-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KN62ROhO1Fa8R6+MnLj4Z1z0liolvBOWSUktBg+dbNVnXCImc4TW0GJx+oDi5E86 37VGER3tHNVpF6isd4/L6A== 0001116502-02-001236.txt : 20020822 0001116502-02-001236.hdr.sgml : 20020822 20020822153239 ACCESSION NUMBER: 0001116502-02-001236 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20020822 FILER: COMPANY DATA: COMPANY CONFORMED NAME: B TWELVE INC CENTRAL INDEX KEY: 0001164888 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 651086538 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-76944 FILM NUMBER: 02745773 BUSINESS ADDRESS: STREET 1: 41A AVENUE ROAD AT YORK SQUARE CITY: TORONTO ONTARIO STATE: A1 ZIP: 00000 BUSINESS PHONE: 4162160980 SB-2/A 1 btwelve-sb2a2.txt AMENDMENT #2 TO REGISTRATION STATEMENT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- Amendment No. 2 To Form SB-2 REGISTRATION STATEMENT UNDER The Securities Act of 1933 --------------------- B. TWELVE, Inc. (Exact Name of Register as Specified in Its Charter)
- ---------------------------------------- -------------------------------------- -------------------------------------- Florida 2834 65-1086538 - ---------------------------------------- -------------------------------------- -------------------------------------- (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number) Incorporation or Organization) Classification Code) - --------------------------------------------- -------------------------------- ---------------------------------------- - ---------------------------------------- -------------------------------------- -------------------------------------- 3801 PGA Boulevard, Suite 802, Palm 3801 PGA Boulevard, Suite 802, Palm Michael S. Singer Beach Gardens, Florida 33407 (416) Beach Gardens, Florida 33407 3801 PGA Boulevard, Suite 802, Palm 216-0980 Beach Gardens, Florida 33407 - ---------------------------------------- -------------------------------------- -------------------------------------- (Address and telephone number of (Address of principal place of (Name, address and telephone number principal executive offices) business or intended of agent for service) principal place of business) - ---------------------------------------- -------------------------------------- --------------------------------------
Copies of Correspondence to: Jean-Luc Berger 41A Avenue Road, at York Square Toronto, Ontario, Canada, M5R 2G3 (416) 955-0159 -------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If any of the securities being registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
- ------------------------------------ ------------------ ------------------- ------------------- --------------------- Title Of Each Class Of Securities Number of Shares Proposed Maximum Proposed Maximum Amount of To Be Registered To Be Registered Offering Price Aggregate Registration Fee (2) Per Unit Offering Price - ------------------------------------ ------------------ ------------------- ------------------- --------------------- Common Stock (1) 5,000,000 $1.00 $5,000,000 $ o - ------------------------------------ ------------------ ------------------- ------------------- --------------------- Total 5,000,000 $1.00 $5,000,000 $ o - ------------------------------------ ------------------ ------------------- ------------------- ---------------------
(1) We are offering 5,000,000 shares directly. There is no minimum amount of shares that must be sold, the proceeds of the offering may be $0 to $5,000,000 (exclusive of estimated offering expenses of $50,000). (2) Calculated in accordance with Rule 457 (o) under the Securities Act of 1933. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. EXPLANATORY NOTE This registration statement relates to the registration of a total of 5,000,000 shares of our common stock. The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted. We will offer the shares for sale for a period 120 days from the date of the prospectus (Offering closing date: November 30, 2002). Subject to Completion, July 31, 2002 B. TWELVE, INC. 5,000,000 SHARES OF COMMON STOCK -------------------------- This is our initial public offering. We are offering to sell up to 5,000,000 shares of our common stock at a price of $1.00 per share on a best effort no minimum basis. This means that the proceeds from the offering will not be kept in an escrow account pending completion of this offering. There is no maximum investment amount per investor. At this time we intend to offer the shares ourselves through our officers and directors. We have not retained any underwriters, brokers or dealers to sell the shares for us. There is no public market for our common stock nor can we give you any assurance that such a market will in fact develop following completion of our offering. Moreover, since we would not qualify for a listing on the Nasdaq Stock Market or other national exchange following the offering, if a trading market were to develop for our common stock it would most likely be on the NASD's Over the Counter Bulletin Board market. Since there is no minimum amount of shares that must he sold, the proceeds of the offering may be $0 to $5,000,000 (exclusive of estimated offering expenses of $50,000).
---------------------------------------------------------------------------------------- Proceeds from the offering based on a percentage of shares sold ---------------------------------------------------------------------------------------- 0% 25% 50% 75% 100% ------------------ ---------------- ----------------- ---------------- ----------------- $ - $1,250,000 $2,500,000 $3,750,000 $5,000,000 ------------------ ---------------- ----------------- ---------------- -----------------
-------------------- See "RISK FACTORS" beginning on page 3 for a discussion of material issues to consider before making an investment decision regarding the purchase of our common stock. -------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The date of this prospectus is __________, 2002. TABLE OF CONTENTS
PROSPECTUS SUMMARY................................................................................................1 RISK FACTORS......................................................................................................3 Cautionary Note Regarding Forward-looking Statements.............................................................10 USE OF PROCEEDS..................................................................................................11 ARBITRARY DETERMINATION OF OFFERING PRICE........................................................................12 DILUTION.........................................................................................................13 CAPITALIZATION................................................................................................... DIRECTORS AND EXECUTIVE OFFICERS.................................................................................14 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................15 DESCRIPTION OF CAPITAL STOCK.....................................................................................17 DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILIITIES.............................18 DESCRIPTION OF OUR BUSINESS......................................................................................18 MANAGEMENT DISCUSSION OF PLAN OF OPERATIONS...................................................................... DESCRIPTION OF PROPERTY..........................................................................................47 EXECUTIVE COMPENSATION...........................................................................................47 FINANCIAL STATEMENTS.............................................................................................F-1
PROSPECTUS SUMMARY This summary highlights selected material information from the prospectus, but does not contain all of the information that may be important to you. We encourage you to read the entire prospectus, including "RISK FACTORS" and our financial statements and the related notes, before making an investment decision regarding the purchase of our common stock. THE OFFERING Company: B. Twelve, Inc. Organized: Incorporated under the laws of the State of Florida in March 1999 Executive Offices: 3801 PGA Boulevard, Suite 802, Palm Beach Gardens, Florida 33407 Telephone Number: 416-955-0159 Our Business: B Twelve is a development stage biopharmaceutical company. B Twelve develops early-stage drug candidates which have potential use as therapeutic agents for the treatment of cancer and diseases of the immune system. We are currently engaged in the research and development of a drug delivery platform technology and monoclonal antibodies that target the vitamin B12 pathway. We have no commercially viable products and, we will not have commercially viable products in the near future. We have identified potential drug candidates that are in early development stage of development. B Twelve has limited operation history, and has an accumulated deficit of $5,476,570, a working capital deficiency of $532,586 at March 31, 2002, losses from operations of $2,959,415 in FY02, and cash used in operations of $115,081 during FY02. In that regard, our Auditors have expressed concerns that B Twelve will continue as a going concern if additional capital is not raised. We need capital in order to continue and complete our research and development activities currently contemplated. Because there is no minimum amount of proceeds that will be raised, investors may end up holding shares in a company that hasn't raised sufficient proceeds from the offering to continue operations and has an illiquid smaller market for their shares. B Twelve's future operating results will depend on many factors, including demand for our technologies and/or related drug candidates, the level of competition, our dependence on collaborative partners, and our ability to control costs. 1 The Offering: No minimum 5,000,000 shares at a price of $1.00 per share. Common Stock to be Outstanding Upon Completion of the Offering: 5,067,100 shares if no minimum raised 10,067,100 shares if offering completed Risk Factors and Suitability: An investment in the shares is not liquid, involves a significant degree of risk, (see "RISK FACTORS"), and is suitable only for persons who can afford the loss of their entire investment. Term of offering: We will offer the shares for sale for a period 120 days from the date of the prospectus (closing date: November 30, 2002). No Trading Market for Our Common Stock There is no trading market for our shares and no assurance can be given that such a market will develop or, if such trading market does develop, that it will be sustained. Even if we sold the maximum number of shares, we still would not satisfy the listing criteria for a listing on the NASDAQ Stock Market, Inc. or any national exchange. We have no arrangements or understandings with respect to a possible listing of our securities on any such securities market. The absence of such a trading market may limit the marketability and liquidity of our shares. Use of Proceeds Since there is no minimum amount to be raised, proceeds from our sale of shares will be available for use by us as the funds are received. Because we are offering the shares on a "best efforts, no minimum" basis, we cannot represent what percentage of the offered shares we will actually sell. We intend to apply proceeds from the offering, after payment of expenses, as set forth in the section of this prospectus entitled "USE OF PROCEEDS". Because there is no minimum amount of proceeds that will be raised, investors may end up holding shares in a company that hasn't raised sufficient proceeds from the offering to continue operations and has an illiquid smaller market for its shares. 