemed amended so as to remove any of the restrictions contained in this Section no longer required by then applicable law.
     24.  WAIVER OF SUBROGATION . Lessee and Lessor do hereby release and relieve the other, and waive their entire claim of recovery for loss, damage, injury, and all liability of every kind and nature which may arise out of, or be incident to, fire and extended coverage perils, in, on, or about the Premises herein described, whether due to negligence of either of said parties, their agents, or employees, or otherwise, to the extent the loss or damage either is actually covered by the injured party’s insurance or would have been covered by the insurance required to be carried under the provisions of this Lease. All policies of insurance required hereunder shall include a clause or endorsement denying the insurer any rights of subrogation against the other party to the extent rights have been waived by the insured before the occurrence of injury or loss.
     25.  SUBORDINATION . This Lease and all interest and estate of Lessee hereunder is subject to and is hereby subordinated to all present and future mortgages and deeds of trust affecting the Premises or the property of which said Premises are a part. Lessee agrees to execute at no expense to the Lessor, any commercially reasonable instrument which may be deemed necessary or desirable by the Lessor to further effect the subordination of this Lease to any such mortgage or deed of trust. In the event of a sale or assignment of Lessor’s interest in the Premises, or in the event of any proceedings brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage or deed of trust made by Lessor covering the Premises, Lessee shall attorn to the purchaser and recognize such purchaser as Lessor.
     Lessee agrees to execute, at no expense to Lessor, any commercially reasonable estoppel certificate deemed necessary or desirable by Lessor to further effect the provisions of this paragraph.
     26.  CASUALTY . In the event the Leased Premises or the said Building is destroyed or injured by fire, earthquake or other casualty to the extent that they are untenantable in whole or in part, then Lessor may, at Lessor’s option, proceed with reasonable diligence to rebuild and restore the said Premises or such part thereof as may be injured as aforesaid, provided that within sixty (60) days after such destruction or injury Lessor will notify Lessee in writing of Lessor’s intention to do so, and during the period of such rebuilding and restoration the rent shall be abated on the portion of the Premises that is unfit for occupancy. During any period of abatement of rent due to casualty or destruction of the Premises, Lessor shall use its best efforts to locate comparable space for Lessee at the fair market rate not to exceed Lessee’s rental rate hereunder. Lessor shall not be liable for any consequential damages by reason of inability, after use of its best efforts, to locate alternative space comparable to the premises Leased hereunder. In the event such casualty, damage is not fully

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restored within 120 days, following the casualty so that Lessee cannot reasonably conduct business therein, Lessee shall have the right to terminate this Lease.
     27.  INSOLVENCY . If Lessee becomes insolvent, or makes an assignment for the benefit of creditors, or a receiver is appointed for the business or property of Lessee, or a petition is filed in a court of competent jurisdiction to have Lessee adjudged bankrupt, then Lessor may at Lessor’s option terminate this Lease. Said termination shall reserve unto Lessor all of the rights and remedies available under Paragraph 29 (“Default”) hereof, and Lessor may accept rents from such assignee or receiver without waiving or forfeiting said right of termination. As an alternative to exercising his right to terminate this Lease, Lessor may require Lessee to provide adequate assurances, including the posting of a cash bond, of Lessee’s ability to perform its obligation under this Lease.
     28.  DEFAULT . If Lessee shall commit an Event of Default, then, and in any of such events Lessor may with or without notice or demand, at Lessor’s option, and without being deemed guilty of trespass and/or without prejudicing any remedy or remedies which might otherwise be used by Lessor for arrearages or preceding breach of covenant or condition of this Lease, enter into and repossess said Premises and expel the Lessee and all those claiming under Lessee. Subject to applicable law, in such event Lessor may eject and remove from said Premises all goods and effects (forcibly if necessary). This Lease if not otherwise terminated may immediately be declared by Lessor as terminated. The termination of this Lease pursuant to this Article shall not relieve Lessee of its obligations to make the payments required herein. In the event this Lease is terminated pursuant to this Article, or if Lessor enters the Premises without terminating this Lease and Lessor relets all or a portion of the Premises, Lessee shall be liable to Lessor for all the reasonable costs of reletting, including necessary renovation and alteration of the Leased Premises. Lessee shall remain liable for all unpaid rental which has been earned plus late payment charges pursuant to Paragraph 21 and for the remainder of the term of this Lease for any deficiency between the net amounts received following reletting and the gross amounts due from Lessee, or if Lessor elects, Lessee shall be immediately liable for all rent and additional rent (Paragraph 19) that would be owing to the end of the term, less any rental loss Lessee proves could be reasonably avoided, which amount shall be discounted by the discount rate of the Federal Reserve Bank, situated nearest to the Premises, plus one percent (1%). Waiver by the Lessor of any default, monetary or non-monetary, under this Lease shall not be deemed a waiver of any future default under the Lease. Acceptance of rent by Lessor after a default shall not be deemed a waiver of any defaults (except the default pertaining to the particular payment accepted) and shall not act as a waiver of the right of Lessor to terminate this Lease as a result of such defaults by an unlawful detainer action or otherwise.
     29.  BINDING EFFECT . The parties hereto further agree with each other that each of the provisions of this Lease shall extend to and shall, as the case may require, bind and inure to the benefit, not only of Lessor and Lessee, but also of their respective heirs, legal representatives, successors and assigns, subject, however, to the provisions of Paragraph 18 of this Lease.
     It is also understood and agreed that the terms “Lessor” and “Lessee” and verbs and pronouns in the singular number are uniformly used throughout this Lease regardless of gender, number or fact of incorporation of the parties hereto. The typewritten riders or supplemental provisions, if any, attached or added hereto are made a part of this Lease by reference, it is further mutually agreed that

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no waiver by Lessor of a breach by Lessee of any covenant or condition of this Lease shall be construed to be a waiver of any subsequent breach of the same or any other covenant or condition.
     30.  HOLDING OVER . If Lessee holds possession of the Premises after term of this Lease, Lessee shall be deemed to be a month-to-month tenant upon the same terms and conditions as contained herein, except rent which shall be 110% of the rent for the last month of the Term. During month-to-month tenancy, Lessee acknowledges Lessor will be attempting to relet the Premises. Lessee agrees to cooperate with Lessor and Lessee further acknowledges Lessor’s statutory right to terminate the Lease with proper notice.
     31.  ATTORNEY’S FEES . If any legal action is commenced to enforce any provision of this Lease, the prevailing party shall be entitled to an award of reasonable attorney’s fees and disbursements.
     32.  NO REPRESENTATIONS . The Lessor has made no representations or promises except as contained herein or in some future writings signed by Lessor and except that Lessor represents that it has full right, title and authority to enter into this Lease and to lease the Premises to Lessee.
     33.  QUIET ENJOYMENT . So long as Lessee pays the rent and performs the covenants contained in this Lease, Lessee shall hold and enjoy the Premises peaceably and quietly, subject to the provisions of this Lease.
     34.  RECORDATION . Lessee shall not record this Lease without the prior written consent of Lessor, whose consent shall not be unreasonably withheld, conditioned or delayed. However, at the request of Lessee or Lessor, both parties shall execute a memorandum or “short form” of this Lease for the purpose of recordation in a form customarily used for such purpose. Said memorandum or short form of this Lease shall describe the parties, the Premises and the Lease term, and shall incorporate this Lease by reference.
     35.  LESSOR PREPARATION OF LEASE . It is acknowledged and agreed that this Lease was prepared by Lessor. In the event of ambiguity, it is agreed by both parties that it shall not be construed against Lessor as the drafter of this Lease.
     36.  GOVERNING LAW . This Lease shall be governed by, construed and enforced in accordance with the laws of the State of Washington.
     37.  DESIGN SERVICES . Lessor shall, using Marvin Stein & Associates Architects, provide for all space planning, design, documentation and contract administration in connection with all work to be done in the Premises in order to prepare the Premises for Lessee’s effective occupancy. Lessor will be responsible for the architectural fees and expenses for the above work. Lessor will furthermore contract with and pay for the design and engineering services pertaining to structural, mechanical, electrical, and fire protection. Lessor shall, at Lessor’s expense, furnish to Lessee, for Lessee’s approval, all drawings necessary for the preparation of the Premises for Lessee’s use and occupancy.

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     38.  FINISH WORK . The space will be completed in accordance with mutually agreed upon working drawings by Marvin Stein & Associates Architects. The preparation of the working drawings will be at the cost of the Lessor. The working drawings will be completed after the execution of this Lease, however, it is understood that Lessor shall build out the space to a level of finishes within the “scope and nature” of tenant improvements identified on the attached Exhibit “B-1.” Exhibit “B-1” outlines the space plan and a narrative of the level of finishes to be provided by Lessor. The Finish Work will include the Lessor provided improvements wherein any and all of the building standard tenant improvements in accordance with Lessor’s standard tenant work detail specifications, as outlined on those plans, would be at the cost of the Lessor. The turnkey basis will include the following: all partitioning for approximately 17 private offices and three to four conference rooms, one server room with required air conditioning and electrical power, air conditioned office area, ceiling in place, lighting in place, sink, counter and cabinets as existing, appliances as existing, building standard reception transaction counter, all doors and jambs, all locks and hardware, all electrical wiring and outlets, all phone outlets, Levolor blinds on all outside glass, carpet patching as needed, and completely painted throughout. The Finish Work shall be performed in accordance with the Work Letter Agreement attached hereto as Exhibit “B-2.”
     Notwithstanding the above, Lessor shall not be responsible for the payment, including installation costs, of any of Lessee’s built-in furniture, additional appliances, additional shelving, work counters, fixtures, signage or other “custom made” improvements. Additionally, Lessor shall not be responsible for the installation of telephone and computer equipment or the wiring of the same.
     39.  PARKING . Lessee shall be provided parking for up to eight (8) cars inside the building garage and an additional 30 stalls within two blocks of the building, all at market rate.
     40.  OPTION TO RENEW . Provided that Lessee is not in default under any terms and conditions of this Lease beyond all applicable grace and/or cure periods, Lessee shall have the option to renew this Lease for one (1) additional period of three (3) years on the same terms and conditions except that Base Rent for the renewal term shall be at fair market rate for comparable office space in Seattle. Lessee agrees to give Lessor notice if Lessee intends to renew, nine (9) months prior to the expiration of the Lease term.
     41.  COMPUTER ROOM EQUIPMENT . Lessor agrees to allow Lessee to use, without charge, the computer equipment racks, UPS System and any other computer equipment now located on the 5 th floor of Lessor’s Fourth and Blanchard Building together with a 50 KVA Generator, also at the Fourth and Blanchard Building. All such equipment shall be surrendered with the premises upon the expiration or termination of this Lease agreement. The relocation, installation and maintenance of such equipment shall be Lessee’s responsibility. Lessee agrees to move such equipment out of the Fourth and Blanchard Building no later than August 16, 2006.
     42.  REAL ESTATE COMMISSION . Lessor and Lessee hereby acknowledge that Washington Partners Corporate Real Estate represented Lessee in this transaction. Lessor and Lessee agrees to pay a real estate commission to Washington Partners Corporate Real Estate equivalent to $5.00 per rentable square foot, payable one-half (1/2) upon full execution and one-half (1/2) upon occupancy.

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     43.  FIRST RIGHT OF REFUSAL . Subject to prior rights Lessee shall have a first right of refusal to Lease the available space on the 4 th floor of the building. If Lessor has an interested party for that space, Lessor will notify Lessee accordingly and Lessee shall have six (6) business days from receipt of said notice to respond either way. Lessee shall take the entire area intended for Lease to a third party and shall not be entitled to Lease just a portion thereof. Rent for this space shall be at fair market rate.
     44.  EXPANSION . Lessee shall have the first right to Lease the currently occupied space on the 4 th or 6 th floors of the building in the event any such space becomes available. Lessor shall notify Lessee of the upcoming availability of such space and Lessee will have six (6) business days to notify Lessor of its intention to Lease all or a mutually agreed upon portion of such space. This expansion space shall be Leased under fair market terms including rent.
     45.  TERMINATION OPTION . Lessee shall have the option to cancel and terminate this Lease agreement at any time after the expiration of the 3 rd year of the Lease term, by giving Lessor six (6) months prior written notice and paying to Lessor the unamortized portion of expenses incurred pursuant to this Lease to include architectural fees, tenant improvement costs, the real estate commission payable to Lessee’s broker, and the difference between the rental rate in years one and two and the rental rate in year three all computed at the interest rate of eight percent (8%) per annum.

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     IN WITNESS WHEREOF, the parties hereof have executed this Lease the day and year first above written.
                     
SELIG HOLDINGS COMPANY,       MUZE, INC.,    
a Washington limited liability company       a New York corporation    
 
                   
/s/ Martin Selig       /s/ William Stensrud    
             
By:
  Martin Selig       By:   William Stensrud    
Its:
 
 
Managing Member
      Its:  
 
   
 
 
 
         
 
   
“Lessor”       “Lessee”    

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EXHIBIT B
EXAMPLE
     The intent is to include Lessee’s proportionate share of all Base Year Costs in Lessee’s Annual Base Rental Rate. It is further the intent to limit adjustments to Lessee’s Base Year Costs to actual increases in cost. The Operating Services are adjusted to the greater of actual occupancy or 95% occupancy for the base year to fairly establish the Base Year Costs at an equitable standard for comparison purposes. Comparison Years are similarly adjusted for purposes of fairness and equality. To prevent any confusion regarding computation of Base Year Costs, Comparison Year Costs and the adjustment of those costs to 95% occupancy, if necessary, we have set forth the following example. It is Important to note that if adjustment to 95% occupancy is necessary, not all Operating Services are adjusted.
     Expenses requiring adjustment are those which are 100% dependent upon the change in footage and adjust with the change in occupied footage. This category includes electricity, water/sewer, superintendent, disposal, management, janitorial supplies, window washing, repair and maintenance, HVAC maintenance, and janitorial labor.
     Other expenses do not require adjustment nor are they dependent upon occupied footage change. These categories are the same whether the Building is empty or full. They are, insurance, security, elevator, landscaping and telephone.
     Real Estate Taxes are dependent upon independent assessment Real Estate Taxes are not adjusted to 95%, but are established for each respective year based on the actual tax paid whether for the respective Base Year or each subsequent Comparison Year(s).
     Please note the expenses noted below which are and are not adjusted and the adjustment to each expense to achieve 95% occupancy, if necessary. The method of adjusting expenses depicted in the example will be followed when adjusting actual Operating Service Expenses for both the Base Year and Comparison Year(s).
     
