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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22769
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LEUKOSITE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3173859
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 FIRST STREET 02142
CAMBRIDGE, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 621-9350
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
The number of shares outstanding of each of the registrant's classes of common
stock as of:
DATE CLASS OUTSTANDING SHARES
May 7, 1998 Common stock, $.01 par value 9,896,440
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LEUKOSITE, INC.
( A Development Stage Company)
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1997 and March 31, 1998 3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1998, and for the Period from
Inception (May 1, 1992) to March 31, 1998 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1998, and for the Period from
Inception (May 1, 1992) to March 31, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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PART I FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LEUKOSITE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 MARCH 31, 1998
----------------- --------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 10,587,873 $ 6,355,951
Marketable securities 14,569,100 14,696,306
Other current assets 408,811 572,414
------------ ------------
Total current assets 25,565,784 21,624,671
------------ ------------
Property and equipment, net of accumulated depreciation
and amortization 2,439,289 2,292,385
------------ ------------
Other assets 27,090 27,090
------------ ------------
Total assets $ 28,032,163 $ 23,944,146
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,063,410 $ 1,987,062
Obligation to fund L&I Joint Venture 1,770,310 1,153,169
Deferred revenue 1,161,250 1,361,254
Deferred rent, current portion 243,171 243,171
Current portion of capital lease obligations 866,835 757,945
------------ ------------
Total current liabilities 6,104,976 5,502,601
------------ ------------
Deferred rent, net of current portion 222,907 162,114
------------ ------------
Capital lease obligations, less current portion 896,578 765,406
------------ ------------
Stockholders' equity:
Preferred stock $.01 par value-
Authorized-5,000,000 shares
Issued and outstanding-no shares -- --
Common stock, $.01 par value-
Authorized-25,000,000 shares
Issued and outstanding-9,875,741 shares at December
31,1997 and 9,891,532 shares at March 31, 1998 98,758 98,916
Additional paid-in capital 53,294,367 53,348,009
Deficit accumulated during the development stage (32,585,423) (35,932,900)
------------ ------------
Total stockholders' equity 20,807,702 17,514,025
------------ ------------
Total liabilities and stockholders' equity $ 28,032,163 $ 23,944,146
============ ============
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LEUKOSITE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
INCEPTION
(MAY 1, 1992)
THREE MONTHS ENDED MARCH 31, THROUGH
1997 1998 MARCH 31,1998
---- ---- -------------
REVENUES:
Corporate collaborations $ 798,590 $ 2,217,201 $ 11,406,652
Government grants 107,172 140,844 801,073
----------- ----------- ------------
Total revenue 905,762 2,358,045 12,207,725
----------- ----------- ------------
OPERATING EXPENSES:
Research and development 2,781,506 4,105,814 38,275,934
General and administrative 379,112 632,260 5,944,342
----------- ----------- ------------
Total operating expenses 3,160,618 4,738,074 44,220,276
----------- ----------- ------------
LOSS FROM OPERATIONS (2,254,856) (2,380,029) (32,012,551)
OTHER INCOME (EXPENSE):
Equity in operations of joint venture -- (1,266,207) (4,624,123)
Interest income 102,800 338,501 2,008,510
Interest expense (42,795) (39,742) (694,736)
----------- ----------- ------------
NET LOSS $(2,194,851) $(3,347,477) $(35,322,900)
=========== =========== ============
NET LOSS PER COMMON SHARE
Basic and diluted $ (2.23) $ (.34)
=========== ===========
Pro forma $ (.40)
===========
SHARES USED IN COMPUTING NET
LOSS PER COMMON SHARE
Basic and diluted 1,091,385 9,881,358
=========== ===========
Pro forma 6,047,229
===========
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LEUKOSITE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
INCEPTION
THREE MONTHS ENDED (MAY 1, 1992)
MARCH 31, THROUGH
1997 1998 MARCH 31, 1998
---- ---- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,194,851) $ (3,347,477) $(35,322,900)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock compensation expense -- -- 89,339
Depreciation and amortization 269,999 253,805 3,225,121
Equity in operations of joint venture -- 1,266,207 4,624,123
Change in operating assets and liabilities:
Other current assets 30,017 (163,603) (572,414)
Accounts payable and accrued expenses 289,193 (76,348) 2,553,764
Deferred revenue 250,000 200,004 1,361,254
Deferred rent (22,937) (60,793) 405,285
----------- ------------ ------------
Net cash used in operating activities (1,378,579) (1,928,205) (23,636,428)
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities (1,945,689) (3,727,206) (41,791,287)
Proceeds from maturities of marketable securities 2,911,384 3,600,000 27,086,536
Investment in joint venture -- (1,883,348) (3,470,954)
Purchases of property and equipment (20,232) (106,901) (1,941,689)
Decrease (increase) in other assets -- -- (27,090)
----------- ------------ ------------