2 RISK FACTORS Investment in the common shares of B Twelve involves a high degree of risk and should be regarded as speculative due to: Risks Related to Our Business: - ------------------------------ (a) Development Stage Company and auditor's concern; Organized in March 1999, B Twelve has limited operation history and is considered a development stage company. B Twelve has an accumulated deficit of $5,476,570, a working capital deficiency of $532,586 at March 31, 2002, losses from operations of $2,959,415 in 2002, and cash used in operations of $115,081 during 2002. Our Auditors have expressed concerns that B Twelve will continue as a going concern if additional capital is not raised. We require immediately additional funds, in order to continue and complete the research and development activities currently contemplated. Because there is no minimum amount of proceeds that will be raised, investors may end up holding shares in a company that hasn't raised sufficient proceeds from the offering to continue operations and has an illiquid smaller market for their shares. In addition, we expect B Twelve's operating losses to continue over the next several years. B Twelve's future operating results will depend on the demand for its technologies and/or related drug candidates, the level of competition, our dependence on collaborative partners, and our ability to control costs. (b) Capital requirements; We are in need of significant additional capital to enable us to continue our business. Failure to obtain the financing or to obtain it on a timely basis will have a substantial adverse affect on our operations and our ability to complete our plan of operation in whole or in part. Our capital requirements and availability of capital depend upon many factors, including continued scientific progress in research and development programs, the scope and results of preclinical studies and clinical trials, the time and costs involved in obtaining regulatory approvals, the cost involved in filing, prosecuting and enforcing patent claims, the effect of competing technological developments, the cost of manufacturing scale-up, the cost of business development activities, and other factors which may not be within our control. The source, availability, and terms of such funds have not been determined and there is no assurance that we will be able to obtain any funding on acceptable terms or at all. 3 (c) Unproven technologies and related products; Because our drug candidates are based on unproven novel technologies, we may never develop them into commercial products. Many of our drug candidates are still in research and preclinical development, which means that they have not yet been tested on humans. We will need to commit significant time and resources to develop these and additional product candidates. We are dependent on the successful completion of clinical trials and obtaining regulatory approval in order to generate revenues. Furthermore, preclinical results in animal studies may not predict outcome in human clinical trials. Our product candidates may not be proven safe or effective. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons. Specifically, potential products may: i) be found ineffective or cause harmful side effects during preclinical testing or clinical trials, ii) fail to receive necessary regulatory approvals, iii) be difficult to manufacture on a large scale, iv) be uneconomical to produce, v) fail to achieve market acceptance, or vi) be precluded from commercialization by proprietary rights of third parties. (d) Dependence on Collaborative Partners; The success of our business strategy is largely dependent on our ability to maintain our actual collaborations and/or to enter into new collaborations such as research alliances and licensing arrangements with universities, biotechnology companies and large pharmaceutical companies, and to effectively manage the relationships that may come to exist as a result of this strategy. We are currently seeking additional corporate collaborators, but there can be no assurance that such efforts will lead to the establishment of any favorable collaborations. There can be no assurance that any of B Twelve's future or existing collaborators: i) will commit sufficient resources to our research and development programs ii) will not pursue existing or other development-stage products either on their own or in collaboration with others, including competitors, or alternative technologies in preference to those being developed in collaboration with us, or that disputes will not arise with respect to ownership of technology developed under any such collaborations. Management of B Twelve's collaborative relationships requires and will continue to require significant time and effort from B Twelve's management team and effective allocation of the management's resources. Should any collaborative partner fail to develop successfully any product to which it has rights, or any of the partner's products to which we have rights, our business may be adversely affected. In addition, since we are currently indebted to many of our partners, our business could be materially harmed by delaying or interrupting our research and development activities. 4 (e) B Twelve's reliance upon proprietary technologies and patents; We consider patents and pending patent applications relating to various aspects of our technologies and related products to be materially significant to our business. These patents and pending patent applications are co-assigned to B Twelve (see section "Intellectual Property"). Specifically, there can be no assurance that: o Any pending or future patent applications will be granted to B Twelve or that any current or future patent will be sufficiently broad to afford adequate protection for our technologies and related products against competitors with similar products. o B Twelve is the creator of inventions covered by pending patent applications or that it was the first to file patent applications for any such inventions. o Others will not independently develop similar technologies or duplicate any technology developed by B Twelve, or that our technologies will not infringe upon patents or other rights owned by others. o Any of B Twelve's patents will not be challenged, invalidated or circumvented. B Twelve may desire or be required to obtain licenses from others to develop, manufacture and market commercially viable products effectively, and there can be no assurance that such licenses will be available to us on commercially reasonable terms or at all. Patent-infringement lawsuits are common to our industry. Patent litigation proceedings are extremely expensive and could result in substantial cost to B Twelve. Patent litigation may be necessary to enforce B Twelve's rights provided by its patents or to determine the scope and validity of others' proprietary rights. Patent applications relating to or affecting our business have been filed by a number of pharmaceutical and biopharmaceutical companies in research and academic institutions (see risk factor "The competition" below). (f) The competition; We have identified a certain number of companies as competitors in terms of business plans, scientific rationale, and technologies. We have identified the following companies that are focused on the development of vitamin based or related drug delivery technologies: Access Pharmaceuticals Inc., Copharos Inc., Endocyte Inc., Manticore Pharmaceuticals Inc., and Protarga, Inc. 5 To our knowledge, other companies that are involved in the development and/or production, improved method of delivery or analogs of paclitaxel include but are certainly not limited to Bristol-Myers Squibb Co., Cell Therapeutics Inc., Ivax Corporation, Bioxell Pharma Inc., Supratek Pharma Inc., Enzon Inc., Napro Biotherapeutics Inc., F.H. Faulding & Co. Limited, Phytogen Inc., Aphios Corporation, Taxolog Inc., Cytoclonal Pharmaceutics Inc., Protarga Inc., and Mylan Laboratories Inc. The second aspect of B. Twelve's business is the development of human monoclonal antibodies (Mabs). We are aware of only three monoclonal antibodies approved in the United States for the treatment of cancer, Rituxan(R), Campath(R), and Herceptin(R), although many more are in development. (g) B Twelve's current lack of commercial manufacturing capability and its dependence on others to produce its products; To be successful, B Twelve's drug candidates must be manufactured in commercial quantities, at acceptable costs and in compliance with regulatory requirements. However, there is no assurance that we will be successful in developing consistently sufficient capacity. In addition, any manufacturing facilities of B Twelve or its sub-licensees may be subject to inspection and licensing by regulatory authorities, prior to and during the production of commercial products. There can be no assurance that we or our sub-licensees will be able to make the transition to commercial production successfully. (h) Absence of product liability insurance; Human clinical development of B Twelve's drug candidates entail an inherent risk that product liability claims would be asserted against the Company. We are not currently insured against such liability claims and there is no assurance that insurance will be available at acceptable premium rates if we are to conduct human clinical trials. Further, B Twelve will not likely have sufficient resources to satisfy significant claims, if required to do so. Product liability claims could have a materially adverse effect on our business and financial condition. (i) Dependence on key personnel; B Twelve's success is principally dependent on its current executive officer, Jean-Luc Berger, for the operation of its business. B Twelve does not yet maintain "key man" insurance on its executive officer. The loss of Jean-Luc Berger would adversely affect the business of B twelve. (j) Limited Management resources; We have no experience in manufacturing, procuring products in commercial quantities or marketing, regulatory approval process and only limited experience in negotiating, setting up or maintaining strategic relationships and conducting clinical trials, and there is no assurance that we will successfully continue or engage in any of these activities. Our business strategy requires that we establish and maintain good strategic alliances. Currently we are seeking strategic alliances but do not have any, beyond the Medarex' research collaboration agreement. We have limited experience in establishing and maintaining strategic alliances and we cannot give any assurance that we will be successful in establishing one or, if we do establish one or more relationships, be able to maintain the relationship(s) in a manner that is beneficial to us. 6 (k) Management of growth and Expansion; We will need to implement and improve our operational, financial and management information systems. Furthermore, it is anticipated that B Twelve's continued expansion in areas and activities requiring additional expertise, such as clinical trials, regulatory approvals and marketing, will require additional management and scientific personnel. Our ability to recruit and retain highly qualified management and scientific personnel is critical to our success. (l) No Assurance of Profitability; We do not anticipate any significant revenues in the near future. Our ability to successfully implement our business plan is dependent on the completion of this Offering. There can be no assurance that B Twelve will be able to develop into a successful or profitable business. (m) Currency Fluctuations; B Twelve reports its financial position and results of operations in United States dollars in its annual financial statements. Our operations may result in exposure to foreign currency fluctuations because of B Twelve Limited, our fully owned Canadian subsidiary. We are not in position to determine fluctuations in the current and future exchange rate between United States and Canadian dollars. Accordingly, we can not anticipate if such fluctuations will materially affect our financial position and results of operations. We do not currently take any steps to hedge against currency fluctuations. Risks Related to Our Industry: - ------------------------------ (n) Governmental regulation of our business; The development and manufacture of B Twelve's drug candidates are subject to regulation by governmental authorities in a number of countries. Any product being developed by B Twelve must undergo an extensive regulatory approval process. The process of obtaining regulatory approval can take many years and require the expenditure of substantial resources, and there can be no assurance that necessary approval or clearance will be obtained on a timely basis, if at all, for our products under development. In addition, delays or rejections may be encountered based upon changes in regulatory policy for product approval during the period of product development and regulatory review, and laws or regulations which may be adopted in the future could have a material adverse effect on our business and operations. (o) Animal rights; Certain of our research and development activities involve animal testing. Such activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas. To the extent the activities of these groups are successful, our business could be materially harmed by delaying or interrupting our research and development activities. 