HYPOTHETICAL FACTS    
Building Occupancy:
  80% 
Actual Base Year Costs:
  $375,000 
Grossed Base Year Costs to 95%:
  $440,000 
Actual Comparison Year Costs: (see below)
  $405,440 
Grossed Comparison Year Costs to 95%: (see below)
  $463,080 
Tenant Premises:
  10,000 RSF
Building RSF:
  125,000 RSF
Tenant Proportionate Basis:
  10,000 + 125,000 = 8% 

 


 

EXAMPLE
                     
Description   Actual Expenses     Grossed Expenses      
Percent Occupied
    80.00 %     95.00 %   Methodology
Real Estate Taxes
  $ 54,854     $ 54,854     Actual Cost
Operating Expenses
                   
Insurance
  $ 26,595     $ 26,595     Actual Cost
Electricity
  $ 69,358     $ 82,363     Adjusts with occupancy
Water & Sewer
  $ 4,945     $ 5,872     Adjusts with occupancy
Security
  $ 5,000     $ 5,000     Actual Cost
Elevator
  $ 7,526     $ 7,526     Actual Cost
Superintendent
  $ 82,869     $ 98,407     Adjusts with occupancy
Landscaping
  $ 2,912     $ 2,912     Actual Cost
Disposal
  $ 15,502     $ 18,409     Adjusts with occupancy
Management
  $ 41,680     $ 49,495     Adjusts with occupancy
Supplies
  $ 4,339     $ 5,153     Adjusts with occupancy
Window Washing
  $ 1,527     $ 1,813     Adjusts with occupancy
Repairs & Maintenance
  $ 24,333     $ 28,695     Adjusts with occupancy
Telephone
  $ 1,144     $ 1,144     Actual Cost
HVAC Maintenance
  $ 6,208     $ 7,372     Adjusts with occupancy
Janitorial
  $ 56,648     $ 67,270     Adjusts with occupancy
 
               
TOTALS:
  $ 405,440     $ 463,080      

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LEASE ADDENDUM
     This LEASE ADDENDUM (“Addendum”) is made to the Fourth and Vine Office Lease and all exhibits, including without limitation the Work Letter Agreement, dated as of September 8, 2006 (collectively, the “Lease”), by and between SELIG HOLDINGS COMPANY, a Washington limited liability company (“Lessor”), and MUZE, INC., a New York corporation (“Lessee”).
     Lessee and Lessor hereby agree that notwithstanding anything contained in the Lease to the contrary, the provisions set forth below will be deemed to be a part of the Lease and shall supersede, to the extent appropriate, any contrary provision in the Lease. All references in the Lease and in this Addendum to the Lease and all exhibits, (including without limitation the Work Letter Agreement) shall be construed to mean the Lease and exhibits, (including without limitation the Work Letter Agreement) as each is amended and supplemented by this Addendum. All capitalized terms used in this Addendum, unless otherwise specifically defined in this Addendum, shall have the same meaning as such terms have in the Lease.
     1.  Consent/Duty To Act Reasonably .
          (a) Whenever the Lease grants Lessor or Lessee the right to take action, exercise discretion, establish rules and regulations or make allocations or other determinations, Lessor and Lessee shall act reasonably and take no action which might result in the frustration of the reasonable expectations of a sophisticated lessor and sophisticated lessee concerning the benefits to be enjoyed under the Lease.
          (b) Lessor and Lessee shall in all matters, events and in all circumstance under the Lease and otherwise act in good faith in connection with and with respect to the Lease, the Building and the Premises.
     2.  Non-disturbance Agreement and Memorandum of Lease .
          (a) Lessor agrees that prior to the earlier of: (i) the Commencement Date and (ii) the execution of the Lease, it will, at Lessor’s cost, provide Lessee with commercially reasonable non-disturbance agreements in favor of Lessee from any ground Lessor’s, deed of trust beneficiaries or lien holders (each, a “Mortgagee”) then in existence.
          (b) Lessor agrees to provide Lessee with commercially reasonable non-disturbance agreement(s) in favor of Lessee from any Mortgagee of Lessor who later come into existence at any time prior to the expiration of the Term of the Lease in consideration of, and as a condition precedent to, Lessee’s agreement to be bound by Lease Section 26, it being the intent of Lessor and Lessee that the subordination provision in such Lease Section 26 shall only apply with respect to a particular ground lessor, deed of trust beneficiary or lien holder in the specific event that Lessee receives such non-disturbance agreements from such persons.
     3.  Fair Market Rental Rate . For the purposes of the Lease the term “Fair Market Rental Rate” shall mean the annual amount per rentable square foot that Lessor has accepted in current transactions between non-affiliated parties from new, non-expansion, non-renewal and non-equity

 


 

lessees of comparable credit-worthiness, for comparable space, for a comparable use for a comparable period of time (“Comparable Transactions”) in the Building, or if there are not a sufficient number of Comparable Transactions in the Building, what a comparable lessor of a comparable building with comparable vacancy factors would accept in a Comparable Transaction. In any determination of Comparable Transactions appropriate consideration shall be given to the annual rental rates per rentable square foot, the standard of measurement by which the rentable square footage is measured, the ratio of rentable square feet to usable square feet, the type of escalation clause (e.g., whether increases in additional rent are determined on a net or gross basis, and if gross, whether such increases are determined according to an expense stop), the extent of Lessee’s liability under the Lease, abatement provisions reflecting free rent and/or no rent during the period of construction or any other period during the lease term, brokerage commissions, if any, which would be payable by Lessor in similar transactions, length of the lease term, size and location of premises being leased, building standard work teller and/or lessee improvement allowances, if any, and other generally applicable conditions of tenancy for such Comparable Transactions. The intent is that Lessee will obtain the same rent and other economic benefits that Lessor would otherwise give in a Comparable Transaction and that Lessor will make, and receive the same economic payments and concessions that Lessor would otherwise make, and receive in a Comparable Transaction.
     Lessor shall initially determine the Fair Market Rental Rate by using its good faith judgment. Lessor shall provide its written notice of the Fair Market Rental Rate within thirty (30) days after Lessee provides the notice to Lessor exercising Lessee’s option rights which require a calculation of the Fair Market Rental Rate. Lessee shall have fifteen (15) days (“Lessee’s Review Period”) after receipt of Lessor’s notice of the Fair Market Rental Rate within which to accept or reject such rental rate. In the event Lessee fails to accept in writing such rental proposed by Lessor then such proposal shall be deemed rejected, and Lessor and Lessee shall attempt to agree upon such Fair Market Rental Rate, using their best good faith efforts. If Lessor and Lessee fail to reach agreement within fifteen (15) days following Lessee’s Review Period (“Outside Agreement Date”), then each party shall place in a separate sealed envelope its final proposal as to the appropriate Fair Market Rental Rate and such determination shall be submitted to arbitration in accordance with subsections (a) through (e) below.
     In the event that Lessor fails to timely generate the initial written notice of Lessor’s proposed Fair Market Rental Rate which triggers the negotiation period of this Addendum Provision, then Lessee may commence such negotiations by providing the initial notice, in which event Lessor shall have fifteen (15) days (“Lessors Review Period”) after receipt of Lessee’s notice of the proposed rental within which to accept such rental. In the event Lessor fails to accept in writing such rental proposed by Lessee, then such proposal shall be deemed rejected, and Lessor and Lessee shall attempt in good faith to agree upon such Fair Market Rental Rate, using their best good faith efforts. If Lessor and Lessee fail to reach agreement within fifteen (15) days following Lessors Review Period (which shall be, in such event, the “Outside Agreement Date” in lieu of the above definition of such date), then each party shall place in a separate sealed envelope its final proposal as to Fair Market Rental Rate and such determination shall be submitted to arbitration in accordance with subsections (a) through (e) below.

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          (a) Lessor and Lessee shall meet with each other within five (5) business days of the Outside Agreement Date and exchange the sealed envelopes and then open such envelopes in each others presence. If Lessor and Lessee do not mutually agree upon the Fair Market Rental Rate within one (1) business day of the exchange and opening of envelopes, then, within ten (10) business days of the exchange and opening of envelopes Lessor and Lessee shall agree upon and jointly appoint a single arbitrator who shall by profession be a real estate lawyer or broker who shall have been active over the twenty (20) year period ending on the date of such appointment in the leasing of comparable properties in the vicinity of the Building. Neither Lessor nor Lessee shall consult with such broker or lawyer as to his or her opinion as to Fair Market Rental Rate prior to the appointment. The determination of the arbitrator shall be limited solely to the issue of whether Lessor’s or Lessee’s submitted Fair Market Rental Rate for the Premises is the closer to the actual Fair Market Rental Rate for the Premises as determined by the arbitrator, taking into account the requirements of this Addendum Provision. Such arbitrator may hold such hearings and require such briefs as the arbitrator, in his sole discretion, determines is necessary. In addition, Lessor or Lessee may submit to the arbitrator with a copy to the other party with in five (5) business days after the appointment of the arbitrator any market data and additional information that such party deems relevant to the determination of Fair Market Rental Rate (“FMRR Data”) and the other party may submit a reply in writing within five (5) business days after receipt of such FMRR Data.
          (b) The arbitrator shall, within thirty (30) days of his or her appointment reach a decision as to whether the parties shall use Lessor’s or Lessee’s submitted Fair Market Rental Rate, and shall notify Lessor and Lessee of such determination.
          (c) If Lessor and Lessee fail to agree upon and appoint an arbitrator, then the appointment of the arbitrator shall be made by the Presiding Judge of the King County Superior Court, or, if he or she refuses to act, by any judge having jurisdiction over the parties.
          (d) The cost of arbitration shall be paid by Lessor and Lessee equally.
     In the event that Lessee objects to the Fair Market Rental Rate as determined by the arbitration provision specified above, Lessee may elect to terminate the Lease upon twelve (12) months’ written notice sent to Lessor at any time within ninety (90) days following the establishment of the Fair Market Rental Rate as determined by such arbitration. In the event Lessee elects to terminate the Lease under this Addendum Provision, Lessee shall reimburse Lessor for its reasonable attorneys’ fees and reasonable costs associated with such arbitration. In the event that the above-referenced twelve (12) month period extends beyond the expiration of the Lease Term or any extension thereof, Lessee shall pay rental to Lessor during the period of such extension at the Fair Market Rental Rate determined pursuant to such arbitration.
     4.  Abatement of Rent When Lessee is Prevented From Using Premises . In the event that Lessee is prevented from using, and does not use, the Premises or any portion thereof, for five (5) consecutive business days or ten (10) days in any twelve (12) month period (the “Eligibility Period”) as a result of any damage or destruction to the Premises or any repair, maintenance or alteration performed by Lessor after the Commencement Date and required by the Lease, which interferes with Lessee’s use of the Premises, or any failure to provide services or access to the Premises or because of an eminent domain proceeding or because of the presence of hazardous

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substances in, on or around the Building, the Premises or the Site which could, in Lessee’s business judgment and taking into account the standards, guidances and recommendations included in the definition of Applicable Laws above with respect to hazardous substances, pose a health risk to occupants of the Premises, then Lessee’s rent shall be abated or reduced, as the case may be, for such time after expiration of the Eligibility Period that Lessee continues to be so prevented from using, and does not use, the Premises or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Lessee is prevented from using, and does not use, bears to the total rentable area of the Premises. However, in the event that Lessee is prevented from conducting, and does not conduct, its business in any portion of the Premises for a period of time in excess of the Eligibility Period, and the remaining portion of the Premises is not sufficient to allow Lessee to effectively conduct its business therein, and if Lessee does not conduct its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Lessee is so prevented from effectively conducting its business therein, the rent for the entire Premises shall be abated; provided, however, if Lessee reoccupies and conducts its business from any portion of the Premises during such period, the rent allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Lessee from the date such business operations commence. If Lessee’s right to abatement occurs because of an eminent domain taking and/or because of damage or destruction to the Premises or Lessee’s property, Lessee’s abatement period shall continue until Lessee has been given sufficient time, and sufficient access to the Premises, to rebuild the portion of the Premises it is required to rebuild, to install its property, furniture, fixtures, and equipment and to move in over one (1) weekend. To the extent Lessee is entitled to abatement because of an event covered by Lease Section 26 or elsewhere, then the Eligibility Period shall not be applicable and Lessee shall be entitled to rent abatement, as of the occurrence of such event.
     5.  Assignment and Subleasing and Definition of Profits .
          (a) Lessor will never have the right to terminate the Lease in the event of any assignment or sublease or proposed assignment or sublease.
          (b) Lessee may assign or sublease at any time upon receipt of Lessor’s consent, which shall not be unreasonably withheld or delayed beyond ten (10) days after receipt of Lessee’s request, to any assignee or sublessee that is comparable in quality to other Lessees in the Building or the Site or Class A Buildings (“Comparable Lessees”) and that will use the Premises in a manner generally comparable to the use of comparable space in the Building.
     6.  Default by Lessee .
     Only the occurrence of either of the following shall constitute an event of default (“Event of Default”) hereunder on the part of Lessee:
          (a) Nonpayment of Rent . Failure to pay any installment of Base Rent due and payable hereunder, upon the date when payment is due, such failure continuing for a period of ten (10) business days after written notice of such failure; or

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          (b) Other Obligations . Failure to perform any obligation, agreement or covenant under the Lease, other than Lessee’s obligation to pay Base Rent, such failure continuing for thirty (30) calendar days after written notice of such failure or such longer period as is reasonably necessary to remedy such failure, provided that Lessee shall continuously and diligently pursue such remedy until such failure is cured.
     All notices to be given pursuant to this Addendum Provision shall be in addition to, and not in lieu of, the notice requirements of applicable law for initiating any unlawful detainer or other action to recover possession of the Premises.
     7.  Alterations and Improvements . Lessee may, from time to time following the Commencement Date, make non-structural alterations and improvements to the Premises, as long as (a) Lessee pays for the entire cost of such alterations and improvements, (b) Lessee agrees to remove said alterations and improvements upon the expiration or termination of the Lease, if requested by Lessor at the time the alterations and improvements are approved by Lessor, and (c) such alterations and improvements will not adversely affect the structural integrity of the Premises and/or the mechanical or fire, life safety systems and/or the Building. Any time Lessee proposes to make such alterations and/or improvements, Lessee shall provide Lessor with ten (10) days’ notice of the proposed alterations and/or improvements, together with the plans and specifications, and Lessor shall grant its approval within such ten (10) day period, unless Lessor reasonably determines that such alterations and/or Improvements would adversely affect the structural integrity of the Premises and/or the mechanical or fire, life safety systems, and/or the Building or would adversely affect the exterior appearance of the Building.
     8.  Eminent Domain . In the event that the entire Premises or such portion thereof as shall interfere with Lessee’s use and occupancy thereof, shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation, or eminent domain, or sold to prevent such taking, Lessee is granted the right to recover from the condemning authority one hundred percent (100%) of the “Bonus Value” of the leasehold estate which shall be equal to the difference between the rental rate payable under the Lease and the rate established by the condemning authority as an award for compensation purposes, together with any amount Lessee is able to obtain from the condemning authority for any award or compensation attributable to the taking or purchase of Lessee’s property, chattels, or trade fixtures, or attributable to Lessee’s relocation expenses.
     9.  Secured Areas . Lessee may designate certain areas of the Premises as “Secured Areas” should Lessee require such areas for the purpose of securing certain valuable property or confidential information. Lessor may not enter such Secured Areas except in the case of emergency or in the event of a Lessor inspection or maintenance, in which case Lessor shall provide Lessee with reasonable notice of the specific date and time of such Lessor inspection.
     10.  Estoppel Certificate . Lessor hereby agrees to provide to Lessee an Estoppel Certificate signed by Lessor, containing the same types of information, and within the same periods of time, as are set forth in Lease Section 25, except such changes as are reasonably necessary to reflect that the Estoppel Certificate is being granted and signed by Lessor to Lessee or Lessee’s lender, assignee or sublessee, rather than from Lessee to Lessor or to a lender or purchaser.