Net cash provided (used) in investing activities 945,463 (2,117,455) (20,144,484)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital leases (251,332) (240,062) (2,520,223)
Net proceeds from notes payable -- -- 2,086,312
Proceeds from redeemable convertible preferred stock,
net of issuance costs 3,819,506 -- 23,256,599
Proceeds from initial public offering, net of issuance costs -- -- 15,297,020
Issuance of common stock -- 45,368 4,015,368
Exercise of stock options 6,458 8,432 89,912
Issuance of convertible preferred stock,
net of issuance costs -- -- 7,911,875
----------- ------------ ------------
Net cash provided (used) by financing activities 3,574,632 (186,262) 50,136,863
----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 3,141,516 (4,231,922) 6,355,951
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 4,430,507 10,587,873 --
----------- ------------ ------------
CASH AND EQUIVALENTS, END OF PERIOD $ 7,572,023 $ 6,355,951 $ 6,355,951
=========== ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest $ 42,795 $ 39,742 $ 908,349
=========== ============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Property and equipment purchased under capital lease
obligations $ 114,988 $ -- $ 3,817,374
=========== ============ ============
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Operations and Basis of Presentation
LeukoSite, Inc. (the "Company") was incorporated on May 1, 1992. The
Company is engaged in the development of proprietary immunomodulatory
therapeutics with potential applications in cancer and inflammatory,
autoimmune, and viral diseases.
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of interim period results. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes, however, that its disclosures are
adequate to make the information presented not misleading. The results for
the interim periods presented are not necessarily indicative of results to
be expected for the full fiscal year. These condensed financial statements
should be read in conjunction with the audited consolidated financial
statements and notes related thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 filed with the
Securities and Exchange Commission.
2. Summary of Significant Accounting Policies
(a) Cash Equivalents and Marketable Securities
Cash equivalents are highly liquid investments with original maturities of
less than three months. Marketable securities consist of securities with
original maturities of greater than three months. The Company accounts for
cash equivalents and marketable securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with SFAS No.
115, the Company has classified its investments as held-to-maturity. The
investments that the Company has the positive intent and ability to hold to
maturity, are reported at amortized cost, which approximates fair market
value.
As of March 31, 1998 there were no material unrealized gains or losses on
any investments. Cash and cash equivalents and marketable securities
consisted of the following:
December 31, 1997 March 31, 1998
Cash and cash equivalents:
Cash $ 1,373,786 $ 475,334
Money market funds 6,609,783 3,873,791
Taxable auction securities 2,604,304 2,006,826
----------- -----------
$10,587,873 $ 6,355,951
=========== ===========
Marketable securities:
U.S. government agency obligations
(average maturity of 5 months) $ 6,094,401 $ 6,174,489
Corporate bonds and notes (average
maturity of 5 months) 8,474,699 8,521,817
----------- -----------
$14,569,100 $14,696,306
=========== ===========
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(b) Net Loss per Common Share
In March 1997 the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share. The Company adopted SFAS No. 128 effective December 15,
1997. Basic net loss per common share is based on the weighted average
number of common shares outstanding. Diluted net loss per common share is
the same as basic net loss per common share as the inclusion of stock
options and warrants would be antidilutive. Pro forma net loss per common
share assumed the automatic conversion of all outstanding shares of
redeemable convertible preferred stock and convertible preferred stock into
common stock using the as-converted method, which occurred upon the closing
of the Company's initial public offering on August 15, 1997. In addition,
the 1997 net loss available to common stockholders has been adjusted to
include $244,000 of dividends attributable to redeemable convertible
preferred stock.
3. Ilex Agreement
In May 1997 the Company and Ilex Oncology, Inc. (Ilex) entered into a joint
venture agreement that established a limited partnership for the purpose of
developing LDP-03. Under the terms of the partnership, the Company is
required to fund 50% of the partnership's working capital requirements. The
joint venture expires in 2017, but provides for either partner under
certain circumstances to purchase the other partner's ownership position of
the joint venture after October 2000. Should either party fail to fulfill
its funding obligations, control of the joint venture may change.
The Company accounts for its investment in the joint venture under the
equity method of accounting and records its share of the income or loss in
other income (expense). The Company is reimbursed by the joint venture for
certain costs incurred on behalf of the joint venture. For the three months
ended March 31, 1998 the Company's share of the joint venture's recorded
loss was $1,266,207 and the Company had a funding liability of $1,153,169
to the joint venture as of March 31, 1998. The Company charged the joint
venture $133,455 for costs incurred on its behalf.