7 (p) Environmental Matters; B Twelve's discovery and development processes involve the controlled use of hazardous materials. B Twelve and its collaborators are subject to federal, provincial and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. Although we believe that B Twelve or its collaborators are in compliance, in all material respects, with all such relevant laws and regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. To date, all our research and development activities have been conducted through agreements with third parties. Therefore, B Twelve is not specifically insured with respect to this liability. Our collaborators are however carrying insurances for such liability within the normal course of their business. Risks Related to This Offering: - ------------------------------- (q) Control by officers, directors and entities affiliated with them; In the aggregate, ownership of our shares by management represents approximately 75% of our issued and outstanding shares of common stock as of date of filing. These shareholders, if acting together, will be able to significantly influence all matters requiring approval by our shareholders, including the election of directors and the approval of mergers or other business combination transactions. (r) Medarex, Inc. - anti-dilution provisions; On January 2001, Medarex Inc. and B Twelve have entered into an agreement for the research, development and commercialization of novel cancer therapeutics. We issued 400,000 fully vested shares to Medarex to be used as credit against $1,200,000 future invoiced license and royalty fees. Based on the contract valuation of $3.00 per share and anti-dilution provisions provided to Medarex, the Company valued the 400,000 shares at $1,200,000. The value, considered a prepaid expense, was recorded as deferred fees deducted from stockholders' equity, to be amortized against future invoices. (s) Secured convertible debenture; On May 1st, 2002, we issued a $100,000, 5%, Senior Secured Convertible Debenture - Series A (the "Debenture") to Credifinance Gestion S.A. (the "Investor"). Unless converted, redeemed or retracted before maturity, interest payments are due May 1, 2003 and April 30, 2004. The debenture must be paid in full on the earlier of April 30, 2004 or the closing date of the next round of financing for a minimum of $1,000,000. The debenture is collateralized by a Security Agreement on all of the Company's assets, including its patents and patent applications. At any time at the option of the holder, the outstanding principal amount of the debenture is convertible into common shares of the Company at a conversion price of $1.00 a share and accrued interest shall be payable in cash at that time. The Debenture contains various covenants some of which restrict the ability of the Company to issue further debt or issue further equity securities. The debenture contains anti-dilution provisions requiring the Company to issue additional shares to the Investor, based upon a stipulated formula, if the Company sells any additional shares at less than $3.00 per share. The debenture is redeemable by the Company with a minimum of 10 and maximum of 60 days notice to the holder, but may not be redeemed by the Company before May 1, 2003. The debenture is redeemable for cash (or common shares of the Company with approval of the holder at the conversion price as defined in the debenture ) in whole, or in part from time to time at a redemption price equal to the principal plus accrued and unpaid interest. After May 1, 2003, the holder may also elect redemption in cash only, at a redemption price equal to the principal plus accrued and unpaid interest and with notice to the Company the same as above. 8 (t) No minimum number of shares sold in this Offering; Since there is no minimum amount to be raised, proceeds from our sale of shares will be available for use by us as the funds are received. Failure to obtain sufficient financing or to obtain it on a timely basis will have a substantial adverse affect on our operations and our ability to complete our plan of operation in whole or in part. Consequently, investors may end up holding shares in a company that hasn't raised sufficient proceeds from the offering to continue operations and has an illiquid smaller market for its shares. In addition, shares of our preferred stock may be issued in the future without further shareholder approval and upon such terms and conditions and having such rights, privileges and preferences, as the board of directors may determine. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of any holders of preferred stock that may be issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding voting stock. We have no present plans to issue any additional shares of preferred stock. (u) The absence of dividends; We don't presently intend to pay dividends, and it is not likely that any dividends will be paid in the foreseeable future. Should our operations become profitable, it is likely that we would retain much or all of the Company's earnings in order to finance future growth and expansion. (v) Immediate and Substantial Dilution. An investor in this Offering will experience immediate and substantial dilution. (w) Lack of Prior Market for Securities of B Twelve; No prior market has existed for the securities being offered hereby and it is improbable that a market will develop subsequent to this Offering. (x) Investor Relations Arrangements; We have not entered into any written or oral agreements or understandings with any person to provide promotional or investor relations services for B Twelve. We currently handle our own investor relations. (y) Additional dilution and issuance of common shares for debt settlement; In connection with services provided to B Twelve, New York University ("NYU") and SEED Intellectual Property Law Group PLLC ("SEED") have agreed in principle to settle our outstanding debt with the issuance of common shares of B Twelve. If issued, NYU and SEED will be granted a "put" option to sell the common shares back to B Twelve after a period of three (3) years from the date of acceptance. In the event that NYU and SEED elect to exercise the "put" option, the common shares will be repurchased by B Twelve, at a purchase price of $1.00 per common share an in accordance with a mutually agreeable procedure. As a result, we may have to issue about 150,000 common shares to these parties in parallel to this offering. At the date of filing, we have not executed such agreement with NYU or SEED. 9 Cautionary Note Regarding Forward-looking Statements Some of the information in this prospectus contains forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events and are based on our management's beliefs, as well as assumptions made by and information currently available to them. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include the words "anticipate," "believe," "budget," "estimate," "expect," "intend," "objective," "plan," "probable" "possible," "potential," "project" and other words and terms of similar meaning in connection with any discussion of future operating or financial performances. Any or all of our forward-looking statements in this prospectus may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many of these factors, including the risks outlined under "RISK FACTORS", will be important in determining our actual future results, which may differ materially from those contemplated in any forward-looking statements. These factors include the following: Risks Related to Our Business: - ------------------------------ o Development Stage Company and Auditor's concern; o Capital requirements; o Unproven technologies and related products; o Dependence on Collaborative Partners; o B Twelve's reliance upon proprietary technologies and patents; o The competition; o B Twelve's current lack of commercial manufacturing capability and its dependence on others to produce its products; o Absence of product liability insurance; o Dependence on key personnel; o Limited Management resources; o Management of growth and Expansion; o No Assurance of Profitability; o Currency Fluctuations; Risks Related to Our Industry: - ------------------------------ o Governmental regulation of our business; o Animal rights; o Environmental Matters; Risks Related to This Offering: - ------------------------------- o Control by officers, directors and entities affiliated with them; o Medarex, Inc. - anti-dilution provisions; o Secured convertible debenture; o No minimum number of shares sold in this Offering; o The absence of dividends; o Immediate and Substantial Dilution. o Lack of Prior Market for Securities of B Twelve; o Investor Relations Arrangements; o Additional dilution and issuance of common shares for debt settlement; 10 When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this prospectus. Our forward-looking statements speak only as of the date made. Although we believe that the expectations reflected in the forward-looking statement are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as otherwise required by federal securities laws, we are under no duty to update any of the forward looking statements after the date of this prospectus to conform them to actual results or to changes in our expectations. All forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement. The Private Securities Litigation Reform Act of 1995, which provides a "safe harbor" for similar "forward looking statements" by existing public companies, does not apply to our offering. USE OF PROCEEDS Since there is no minimum amount to be raised, proceeds from our sale of shares will be available for use by us as the funds are received. All subscriptions that are accepted by us are, subject to any applicable laws, irrevocable. Because we are offering the shares on a "best efforts no minimum" basis, we cannot represent what percentage of the offered shares we will actually sell. Because there is no minimum amount of proceeds that will be raised, investors may end up holding shares in a company that hasn't raised sufficient proceeds from the offering to continue operations and has an illiquid smaller market for its shares. Funds received for this offering will be used for pre-clinical development with clinical and academic institutions and co-development research program with Medarex Inc., and the balance for G&A including costs associated to the intellectual protection of the Company's research. The following table shows our intended application of the use of proceeds as a percentage of the gross proceeds received from a minimum of 0% to a maximum of 100%: 11