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     11.  Notices . Copies of all notices pertaining to any Lessee Delay or any Event of Default applicable to Lessee shall be sent, in the same manner and at the same time, to:
Sonnenschein Nath & Rosenthal LLP
601 South Figueroa Street
Suite 1500
Los Angeles, California 90017
Attention: Robert M. Johnson, Esq.
Telephone: (213) 892-5071
Telecopy: (213) 623-9924
     12.  Brokers’ Claims . Lessor shall indemnify Lessee for and hold Lessee harmless from and against any and all claims of any person (including Lessor’s broker) making a claim based on any representation and/or alleged representation of Lessor in connection with this Lease and all liabilities arising out of or in connection with such claim.
     13.  Access to Building and Parking . Lessee shall be granted access to the Building, the Premises, and the parking provided in the Building twenty-four (24) hours per day, seven (7) days per week, every day of the year.
     14.  Parking . Lessee’s parking privileges shall be available to Lessee twenty-four (24) hours per day, seven (7) days per week, every day of the year, in the building garage. Lessee’s parking shall be non-tandem. Should Lessor provide reserved, segregated, preferred, priority, valet or block parking to other Lessees, the same shall be made available to Lessee on a pro rata basis.
     15.  Entry by Lessor . Lessor and/or those acting on Lessor’s behalf may only enter the Premises at reasonable hours and upon reasonable prior notice to Lessee, except in cases of emergency or to supply normal and regular janitorial or maintenance or security services pursuant to the terms of the Lease, in which case no such notice shall be required. In any event, any such entry shall be accomplished as expeditiously as reasonably possible and in a manner so as to cause as little interference to Lessee as reasonably possible.
     16.  First Right to Lease . Lessee shall have an on-going first right to lease any space on the 4th or 6th floor of the Building (the “Option Space”). Lessor shall provide Lessee with a listing of any available space in such Option Space from time to time. Nothing contained herein shall reduce the Expansion Space Options granted to Lessee. Space shall be “available” only to the extent it is not subject to expansion, extension, first offer, first refusal and any other existing rights of other Lessees in the Building which do not contradict Lessee’s Expansion Space Options. Lessee shall then have the option (in the event that Lessee is not then in default under the Lease, with any applicable cure period having expired), exercisable by written notice to Lessor within six (6) business days thereafter, to add any such available space to the Premises immediately as it first becomes available. Any such available space shall be leased to Lessee at the Fair Market Rental Rate for a term coterminous with the balance of the Term remaining on Lessee’s Premises (or such shorter term as may be necessary to prevent any conflict with such other Lessees’ rights to such space or to prevent a conflict with Lessee’s Expansion Space Options, if they have not expired). Such option shall not be personal to Lessee and may also be exercised by any assignee of the Lease

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permitted under the terms of the Lease. In the event Lessee declines to exercise a right to lease any particular Option Space and Lessor does not subsequently lease it to a third party within 90 days at the rate offered to Lessee or proposes to enter into a lease for such space at a rate less than 95% of the rate offered to Lessee, Lessor shall re-offer such space to Lessee at the revised Fair Market Rental Rate which Lessor would accept and Lessee shall have an additional six (6) business days in which to accept such Option Space.
     17.  Option To Extend . Lessee shall have one (1) extension option of three (3) years for the Premises (“Extension Option”). Lessor shall provide Lessee with no more than ten (10), nor less than three (3) months’ prior notice of the last day by which Lessee must exercise or lose the Extension Option. Lessee shall be required to give Lessor at least nine (9) months’ advance notice of its election to exercise such Extension Option prior to the expiration of the Lease or expiration of the then renewal period, as appropriate. The Base Rent for the Extension Option shall be the then Fair Market Rental Rate. Lessee shall not have any extension right if then in default under the Lease (with all notices having been given and any applicable cure period having expired). This Extension Option shall not be personal to Lessee and may be exercised by any assignee of the Lease permitted under the terms of the Lease. The Extension Option shall be applicable to all space leased by Lessee pursuant to the Lease.
     18.  Exclusions from Operating Services .
          (a) Lessor further agrees that since one of the purposes of calculating Operating Services and the purpose of the gross up provision is to allow Lessor to require Lessee to pay for the costs attributable to its Premises, Lessor agrees that (i) Lessor will not collect or be entitled to collect Operating Services from all of its lessees in an amount which is in excess of one hundred percent (100%) of the Operating Services actually paid by Lessor in connection with the operation of the Building, and (ii) Lessor shall make no profit from Lessor’s collections of Operating Services.
          (b) Each time Lessor provides Lessee with an actual and/or estimated statement of Operating Services, such statement shall be itemized on a line item by line item basis, showing the applicable expense for the applicable year and the year prior to the applicable year.
     19.  Audit Right . Notwithstanding any Sections of the Lease to the contrary, in the event of any dispute regarding the amount due as Lessee’s Pro Rata Share of Operating Services and/or the amount due as Operating Services pursuant to Lease Section 19, Lessee shall have the right, after reasonable notice and at reasonable times, to inspect and photocopy Lessor’s accounting records. If, after such inspection and photocopying, Lessee continues to dispute the amount of its Pro Rata Share of Operating Services, Lessee shall be entitled to retain a national, independent, certified public accountant to audit and/or review Lessor’s records to determine the proper amount of its Pro Rata Share of Operating Services. If such audit or review reveals that Lessor has overcharged Lessee, then within five (5) days after the results of such audit are made available to Lessor, Lessor shall reimburse Lessee or give Lessee a rent credit in the amount of such overcharge plus interest at the Interest Rate. If the audit reveals that Lessee was undercharged, then within five (5) days after the results of the audit are made available to Lessee, Lessee shall reimburse Lessor the amount of such undercharge plus interest thereon at the Interest Rate. Lessee agrees to pay the cost of such audit provided that, if the audit reveals that Lessor’s determination of Lessee’s Percentage Share of

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Operating Services as set forth in any Actual Statement (such statement submitted pursuant to and defined in Lease Section 19) sent to Lessee was in error in Lessor’s favor by more than three percent (3%), Lessor shall pay the cost of such audit. Lessor shall be required to maintain records of all Operating Services and other Rent Adjustments for the entirety of the three-year period (“Review Period”) following Lessor’s delivery to Lessee of each Actual Statement setting forth Lessee’s Percentage Share of Operating Services. The payment by Lessee of any amounts pursuant to Lease Section 19 shall not preclude Lessee from questioning the correctness of any Actual Statement provided by Lessor at any time during the Review Period, but the failure of Lessee to object thereto prior to the expiration of the Review Period shall be conclusively deemed Lessee’s approval of the Actual Statement.
     20.  BOMA Method of Measurements . Lessor warrants and represents that the rentable and usable areas of the Premises and the Building have been determined in accordance with the standards set forth in ANSI Z65.1-1996, as promulgated by the Building Owners and Managers Association (“BOMA”). Lessee shall have the right, exercisable prior to the Commencement Date, to re-measure the Premises. In the event that subsequent re-measurement of the Premises by Lessee, within the time period specified above, indicates that the square footage measurement prepared by Lessor produces a square footage number in excess of or lower than the square footage number which would have resulted had the BOMA been properly utilized, any payments due to Lessor from Lessee based upon the amount of square feet contained in the Premises shall be proportionally, retroactively and prospectively reduced or increased, as appropriate, to reflect the actual number of square feet, as properly re-measured under the BOMA.
     21.  Excess Utilities and Services/Actual Costs . Lessor shall furnish premises, 24 hours per day, seven (7) days per week with elevator service, as well as electricity for lighting and operation of general office computers and other electronics, heat, office air conditioning, and server room HVAC, typical of software development firms. Electrical capacity at the premises shall not exceed the maximum watts per square footage allowed by the Electrical code for the City of Seattle. In the event that Lessee requires utilities (including electricity), heating, ventilating or air-conditioning (“HVAC”) and/or services in excess of what Lessor is required to provide during Business Hours (as defined in Lease Section 15 or at times other than during Business Hours, Lessor agrees to provide such extra utilities and services, and Lessee agrees to reimburse to Lessor its actual costs of providing such extra utilities and services (“Actual Costs”), without a profit to or overhead charge by Lessor. In the event Lessee requires electricity in excess of the existing service on the floor, or modifications to the Base Building are required (such as risers or conduits), Lessor shall make such modifications as promptly as possible, and Lessee shall pay the Actual Costs of such modifications. Lessor may install a separate electrical meter in Lessee’s server room, and bill Lessee separately for such electrical consumption if Lessee’s electrical usage exceeds the usage designed into the original build out of the premises.

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     This Lease Addendum has been duly executed by Lessor and Lessee as of the date first above written.
             
    “Lessor”    
 
           
    SELIG HOLDINGS COMPANY,    
    a Washington limited liability company    
 
           
 
  By:   /s/ Martin Selig    
 
  Its:  
 
Managing Member
   
 
           
    “Lessee”    
 
           
    MUZE, INC.,    
    a New York corporation    
 
           
 
  By:   /s/ William Stensrud    
 
  Its:  
 
   
 
     
 
   

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LEASE ADDENDUM
Modifying, amending and made a part of that certain
FOURTH AND VINE OFFICE LEASE
BETWEEN
SELIG HOLDINGS COMPANY, Lessor
AND
MUZE, INC., Lessee

 


 

EXHIBIT “B-2”
WORK LETTER AGREEMENT
     This WORK LETTER AGREEMENT (“Agreement”) is made and entered into as of the 8 th day of September, 2006, by and between SELIG HOLDINGS COMPANY, a Washington limited liability company (“Lessor”) and MUZE, INC., a New York corporation (“Lessee”), in connection with the execution of the Lease between Lessor and Lessee of even date herewith (“Lease”), who hereby agree as follows:
     1.  General .
          (a) The purpose of this Agreement is to set forth how the Tenant Improvements (as defined in Section 3 below) are to be constructed, who will undertake the construction of the Tenant Improvements, who will pay for the construction of the Tenant Improvements, and the time schedule for completion of the construction of the Tenant Improvements.
          (b) Except as defined in this Agreement to the contrary, all terms utilized in this Agreement shall have the same meaning ascribed to them in the Lease. When work, services, consents or approvals are to be provided by or on behalf of Lessor, the term “Lessor” shall include Lessor’s agents, contractors, employees and affiliates.
          (c) The provisions of the Lease, except where clearly inconsistent or inapplicable to this Agreement, are incorporated into this Agreement.
          (d) The Tenant Improvements shall be constructed pursuant to this Agreement by Lessor at Lessor’s sole cost and expense.
     2.  Construction .
          (a) Work Schedule . Lessor shall commence the construction of the Tenant Improvements indicated on the plans prepared by Marvin Stein & Associates Architects, dated                      and consisting of Sheet Nos. ___ through ___ (“Final Plans”), a descriptive summary of which is attached to this Agreement as Schedule 1, no later than the date of execution of this Agreement Lessor shall cause the Tenant Improvements to be completed, in accordance with industry custom and practice, as soon as reasonably possible and at Lessor’s sole cost and expense, except as otherwise noted.
          (b) Notice of Substantial Completion . Lessor shall deliver to Lessee one (1) week’s prior written notice stating the date that the Premises are expected to be Substantially Complete, or would be Substantially Complete were it not for any Lessee Delay.
          (c) Change Orders . In the event that Lessee requests any changes to the Final Plans, Lessor shall not unreasonably withhold its consent to any such changes, and shall grant its consent to such changes within one (1) business day after Lessor’s receipt of same, provided the changes do not adversely affect the Building’s structure, systems, equipment or appearance. If any

 


 

changes requested by Lessee and approved by Lessor increase the cost to Lessor of constructing the Tenant Improvements shown on the Final Plans, Lessor shall provide Lessee invoices documenting and evidencing such increased costs, and Lessee shall reimburse Lessor for such increased costs within thirty (30) days after the Commencement Date. The costs charged by Lessor to Lessee pursuant to this Paragraph shall be an amount equal to the actual costs incurred by Lessor to review the requested changes and to cause the Tenant Improvements, as reflected by revised Final Plans, to be constructed above the costs that Lessor would have had to pay to cause the Tenant Improvements to be constructed if such changes had not been made.
     Lessee shall give Lessor written notice of latent defects in the Premises which would not have been discovered by a reasonably diligent inspection of the Premises at the time Lessee took possession thereof. Upon receipt of such notice, Lessor will, with reasonable diligence, bring the Premises into satisfactory condition as required by the Lease. Whenever possible and practical, Lessor will utilize, for the construction of the Tenant Improvements, items and materials of a quality equal to or greater than those items used elsewhere in the Building.
     3.  Tenant Improvements . The term “Tenant Improvements” shall mean all improvements shown in the Final Plans and, to the extent specified in the Final Plans, all freestanding work stations at tenant expense, built-ins, related cabinets except as noted as tenant expense, reception desk, conference room tables at tenant expense, to the extent specified in the mill work or comparable contracts, all telecommunication equipment and related wiring at tenant expense, and all carpets and floor coverings except as noted but, except as provided above, Tenant Improvements shall not include any personal property of Lessee.
     4.  Inspection . After Lessor has completed the construction of the Tenant Improvements (excepting punch list items) and prior to Lessee’s move into the Premises (“First Time”) and after the Premises are Substantially Complete and within thirty (30) days after the expiration of the Move-In Period (“Second Time”), in each case following two (2) business days’ advance written notice from Lessee to Lessor, Lessor shall cause the Contractor to inspect the Premises with a representative of Lessee and complete a punch list of unfinished items of the Tenant Improvements. Authorized representatives for Lessor and Lessee shall execute said punch list to indicate their approval thereof The items listed on such punch list shall be completed by the Contractor within thirty (30) days after the approval of such punch list or as soon thereafter as reasonably practicable.
     5.  Staging Area . In addition to Lessee’s rights with respect to storage space as provided for under the Lease and the Addendum, during the period prior to the Commencement Date, Lessee shall have the right, without the obligation to pay rent, to use empty space in the Building designated by Lessor for the purposes of storing and staging its furniture and equipment only. With respect to this free storage space, Lessee shall be responsible for providing all insurance and for providing any necessary fencing or other protective facilities. Lessee shall hold Lessor harmless and shall indemnify Lessor from and against any and all loss, liability or cost arising out of or in connection with use of such storage space by Lessee. Lessee shall be obligated to remove all of the stored materials and its fencing and other facilities within five (5) business days after Lessee’s receipt of written notice from Lessor that such staging area is needed by Lessor for construction of another Lessee’s premises, in which event comparable space, to the extent available, shall be made available to Lessee as a substitute staging area.

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     6.  Clean-Up Expenses . Prior to the commencement of the Move-In Period, Lessor shall thoroughly clean the Premises. In addition, after Lessee has completed its move into the Premises, Lessor shall thoroughly clean the Premises, including removal of all rubbish and debris, in a manner consistent with the commencement of business from comparable premises in comparable buildings in the vicinity of the Building, such that Lessee may commence its business operations from the Premises immediately after Lessor completes such clean-up. The costs of the cleaning provided by Lessor pursuant to this Section shall not he included in Operating Expenses for the Building prior to Lessee’s occupancy of the Premises.
     7.  Move-In Priority . Provided that Lessee moves into the Building during the Move-In Period, or, in the event Lessee moves into the Building at some time other than the Move-In Period, and provided that Lessee has provided Lessor at least two (2) weeks’ prior written notice of Lessee’s move into the Building, Lessee shall have the exclusive right to use the freight elevators during the weekend that it moves into the Building, but only to the extent such exclusive use is necessary for Lessee to complete its move into the Building over one (1) weekend in an orderly and efficient manner.
     8.  No Miscellaneous Charges . Lessee shall not be charged for parking (to the extent parking is available) or for the use of electricity, water, HVAC, security, elevators and/or hoists during the Move-In-Period.

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     IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date first written above.
                     