The joint venture has entered into a agreement with a third party to
manufacture LDP-03. In connection with this agreement, the Company and Ilex
have guaranteed the payment of the obligations of the joint venture due
under the manufacturing agreement. As of March 31, 1998 the remaining
obligation was approximately $2.4 million.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations and this Quarterly Report on Form 10-Q contains certain
forward-looking statements within the meaning of Section 27A of the securities
Act of 1933 and Section 21E of the Securities and Exchange Act of 1934,
including but not limited, (i) statements about the adequacy of the Company's
capital resources, interest income and revenues from its collaboration
agreements to fund its operating expenses and capital requirements into early
2000, (ii) statements about the amount of capital expenditures that the Company
expects to incur in 1998 and (iii) certain statements identified or qualified by
words such as "anticipate," "plan," "believe," "estimate," "expect" and similar
expressions. Investors are cautioned that forward-looking statements are
inherently uncertain and that the Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed under the caption "Risk Factors" in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
OVERVIEW
The Company is a leader in the discovery and development of therapeutics based
upon the biology of leukocytes. Therapeutics developed using its technology may
be used to treat cancer and inflammatory, autoimmune and viral diseases. The
Company applies its technologies and expertise in leukocyte biology to the
discovery and development of novel and proprietary drugs that destroy or block
the disease-promoting actions of leukocytes. The Company has been funded to date
primarily through proceeds from private placements, a public offering of equity
securities and receipts from collaboration agreements and capital leases. To
date, the Company has not received any revenue from the sale of products and
does not expect to generate material product revenues for the next several
years. The Company has experienced operating losses since its inception and
expects that the activities required to develop and commercialize its products
will result in further operating losses for the next several years. As of March
31, 1998 the Company had an accumulated deficit of approximately $35.9 million.
In 1994, 1995 and 1996 the Company signed agreements with Warner-Lambert for the
discovery and development of drugs that are intended to antagonize the MCP-1,
IL-8 and CCR5 and CXCR4 receptors found on certain classes of leukocytes. In
January 1998 Warner-Lambert made a $1 million payment related to the achievement
of certain milestones. In July 1996 the Company signed an agreement with Roche
Bioscience for the discovery and development of therapeutics that are intended
to antagonize the CCR3 receptor found on a certain class of leukocytes. In April
1997 the Company signed an agreement with Kyowa for the discovery and
development of therapeutics that are intended to antagonize the CXCR3 and CCR1
receptors found on certain classes of leukocytes. In May 1997 the Company
entered into a joint venture with Ilex Oncology for the development of LDP-03
(CAMPATH-1H) for the treatment of chronic lymphocytic leukemia. In December 1997
the Company entered into a collaboration agreement with Genentech for the
development of a monoclonal antibody therapeutic intended to be used in the
treatment of inflammatory bowel disease.
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RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 and 1997.
Revenues for the three months ended March 30, 1998 were $2,358,000 compared to
$906,000 for the comparable period in 1997. This increase of approximately
$1,452,000 was the result of greater research funding and the achievement of a
milestone from corporate collaborations with Kyowa, Roche Bioscience, and
Warner-Lambert.
Research and development expenses for the three months ended March 31, 1998 were
$4,106,000 compared to $2,782,000 for the comparable period in 1997. This
increase of approximately $1,324,000 was primarily due to the preparation of
clinical trial material and clinical research related to the Company's LDP-01
and LDP-02 programs. To a lesser extent, the increase was the result of
increased staffing and consumption of supplies associated with the Company's
drug discovery programs. The Company expects that research and development
expenses will increase over the next several years as the Company further
expands its discovery and development programs.
General and administrative expenses for the three months ended March 31, 1998
were $632,000 compared to $379,000 for the comparable period in 1997. This
increase of approximately $253,000 was primarily due to an increase in expenses
associated with business development and operating as a public company. General
and administrative expenses will likely increase in future periods to support
the projected growth of the Company.
Equity in Operations of Joint Venture for the three months ended March 31, 1998
was a loss of $1,266,000. No loss was recorded by the joint venture in the
comparable period last year because the joint venture was formed in May 1997.
Joint venture expenses were primarily related to the manufacture of LDP-03 by a
third party for use in clinical trials and to a lesser extent activities related
to data analysis, regulatory submissions and activities related to pivotal
clinical trials begun April 1998.
Interest income (expense), net for the three months ended March 31, 1998 was
$299,000 compared to $60,000 for the comparable period in 1997. This increase
was primarily due to interest income resulting from higher average cash balances
resulting from proceeds received from LeukoSite's initial public offering
completed in August 1997 and proceeds from the sale of common stock to Genentech
completed in December 1997.