- ------------------------------- -------------------------------------------------------------------------------------- Intended use of proceeds Proceeds from the offering based on a percentage of shares sold - ------------------------------- -------------------------------------------------------------------------------------- 0% 25% 50% 75% 100% - ------------------------------- ----------------- ---------------- ---------------- ----------------- ---------------- Proceeds $ - $1,250,000 $2,500,000 $3,750,000 $5,000,000 - ------------------------------- ----------------- ---------------- ---------------- ----------------- ---------------- Use of Proceeds - ------------------------------- ----------------- ---------------- ---------------- ----------------- ---------------- Product Development $ - $825,000 $1,750,000 $2,750,000 $3,750,000 - ------------------------------- ----------------- ---------------- ---------------- ----------------- ---------------- Working Capital $ - $300,000 $600,000 $800,000 $1,000,000 - ------------------------------- ----------------- ---------------- ---------------- ----------------- ---------------- Patents & Legal $ - $125,000 $150,000 $200,000 $250,000 - ------------------------------- ----------------- ---------------- ---------------- ----------------- ---------------- Total $ - $1,250,000 $2,500,000 $3,750,000 $5,000,000 - ------------------------------- ----------------- ---------------- ---------------- ----------------- ----------------
The amounts set forth above represent our best estimate for the use of the net proceeds of this offering in light of current circumstances. However, actual expenditures could vary considerably depending upon many factors, including, without limitation, changes in economic conditions, unanticipated complications, delays and expenses, or problems relating to the development of additional products and/or market acceptance for our products and services. Any reallocation of the net proceeds of the offering will be made at the discretion of our board of directors but will be a part of our strategy to develop our products and commencement of preclinical and clinical trials. Our working capital requirements are a function of our future growth and expansion, neither of which can be predicted with any reasonable degree of certainty. We may need to seek funds through loans or other financing arrangements in the future, and there can be no assurance that we will be able to make these arrangements in the future should the need arise. Pending our use of the net proceeds of the offering, the funds will be invested temporarily in certificates of deposit, short-term government securities, or similar investments. Any income from these short-term investments will be used for working capital. The net proceeds from this offering, based on historical experience, are expected to be adequate to fund our working capital needs for about 24 to 36 months if the maximum proceeds are received. If no proceeds are received, we have currently enough cash to continue our operations for about 3 to 5 months. Any intermediate proceeds from the offering will be significant in prolonging our operations proportionally to the amount. ARBITRARY DETERMINATION OF OFFERING PRICE There is no active trading market for our common stock. The initial offering price of $1.00 per share has been arbitrarily determined by us, and will not necessarily bear any relationship to our assets, earnings, book value or any other objective standard of value. Among the factors considered by us in determining the initial offering price were: o The lack of trading market; o The proceeds to be raised by the offering; o The amount of capital to be contributed by the public in proportion to the amount of stock to be retained by present shareholders; 12 o Equity investment made by Medarex Inc. in January 2001 for a total value consideration of $1,200,000 - at $3.00 per share - to be applied against future invoices. o Proceeds from private placements at $1.00 per common share; and o Secured convertible debenture of $100,000 - Series A - at 5% annual interest rate and conversion price of $1.00. DILUTION The difference between the public offering price per share and the pro forma net tangible book value per share of our common stock after this offering constitutes the dilution to investors in this offering. Net tangible book value per share is determined by dividing our net tangible book value (total tangible assets less total liabilities) by the number of outstanding shares of common stock. Dilution arises mainly from the arbitrary decision by a company as to the offering price per share. Dilution of the value of the shares purchased by the public in this offering will also be due, in part, to the lower book value of the shares presently outstanding, and in part, to expenses incurred in connection with the public offering. Net tangible book value is the net tangible assets of a company (total assets less total liabilities and intangible assets; please refer to "Financial Statements"). At March 31st, 2002, we had a net tangible book value deficiency of $532,586 or ($0.11) per share. After giving effect to the sale of the 5,000,000 shares being offered at an initial public offering price of $1.00 per share and after deducting estimated expenses of this offering ($50,000), our adjusted net tangible book value at March 31st, 2002 after the offering would have been $4,420,615 or $0.44 per share, representing an immediate increase in net tangible book value of $4,950,000 per share to the existing shareholders and an immediate dilution of $0.56 per share to new investors. The following table illustrates the above information with respect to dilution to new investors on a per share basis:
- ------------------------------- ----------------- ---------------- ---------------- ----------------- ---------------- 0% of shares 25% of shares 50% of shares 75% of shares 100% of shares sold sold sold sold sold - ------------------------------- ----------------- ---------------- ---------------- ----------------- ---------------- Initial public offering price $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 - ------------------------------- ----------------- ---------------- ---------------- ----------------- ---------------- Total Proceeds $0 $1,250,000 $2,500,000 $3,750,000 $5,000,000 - ------------------------------- ----------------- ---------------- ---------------- ----------------- ---------------- Pro-forma net tangible book (529,385) (529,385) (529,385) (529,385) (529,385) value at March 31, 2002 - ------------------------------- ----------------- ---------------- ---------------- ----------------- ---------------- Increase in pro-forma net (50,000) 1,200,000 2,450,000 3,700,000 4,950,000 tangible book value attributed to purchasers of shares, net of offering expenses - ------------------------------- ----------------- ---------------- ---------------- ----------------- ---------------- Adjusted pro-forma net $(0.11) $0.11 $0.25 $0.36 $0.44 tangible book value per share after our offering - ------------------------------- ----------------- ---------------- ---------------- ----------------- ---------------- Dilution to purchasers of $ - $0.89 $0.75 $0.64 $0.56 shares - ------------------------------- ----------------- ---------------- ---------------- ----------------- ----------------
13 PLAN OF DISTRIBUTION It is not the present intention of management that the sale of the securities being offered herein shall be through underwriters or brokers. The management intends that sales of the stock shall be conducted by officers and/or directors of the Company without payment of commissions. We reserve the right to reject any subscription in whole or in part, or to allot to any prospective investor less than the number of shares subscribed for such investor. DIRECTORS AND EXECUTIVE OFFICERS A) DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth information regarding the directors and executive officers of B Twelve. - -------------------------------------------------------------------------------- Name Age Position - -------------------------------------------------------------------------------- Jean-Luc Berger, Ph.D. 39 President & Chief Executive Officer, Director Georges Benarroch 54 Director Don MacAdam 55 Director - -------------------------------------------------------------------------------- The business experience of the persons listed above during the past five years are as follows: Dr. Jean-Luc Berger, Ph.D., President & Chief Executive Officer; Director. Director of the Company since inception on March 5, 1999. Dr. Berger is President and C.E.O. of B Twelve since May 15, 2001. He joined the Company as Chief Operating Officer in September 2000. Prior to joining B Twelve, Dr. Berger was a Pharmaceutical/Biotechnology analyst with Credifinance Securities Limited, a Toronto-based, institutional investment and research firm, since 1996. Dr. Berger obtained his M. Sc. From Universite de Montreal, his Ph.D. from Universite LAVAL and completed his post-doctoral studies at McGill University and has over thirty publications and scientific communications to his credit. Dr. Berger is member of many biotechnology organizations including the "Biotechnology Industry Organization" (BIO), the "Canadian Healthcare Licensing Association" (CHLA), the "Biotechnology Network" and is an associate member of the "Council for Continuing Pharmaceutical Education" (CCPE). 14 Mr. Georges Benarroch, Director. Director of the Company since May 5, 2000. For the past five years, Mr. Benarroch has been the Chairman, President & Chief Executive Officer of Credifinance Securities Limited, the President and Chief Executive Officer of InterUnion Financial Corporation, and the Chairman of InterUnion Asset Management Ltd. InterUnion Financial Corporation is a public company. Mr. Benarroch is also a director of Credifinance Gestion S.A. Mr. Donald MacAdam, Director. Director of the Company since November 17, 1999. Since January 2000, Mr. MacAdam is a consultant to technology companies. From 1997 to 1999, he was President and Chief Executive Officer of Tm Bioscience Corporation. Prior to Tm Bioscience Corporation, Mr. MacAdam was President of CRS Robotics Corporation from 1993 to 1996. Both Tm Bioscience Corporation and CRS Robotics Corporation are public companies. In addition to his work at B Twelve, Mr. MacAdam is currently a director of: AutoBranch technologies Inc., Mississauga, Ontario; and, Hammond Power Solutions, Guelph, Ontario. B) SIGNIFICANT EMPLOYEES B Twelve does not expect to receive a significant contribution from employees that are not executive officers or directors. C) FAMILY RELATIONSHIPS Currently, there are no directors, executive officers or persons nominated or persons chosen by B Twelve to become a director or executive officer of the Company who are directly related to an individual who currently holds the position of director or executive officer or is nominated to one of the said position. D) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS No director, or officer, or promoter of B Twelve has, within the past five years, filed any bankruptcy petition, been convicted in or been the subject of any pending criminal proceedings, or is any such person the subject or any order, judgment or decree involving the violation of any state or federal securities laws. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following persons (including any group as defined in Regulation S-B, Section 228.403) are known to B Twelve, as the issuer, to be beneficial owner of more than five percent (5%) of any class of the said issuer's voting securities as of July 31st, 2002. 15