LESSOR:       LESSEE:    
 
                   
SELIG HOLDING COMPANY       MUZE, INC.    
A Washington limited liability company       a New York corporation    
 
                   
By:
  /s/ Martin Selig       By:   /s/ William Stensrud    
 
 
 
         
 
   
Its:
  Managing Member       Its:        
 
 
 
         
 
   

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SCHEDULE 1
SUMMARY OF FINAL PLANS
[“TO BE ATTACHED”]

 


 

(MAP)

 


 

Muze
Tenant Improvement Estimated Scope – 4 th & Vine Floor 5
See space plans dated August 14, 2006
Provide qualifications and assumptions.
     1. Coordinate construction requirements with Building Management.
     2. Re-use doors and relites. New relites to match size and type of refurbished doors and relites.
     3. New walls between offices and conference rooms to have sound insulation in wall.
     4. Re-use ceiling system and lighting throughout, replace any damaged ceiling grid and tile. Provide building standard fluorescent down lights and wall washers at reception area.
     5. Provide HVAC for new layouts. Engineer as required. Add an additional 5-ton of cooling at data center. This will increase the total cooling to 12-tons.
     6. Provide new reception desk. Lessee to be given an allowance of up to $10,000.
     7. Provide new paint throughout including four (4) accent colors.
     8. Remove existing ADA restroom. Remove one (1) shower room and convert to an ADA accessible bathroom, reuse existing components if up to code.
     9. All conference rooms to have blocking in one (1) wall each conference room for plasma TV.
     10. Provide plastic laminate counters with open storage cabinets/shelving above and below at copy rooms typical. Reuse parts of existing if possible, provide new top.
     11. Provide new plumbing and sink at coffee room with plastic laminate counter and cabinets.
     12. Reuse upper and lower plastic laminate closed cabinets as shown on plan at lunchroom. Reuse plumbing and sink. Provide one (1) refrigerator, and dishwasher. Provide coffee timer for tenant supplied coffee maker. Provide two (2) accent pendant lights over island; assume $150 each.
     13. Provide a coat closet with hat shelf and coat rod. Provide storage closets at corridor with shelving and doors.
     14. Provide floor to ceiling adjustable shelving on heavy-duty standards and brackets at storage room, block as required.
     15. Patch and repair carpet where necessary. Provide new carpet for areas that will require new carpet. Allow $28 materials only per sq/yd. Add freight and installation to this number.

 


 

Provide new rubber base where necessary. Provide VCT flooring at copy room, lunch-room, coffee room and shipping and receiving.
     16. Provide hard-surface flooring or other mutually agreeable flooring in elevator lobby and back corridor to shipping and receiving.
     17. Provide electrical as required throughout as required and per code. This office runs multiple computers/screens per person. Provide one quad and one duplex electrical outlet with one voice/data outlet at each office. Workstations to have one quad electrical with one voice/data outlet. IT and development office to have two quad outlets and one voice/data outlet each. A total of approx. 28 workstations may have enough multiple computers and equipment to warrant one dedicated 20-amp circuit per two (2) workstations. Tenant will provide voice/data wiring. Contractor to provide pull string at each voice/data location. The copy rooms will require duplex electrical outlets above the counter and one dedicated 20-amp outlet for the copier. Also provide adequate electrical for tenant’s printer at this location and throughout. The receptionist will require two four-plex outlets, they will have one printer at this location. Conference rooms require duplex outlets on 3 walls and core drill for power/data hardwired into table. Provide adequate electrical at lunchroom for appliances. Provide misc. convenience outlets throughout.
     18. Data Center to include Lessor provided but Lessee installed, pre-action fire suppression system, UPS backup, generator and ATS transfer switch. Provide all associated electrical as required. Provide anti-static floor in this room.
     19. Provide locking door with key card access at entry door and data center.
     20. Provide Fire Extinguisher cabinets per code
     21. Provide all life safety devices as required by code.

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STATE OF WASHINGTON
 
 
  ) ss.
COUNTY OF KING
 
     On this 8th day of September, 2006, before me, a Notary Public in and for the State of Washington, personally appeared MARTIN SELIG, to me known to be the Managing Member, respectively, of Selig Holdings Company a Washington limited liability company the entity that executed the foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said entity, for the uses and purposes therein mentioned, and on oath stated that he/she/they is/are authorized to execute said instrument on behalf of the entity.
         
 
  /s/ Jill H. Brandt    
 
 
 
NOTARY PUBLIC in and for the State of Washington, Residing at Sammamish).
   
 
  My commission expires: November 11, 2008.    
     
STATE OF
 
 
  ) ss.
COUNTY OF
 
     On this ___ day of                      , 20___, before me, a Notary Public in and for the State of                      , personally appeared                                           , to me known to be the                                           , respectively of                                             of the corporation that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said corporation, for the uses and purposes therein mentioned, and on the oath stated that he/she/the is/are authorized to execute said instrument and that the seal affixed thereto is the corporate seal of said corporation.
     IN WITNESS WHEREOF I have hereunto set my hand and official seal the day and year first above written.
         
 
 
 
NOTARY PUBLIC in and for the State of
                     , Residing at                      ).
My commission expires:                      .
   

 


 

     
STATE OF WASHINGTON
 
 
  ) ss.
COUNTY OF KING
 
     On this 6 th day of September, 2006, before me, a Notary Public in and for the State of Washington, personally appeared William Stensrud, the individual(s) who executed the within and foregoing instrument, and acknowledged said instrument to be his/her/their free and voluntary act and deed for the uses and purposes therein mentioned.
         
 
  /s/ Eric Scott Carnell    
 
 
 
Notary Public in and for the State of Washington, Residing at: Seattle).
   
 
  My commission expires: October, 23, 2009.    
(Partnership)
     
STATE OF
 
 
  ) ss.
COUNTY OF
 
     On this ___ day of                      , 20___, before me, a Notary Public in and for the State of                      , personally appeared                                           , to me known to be partner(s) of                                           , the partnership that executed the foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said partnership, for the uses and purposes therein mentioned, and on oath stated that he/she/they is/are authorized to execute said instrument on behalf of the partnership.
         
 
 
 
Notary Public in and for the State of
                     Residing at:                     
   
 
  My commission expires:                         
(Corporation)
     
STATE OF
 
 
  ) ss.
COUNTY OF
 
     On this ___ day of                      , 20___, before me, a Notary Public in and for the State of                                           , personally appeared                                             , to me known to be the                                           , respectively, of                                                                , the corporation that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said corporation, for the uses and purposes therein mentioned, and on oath stated that he/she/they is/are authorized to execute said instrument and that the seal affixed is the corporate seal of said corporation.
         
 
 
 
Notary Public in and for the State of
                     Residing at:                     
   
 
  My commission expires:                         

 


 

EXHIBIT B
FLOOR PLAN OF SUBLEASED PREMISES

 


 

Exhibit B
(MAP)

 


 

EXHIBIT C
LANDLORD’S CONSENT
     Selig Holding Company, a Washington limited liability company, as Landlord under the Lease, hereby consents to this Sublease and confirms the continuation of the Lease in full force and effect with Sublandlord as tenant thereunder. Landlord further represents that Section 7 of the Lease Addendum dated September 8, 2006 is of no further force and effect with respect to Lessee and that Lessee is under no obligation to remove any alterations and/or improvements to the Premises following the Expiration Date, irrespective of whether such alterations and/or improvements were made by Lessee prior to the date hereof, or by Subtenant at any time prior to or after the date hereof.
     Landlord hereby consents to the change in permitted use of the Subleased Premises as set forth in Section 4 of the Sublease. Landlord acknowledges that, pursuant to Section 2.1 of the Sublease, any Expansion rights of Sublandlord under the Lease have been assigned to Subtenant, and Landlord agrees that Sections 43 and 44 of the Lease and Section 16 of the First Addendum shall apply as between Landlord and Subtenant. Notwithstanding anything to the contrary in the Sublease or the Lease, as incorporated therein, Landlord waives any rights of distraint or to imposition of a landlord’s lien as a remedy for unpaid rent or other changes due under this Lease. Provided, however, that Lessor shall retain all rights and remedies afforded by law or equity with regard to any personal property which is not removed from the premises by Subtenant within fifteen days after Sublandlord’s surrender of the Premises following the termination of the Sublease as a result of a default by Subtenant or Sublandlord. Landlord hereby consents to the construction of the Subtenant Improvements set forth in Exhibit E to this Sublease. The mutual release and waiver of subrogation set forth in Section 8.4 of the Sublease shall apply as between Landlord and Subtenant. As of the Commencement Date, all notices required to be provided to Sublandlord under the Lease shall also be sent to Subtenant.
         
ACCEPTED AND AGREED:    
 
       
LANDLORD:    
 
       
Selig Holdings Company    
 
       
By:
  /s/ Martin Selig    
 
 
 
Martin Selig
   
 
  Managing Member    
Dated: May 9, 2008

 


 

EXHIBIT D
FF&E
  Twelve (12) tons of A/C capacity
 
  APC Phase 3 power conditioner with 45 KBA of battery backup
 
  InterTel PBX and phones, with approximately seventy to eighty (70-80) handsets
 
  Ten (10) Racks
 
  Two Hundred Eighty Eight (288) ports of phone cable with cable management
 
  Four Hundred Fifty Six (456) ports of Cat 5e network with cable management
 
  Two (2) Foundry Big Iron MOS core routers
 
  Openeye CCTV security for the server room and all fifth floor entrance points
 
  Fibre connection
 
  Chairs (41 plain, 26 white kitchen, 2 stools, 36 perforated)
 
  Desks (1 large black, 9 large white, 9 white, 1 stand-up)
 
  Storage Units (92 short file drawers, 3 tall file cabinets, 1 credenza)
 
  Tables (4 round, 3 lunchroom, 2 large conference)
 
  Appliances (1 small refrigerator, 1 microwave, 2 toasters, 1 dishwasher)
 
  90 Cubicles
 
  21 Telephones and 7 boxes full of telephones
 
  29 Lamps
 
  1 Rolling Whiteboard
 
  1 Small Whiteboard

 


 

EXHIBIT E
SUBTENANT IMPROVEMENTS

 


 

Description of Sub Tenant Improvements
(MAP)

 

Exhibit 10.3
FOURTH AND VINE
OFFICE LEASE
     THIS LEASE, made the 9th day of May, 2008, by and between SELIG HOLDINGS COMPANY, a Washington limited liability company, whose address is 1000 Second Avenue, Suite 1800, Seattle, Washington, 98104-1046, hereinafter referred to as “Lessor” and ONCOTHYREON INC., a Delaware corporation, hereinafter referred to as “Lessee”.
     1.  DESCRIPTION , Lessor in consideration of the agreements contained in this lease, does hereby lease to Lessee, upon the terms and conditions hereinafter set forth, that certain space consisting of the agreed upon square footage* of 18,177 (hereinafter referred to as “Premises”) situated on the 5th floor level of the Fourth & Vine Building, 2601 Fourth Avenue, City of Seattle, State of Washington 98121, the legal description of which is:
Lots 5, 6, 7 and 8, Block 33 Bell and Denny’s Second Addition to City of Seattle, heretofore laid off by A. A. Denny and William N. Bell according to plat recorded in Volume 1 of plats, page 77 in King County Washington.
Suite 500
 
*  Rentable square footage stated above is an estimate of the rentable square footage and is based on the Building Owners and Managers Association Standard Method for Measuring Area in Office Buildings (ANSI/BOMA Z65.1-1996).
     2.  TERM , The term of this Lease shall be for a period of eighty-four (84) months, commencing the eighteenth day of December, 2011 and ending eighty-four (84) months thereafter.
     3.  RENT , Lessee covenants and agrees to pay Lessor rent each month in advance on the first day of each calendar month. Rent shall be computed at the annual base rental rate as follows:
         
12/18/11 — 12/17/12
  $ 31.50  
12/18/12 — 12/17/13
  $ 32.00  
12/18/13 — 12/17/14
  $ 32.50  
12/18/14 — 12/17/15
  $ 33.00  
12/18/15 — 12/17/16
  $ 33.50  
12/18/16 — 12/17/17
  $ 34.00  
12/18/17 — 12/17/18
  $ 34.50  
     Rent for any fractional calendar month, at the beginning or end of the term, shall be the pro rated portion of the rent computed on an annual basis.
     4.  CONSIDERATION , As consideration for the execution of this Lease, Lessee shall deliver to Lessor, within five (5) days of full execution of this Lease, prepayment of first months rent ($48,472.00), and the last month’s rent ($53,016.25), plus a deposit (the “Security Deposit”) equal to three (3) month’s average rent ($152,232.17) as security for Lessee’s performance under the Lease. Such consideration shall be in the form of cash, totaling ($253,720.62).

 


 

     5.  USES , Lessee agrees that Lessee will use and occupy said Premises for general office, laboratory, research and development uses and related purposes and for no other purposes without Lessor’s prior written consent (the “Permitted Use”).
     6.  RULES AND REGULATIONS , Lessee and their agents, employees, servants or those claiming under Lessee will at all times observe, perform and abide by all of the Rules and Regulations that are printed within this Office Lease, or which may be hereafter promulgated by Lessor, all of which it is covenanted and agreed by the parties hereto shall be and are hereby made a part of this lease. Notwithstanding anything to the contrary herein, Lessee shall not be required to comply with any new rule or regulation unless the same applies non-discriminatorily to all occupants of the Building, does not unreasonably interfere with Lessee’s use of the Premises or Lessee’s parking rights and does not materially increase the obligations or decrease the rights of Lessee under this Lease.
     7.  CARE AND SURRENDER OF PREMISES , Lessee shall take good care of the Premises and shall promptly make all necessary repairs except those required herein to be made by Lessor. At the expiration or sooner termination of this lease, Lessee, without notice, will immediately and peacefully quit and surrender the Premises in good order, condition and repair (damage by reasonable wear, the elements, fire, casualties, condemnation, Hazardous Materials (other than those released or emitted by Lessee), and alterations or other interior improvements which it is permitted to surrender at the termination of the Lease, excepted). Lessee shall be responsible for removal of all personal property from the Premises, (excepting fixtures being that which is attached to the Premises, and property of the Lessor) including, but not limited to, the removal of Lessee’s communication cabling, telephone equipment and signage. Lessee shall be responsible for repairing any damage to the Premises caused by such removal. If Lessee fails to remove and restore the Premises at lease expiration, then Lessor shall have the right to remove said property and restore the Premises and Lessee shall be responsible for all costs associated therewith. Lessee shall also be responsible for those costs incurred by Lessor for removing debris Lessee may discard in the process of preparing to vacate the Premises and for a final cleaning of the Premises, including, but not limited to, the cleaning, or replacement of carpets if damage is not caused by reasonable wear, and removal and disposal of Lessee’s personal property remaining in the Premises.
     8.  ALTERATIONS , Lessee shall not make any alterations or improvements in, or additions to said Premises (“Alterations”) without first obtaining the written consent of Lessor, whose consent shall not be unreasonably withheld, conditioned or delayed; provided however, that if Lessor has not granted or denied its consent to any such proposed Alterations within ten (10) business days after its receipt of Lessee’s written request for such approval, then Lessor shall be deemed to have approved such Alterations. All such alterations, additions and improvements shall be at the sole cost and expense of Lessee and shall become the property of Lessor and shall remain in and be surrendered with the Premises as a part thereof at the termination of this lease, without disturbance, molestation or injury. Notwithstanding anything to the contrary herein, (a) Alterations and Lessee’s trade fixtures, furniture, equipment and other personal property installed in the Premises (except for any of the foregoing paid for with the proceeds of the Allowance) (“Lessee’s Property”) shall at all times be and remain Lessee’s property, (b) except for Alterations which cannot be removed without structural injury to the Premises, at any time except during the ordinary business hours of the Building. Lessee may remove Lessee’s Property from the Premises, provided that