Net Loss for the three months ended March 31, 1998 was $3,347,000 compared to
$2,195,000 for the comparable period in 1996. The net loss increased
approximately $1,152,000 and was due primarily to greater research and
development expenses related to the Company's small molecule and monoclonal
antibody programs as well as its joint venture with Ilex for the development of
LDP-03. Increased expenses were offset in part by increased revenues received
from corporate collaborators.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's operations have been funded primarily through
proceeds from the sale of equity securities, which have raised approximately
$52.6 million, and to a lesser extent license fees and sponsored research, which
have generated approximately $11.3 million, and capital lease obligations, which
have generated approximately $3.8 million. The Company has used cash to fund
operating losses of approximately $35.3 million, the investment of approximately
$1.9 million in equipment and leasehold improvements and the repayment of
approximately $2.5 million of capital lease obligations. The Company had no
significant commitments as of March 31, 1998 for capital expenditures. At March
31, 1998 the Company had on hand cash, cash equivalents and marketable
securities of approximately $21.1 million.
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In May 1997 the Company and Ilex entered into a joint venture whereby the
parties formed a limited partnership to develop and commercialize LDP-03 for the
treatment of chronic lymphocytic leukemia and other diseases. The Company and
Ilex are required to make contributions each time the joint venture requires
working capital. LeukoSite and Ilex will generally share equally in profits from
the sales of LDP-03 and in research, development, and clinical expenses. The
capital requirements of the joint venture consist of clinical development
expenses. LeukoSite and Ilex estimate that research, development, and clinical
expenses for the joint venture will be approximately $5.0 million over the next
year. In March 1998 the Company provided the joint venture with approximately
$1.7 million in funding and as of March 31, 1998 the Company charged the joint
venture approximately $133,000 for expenses incurred on its behalf.
The Company has entered into sponsored research and consulting agreements with
certain hospitals, academic institutions and consultants, requiring periodic
payments by the Company. Aggregate minimum funding obligations under these
agreements, which include certain cancellation provisions, total approximately
$605,000, of which approximately $568,000 will be paid in 1998. The Company also
has a remaining commitment to the Therapeutic Antibody Centre at the University
of Oxford in England to provide funding of $1.0 million in semi-annual
installments through the year 1999.
The Company believes that its existing capital resources, interest income and
revenue from the collaboration agreements will be sufficient to fund its planned
operating expenses and capital requirements into early 2000. However, there can
be no assurance that such funds will be sufficient to meet the Company's
operating expenses and capital requirements during such period. The Company's
actual cash requirements may vary materially from those now planned and will
depend upon numerous factors, including the results of the Company's research
and development and collaboration programs, the timing and results of
preclinical and clinical trials, the timing and costs of obtaining regulatory
approvals, the progress of the milestone and royalty producing activities of the
Company's collaborative partners, the level of resources that the Company
commits to the development of manufacturing, marketing, and sales capabilities,
the cost of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, the ability of the Company to maintain existing
and establish new collaboration agreements with other companies, the
technological advances and activities of competitors and other factors.
The Company expects to incur substantial additional expenses, including expenses
related to ongoing research and development activities, expenditures for
preclinical and clinical trials and the expansion of its laboratory and
administrative activities. Therefore, the Company will need to raise substantial
additional capital. The Company intends to seek such additional funding through
public or private financing or collaboration or other arrangements with
collaborative partners. There can be no assurance, however, that additional
financing will be available from any sources or, if available, will be available
on acceptable terms.
YEAR 2000 ISSUES
The Company is evaluating Year 2000 issues and their potential impact on its
information systems and computer technologies. All evaluation costs will be
expensed as incurred. Year 2000 issues are not expected to have a significant
impact on the Company's internal information systems and computer technology and
ongoing results of operations, although the Company can not predict the impact
that Year 2000 issues will have on it as a result of adverse impact on its
collaborative partners, vendors or consultants.
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PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company's Registration Statement on Form S-1 (Reg. No. 333-30213)
was declared effective on August 15, 1997. There has been no further
use of proceeds of the offering during the three months ended March
31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K.
On January 26, 1998, the Company filed a Current Report on Form 8-K
dated December 18, 1997 pursuant to Item 5 of Form 8-K to report the
corporate collaboration with Genentech, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LeukoSite, Inc.
(Registrant)
Dated: May 13, 1998 /s/ Augustine Lawlor
------------------------------------------
Augustine Lawlor
Vice President, Corporate
Development and Chief Financial Officer
(Principal Finance and Accounting Officer)
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