- ------------------------ ----------------------------- -------------------------- ----------------------------- Title of Class Name and Address of Common Shares Percentage of Class Beneficial Owner - ------------------------ ----------------------------- -------------------------- ----------------------------- Common Credifinance Gestion S.A. 3,300,000 65.1% (1) Geneva, Switzerland Common Dr. Uri 902,025 17.8% Sagman Toronto, Ontario, Canada Common Medarex 400,000 9.0% Inc. New Jersey, United States Common Dr. Jean-Luc 377,025 7.4% Berger Toronto, Ontario, Canada - ------------------------ ----------------------------- -------------------------- -----------------------------
(1) Credifinance Gestion S.A., incorporated in the Canton of Fribourg, Switzerland, is a wholly owned subsidiary of Credifinance Capital Corp., a privately held Delaware corporation. A director of B Twelve, Georges Benarroch is the President & CEO of Credifinance Capital Corp. and is a non executive director of Credifinance Gestion SA. B) SECURITY OWNERSHIP OF MANAGEMENT
- ------------------------ ----------------------------- -------------------------- ----------------------------- Title of Class Name and Address of Common Shares Percentage of Class Beneficial Owner - ------------------------ ----------------------------- -------------------------- ----------------------------- Common Georges Benarroch 17,525 0.3% Common Dr. Jean-Luc Berger 377,025 7.4% Common Don MacAdam (1) 17,525 0.3% - ------------------------ ----------------------------- -------------------------- -----------------------------
Note: as of July 31st, 2002. (1) Don MacAdam owns 14,525 common shares directly and 3,000 common shares through A360 Inc., a private holding company. C) CHANGES IN CONTROL Currently, there is no such arrangement which may result in a change in control of the Company. 16 DESCRIPTION OF SECURITIES The following description of our securities and various provisions of our Certificate of Incorporation and our bylaws are summaries. Statements contained in this prospectus relating to such provisions are not necessarily complete, and reference is made to the Certificate of Incorporation and bylaws, copies of which have been filed with the Securities and Exchange Commission as exhibits to our registration statement of which this prospectus constitutes a part, and provisions of applicable law. Our authorized capital stock consists of 25,000,000 shares of common stock, $.0001 par value, of which 5,067,100 shares were issued and outstanding as of date of filing of this prospectus, and 1,000,000 shares of preferred stock, $1.00 par value, of which none are currently issued. As of July 31, 2002, there were 9 holders of record of our common stock. Common Stock Each share of common stock is entitled to share pro rata in dividends and distributions with respect to the common stock when, as and if declared by the board of directors from funds legally available funds. No holder of any shares of common stock has any pre-emptive right to subscribe for any of our securities. Upon our dissolution, liquidation or winding up of our corporate affairs, the assets will be divided pro rata on a share-for-share basis among holders of the shares of common stock after any required distribution to the holders of preferred stock, if any. All shares of common stock outstanding are fully paid and non-assessable. Each shareholder of common stock is entitled to one vote per share with respect to all matters that are required by law to be submitted to shareholders. The shareholders are not entitled to cumulative voting in the election of directors. Accordingly, the holders of more than 50% of the shares voting in the election of directors will be able to elect all the directors if they choose to do so. In October 2000, 400,000 options were reserved in trust for future issuance in accordance with an anti-dilution provision in an amended stockholder agreement. During June 2001, 125,000 of these options were granted to Credifinance Gestion S.A. and then exercised at a price of $1.00 per share. The Company recognized a consulting expense of $254,346 based on the $3.00 current fair market value of the warrants computed pursuant to the fair market value method of SFAS 123. In May 2002, Credifinance Securities Limited received a fee of 25,000 common shares from the trust for arranging the secured convertible debenture transaction and options to purchase 25,000 common shares at of the Company at an exercise price of $1.00 per share for a period of five years. At the date of filing, we have 250,000 options remaining in the trust for future issuance. Preferred Stock The board of Directors is authorized, without further shareholder approval, to issue from time to time up to an aggregate of 1,000,000 shares of preferred stock. As of July 31st, 2002, there are no issued preferred shares outstanding. Shares of our preferred stock may be issued in the future without further shareholder approval and upon such terms and conditions and having such rights, privileges and preferences, as the board of directors may determine. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of any holders of preferred stock that may be issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of our outstanding voting stock. We have no present plans to issue any additional shares of preferred stock. 17 DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to Directors, officers and controlling persons of the small business issuer pursuant to the foregoing provisions, or otherwise, the small business issuer has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the small business issuer of expenses incurred or paid by a director, officer or controlling person of the small business issuer in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the small business issuer will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. DESCRIPTION OF OUR BUSINESS THE COMPANY B. Twelve, Inc. is a development stage biopharmaceutical company incorporated in the State of Florida on March 5th, 1999. The Company conducts business directly and through B Twelve Limited, its wholly-owned Canadian subsidiary incorporated in the Province of Ontario on March 5th, 1999. The registered office of the Company is 3801 PGA Boulevard, Suite 802, Palm Beach Gardens, Florida 33407. The Company's address for service, in Canada, is 41A Avenue Road, York Square, Toronto, Ontario, M5R 2G3. B Twelve was formed to acquire a patent portfolio and the rights to early-stage compounds which have potential use as therapeutic agents for the treatment of cancer and diseases of the immune system. The Company is currently engaged in the development of a drug delivery platform technology and monoclonal antibodies that target the vitamin B12 pathway. 18 BUSINESS OF B TWELVE OVERVIEW B Twelve is developing a portfolio of targeted biologic treatments based on: (a) the delivery of cytotoxic drugs using the vitamin B12 as vehicle; and (b) the therapeutic effect of vitamin B12 depletion on abnormal rapid growth and deregulated cells, such as observed in cancer and some diseases of the immune system. Targeted disease in oncology refers to a focus on understanding the underlying cause of disease and an attempt to attack cancer at its molecular roots. This research is in sharp contrast to conventional treatments such as chemotherapy used in oncology, which indiscriminately attacks rapidly dividing cells and causes unwanted side effects. Targeted therapies pinpoint the underlying molecular process of a tumor cell while sparing normal cells and healthy tissues. The result is often a more efficacious drug with a more favorable side-effect profile. Cancer research associated with the vitamin B12 pathway is based on the hypothesis that, by interfering with the signal's source, the messages necessary for tumors to grow and stay alive - grow new vasculature, or migrate - can be blocked. Vitamin B12 regulates one of two major cellular pathways for the production of folates, the cell's primary source of carbon and the progenitor for the synthesis of DNA. B Twelve has developed receptor-specific technologies to control the uptake of vitamin B12 into dividing cells. There are two ways to prevent the proliferation signal from reaching the command center in the nucleus. They are (1) block the signaling pathway once the growth factor is already bound or (2) block the receptor from binding its growth factor. The first option is accomplished with the delivery of cytotoxic drugs issued of our enabling drug delivery platform technology and the second with monoclonal antibodies issued of our vitamin B12 depletion technology. TECHNOLOGIES & PRODUCTS B Twelve's portfolio consists of molecules at the research and development stage which may ultimately prove useful in the treatment of certain types of cancer and inflammatory diseases. We believe that there are several human therapeutics applications for B Twelve's drug candidates. Specifically, a number of properties of our drug delivery and vitamin B12 depletion technologies suggest a potential role for our drug candidates in the therapy of solid tumors such as colorectal and breast cancer in addition to treatment of leukemias. The following table summarizes our research and product development programs: 19
- -------------------------------- ------------------------- ------------------------- --------------------------------- Technologies Drug Candidates Target Indication Phase of Development Status - -------------------------------- ------------------------- ------------------------- --------------------------------- Drug Delivery - -------------------------------- ------------------------- ------------------------- --------------------------------- Bioconjugate Paclitaxel Oncology Proof of concept Constructs Doxorubicin Oncology Proof of concept Carboplatinum Oncology Proof of concept - -------------------------------- ------------------------- ------------------------- --------------------------------- Anchor Technology - -------------------------------- ------------------------- ------------------------- --------------------------------- Targeted - Oncology Discovery liposome - -------------------------------- ------------------------- ------------------------- --------------------------------- Vitamin B12 Depletion - -------------------------------- ------------------------- ------------------------- --------------------------------- Monoclonal Transport Oncology Proof of concept Antibodies protein Receptor Oncology Development - -------------------------------- ------------------------- ------------------------- --------------------------------- Depletion Agents Receptor Oncology Proof of concept modulators - -------------------------------- ------------------------- ------------------------- ---------------------------------