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Lessee repairs all damage caused by such removal, (c) Lessor shall have no lien or other interest in any item of Lessee’s Property and (d) Lessor shall have no right to require Lessee to remove any alterations unless it notifies Lessee at the time it consents (or is deemed to have consented) to such alteration that it shall require such alteration to be removed.
     9.  RESTRICTIONS , Lessee will not use or permit to be used in said Premises anything that will increase the rate of insurance on said Building or any part thereof (except for the Permitted Use), nor anything that may be dangerous to life or limb; nor in any manner deface or injure said Building or any part thereof; nor overload any floor or part thereof; nor permit any objectionable noise or odor to escape or to be emitted from said Premises, or do anything or permit anything to be done upon said Premises in any way tending to create a nuisance or to disturb any other tenant or occupant of any part of said Building. If Lessee’s Permitted Use causes Lessor’s rate of insurance to increase, Lessee shall reimburse Lessor such increase. Lessee, at Lessee’s expense, will comply with all health, fire and police regulations respecting said Premises. The Premises shall not be used for lodging or sleeping, and no animals or birds will be allowed in the Building (except as permitted under the Permitted Use). Notwithstanding anything to the contrary herein, Lessee shall not be required to comply with or cause the Premises to comply with any laws, rules or regulations requiring the construction of alterations unless such compliance is necessitated solely due to Lessee’s particular use of the Premises.
     10.  WEIGHT RESTRICTIONS , Safes, furniture or bulky articles may be moved in or out of said Premises only at such hours and in such manner as will least inconvenience other tenants, which hours and manner shall be at the discretion of Lessor. No safe or other article of over 2,000 pounds shall be moved into said Premises without the consent of Lessor, whose consent shall not be unreasonably withheld, conditioned or delayed, and Lessor shall have the right to locate the position of any article of weight in said Premises if Lessor so desires.
     11.  SIGN RESTRICTION , No sign, picture, advertisement or notice shall be displayed, inscribed, painted or affixed to any of the glass or woodwork of the Building without the prior approval of Lessor. Such approval shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Lessor shall install within a reasonable time following execution of this Lease, at Lessor’s cost and expense, appropriate building standard signage identifying Lessee’s name at the main building directory.
     12.  LOCKS , No additional locks shall be placed upon any doors of the Premises. Keys will be furnished to each door lock. At the termination of the lease, Lessee shall surrender all keys to the Premises whether paid for or not.
     13.  KEY , Lessor, his janitor, engineer or other agents may retain a pass key to said Premises to enable him to examine the Premises from time to time with reference to any emergency or to the general maintenance of said Premises. Notwithstanding anything to the contrary herein, Lessor and Lessor’s agents, except in the case of emergency, shall provide Lessee with one (1) business day notice prior to entry of the Premises. Any entry by Lessor and Lessor’s agents shall not impair Lessee’s operations more than reasonably necessary, and shall comply with Lessee’s reasonable security measures, all applicable laws and regulations and all of Lessee’s policies and procedures, including, without limitation, all posted notices and instructions.

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     14.  TELEPHONE SERVICE , If Lessee desires telephonic or any other electric connection, Lessor will direct the electricians as to where and how the wires are to be introduced, and without such directions no boring or cutting for wires in installation thereof will be permitted.
     15.  SERVICES , Lessor shall maintain Premises and the public and common areas of Building, such as lobbies, stairs, corridor and restrooms, in reasonably good order and condition except for damage occasioned by the act of Lessee. Notwithstanding anything to the contrary herein, Lessor shall perform and construct, and Lessee shall have no responsibility to perform or construct, any repair, maintenance or improvements (a) necessitated by the acts or omissions of Lessor or any other occupant of the Building, or their respective agents, employees or contractors, (b) for which Lessor has a right of reimbursement from others, (c) to the structural portions of the Building, (d) which could be treated as a “capital expenditure” under generally accepted accounting principles, (e) to the heating, ventilating, air conditioning, electrical, water, sewer, and plumbing systems serving the Premises and the Building; provided, however, that Lessee shall obtain a one (1) year warranty on any Tenant Improvements made to such systems, and (f) to any portion of the Building outside of the demising walls of the Premises. Notwithstanding the foregoing, Lessee shall pay for its share of the repairs described in subsections (d) – (f) to the extent such costs are properly included in Operating Services.
     Lessor shall furnish Premises with electricity for lighting and operation of low power usage office machines, laboratory machines, heat, normal office and laboratory air-conditioning, and elevator services, during the ordinary business hours of the Building. Such hours are 6:00 a.m. – 6:00 p.m. Monday through Friday. Air-conditioning units and electricity therefore for special air-conditioning requirements, such as for information technology rooms or those rooms and/or areas requiring air conditioning 24 hours per day, seven days per week, shall be at Lessee’s expense. If usage of other utilities exceeds other utilities that are typically consumed for the Permitted Use, such excess shall be reimbursed by Lessee to Lessor. Lessor shall also provide lighting replacement for Lessor furnished lighting, toilet room supplies, window washing with reasonable frequency, and customary janitor service. Lessor shall provide all services, which are normally provided in similar office buildings in the general area in a first class and a cost efficient manner. Electricity for lighting and operation of low power usage office machines, laboratory machines, heat, normal office and laboratory air conditioning, and elevator services shall be provided without additional charge between the hours of 7 a.m. to 7 p.m., Monday through Friday and between 7 a.m. to 1 p.m., Saturdays throughout the year except Christmas Day, Thanksgiving, New Year’s Day, Memorial Day, Independence Day and Labor Day.
     Lessor shall not be liable to Lessee for any loss or damage caused by or resulting from any variation, interruption or any failure of said services due to any cause whatsoever. No temporary interruption or failure of such services incident to the making of repairs, alterations, or improvements, or due to accident or strike or conditions or events not under Lessor’s control shall be deemed as an eviction of Lessee or relieve Lessee from any of Lessee’s obligations hereunder. Notwithstanding anything to the contrary herein, if, due to Lessor’s negligence, the Premises should become not reasonably suitable for Lessee’s use as a consequence of cessation of utilities or other services, interference with access to the Premises, legal restrictions or the presence of any Hazardous Material which does not result from Lessee’s release or emission of such Hazardous Material, and in any of the foregoing cases the interference with Lessee’s use of the Premises persists for fifteen (15)

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calendar days, then Lessee shall be entitled to an equitable abatement of rent to the extent of the interference with Lessee’s use of the Premises occasioned thereby. If the interference persists for more than ninety (90) calendar days, Lessee shall have the right to terminate this Lease; provided that Lessee has given Lessor at least thirty (30) calendar days prior written notice of such termination, which notice may be delivered within such ninety (90) day period.
     In the event of any lack of attention on the part of Lessor and any dissatisfaction with the service of the Building, or any unreasonable annoyance of any kind, Lessee is requested to make complaints at Lessor’s Building office and not to Lessor’s employees or agents seen within the Building. Lessee is further requested to remember that Lessor is as anxious as Lessee that a high grade service be maintained, and that the Premises be kept in a state to enable Lessee to transact business with the greatest possible ease and comfort. The rules and regulations are not made to unnecessarily restrict Lessee, but to enable Lessor to operate the Building to the best advantage of both parties hereto. To this end Lessor shall have the right to waive from time to time such part or parts of these rules and regulations as in his judgment may not be necessary for the proper maintenance or operation of the Building or consistent with good service, and may from time to time make such further reasonable rules and regulations as in his judgment may be needed for the safety, care and cleanliness of the Premises and the Building and for the preservation of order therein.
     16.  SOLICITORS , Lessor will make an effort to keep solicitors out of the Building, and Lessee will not oppose Lessor in his attempt to accomplish this end.
     17.  FLOOR PLAN , A plan of the Premises shall be attached hereto and marked Exhibit A.
     18.  ASSIGNMENT , Lessee will not assign this lease, or any interest hereunder without Lessor’s prior written consent, which shall not be unreasonably withheld or delayed, and this Lease, or any interest hereunder, shall not be assigned by operation of law. Lessee shall have the right to sublease or assign the Premises to any affiliated company or any entity resulting from the merger, consolidation or restructuring of Lessee or in connection with a sale of the assets used in connection with the business operated by Lessee at the Building, by providing fifteen (15) days prior written notice to Lessor. A sale or transfer of Lessee’s capital stock shall not be deemed an assignment, subletting or any other transfer of this Lease or the Premises. Lessee shall retain seventy-five percent (75%) of any profits obtained from subleasing or assignment, net of all expenses incurred by Lessee attributable to the assignment or sublease, including brokerage fees, legal fees and tenant improvements.
     19.  OPERATING SERVICES AND REAL ESTATE TAXES , The annual base rental rate per rentable square foot in Paragraph 3 includes Lessee’s proportionate share of Operating Services and Real Estate Taxes for the first twelve months of the lease term, “Base Year Costs”. Only actual increases from these Base Year Costs, if any, will be passed on to Lessee on a proportionate basis.
DEFINITIONS
Base Year

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     For computing the Base Year Costs, the base year shall be the calendar year stated herein or if a specific calendar year is not stated herein then the base year shall be the calendar year in which the lease term commences. The base year shall be the calendar year 2012.
Comparison Year
     The Comparison Year(s) shall be the calendar year(s) subsequent to the base year.
Operating Services
     “Operating Services” include, but are not limited to, the charges incurred by Lessor for: Building operation salaries, benefits, management fee of five percent (5%) of gross income for the Building, insurance, electricity, janitorial, supplies, telephone, HVAC, repair and maintenance, window washing, water and sewer, security, landscaping, disposal, elevator and any other service or supplies reasonably necessary to the use and operation of the premises. Operating Services shall also include the amortization cost of capital investment items and of the installation thereof, which are primarily for the purpose of safety, saving energy or reducing operating costs, or which may be required by governmental authority, (all such costs shall be amortized over the reasonable life of the capital investment item, with the reasonable life and amortization schedule being determined in accordance with generally accepted accounting principles). Notwithstanding anything to the contrary contained herein, Operating Services shall not include and Lessee shall in no event have any obligation to perform or to pay directly, or to reimburse Lessor for, all or any portion of the following repairs, maintenance, improvements, replacements, premiums, claims, losses, fees, charges, costs and expenses (collectively, “costs”):
          (i) real estate taxes;
          (ii) legal fees, auditing fees, brokerage commissions, advertising costs, or other related expenses incurred by Lessor in an effort to generate rental income;
          (iii) repairs, alterations, additions, improvements, or replacements made to rectify or correct any defect in the original design, materials or workmanship of the Building or common areas (but not including repairs, alterations, additions, improvements or replacements made as a result of ordinary wear and tear);
          (iv) damage and repairs and other costs attributable to fire or other casualty or condemnation;
          (v) damage and repairs necessitated by the negligence or willful misconduct of Lessor, Lessor’s employees, contractors or agents:
          (vi) executive salaries and the salaries of other employees of Lessor to the extent that such services are not in connection with the management, operation, repair or maintenance of the Building;
          (vii) Lessor’s general overhead expenses not related to the Building;

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          (viii) legal fees, accountant’s fees and other expenses incurred in connection with disputes with tenants or other occupants of the Building or associated with the enforcement of the terms of any leases with tenants or the defense of Lessor’s title to or interest in the Building or any part thereof unless the outcome is to the financial benefit of all tenants;
          (ix) costs (including permit, license and inspection fees) incurred in renovating or otherwise improving, decorating, painting or altering (1) vacant space (excluding common areas) in the Building or (2) space for tenants or other occupants in the Building and costs incurred in supplying any item or service to less than all of the tenants in the Building;
          (x) costs incurred due to a violation by Lessor or any other tenant of the Building of the terms and conditions of a lease or other agreement;
          (xi) cost of any specific service provided to Lessee or other occupants of the Building for which Lessor is reimbursed (but not including Operating Services and Real Estate Tax increases above Base Year Costs to the extent reimbursed Lessor) or any other expense for which Lessor is or will be reimbursed by another source (i.e., expenses covered by insurance or warranties):
          (xii) costs and expenses which could be capitalized under generally accepted accounting principles, with the exception of the capital investment items specified hereinabove;
          (xiii) Building management fees in excess of the management fees specified hereinabove;
          (xiv) cost incurred with owning and/or operating the parking lot(s) serving the Building by independent parking operator(s);
          (xv) fees paid to Lessor or any affiliate of Lessor for goods or services in excess of the fees that would typically be charged by unrelated, independent persons or entities for similar goods and services;
          (xvi) rent called for under any ground lease or master lease;
          (xvii) principal and/or interest payments called for under any debt secured by a mortgage or deed of trust on the Building; and
          (xviii) costs occasioned by the act, omission or violation of any law by Lessor, any other occupant of the Building, or their respective agents, employees or contractors;
          (xix) costs to comply with any covenant, condition, restriction, underwriter’s requirement or law applicable to the Building on the Commencement Date;
          (xx) insurance Costs for coverage not customarily paid by tenants of similar projects in the vicinity of the Premises, earthquake insurance premiums (unless required by Lessor’s lender), increases in insurance Costs caused by the activities of another occupant of the Building, insurance deductibles, and co-insurance payments;

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          (xxi) costs incurred in connection with the presence of any Hazardous Material, except to the extent caused by the release or emission of the Hazardous Material in question by Lessee;
          (xxii) expense reserves; and
          (xxiii) costs of structural repairs to the Building.
Operating Services that vary with occupancy shall be adjusted for the Base Year and all Comparison Year(s) to reflect the greater of actual occupancy or 95% occupancy.
Real Estate Taxes
     Real Estate Taxes shall be the taxes paid by Lessor in the base year and each respective Comparison Year. Real Estate Taxes shall be a separate category and shall be treated as such. “Real Estate Taxes” shall not include and Lessee shall not be required to pay any portion of any tax or assessment expense or any increase therein (a) in excess of the amount which would be payable if such tax or assessment expense were paid in installments over the longest permitted term; (b) imposed on land and improvements other than the Building; (c) attributable to Lessor’s net income, inheritance, gift, transfer, estate or state taxes; or (d) resulting from a change of ownership or transfer of any or all of the Building or the improvement of any of the Building for the sole use of other occupants.
Proportionate Basis
     Lessee’s share of Base Year and Comparison Year(s) Costs shall be a fraction, the numerator of which shall be the number of rentable square feet contained in the leased Premises (see Paragraph 1) and the denominator of which shall be the number of rentable square feet in the Building in which the, leased Premises are Located (123,445/RSF).
Computation of Adjustments to Base Year Costs
     Any adjustment to Base Year Costs will commence to occur in the first month following the Base Year with subsequent adjustments commencing every twelve months of the lease term thereafter, as appropriate. Lessee shall be responsible for any increase between Lessee’s proportionate share of Base Year Costs and Lessee’s proportionate share of each respective Comparison Year(s) Costs. These costs shall be initially calculated based on estimated (projected) costs with reconciliation to actual costs when annual audited numbers are completed. For the purpose of calculating projected increases to Base Year Costs, Lessor shall review historical data to predict if any estimated increases would be anticipated in a Comparison Year(s). If they are, then commencing in Month 13 and/or every twelve month period thereafter, Lessor will assess a monthly charge to be paid together with monthly base rent. Once actual cost data for Comparison Year(s) Real Estate Taxes and Operating Services for the entire Building is formulated in accordance with generally accepted accounting principles and adjusted (to the extent such costs vary with occupancy) to the greater of actual occupancy or 100% occupancy, then Lessee’s estimated pass-through costs shall be corrected with Lessee or Lessor, as appropriate, reimbursing the other for the difference between the estimated and actual costs, at that time in a lump sum payment. Lessee or its authorized

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representative shall have the right to inspect the books of Lessor in Lessor’s own office and with reasonable prior written notice to Lessor, for the purpose of verifying Lessor’s determination of Operating Services and Real Estate Taxes.
     Upon termination of this lease, the amount of any corrected amount between estimated and actual costs with respect to the final Comparison Year shall survive the termination of the lease and shall be paid to Lessee or Lessor as appropriate within thirty (30) days after final reconciliation.
     Computation of or adjustment to Operating Services and/or Real Estate Taxes pursuant to this paragraph or to rent pursuant to Paragraph 3 shall be computed based on a three hundred sixty-five (365) day year.
     Lessee shall have no obligation to pay the cost of any Real Estate Taxes or Operating Services of a type not also included in the 2012 actual Real Estate Taxes or the 2012 actual Operating Services. If the 2012 actual Real Estate Taxes or the 2012 actual Operating Services are not based on a fully leased Building, then such amounts shall be increased to reflect a 100% leased Building.
     For an example, see Exhibit B attached hereto.
     20.  ADDITIONAL TAXES OR ASSESSMENTS , Should there presently be in effect or should there be enacted during the term of this Lease, any law, statute or ordinance levying any assessments or any tax upon the leased premises other than federal or state income taxes that are included in “Real Property Taxes”, Lessee shall reimburse Lessor for Lessee’s proportionate share of said expenses at the same time as rental payments.
     21.  LATE PAYMENTS , Any payment, required to be made pursuant to this Lease, not made on the date the same is due shall bear interest at a rate equal to three percent (3%) above the prime rate of interest charged from time to time by Bank of America, or its successor.
     In addition to any interest charged herein, a late charge of five percent (5%) of the payment amount shall be incurred for payments received more than five (5) days late.
     22.  RISK , All personal property of any kind or description whatsoever in the demised Premises shall be at Lessee’s sole risk. Lessor shall not be liable for any damage done to or loss of such personal property or damage or loss suffered by the business or occupation of the Lessee arising from any acts or neglect of co-tenants or other occupants of the Building, or of Lessor or the employees of Lessor, or of any other persons, or from bursting, overflowing or leaking of water, sewer or steam pipes, or from the heating or plumbing or sprinklering fixtures, or from electric wires, or from gas, or odors, or caused in any other manner whatsoever except in the case of negligence on the part of Lessor. Lessee shall keep in force throughout the term of this lease such casualty, general liability and business interruption insurance as a prudent tenant occupying and using the Premises would keep in force. Lessor shall maintain all-risk property insurance during the Lease term in an amount equal to the full replacement value of the Building.
     23.  INDEMNIFICATION , Lessee will defend, indemnify and hold harmless Lessor from any claim, liability or suit including attorney’s fees on behalf of any person, persons, corporations

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and/or firm for any injuries or damages occurring in or about the said Premises or on or about the sidewalk, stairs, or thoroughfares adjacent thereto to the extent such damages or injury was caused or partially caused by the ordinary or gross negligence or intentional act of Lessee and/or by Lessee’s agents, employees, servants, customers or clients. Notwithstanding anything to the contrary herein, Lessor shall not be released or indemnified from, and shall indemnify, defend, protect and hold harmless Lessee from, all losses, damages, liabilities, claims, attorneys’ fees, costs and expenses arising from the negligence or willful misconduct of Lessor or its agents, contractors, licensees or invitees, Lessor’s violation of any law, order or regulation, or a breach of Lessor’s obligations or representations under this Lease.
     24.  WAIVER OF SUBROGATION , Notwithstanding anything to the contrary herein, Lessee and Lessor do hereby release and relieve each other and their respective agents, employees, successors, assignees and sublessees from all liability for injury to any person or damage to any property that is caused by or results from a risk which is actually insured against, which is required to be insured against under this Lease, or which would normally be covered by all risk property insurance. All of Lessor’s and Lessee’s repair and indemnity obligations under this Lease shall be subject to the waiver contained in this paragraph.
     25.  SUBORDINATION , This lease and all interest and estate of Lessee hereunder is subject to and is hereby subordinated to all present and future mortgages and deeds of trust affecting the Premises or the property of which said Premises are a part. Lessee agrees to execute at no expense to the Lessor, any reasonable instrument which may be deemed necessary or desirable by the Lessor to further effect the subordination of this lease to any such mortgage or deed of trust. In the event of a sale or assignment of Lessor’s interest in the Premises, or in the event of any proceedings brought for the foreclosure of, or in the event of exercise of the power of sale under any mortgage or deed of trust made by Lessor covering the Premises, Lessee shall attorn to the purchaser and recognize such purchaser as Lessor. Lessee agrees to execute, at no expense to Lessor, any estoppel certificate deemed necessary or desirable by Lessor to further effect the provisions of this paragraph. Notwithstanding anything to the contrary herein, prior to the Commencement Date, Lessor shall obtain from any lenders or ground lessors of the Premises a written agreement in form reasonably satisfactory to Lessee providing for recognition of Lessee’s interests under this Lease in the event of a foreclosure of the lenders security interest or termination of the ground lease. Further, the subordination of this Lease to a ground lease or instrument of security shall be conditioned upon Lessee’s receipt from any such ground lessors or lenders such a recognition agreement
     26.  CASUALTY , In the event the leased Premises or the said Building is destroyed or injured by fire, earthquake or other casualty, then Lessor may, at Lessor’s option, proceed with reasonable diligence to rebuild and restore the said Premises or such part thereof as may be injured as aforesaid, provided that within sixty (60) days after such destruction or injury Lessor will notify Lessee of Lessor’s intention to do so, and during the period of such rebuilding and restoration the rent shall be abated on the portion of the Premises that is unfit for occupancy. During any period of abatement of rent due to casualty or destruction of the Premises, Lessor shall use its best efforts to locate comparable space for Lessee at the fair market rate not to exceed Lessee’s rental rate hereunder. Lessor shall not be liable for any consequential damages by reason of inability, after use of its best efforts, to locate alternative space comparable to the premises leased hereunder. Notwithstanding the foregoing, if the Premises are damaged by any peril and Lessor does not

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terminate this Lease, then Lessee shall have the option to terminate this Lease if the Premises cannot be, or are not in fact, fully restored by Lessor to their prior condition within ninety (90) calendar days after the damage. Lessor shall not have the right to terminate this Lease if the damage to the Building does not affect the Premises or is (a) due to a risk required to be insured against under Section 22 of this Lease or (b) relatively minor (e.g., repair or restoration would cost less than ten percent (10%) of the replacement cost of the Building). Whenever Rent is to be abated under this Lease, all Rent and additional rent shall be equitably abated based upon the extent to which Lessee’s use of the Premises is diminished. Notwithstanding anything to the contrary in the Master Lease (defined below), Lessor’s obligations to restore the Premises and rights to terminate this Lease or the Master Lease following a casualty shall, effective as of the date of execution of this Lease, be as set forth in this Section 26.
     27.  INSOLVENCY , If Lessee becomes insolvent, or makes a general assignment for the benefit of creditors, or a receiver is appointed for the business or property of Lessee, or a petition is filed in a court of competent jurisdiction to have Lessee adjudged bankrupt, then Lessor may at Lessor’s option terminate this ease. Said termination shall reserve unto Lessor all of the rights and remedies available under Paragraph 28 (“Default”) hereof, and Lessor may accept rents from such assignee or receiver without waiving or forfeiting said right of termination.
     28.  DEFAULT , If this Lease is terminated in accordance with any of the terms herein or operation of law or equity, or if Lessee vacates or abandons the Premises, or if Lessee shall fail at any time to keep or perform any of the covenants or conditions of this Lease, including but not limited to payment of rent and other charges due under the Lease, then, and in any of such events, Lessor may with or without notice or demand, at Lessor’s option, and without being deemed guilty of trespass and/or without prejudicing any remedy or remedies which might otherwise be used by Lessor for arrearages or preceding breach of covenant or condition of this Lease, enter into and repossess said Premises and expel the Lessee and all those claiming under Lessee. In such event Lessor may eject and remove from said Premises all goods and effects (forcibly if necessary). This lease if not otherwise terminated may immediately be declared by Lessor as terminated. The termination of this lease pursuant to this Article shall not relieve Lessee of its obligations to make the payments required herein, In the event this Lease is terminated pursuant to this Article, or if Lessor enters the Premises without terminating this lease and Lessor relets all or a portion of the Premises, Lessee shall be liable to Lessor for all the costs of reletting, including necessary renovation and alteration of the leased Premises. Lessee shall remain liable for all unpaid rental which has been earned plus late payment charges pursuant to Paragraph 21 and for the remainder of the term of this lease for any deficiency between the net amounts received following reletting and the gross amounts due from Lessee, or if Lessor elects, Lessee shall be immediately liable for all rent and additional rent (Paragraph 19) that would be owing to the end of the term, less any rental loss Lessee proves could be reasonably avoided, which amount shall be discounted by the discount rate of the Federal Reserve Bank, situated nearest to the Premises, plus one percent (1%). Waiver by the Lessor of any default, monetary or non-monetary, under this Lease shall not be deemed a waiver of any future default under the Lease. Acceptance of rent by Lessor after a default shall not be deemed a waiver of any defaults (except the default pertaining to the particular payment accepted) and shall not act as a waiver of the right of Lessor to terminate this Lease as a result of such defaults by an unlawful detainer action or otherwise. Notwithstanding anything to the contrary herein, Lessee shall not be deemed to be in default on account of Lessee’s failure to (a) pay money to Lessor, unless such

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failure to pay continues for five (5) calendar days after Lessee’s actual receipt of written notice of the delinquency or (b) perform any other covenant of this Lease, unless such failure continues after Lessee’s actual receipt of written notice for a period of thirty (30) calendar days or such longer time as may reasonably be required to cure the default. Notwithstanding anything to the contrary herein, Lessee shall not be in default of this Lease solely because it abandons or vacates the Premises, or as a consequence of the filing of an involuntary bankruptcy petition, the appointment of a receiver, the attachment of any interest in this Lease or of Lessee’s other assets or the exercise by any third party of any other remedy with respect to Lessee, Lessee’s interest in this Lease or Lessee’s other assets, unless the petition, receiver, attachment or other remedy is not discharged within sixty (60) calendar days. Notwithstanding anything to the contrary herein, (a) Lessor shall use its best efforts to mitigate any damages resulting from any default by Lessee, and Lessee shall not in any event be liable for any damages reasonably mitigable by Lessor and (b) Lessor waives any rights of distraint or to imposition of a Landlord’s lien as a remedy for unpaid rent or other charges due under this Lease. Provided, however, that Lessor shall retain all rights and remedies afforded by law or equity with regard to any personal property which is not removed from the Premises by Lessee within fifteen (15) days after Lessee’s surrender of the Premises following the termination of the lease term.
     29.  EXCESS UTILITIES AND SERVICES/ACTUAL COSTS , In the event that Lessee requires utilities including electricity, water, heating, ventilating or air-conditioning (“HVAC”) and/or services in excess of what Lessor is required to provide during Business Hours, Lessor agrees to provide such extra utilities and services and Lessee agrees to reimburse to Lessor its actual costs of providing such extra utilities and services (“Actual Costs”), without a profit to or overhead charge by Lessor. In the event Lessee requires electricity and water in excess of the existing service on the floor, as of the date of this Lease, or modifications to the Base Building are required (such as risers or conduits), Lessor shall make such modifications and Lessee shall pay the Actual Costs of such modifications. Lessor may install a separate electrical and water meter, and bill Lessee separately for such electrical and water consumption if Lessee’s electrical and water usage exceeds the amounts utilized for the Tenant Improvements defined on Exhibit C.
     30.  TENANT IMPROVEMENT ALLOWANCE , Notwithstanding anything to the contrary herein, Lessee may construct the tenant improvements (the “Tenant Improvements”) described on Exhibit C attached hereto (the “Work Letter”): provided, however, that on January 1, 2011, Lessor shall provide a Tenant Improvement allowance of $12.00 per rentable square foot (the “TI Allowance”) for all hard and soft costs of such Tenant Improvements, including, without limitation, interior improvements, infrastructure, permits, contractor fees, architects’, engineers’ and consultants’ fees, furniture moving and voice and cabling costs, subject to the terms and provisions of the Work Letter. Lessor shall not be called upon to make any alterations and/or modifications to the Premises as a result of the Tenant Improvements, except as provided in the Work Letter. Lessee shall be responsible for completing all tenant improvements. Lessor shall not charge Lessee a project management fee. Lessee shall select its’ own general contractor. Such general contractor shall be approved by Lessor. Such approval shall not be unreasonably withheld. Lessor hereby approves of                      as Lessee’s general contractor. At the end of the Lease term, Lessee shall to remove its personal property (not including the Tenant Improvements). Lessee shall repair any damage to the Premises associated with the removal of such equipment. Notwithstanding anything to the contrary herein, Lessee shall be entitled to surrender the Tenant Improvements upon the termination of the Lease. Notwithstanding anything to the contrary in or the existence of the Master

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Lease, Lessee may commence construction of the Tenant Improvements upon execution of this Lease.
     31.  SPACE PLANNING ALLOWANCE , Lessor shall provide an initial space planning allowance of $0.15 per rentable square foot (the “Space Planning Allowance”, together with the TI Allowance, the “Allowances”). Lessee shall have the right to select an architect of its choice.
     32.  RENEWAL OPTION , Lessee shall have one (1) renewal option subject to eight (8) month’s prior written notice. The renewal option shall be for a five (5) year term. Upon the commencement of the renewal term, Base Rent shall be adjusted to reflect the fair market rate for comparable office/lab space. The determination of fair market rate shall be at the prevailing market rate for comparable second generation office buildings of similar age, condition and location, including all customary Lessor concessions, including tenant Improvement Allowance, free rent, and brokerage commissions (the “Market Rate”). The Market Rate shall be determined by the agreement of the parties or, if the parties cannot agree within sixty (60) days prior to the commencement of such renewal term, then by an appraisal. All other terms and conditions contained in this Lease, as the same may be amended from time to time by the parties in accordance with the provisions of this Lease, shall remain in full force and effect and shall apply during the renewal term. If it becomes necessary to determine the Market Rate by appraisal, real estate appraiser(s), all of whom shall be Members of the Appraisal Institute and who have at least five (5) years experience appraising research, development and office space located in the vicinity of the Premises shall be appointed and shall act in accordance with the following procedures:
          (i) If the parties are unable to agree on the Market Rate within the allowed time, either party may demand an appraisal by giving written notice to the other party, which demand to be effective must state the name, address and qualifications of an appraiser selected by the party demanding an appraisal (the “Notifying Party”). Within ten (10) calendar days following the Notifying Party’s appraisal demand, the other party (the “Non-Notifying Party”) shall either approve the appraiser selected by the Notifying Party or select a second properly qualified appraiser by giving written notice of the name, address and qualification of such appraiser to the Notifying Party. If the Non-Notifying Party fails to select an appraiser within the ten (10) day period, the appraiser selected by the Notifying Party shall be deemed selected by both parties and no other appraiser shall be selected. If two appraisers are selected, they shall select a third appropriately qualified appraiser. If the two appraisers fail to select a third qualified appraiser, the third appraiser shall be appointed by the then presiding judge of the county where the Premises are located upon application by either party.
          (ii) If only one appraiser is selected, that appraiser shall notify the parties in simple letter form of its determination of the Market Rate within fifteen (15) calendar days following his selection, which appraisal shall be conclusively determinative and binding on the parties as the appraised Market Rate. If multiple appraisers are selected, the appraisers shall meet not later than ten (10) calendar days following the selection of the last appraiser. At such meeting the appraisers shall attempt to determine the Market Rate as of the commencement date of the renewal term by the agreement of at least two (2) of the appraisers. If two (2) or more of the appraisers agree on the Market Rate at the initial meeting, such agreement shall be determinative and binding upon the parties hereto and the agreeing appraisers shall, in simple letter form executed by the agreeing