B Twelve's lead drug candidates include a selectively targeting bioconjugate of paclitaxel (also known as Taxol(R)) and vitamin B12, and monoclonal antibodies currently being co-developed with Medarex Inc., a biotechnology company. A diverse proprietary intellectual portfolio, which includes 9 issued, and 17 pending patent applications, protects B Twelve's technologies (see "Intellectual Property" Section, below). SCIENTIFIC & THERAPEUTIC RATIONALE Vitamin B12 (or cobalamin) is an essential cofactor required for DNA synthesis in proliferating cells. B Twelve has developed receptor-specific technologies to control the uptake of vitamin B12 into dividing cells. Depletion of B12 levels in cells leads to inhibition of cellular proliferation and induction of apoptosis, or programmed cell death, in tumor cells. The science underlying the importance of vitamin B12 and the effects of vitamin B12 depletion is well known. Experimental data in vitro, in pre-clinical animal models, and in patient studies have demonstrated the absolute requirement of proliferating normal and neoplastic cells for vitamin B12. The feasibility of using vitamin B12 depletion as therapy to treat cancer has been established in patients. Clinical studies were performed using nitrous oxide to obtain whole body inactivation of vitamin B12 (through an oxidation process) resulting in a dramatic decline of leukemic cells in patients in the blast crisis phase of acute myeloblastic leukemia. (Lassen, HCA and Kristensen ,HS. Remission in chronic myeloid leukemia following prolonged nitrous oxide inhalation. Danish Med Bull, 6:252-254, 1959; Eastwood, D.W. et al. Effect of nitrous oxide on the white-cell count in leukemia. New Eng J Med, 268:297-299, 1963.) While the results obtained from both patients and animal studies have revealed useful potential therapeutic application of vitamin B12 depletion as anti-cancer therapy, the results gained little recognition and no real application due to the impracticality of the therapy and its toxicity. 20 In the cell, vitamin B12 is used as an essential enzyme cofactor in the production of folates which are ultimately the carbon source for nucleotide and DNA synthesis. The two key enzymes involved in folate production are methionine synthase (MS) and dihydrofolate reductase (DHFR). The latter enzyme has been a prime target for the design of anti-cancer agents, such as methotrexate, one of the most widely used drugs. The former is B Twelve's target for regulation. There is currently on the market existing anti-folate drugs which interfere with other parts of the folate cycle. These include chemotherapeutic drugs such as methotrexate and 5-fluoraracil (5-FU), which are widely used in cancer treatment. However their efficacy is limited by significant toxicity and ultimately the induction of drug resistance. Vitamin B12 depletion has been demonstrated to kill cancer cells that are resistant to such conventional chemotherapeutic drugs. In Human, vitamin B12 is acquired by the diet. After being released from food, vitamin B12 is transferred across the digestive tract to the blood stream where it binds with a carrier protein, known as transcobalamin II ("TCII"). Then, the vitamin B12/TCII complex is transported in the blood and eventually recognized by high affinity receptors (TCII/ B12 receptors) present on dividing cells. The receptors are specific to the TCII/vitamin B12 complex and solely responsible for internalization of vitamin B12 into dividing cells. The receptors are undetectable or non-active on non-dividing cells but are activated and highly expressed when cells are stimulated to divide thus allowing for vitamin B12 uptake. For uptake of vitamin B12 by the cell, the vitamin B12/TCII complex first binds to the cell receptor. The receptor internalizes into the cell and releases the vitamin B12/TCII complex. It then recycles to the surface and is once again available for further binding. Rapidly dividing cells associated with cancers and other proliferative diseases express far more receptors than most normal cells. At the present time, over expression of activated vitamin B12 receptor has been found on all of the human solid tumor cell lines that have been examined. These include both hematological malignancies (leukemia and lymphoma), and solid tumors such as colon and breast cancers. It is B. Twelve's mission to develop a commercially viable therapeutic approach based on vitamin B12 depletion in and more targeted fashion, including the delivery of therapeutic agents. A major thrust of the research program of the Company has been to develop drugs that could repeat and improve upon the therapeutic efficacy of vitamin B12 depletion. A therapeutic niche therefore has been established by demonstrating the potential of vitamin B12 depletion to circumvent drug resistance or in turn for vitamin B12 depletion to be used in combination with other drugs as adjunct to conventional chemotherapy. This overall approach further resulted in the development of a drug delivery platform using the vitamin B12 as a vehicle to deliver chemotherapeutic agents to tumors in a selectively manner. B Twelve's Drug Delivery Technology B Twelve is currently using vitamin B12 as a vehicle to deliver cytotoxic drugs selectively to tumors. The process can be achieved by taking advantage of a proprietary technology and expertise based on known biological transport mechanisms. The technology, known as bioconjugation, creates a molecular complex ("bioconjugate") through the non-covalent binding of a transportable state of the drug with the vitamin B12. The technology is designed to protect drugs from degradation whilst allowing absorption through specific binding to a receptor. 21 Prior to development, potential drug candidates have to meet some criteria including: (a) Technical feasibility, (b) Established biology and clinical enabling animal models, (c) Unmet medical need, (d) Therapeutic opportunity, (e) Commercial potential, (f) Patent protection, and (g) Potential partnering. A) Bioconjugates Since oncology is an area of expertise of B Twelve, we demonstrated that the vitamin B12 molecule could be derivatized and attached to different antineoplastic agents, and yet maintain binding to the TCII carrier molecule and its respective receptor, resulting in effective delivery and release of the drug to the tumor. A number of different types of bioconjugates were produced, including those with marketed chemotherapeutic agents such as: (a) Paclitaxel (Taxol(R)), (b) Doxorubicin, and (c) Carboplatinum. B) Anchor Technology B Twelve has initiated the development of a new generation of vitamin B12 targeted liposome technology. Targeting factors which can be attached to these liposomes include monoclonal antibodies and other proteins. This approach is aimed at delivering a high drug payload, specifically to targeted cells, with the intent to improve the therapeutic index and reduce toxicity. TARGETED DRUG DELIVERY TECHNOLOGY We developed a core drug delivery technology that permits to generate: 1) vitamin B12 bioconjugates that are used as a vehicle to deliver drugs selectively to tumors via a receptor-mediated pathway. 2) vitamin B12 analogues that are used to deplete the same tumors of the vitamin B12, an essential co-factor for the biosynthesis of methionine and nucleic acids (see "Depletion Technologies", below). We use the terms bioconjugates and analogues for drug candidates involved in drug delivery and depletion technologies, respectively. A unique feature of our technology has been to found that the vitamin B12 needed to be conjugated at a specific site in order to retain its binding capacity to the TCII, its plasma protein carrier. The vitamin B12 includes six primary amides around the central corrin ring structures, which primary amides are labeled a-e, and g. The e-position of vitamin B12 proves most useful in drug delivery because conjugates and analogues derivated at the e-position bound most strongly with TCII, which is required for the receptor mediated drug delivery (Pathare P.M., et al. Synthesis of cobalamin - biotin conjugates that vary in the position of cobalamin coupling. Evaluation of cobalamin Derivatives binding to Transcobalamin II, Bioconjugate Chemistry, 7; 217-232, 1996). 22 The e-isomer vitamin B12 can be further conjugated to a cytotoxic drug via a linker group. The resulting bioconjugate, provides an anti-tumor effect as a result of a specific, receptor-mediated event. We generated candidate molecules, which have been shown to achieve the following in cell culture experiments: o reduction of cell surface receptors following treatment o killing of tumor cells o induction of apoptosis (programmed cell death) in tumor cells o inhibited by native B12, demonstrating that the killing effect is specific and requires uptake via the receptor-mediated system. o works in the presence of the vitamin B12 carrier protein TCII, which is required for cell surface receptor binding and subsequent internalization. The coupling of vitamin B12 to the cytotoxic agents selected by B Twelve resulted specifically in the uptake of the drug candidates by the normal mechanisms of transport. The bioconjugates were dependent of the TCII level in the medium and being taking up by the TCII/receptor mediated pathway, resulting in apoptosis (death) of the cancer cells, both in vitro and in vivo. Because the uptake is TCII-mediated, toxicity can be prevented or reversed by dosing with plain vitamin B12, which ties up the TCII and reverses or blocks further uptake. Further experiments, including animal models are underway to better understand the mode of action of those new bioconjugates. Should these results be established by further testing and studies, it would indicate that our drug candidates, if used as cancer chemotherapeutic agents, would tend not to cause many of the side effects associated with or attributable to currently administered chemotherapies, which are less target-specific. We therefore believe that development and commercial exploitation of the subject drug candidate(s), as to the success of which no assurances can be given, may lead to a drug formulation which will attack certain malignant tumors while producing fewer or less severe manifestations of the side effects caused by many chemotherapies currently administered. B TWELVE'S PROPOSAL B Twelve's bioconjugate and anchor technologies are applicable to a very broad range of therapeutic areas. Each specific technology has the potential to target a large number of therapeutic candidate targets for creation of bioconjugate candidates. New drug candidates can be synthesis from: (b) Existing drugs (c) Generic drugs (d) Molecules in development. (e) Molecules with attractive biological activity and potency that were never developed because of too short half-life of activity for commercial utility or inadequate safety profile. 23 We believe that B Twelve's core drug delivery technology exhibits a number of properties that would make it attractive to potential partners and be commercially viable: (a) Core component (vitamin B12) and linker are safe and non toxic (b) Core technology is protected by issued patents (c) Versatility of the technology (d) Diverse drug payloads (e) Permit rapid drug creation (f) New bioconjugate constructs are patentable (g) Availability and low cost of raw material and (h) Easy to scale-up and technology transfer. We intend to exploit the concerns about the toxicity of synthetic materials used in various drug delivery technologies. Others that explored the use of naturally occurring drug carrier systems such as platelets, albumin, erythrocytes, viral particles, and lipoprotein particles have exploited such concerns. The drug candidates created by our bioconjugation technology platform are to be administered by intravenous injection or rapid infusion. It permits to the reactive bioconjugates to rapidly reach their target and bond their receptor in a highly selective manner. When a bioconjugation technology is applied to existing drugs, it creates new chemical entities (NCE) with substantially improved pharmacokinetic profiles, broadened therapeutic indices, and other advantages. Also, drug development risks can be reduced because the bioconjugate can utilize drug moeities whose pharmacology and toxicity profiles are already well understood. If manufacturing processes for the Drug Moeity are already developed then the final chemical modification steps to form a bioconjugate are usually fairly easy to achieve in a low risk, low cost conventional medicinal chemistry manufacturing process. The timeline required to progress from project feasibility to bioconjugate synthesis to pilot preclinical studies to formal preclinical development is normally a matter of months, not years. From a regulatory perspective, a bioconjugate will undergo the same review process as other NCE's. Still, a therapeutic bioconjugate with a reactive chemistry component has the potential to raise a number of regulatory