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appraisers, forthwith notify both Lessor and Lessee of the amount set by such agreement. If multiple appraisers are selected and two (2) appraisers are unable to agree on the Market Rate, all appraisers shall submit to Lessor and Lessee an independent appraisal of the Market Rate in simple letter form within twenty (20) calendar days following appointment of the final appraiser. The parties shall then determine the Market Rate by averaging the appraisals; provided that any high or low appraisal, differing from the middle appraisal by more than ten percent (10%) of the middle appraisal, shall be disregarded in calculating the average.
          (iii) If only one appraiser is selected, then each party shall pay one-half of the fees and expenses of that appraiser. If three appraisers are selected, each party shall bear the fees and expenses of the appraiser it selects and one-half of the fees and expenses of the third appraiser.
     33.  TERMINATION OPTION , Lessee shall have an ongoing option to terminate this Lease any time following April 30, 2013. In such case, Lessee shall provide Lessor with at least twelve (12) months prior written notice. Further, upon Lessee’s notice of termination, Lessee shall pay Lessor a termination penalty equal to four (4) months of the then current Base Rent, including those pass-through costs defined in Paragraph 19. OPERATING SERVICES AND REAL ESTATE TAXES and Paragraph 20. ADDITIONAL TAXES OR ASSESSMENTS, plus all unamortized transaction costs (as of the termination date (including tenant improvements, allowance and real estate commission).
     34.  EXPANSION RIGHTS , Lessee shall have a continuous and ongoing right of first refusal to lease any contiguous space in the Building that should become available over the Lease term (“Expansion Space”). Lessor shall notify Lessee if Lessor receives a bona fide offer from a third party to lease any Expansion Space. Lessee shall then have ten (10) days after receipt of such notice to elect to lease the Expansion Space. If Lessee does not indicate in writing its agreement to lease the Expansion Space on the terms contained in Lessor’s notice within said ten (10) day period, the Lessor thereafter shall have the right to lease the Expansion Space to a third party terms consistent with fair market rate for comparable office/lab space. If Lessor does not lease the Expansion Space within ninety (90) days after the expiration of said ten (10) business day period, any further transaction shall be deemed a new determination by Lessor to lease the Expansion Space and the provisions of this paragraph shall again be applicable. Lessee’s rejection of any particular offer shall not relieve Lessor of its obligation to again offer any Expansion Space to Lessee at any time that the Expansion Space subsequently becomes available.
     In the event Lessee’s expansion needs cannot be accommodated within the Building, Lessee shall have the right to relocate anywhere within the Lessor’s local portfolio. In such event, a new five (5) year lease term would be entered into on the same terms and conditions as set forth in this Lease.
     35.  PARKING , Lessee has the right, but not the obligation, to rent eight (8) parking stalls in the Building’s garage and thirty (30) stalls outside. Parking rates shall be consistent with prevailing parking rates. Lessor represents that the current charge for parking is $190.00 per space inside the parking garage and $180.00 per space outside the parking garage.

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     36.  BINDING EFFECT , The parties hereto further agree with each other that each of the provisions of this lease shall extend to and shall, as the case may require, bind and inure to the benefit, not only of Lessor and Lessee, but also of their respective heirs, legal representatives, successors and assigns, subject, however, to the provisions of Paragraph 18 of this lease.
     It is also understood and agreed that the terms “Lessor” and “Lessee” and verbs and pronouns in the singular number are uniformly used throughout this lease regardless of gender, number or fact of incorporation of the parties hereto. The typewritten riders or supplemental provisions, if any, attached or added hereto are made a part of this lease by reference. It is further mutually agreed that no waiver by Lessor of a breach by Lessee of any covenant or condition of this lease shall be construed to be a waiver of any subsequent breach of the same or any other covenant or condition.
     37.  HOLDING OVER , If Lessee holds possession of the Premises after term of this lease, Lessee shall be deemed to be a month-to-month tenant upon the same terms and conditions as contained herein, except monthly base rent which shall be one hundred twenty-five percent (125%) of the monthly base rent hereunder. During month-to-month tenancy, Lessee acknowledges Lessor will be attempting to relet the Premises. Lessee agrees to cooperate with Lessor and Lessee further acknowledges Lessor’s statutory right to terminate the lease with proper notice.
     38.  ATTORNEY’S FEES , If any legal action is commenced to enforce any provision of this lease, the prevailing party shall be entitled to an award of reasonable attorney’s fees and disbursements.
     39.  NO REPRESENTATIONS , Lessor has made no representations or promises except as contained herein or in some future writings signed by Lessor.
     40.  QUIET ENJOYMENT , Effective as of the execution of this Lease, so long as Lessee pays the rent and performs the covenants contained in this lease, Lessee shall hold and enjoy the Premises peaceably and quietly, subject to the provisions of this lease.
     41.  RECORDATION , Lessee shall not record this lease without the prior written consent of Lessor, whose consent shall not be unreasonably withheld, conditioned or delayed. However, at the request of Lessor, both parties shall execute a memorandum or “short form” of this lease for the purpose of recordation in a form customarily used for such purpose. Said memorandum or short form of this lease shall describe the parties, the Premises and the lease term, and shall incorporate this lease by reference.
     42.  MUTUAL PREPARATION OF LEASE , It is acknowledged and agreed that this lease was prepared mutually by both parties. In the event of ambiguity, it is agreed by both parties that it shall not be construed against either party as the drafter of this lease.
     43.  GOVERNING LAW , This lease shall be governed by, construed and enforced in accordance with the laws of the State of Washington.
     44.  NOTICES , Unless at least five (5) calendar days’ prior written notice is given in the manner set forth in this paragraph, the address of each party shall be that address set forth below their signatures at the end of this Lease. All notices, demands or communications in connection with

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this Lease shall be personally delivered or properly addressed and deposited in the mail (certified, return receipt requested, and postage prepaid). Notices shall be deemed delivered (a) upon receipt, if personally delivered, or (b) three (3) business days after mailing, if mailed as set forth above.
     45.  ENVIRONMENTAL , To the best knowledge of Lessor, (a) no Hazardous Material is present in the Building or the soil, surface water or groundwater thereof, (b) no underground storage tanks are present on the Building, and (c) no action, proceeding or claim is pending or threatened regarding the Building concerning any Hazardous Material or pursuant to any environmental law. Under no circumstance shall Lessee be liable for, and Lessor shall indemnify, defend, protect and hold harmless Lessee, its agents, contractors, stockholders, directors, successors, representatives, and assigns from and against, all losses, costs, claims, liabilities and damages (including attorneys’ and consultants’ fees) of every type and nature, directly or indirectly arising out of or in connection with any Hazardous Material present at any time in or about the Building, or the soil, air, improvements, groundwater or surface water thereof, or the violation of any laws, orders or regulations, relating to any such Hazardous Material, except to the extent that any of the foregoing actually results from the release or emission of Hazardous Material by Lessee or its agents or employees in violation of applicable environmental laws. “Hazardous Material” shall mean any material which is now or hereafter regulated by any governmental authority which poses a hazard to the environment or human health. This section constitutes the entire agreement of Lessor and Lessee regarding Hazardous Materials. No other provision of this Lease shall be deemed to apply thereto.
     46.  APPROVALS , Whenever this Lease requires an approval, consent, determination, selection or judgment by either Lessor or Lessee, unless another standard is expressly set forth, such approval, consent, determination, selection or judgment and any conditions imposed thereby shall be reasonable and shall not be unreasonably withheld or delayed and, in exercising any right or remedy hereunder, each party shall at all times act reasonably and in good faith.
     47.  REASONABLE EXPENDITURES , Any expenditure by a party permitted or required under this Lease, for which such party demands reimbursement from the other party, shall be limited to the fair market value of the goods and services involved, shall be reasonably incurred, and shall be substantiated by documentary evidence available for inspection and review by the other party.
     48.  LESSOR’S DEFAULT , In the event Lessor fails to perform any of its obligations under this Lease and (except in case of emergency posing an immediate threat to persons or property, in which case no prior notice shall be required) fails to cure such default within thirty (30) calendar days after written notice from Lessee specifying the nature of such default where such default could reasonably be cured within said thirty (30) day period, or fails to commence such cure within said thirty (30) day period and thereafter continuously with due diligence prosecute such cure to completion where such default could not reasonably be cured within said thirty (30) day period, then Lessee may, in addition to its other remedies, cure any default of Lessor at Lessor’s cost and deduct the reasonable cost of such cure from rent.
     49.  PRIOR SUBLEASE , The parties hereto acknowledge that prior to the Commencement Date, Lessee is subleasing the Premises from Muze Inc., a Delaware corporation (“Sublandlord”) pursuant to a Sublease Agreement dated May ___, 2008 (the “Sublease”). The

-16-


 

parties hereto agree that in the event Sublandlord’s lease with Lessor for the Premises leased herein (the “Master Lease”) is terminated early (i) for any reason other than a termination due to damage or destruction of the Premises or Building, the Commencement Date shall be modified to be the date immediately following the termination date of the Master Lease and the concurrent termination of the Sublease; in which event, during the period between the early termination date of the Master Lease and the scheduled Commencement Date of this Lease, Lessee shall continue to pay rent and operating expenses at rates set forth in the Sublease, and the Term of this Lease shall be adjusted accordingly; or (ii) if the Master Lease is terminated by Sublandlord or by Lessor due to damage or destruction of the Premises or the Building, the Sublease shall terminate concurrently with the Master Lease and this Lease shall be rescinded concurrently with the termination of said Master Lease and all amounts previously paid by Lessee to Lessor shall be returned to Lessee.
     50.  BROKER COMMISSION , Lessor shall pay to The Staubach Company a leasing commission equal to four and 50/100 dollars per rentable square foot ($4.50/RSF). Such commission shall be payable to The Staubach Company, half upon full execution of lease documents by all parties and the remaining half twelve months after the execution of this Lease. Additionally, should Lessee default on this Office Lease, The Staubach Company shall reimburse Lessor the unamortized portion of the leasing commission. IN WITNESS WHEREOF, the parties hereof have executed this lease the day and year first above written.
     
SELIG HOLDINGS COMPANY,
  ONCOTHYREON INC.,
a Washington limited liability company
  a Delaware corporation
 
   
/s/ Martin Selig
  /s/ Robert Kirkman, M.D.
 
   
By: Martin Selig
  By: Robert Kirkman, M.D.
Its: Managing Member
  Its: CEO
“Lessor”
  “Lessee”

-17-


 

                 
STATE OF WASHINGTON
    )          
 
    )     ss.    
COUNTY OF KING
    )          
     On this 9 th day of May, 2008, before me, a Notary Public in and for the State of Washington, personally appeared MARTIN SELIG, to me known to be the Managing Member respectively, of Selig Holdings Company, LLC the entity that executed the foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said entity, for the uses and purposes therein mentioned, and on oath stated that he/she/they is/are authorized to execute said instrument on behalf of the entity.
         
     
  /s/ Jill M. Hayes    
  Notary Public in and for the State of Washington   
  Residing at: Issaquah
My commission expires: June 1, 2010 
 
 
                 
(Individual)
               
 
               
STATE OF
    )          
 
    )     ss.    
COUNTY OF
    )          
     On this ___ day of                      , 20___, before me, a Notary Public in and for the State of                      , personally appeared                                           , the individual(s) who executed the within and foregoing instrument, and acknowledged said instrument to be his/her/their free and voluntary act and deed for the uses and purposes therein mentioned.
     
 
   
 
  Notary Public in and for the State of
 
 
 
 
  Residing at:
 
 
 
 
  My commission expires:
 
 
 

 


 

                 
(Partnership)
               
 
               
STATE OF
    )          
 
    )     ss.    
COUNTY OF
    )          
     On this ___ day of                      , 20___, before me, a Notary Public in and for the State of                                           , personally appeared                      , to me known to be partner(s) of                                                                , the partnership that executed the foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said partnership, for the uses and purposes therein mentioned, and on oath stated that he/she/they is/are authorized to execute said instrument on behalf of the partnership.
     
 
   
 
  Notary Public in and for the State of
 
 
 
 
  Residing at:
 
 
 
 
  My commission expires:
 
 
 
                 
(Corporation)
               
 
               
STATE OF WASHINGTON
    )          
 
    )     ss.    
COUNTY OF KING
    )          
     On this 9 th day of May, 2008, before me, a Notary Public in and for the State of Washington, personally appeared Robert Kirkman, M.D., to me known to be the CEO, respectively, of Oncothyreon, the corporation that executed the within and foregoing instrument, and acknowledged said instrument to be the free and voluntary act and deed of said corporation, for the uses and purposes therein mentioned, and on oath stated that he/she/they is/are authorized to execute said instrument and that the seal affixed is the corporate seal of said corporation.
         
     
  /s/ Marcia K. Newlun    
  Notary Public in and for the State of Washington   
  Residing at: Redmond
My commission expires: March 9, 2009 
 
 

-2-


 

Exhibit A
(MAP)

 


 

Exhibit B
EXAMPLE
     The intent is to include Lessee’s proportionate share of all Base Year Costs in Lessee’s Annual Base Rental Rate. It is further the intent to limit adjustments to Lessee’s Base Year Costs to actual increases in cost. The Operating Services that vary with occupancy are adjusted to the greater of actual occupancy or 100% occupancy for the base year to fairly establish the Base Year Costs at an equitable standard for comparison purposes. Comparison Years are similarly adjusted for purposes of fairness and equality. To prevent any confusion regarding computation of Base Year Costs, Comparison Year Costs and the adjustment of those costs to 100% occupancy, if necessary, we have set forth the following example. It is important to note that if adjustment to 100% occupancy is necessary, not all Operating Services are adjusted.
     Expenses requiring adjustment are those which are 100% dependent upon the change in footage and adjust with the change in occupied footage. This category includes electricity, water/sewer, superintendent, disposal, management, janitorial supplies, window washing, repair and maintenance, HVAC maintenance, and janitorial labor.
     Other expenses do not require adjustment nor are they dependent upon occupied footage change. These categories are the same whether the Building is empty or full. They are, insurance, security, elevator, landscaping and telephone.
     Real Estate Taxes are dependent upon independent assessment. Real Estate Taxes are not adjusted to 95%, but are established for each respective year based on the actual tax paid whether for the respective Base Year or each subsequent Comparison Year(s).
     Please note the expenses noted below which are and are not adjusted and the adjustment to each expense to achieve 95% occupancy, if necessary. The method of adjusting expenses depicted in the example will be followed when adjusting actual Operating Service Expenses for both the Base Year and Comparison Year(s).
HYPOTHETICAL FACTS
         
Building Occupancy:
    80% 
Actual Base Year Costs:
    $375,000  
Grossed Base Year Costs to 95%:
    $440,000  
Actual Comparison Year Costs: (see below)
    $405,440  
Grossed Comparison Year Costs to 95%: (see below)
    $463,080  
Tenant Premises:
    10,000 RSF  
Building RSF:
    125,000 RSF  
Tenant Proportionate Basis:
    10,000 + 125,000 8 %

 


 

EXAMPLE
                     
    Actual     Grossed      
Description   Expenses     Expenses      
Percent Occupied
    80.00 %     95.00 %   Methodology
 
                   
Real Estate Taxes
  $ 54,854     $ 54,854     Actual Cost
 
                   
Operating Expenses
                   
Insurance
  $ 26,595     $ 26,595     Actual Cost
Electricity
  $ 69,358     $ 82,363     Adjusts with occupancy
Water & Sewer
  $ 4,945     $ 5,872     Adjusts with occupancy
Security
  $ 5,000     $ 5,000     Actual Cost
Elevator
  $ 7,526     $ 7,526     Actual Cost
Superintendent
  $ 82,869     $ 98,407     Adjusts with occupancy
Landscaping
  $ 2,912     $ 2,912     Actual Cost
Disposal
  $ 15,502     $ 18,409     Adjusts with occupancy
Management
  $ 41,680     $ 49,495     Adjusts with occupancy
Supplies
  $ 4,339     $ 5,153     Adjusts with occupancy
Window Washing
  $ 1,527     $ 1,813     Adjusts with occupancy
Repairs & Maintenance
  $ 24,333     $ 28,895     Adjusts with occupancy
Telephone
  $ 1,144     $ 1,144     Actual Cost
HVAC Maintenance
  $ 6,208     $ 7,372     Adjusts with occupancy
Janitorial
  $ 56,648     $ 67,270     Adjusts with occupancy
TOTALS:
  $ 405,440     $ 463,080      

-2-


 

Exhibit C
WORK LETTER
     1. Lessor consents to Lessee’s construction of the initial Tenant Improvements in the Premises as generally described on Schedule 1 attached hereto (the “Tenant Improvements”) and in accordance with the terms of this Work Letter.
     2. Before commencing construction, Lessee shall cause to be prepared final plans, specifications and working drawings of the Tenant Improvements (the “Final Plans”) as well as an estimate of the total cost for the Tenant Improvements (the “Cost Estimate”). The Final Plans and Cost Estimate shall be delivered to Lessor upon completion. Lessor shall have the right to reasonably approve the Final Plans as soon as reasonably possible after its receipt of such Final Plans but in no event later than ten (10) business days after receipt thereof; provided, however, that Lessor shall not withhold its consent to the extent the Final Plans are consistent with the design of the initial Tenant Improvements as described in Schedule 1 attached hereto. If Lessor fails to approve or disapprove such Final Plans with such ten (10) day period, then Lessor shall be deemed to have approved such Final Plans. Notwithstanding anything to the contrary herein, Lessee may terminate the Lease if Lessor unreasonably withholds its consent to the Final Plans (or any change to the Final Plans). Lessee shall be allowed to make changes in the Final Plans and Cost Estimate in its sole discretion; provided, however, that Lessor shall have the right to consent to any such change that materially affects the Building systems, the structural portions of the Building, or the cost of insurance or utilities; provided, that if Lessor fails to approve or disapprove any such change within ten (10) calendar days after receipt of notice from Lessee describing such change, then Lessor shall be deemed to have approved such changes.
     3. Lessee shall be entitled to receipt of the Space Planning Allowance and/or the TI Allowance (or such portion thereof that is allocable to the construction of the Tenant Improvements) upon the later of January 1, 2011 and the presentation of invoices and (in the case of the Additional TI Allowance only) conditional lien waivers of the initial Tenant Improvements.
     4. Lessor shall be solely responsible for the cost of and in no event shall any Allowance be used for the following: (a) costs related to the presence of Hazardous Materials in the Premises or the surrounding area, (b) costs incurred as a consequence of delay caused by Lessor, (c) penalties and late charges attributable to Lessor’s failure to fund any Allowance or otherwise pay for any amounts to be required to be paid by Lessor hereunder, and (d) costs to bring the Premises or the Building into compliance with applicable laws and restrictions, including, without limitation, the Americans with Disabilities Act and environmental laws, but except for compliance with laws exclusive to Lessee’s Tenant Improvements. In the event that the substantial completion of the Tenant Improvements is delayed beyond the Commencement Date of the Sublease due to the foregoing, Lessor shall reimburse Lessee for rents paid under the Sublease during such delay.
     5. In the event Lessor fails to fund all or any portion of any Allowance, Lessee may offset such amounts against the payment of rent under the Lease.

 


 

Schedule 1 to Work Letter
Description of Tenant Improvements
(MAP)

 

Exhibit 10.4
AMENDMENT NUMBER 1
TO ADJUVANT LICENSE AGREEMENT
AND ADJUVANT SUPPLY AGREEMENT
     THIS AMENDMENT NUMBER 1 (the “ Amendment ”) to the ADJUVANT LICENSE AGREEMENT (the “ License Agreement ”) and the ADJUVANT SUPPLY AGREEMENT (the “ Supply Agreement ”) each dated OCTOBER 20, 2004 is made and entered into as of the eighth day of August, 2008, by and between CORIXA CORPORATION, d/b/a GlaxoSmithKline Biologicals N.A., a Delaware corporation, having offices at 553 Old Corvallis Road Hamilton, MT 59840, (hereinafter referred to as GSK, (the acquiring entity of all stock and assets of CORIXA CORPORATION)) and BIOMIRA MANAGEMENT INC. (the assignee of the rights of Biomira International, Inc. under the License Agreement and the Supply Agreement), a Delaware corporation, having offices at 2601 Fourth Avenue, Suite 500, Seattle, WA 98121 (“ Biomira ”).
      WHEREAS , Biomira and GSK are parties to the License Agreement and the Supply Agreement, providing for the license and supply of MPL ADJUVANT to develop and market Products;
      AND WHEREAS , Biomira and GSK desire to amend the License Agreement and the Supply Agreement upon the terms and conditions noted below;
      NOW, THEREFORE , in consideration of the premises, the mutual covenants contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
     1. Section 2.5 of the License Agreement is amended by deleting of such provision in its entirety and replacing it with the following clause;
“2.5 Diligence . Biomira agrees to use its reasonable commercial efforts in conducting clinical studies, and to use its reasonable commercial efforts to obtain the appropriate regulatory approval for Products in those countries in the Territory where it is economically reasonable for Biomira to do so. Biomira shall use reasonable commercial efforts to have a commercial launch of a Product in the United States or in a country in a Major Market by the end of the calendar year 2015, provided, however, if such commercial launch has not occurred by the end of the calendar year 2015 and GSK has not provided Biomira with written notice by no later than the end of the calendar year 2013 of GSK’s intent to require the parties to negotiate in good faith an amendment to the Supply Agreement or a new supply agreement that sets forth the terms and conditions of the continued supply by GSK to Biomira of Licensed Adjuvant post-2013, then GSK shall determine, in its sole discretion, if GSK desires to continue the supply Licensed Adjuvant to Biomira beyond December 31, 2015.”
     2. Section 2.1 of the Supply Agreement is amended by deleting such provision in its entirety and replacing it with the following clause;

 


 

“2.1 Firm Forecast . Subject to the terms and conditions of this Agreement including, without limitation, those of Section 6, GSK agrees to supply Biomira, and Biomira agrees to purchase from GSK, Biomira’s requirements for Licensed Adjuvant for use in any and all preclinical and clinical research and trials for, and for the manufacture of, Products during the Term of this Agreement. On or before December 10, 2008 (the “ Forecast Date ”), Biomira shall provide GSK with a forecast (each forecast provided pursuant to this Section 2.1 shall be referred to herein as a “ Firm Forecast ”), substantially in the form attached hereto as Appendix 3, of Biomira’s requirements for quantities of Licensed Adjuvant in each of the eight (8) calendar quarters for the period commencing on April 1, 2009 and ending on March 31, 2011. On each three month anniversary of the Forecast Date thereafter during the Term, Biomira shall deliver to GSK an undated Firm Forecast of its requirements of Licensed Adjuvant in each of the eight (8) calendar quarters during the period beginning where the first quarter of the prior Firm Forecast left-off and ending one (1) quarter after the prior Firm Forecast, With respect to any such updated Firm Forecast, Biomira’s specified requirements for Licensed Adjuvant in the fourth, fifth, sixth and seventh quarters thereof will be between minimum fifty (50%) percent and maximum one hundred and twenty-five (125%) percent of the quantity of Licensed Adjuvant specified for, respectively, the fifth, sixth, seventh and eight quarters of the prior Firm Forecast. In addition, the parties agree to meet (in person or by telephone) once per calendar year during the Term to discuss Biomira’s ten (10)-year projections of its needs for Licensed Adjuvant and such discussions and projections shall be non-binding and are intended simply to aid the parties in planning.”
     3. Section 2.2, of the Supply Agreement is amended by deleting such provision in its entirety and replacing it with the following clause:
“Section 2.2 Certain Purchase Obligations . Subject to Section 4.1 of this Agreement, the amount of Licensed Adjuvant forecast in the first four quarters (4) of each Firm Forecast automatically shall be Biomira’s firm and biding purchase order. Therefore, Biomira shall be obligated to purchase, and GSK shall be obligated to sell; and deliver, one-hundred percent (100%) of the amount specified within the first four (4) quarters of a Firm Forecast in accordance with this Agreement. Biomira shall order Licensed Adjuvant in two gram (2 gr) increments, and GSK shall deliver Licensed Adjuvant in two gram (2 gr) vials. The foregoing vial configuration may be adjusted by mutual agreement in writing of the parties.”
     4. Appendix 3 of the Supply Agreement is amended by deleting such appendix in its entirety and replacing it with the form of Appendix 3 attached to this Amendment.
     5. Except as provided herein, all other terms, conditions and provisions of the License Agreement and the Supply Agreement remain in full force and effect.
     6. This Amendment shall enure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns.

-2-


 

     7. This Amendment, the License Agreement and the Supply Agreement, including all documents referred to herein and attached hereto, constitute the entire agreement of the parties on the subject matter hereof and supersede all prior representations, understandings and agreements between the parties with respect to such subject matter, The documents referred to herein and attached hereto shall be read together with this Amendment, the License Agreement and the Supply Agreement to determine the parties’ intent. In the event of a conflict between or among such documents, the documents shall govern in this order: (1) the License Agreement or the Supply Agreement, as the case may be, (2) this Amendment, (3) the applicable statement of work, if any, and (4) a change order, if any, related to the applicable statement of work, if any.
     8. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument.
     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their duly authorized corporate officers or representatives as of the date first above written.
             
Biomira Management Inc.   GSK Corporation d/b/a/
        GlaxoSmithKline Biologicals N.A.
 
           
By:
  /s/ Gary Christianson   By:   /s/ Jean Stephenne
 
           
Name:
  Gary Christianson   Name:   Jean Stephenne
Title:
  Chief Operating Officer   Title:   CEO, GSK Bio
Date:
  August 29, 2008   Date:   September 2, 2008

-3-


 

APPENDIX 3 — Firm Forecast Mechanism (Example)
         
Issued Quarterly
  1st year  
100% binding (no variation allowed)
 
 
  2nd year  
50% binding (max. 25% increase allowed from one revision to another one)
 
Issued yearly in December
  3 > 10th year  
0% binding (for information only)
                                                                                                                                         
2009   2009     2009     2010     2010     2010     2010     2011     2011     2011     2011     2012     2013     2014     2015     2016     2017     2018  
Q2   Q3     Q4     Q1     Q2     Q3     Q4     Q1     Q2     Q3     Q4     Q1                                                  
10g     10g       10g       10g       20g       20g       20g       20g     100g
    250g       300g       400g       500g       600g       700g  
done     10g       10g       10g       10g       20g       10g       15g       25g     75g
    250g       300g       400g       500g       600g       700g  
done
  done     10g       10g       10g       25g       10g       18.75g       25g       25g     50g
    250g       300g       400g       500g       600g       700g  
done
  done   done     10g       10g       25g       12.5g       20g       25g       25g       25g       25g       250g       300g       400g       500g       600g       700g  
done
  done   done   done     10g       25g       12.5g       15g       25g       25g       25g       25g       250g       300g       400g       500g       600g       700g  
Purchase orders must be sent a minimum of 90 days prior the beginning of each calendar quarter.

 

EXHIBIT 12.1
Oncothyreon Inc. and Consolidated Subsidiaries
Computation of Deficiency in the Coverage of Fixed Charges by Earnings Before Fixed Charges
         
    For the Nine  
    Months  
    Ended  
    September 30, 2008  
Earnings before fixed charges:
       
Loss from continuing operations before income taxes, minority interest and income/(loss) from equity investees
  $ (13,599 )
Add fixed charges
    19  
Add amortization of capitalized interest
     
Add distributed income of equity investees
     
Subtract capitalized interest
     
 
     
Loss before fixed charges
  $ (13,580 )
 
     
Fixed charges:
       
Interest expense
  $ 2  
Amortization of debt expense
     
Estimate of interest expense within rental expense
    17  
Preference security dividend requirements of consolidated subsidiaries
     
 
     
Total fixed charges
  $ 19  
 
     
Deficiency of earnings available to cover fixed charges
  $ (13,599 )
 
     

 

EXHIBIT 31.1
CERTIFICATION
     I, Robert L. Kirkman, M.D., certify that:
     1. I have reviewed this quarterly report on Form 10-Q of Oncothyreon Inc., (the “Registrant”);
     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
     4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     (c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     (d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
     5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
         
     
November 10, 2008  /s/ Robert L. Kirkman, M.D.    
  Robert L. Kirkman, M.D.,   
  Chief Executive Officer and President   

 

         
EXHIBIT 31.2
CERTIFICATION
     I, Edward A. Taylor, certify that:
     1. I have reviewed this quarterly report on Form 10-Q of Oncothyreon Inc., (the “Registrant”);
     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
     4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15d - 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     (c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     (d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
     5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
         
     
November 10, 2008  /s/ Edward A. Taylor    
  Edward A. Taylor,   
  Chief Financial Officer and Vice President   

 

         
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to
18 U.S.C. Section 1350,
As Adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
     I, Robert L. Kirkman, M.D., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Oncothyreon Inc. on Form 10-Q for the quarterly period ended September 30, 2008, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Oncothyreon Inc.
         
     
November 10, 2008  /s/ Robert L. Kirkman, M.D.    
  Robert L. Kirkman, M.D.,   
  Chief Executive Officer and President
(Principal Executive Officer)
 
 
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to
18 U.S.C. Section 1350,
As Adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
     I, Edward A. Taylor, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Oncothyreon Inc. on Form 10-Q for the quarterly period ended September 30, 2008, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Oncothyreon Inc.
         
     
November 10, 2008  /s/ Edward A. Taylor    
  Edward A. Taylor,   
  Chief Financial Officer and Vice President
(Principal Financial and Accounting Officer)
 
 
 
     A signed original of each of the written statements above required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Oncothyreon Inc. and will be retained by Oncothyreon Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
     This certification accompanies this Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by Oncothyreon Inc. for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that Oncothyreon Inc. specifically incorporates it by reference.