questions. DEPLETION TECHNOLOGIES ANALOGUES OR DEPLETION AGENTS As mentioned above, B Twelve has created a class of agents known as "analogues or depletion agents", with the selectivity of the natural ligand (vitamin B12) for its receptor, that cause a reduction in the number of receptors through alterations in receptor movement on the surface of and within the cell. Treatment with such drugs eventually result in cells devoid of receptors for a period of time that are unable to respond to binding of the natural ligand and triggering of biological responses i.e. biological unresponsiveness. Such drugs would be fundamentally more effective in regulating biologic responses than existing antagonist approaches because: o they catalyze the depletion of cell surface receptors in a ligand-specific fashion and are therefore more potent and longer acting than antagonists o they can be potentially applied to most receptors; including receptors which transduce signals o they require only knowledge on the molecular structure of the ligand to develop drug candidates, without knowledge of receptor structure (unlike rational drug design) 24 o they may be able to receive selectivity of action, even with a non-selective targeting moiety, due to differential processing of the agents by different cell types o In some cases, receptor modulators may be designed to have a longer serum half-life or activity in the body compared to existing agonists or antagonists o As a design feature required for their activity, they may have a higher binding activity for the receptor than the natural ligand A number of different types of vitamin B12 analogues were produced: o Dimerization of vitamin B12. Dimeric forms of vitamin B12 bind even more avidly to TCII than natural vitamin B12. Further, these derivatives result in formation of a complex containing two TCII molecules. Such molecules might be capable of cross-linking cell surface receptors and trigger more efficient internalization o Conjugates with Reporter Functions. The reporter moiety is designed to allow the in vitro and in vivo properties of new molecules to be readily assessed. Biotin derivatives (as a reporter moeity) have been produced. o Radioiodinatable Derivatives of vitamin B12 were designed to obtain high specific activity radiolabelled vitamin B12. Such derivatives have been obtained to trace the mechanism of action of the compounds. o Derivatives of vitamin B12. Most importantly, the vitamin B12 molecule could be derivatized (attached to different chemical groups), and binding TCII retained. This is critically important in order to preserve specificity in receptor binding and to subsequently add groups capable of modulating the vitamin B12 receptor. B TWELVE'S MONOCLONAL ANTIBODIES The second aspect of B. Twelve's business is the development of human antibodies. Many of the product development issues for antibodies have been addressed over the last ten years including immunogenicity and scale-up manufacturing for therapeutic applications resulting in the approval or pending approval of a number of products in the United States and Europe. B Twelve is developing monoclonal antibodies as vitamin B12 receptor control agents for certain pharmaceutical applications including treatment of cancer and autoimmune diseases. The cell surface receptor for vitamin B12 requires that the vitamin B12 molecule be associated with the serum carrier protein TCII for recognition and uptake. Consequently, there are three ways in which antibodies could be used to block vitamin B12 uptake resulting in cellular depletion: o Type 1: binds the TCII molecule; These Mabs which react to apo-TCII (no vitamin B12 bound) at the binding site for vitamin B12 inhibit uptake of vitamin B12 into the carrier protein, thereby preventing uptake by the B12/TCII receptor 25 o Type 2: binds the TCII-vitamin B12 complex; These Mabs deplete cellular vitamin B12 by binding to holo-TCII (bound to vitamin B12) and inhibiting its interaction with the B12/TCII receptor o Type 3: binds the vitamin B12 receptor; These Mabs bind to the receptor itself and prevent its contact with the B12/TCII complex Development of fully human antibodies of the above types is currently the subject of a co-development program and partnership between Medarex Inc. and B Twelve. B TWELVE'S PROPOSAL The pharmaceutical industry is recognizing that human monoclonal antibodies are the fastest, most cost-effective route to creating novel therapeutic products using the plethora of newly discovered targets. The key to our co-development program with Medarex is the creation of high affinity, fully human antibodies against our proprietary targets in a matter of months through a development program named "T-12 DevelopmentSM", using the HuMAb-Mouse technology. While traditional drugs generally require five or more years for pre-clinical development alone, according to Medarex, we have the potential of taking a new product from the initial target to initiating clinical trials in as few as 12 months. Antibody product development offers several advantages when compared with traditional pharmaceutical development. Compared to small-molecule chemical entities, antibodies can be quickly generated against biological targets, providing a much faster means of bringing a product to the clinic. Conventional small molecule therapeutics generally go through a very lengthy and unpredictable discovery process. In contrast to small molecule development, antibody therapeutics would have a more rapid discovery process and cost less to develop. The HuMAb-Mouse of Medarex creates fully human high-affinity antibodies in a matter of months avoiding the need for humanization or complicated genetic engineering. The HuMAb-Mouse system is reported to be reliable and generates high quality human antibodies with measured affinities from 100 to over 1,000 times greater than the affinities of antibody products currently on the market. Following generation in the Medarex mouse system, the HuMAbs can be readily transferred to stable hybridoma cell lines for standard large-scale production. Native monoclonal antibodies derived from mice ("murine") are potent immunogens and can, with repeated administration, provoke a powerful human anti-mouse antibody (HAMA) response. A patient's immune response recognizes murine antibodies as foreign substances, and when treatment is administered more than once, it mounts an immunogenic reaction called human anti-mouse antibody or HAMA response. HAMA response clears the murine antibodies rapidly from the serum, preventing them from reaching the disease target to deliver their therapeutic activity. During this clearing process, large immune response complexes are formed, and inflammatory cytokines are released, causing patients to experience flu-like symptoms (i.e. chills and fevers) and allergic reactions which, in severe cases, can lead to systemic shock or death. With larger antibody doses, serum sickness and organ damage may result. Several approaches have been developed to reduce or prevent HAMA responses. Portions of antibodies, such as Fab fragments, that include the original murine variable regions retain binding specificity and provoke a HAMA response much less frequently than do intact mouse antibodies. However, Fab fragments usually rely on lethal conjugates for 26 cytotoxicity, since they lack the Fc portion through which antibodies interact with immune effector cells and complement. Chimeric antibodies retain murine variable regions couple to human constant regions. Humanized antibodies contain only the hypervariable or complementarity-determining regions (small segments of the variable region that account for the antigen specificity) for the original mouse antibody. The relative merits of these approaches have not been clinically evaluated or compared. The risk of HAMA Formation may also vary according to tumor type. Patients with B cell malignancies have been reported to develop HAMA less frequently than those with T-cell malignancies or solid tumors. Disappointingly low levels of cytotoxicity were reported during initial clinical experience with unmodified murine antibodies, which typically interact weakly with human immune effector mechanisms. There are, however, numerous potentially effective means by which monoclonal antibodies can induce tumor cell death. Today, the majority of Mabs being developed, as opposed to their murine and chimeric predecessors, are created using human genes as to closely mimic the natural antibodies found within the human body. This humanizing process significantly improves the safety and efficacy profile since it minimizes the immunogenicity problems, which have been largely considered the weakness of antibody therapy. Better yet, transgenic mice (mice with human antibody genes inserted) and phage display technologies have recently become commercially available, enabling drug companies to generate fully human antibodies rapidly, eliminating immunogenicity problems together. Transgenic mice technology, such as offered by Medarex, has the capacity to generate high affinity human antibodies in a rapid and cost efficient manner. The genetic makeup of these transgenic mice strains has been altered through a series of genetic manipulation such that the endogenous antibody genes are silenced and replaced with a set of human antibody genes. The end result, a hybridoma cell line producing fully human antibodies against the desired antigen target, is a vast improvement over the traditional hybridoma method. Overall, transgenic mice technology offers three key advantages for antibody development: a) No immunogenicity; b) Reduces time of development; and c) Lower royalty obligation. For all the reasons describe above, we made the decision to go through the fully human version of its first generation of antibodies. Overall, the new generation of antibodies generated with Medarex is anticipated to confirm the biological activities already observed. B Twelve believes that products based upon this technology would have several advantages over existing anti-proliferative agents and other experimental antibody cancer therapies. Advantages of B Twelve's candidates to other therapeutic antibody products are outlined below and in particular the company has defined on the following competitive attributes in pursuing its product development strategy: 27 o Greater accessibility to target: Currently available antibody-based tumor therapies are limited by tissue access. As the Company's Mab bind to a more accessible carrier protein in serum, (TCII), they are not restricted in delivery only to tumor cells in proximity to blood vessels. o Less modification of the antibody: A therapeutic effect should result purely from the binding of the antibody to transcobalamin (TCII), the essential carrier protein for vitamin B12. This contrasts with other antibody therapies where there may be loss of antibody specificity or potential for toxicity due to conjugation with toxins, drugs or isotopes. o Lower antibody dose: The levels of vitamin B12 cellular receptors and carrier proteins in humans are typically very low. The Company estimates that this will translate into a very low dose of antibodies necessary to achieve therapeutic results. o Reversible side effects: Studies of patients with hereditary deficiencies of TCII indicate that the effects on normal tissues caused by the inability of vitamin B12 to enter the cell can be overcome by administration of very high doses of vitamin B12. Market and Competition CANCER OVERVIEW We believe that there are several human therapeutics applications for B Twelve's drug candidates. A number of properties of B Twelve's drug delivery and vitamin B12 depletion technologies suggest a potential role for the Company's drug candidates in the therapy of solid tumors such as colorectal and breast cancer in addition to treatment of leukemias. Existing therapies in oncology are generally toxic and frequently ineffective. As a result, the cancer market is dominated by research and development efforts aimed at safer and more effective agents. For these reasons, the primary focus of current research is on innovative approaches to the disease and agents that work along new biological pathways as reflected by the emergence of novel targeted therapies. More specifically, competitors for the development of new therapeutic products to treat cancer also focus on monoclonal antibody based cancer therapeutics, cancer vaccines and other approaches that are based on both active and passive immunotherapies and small molecule discovery and development. Competition in our industry is intense and is expected to increase as disease management and patient compliance become more important in the overall challenge to contain health care costs. Cancer is not a single disease, nor is it a simple one; rather it is a family of at least 100 diseases that vary in age of onset, rate of growth, diagnostic, response to treatment and prognosis. Cancer results from an abnormal, rapid growth of cells. These cells divide and multiply unchecked, often becoming tumors that invade healthy tissue. They also quickly adapt to changes in their environment and are capable of developing mechanisms of resistance to accepted treatment regimes. Surgery, radiation and chemotherapy remain the principal effective treatment for cancer. In addition, although the reason is not clearly understood, many cancer drugs are effective in only a subpopulation of individuals with the same disease. 28 Given the vast affected population and the continuing toll in terms of morbidity and mortality, cancer is major focus of drug research interest. According to Decision Resources, in 1997, approx. 6.3 million people worldwide died from some form of cancer, and most major international cancer agencies expect this number to double by 2022. According to the International Labour Organization, the biggest cause of death in the workplace was found to be cancer, causing about 640,000 or 32% of deaths. It is followed by circulatory diseases (23%), accidents (19%), communicable diseases (17%) and respiratory diseases (7%). Worldwide, an estimated 10 million people are diagnosed with some type of cancer annually. In North America, where the incidence is approximately 1.25 million cases per year, cancer is the second leading cause of disease-related death, behind cardiovascular disease which is predicted to surpass in the next few years. The principal reasons for this projection appear to be the aging population in more developed countries, environmental issues related to industrial development, and improvements in the treatment of cardiovascular disease. North America, Europe, and Japan are the principal markets for cancer therapies because of the established healthcare and payor systems. One of every four deaths in the United States is caused by cancer, making it the second leading cause of death in the country next to cardiovascular diseases. The U.S. National Cancer Institute (NCI) estimates that about 8 million Americans have or have had some form of cancer. Cancer claims annually about 560,000 American lives. The annual incidence of cancer in the seven major developed markets (U.S., Japan, U.K., Germany, France, Italy and Spain) is over 2,000,000. Of those patients treated annually, more than 800,000 will become refractory (unresponsiveness) to chemotherapy, often developing multi-drug resistance and metastatic tumors. Despite significant strides in reducing cancer mortality, many patients still fail to respond to any of the current therapies and in fact 45% of all cancer patients develop resistance to the drugs used to fight their disease. The principal type of cancer in the United States, accounting for approximately half of the incidence of all cancers, are prostate, breast, lung and colorectal. These four types of cancer are also responsible for the highest combined mortality, accounting for approximately 50% of all cancer deaths in the United States. Bladder, ovarian, brain and oral cancer, as well as lymphoma, leukemia and melanoma account for the majority of the balance of cancer deaths. The incidence of a particular cancer varies greatly between continents, principally because of diet and habit. Overall costs of the disease are $107 billion annually; $37 billion in direct medical costs. According to The Pharmaceutical Research and Manufacturers of America (PhRMA) in 1999, pharmaceutical companies were developing about 350 new medicines for cancer, some of which were in development for more than one type of the disease, for a total of over 525 projects. The medicines include 63 for breast cancer, 58 for skin cancer, including melanoma, 58 for lung cancer, and 46 for colon cancer, the second leading cancer killer of both men and women. According to a study from Business Communications Co., Inc., the worldwide cancer drug market approached $14.8 billion in 2000. Growing at an AAGR (average annual growth rate) of 12.5%, this market is expected to exceed $26.7 billion in 2005. Between 2000 and 2005, an estimated 134 new drugs (including innovative products as well as new formulations and/or indications for existing drugs) to treat cancer will be introduced, which are expected to generate a 75% increase in worldwide cancer drug sales. Established product lines currently constitute nearly 90% of the market with estimated sales of $13.2 billion in 2000. This segment will grow at an AAGR of 6.6% through the period to reach $18.2 billion in 2005. The use of cancer therapies is forecast to increase as diagnostics methods improve and, in particularly, as more effective treatments are developed. 29 The market for innovative therapies was estimated at $1.5 billion in 2000 and, with an AAGR of 40.2%, is likely to total $8.6 billion in 2005. Indeed the entire market could nearly double in size from 2000 to 2005. North America leads the regions with approximately 47 percent of the global sales, followed by Europe with 24 percent and Japan with 16 percent. The factors contributing to this growth are the social need for more effective treatments, the increasing understanding of the disease and the positive climate at the FDA and other regulatory agencies (promising cancer treatments are given priority by these agencies). DRUG DELIVERY INDUSTRY The innovative drug industry is estimated to have total worldwide annual sales in excess of $300 billion and is growing at an annual rate of approx. 10%. But the branded industry is also facing patent expirations over the next five years on drugs that generated close to $35.0 billion in U.S. sales alone in 1999. Thus, we intend to clearly take advantage of an industry that has historically rejuvenated itself with the development of new premium-priced breakthrough therapies that have obsoleted older drugs and opened up entirely new markets. According to industry sources, the drug delivery market was worth over $40 billion in 1999 and is anticipated to double by the year 2005. Drug delivery has become one of the fastest growing areas in the pharmaceutical industry with companies increasingly turning to novel delivery systems in order to: 1. Extend the patent life of existing drugs 2. Increase product portfolio 3. Enhance safety and efficacy 4. Reduce unwanted side-effects 5. Improve patient compliance, 6. Take advantage of the regulatory approval cycle process, and 7. Maintain product sales against competition. Novel systems have also been designed to provide new therapies by modifying the activity of existing compounds. A wide range of drug delivery technologies has specifically been designed to solve biological problems and physiological constraints with clear clinical and cost benefits over existing therapies. In the past, drugs have generally been administered orally or by injection, although the steady plasma drug concentrations that are normally required for optimal efficacy and safety of a drug are difficult to achieve with these methods of delivery. Currently, candidates issued of B Twelve's proprietary technology are aimed to be delivered to the body via the intraveinous (iv) route. The iv route is generally used in situations where rapid responses are required, or where there is no alternative because absorption is impaired or not feasible by other routes. Even by the iv route it is possible to modify the kinetics of disposition, and sometimes the metabolic profile of the drug, by its incorporation into vesicles, such as liposomes, or its attachment to a carrier. 30 PACLITAXEL New anti-cancer drugs showing efficacy and improved safety profile can have a major influence on the market. This has been demonstrated by Taxol(R) - paclitaxel -, which is now approved for ovarian, breast, and lung cancers as well as for AIDS-related Kaposi's sarcoma. In just its second year on the market back in 1994, Taxol(R) was the leading drug for this market with sales advancing 168% to $375 million (ovarian cancer was the first approved indication). BMS - Bristol-Myers Squibb Co. - reported sales of $1.5 billion for Taxol in 1999 with over 130,000 patients treated pa. The explosive growth rate of Taxol(R) since its introduction reflects the very limited alternatives available for the effective treatment of solid tumors. The field is in its infancy and the introduction of the second and third generations of improved drugs should accelerate market growth. Despite generic competition, BMS reported sales of Taxol(R), the Company's leading anti-cancer agent, of $330 million for the first quarter of 2001. Domestic sales decreased 28% to $179 million (due to generic competition), while international sales increased 9% to $151 million, led by strong sales growth in Japan and France. Paclitaxel, or commonly referred to as "Taxol" of Bristol-Myers Squibb Co., was discovered by the National Cancer Institute ("NCI") in the United States in the early 1960's. Despite promising anti-tumor activities, development of paclitaxel as an anti-neoplasic agent progressed slowly because paclitaxel's scarcity and the difficulty of large-scale isolation, extraction and preparation. In January 1991, after an open competition initiated by the NCI in 1989, BMS was selected and given exclusive rights to develop and market paclitaxel pursuant to a cooperative research and development agreement with the institute. Since, paclitaxel received marketing approval in more than 50 countries around the globe for late stage ovarian and metastatic breast cancer. But still, a major side-effect observed in the use of Taxol(R) has been the damage to the bone marrow, resulting in severe anemia, infections, diarrhea, mouth ulcers and hair loss. The hypersensitivity reactions were initially life-threatening but they are now controlled with a strict regime of premedication. The severity of the neutropenia is now being reduced with a bone marrow stimulating medication called GCSF. There is no patent on the composition of paclitaxel and BMS does not hold any orphan drug status on the drug. As a result, patents relating to paclitaxel focus on method claims for the treatment of malignancy, and compositions of matter claims have been granted for a large number of paclitaxel analogs or derivatives. More recently, many companies have focused on the development of new drug delivery system to reduce the side-effects associated to paclitaxel and its derivatives. Due to the therapeutic potential of paclitaxel, over 200 patents have been issued in the United States regarding the above mentioned claims. Paclitaxel is an antimicrotubule agent that promotes the assembly of microtubules from tubulin dimmers and stabilizes microtubules by preventing depolimerization. In vitro, paclitaxel exhibits cytotoxic activity against a wide variety of both human and rodent tumor cell lines including leukemia, non-small cell lung carcinoma, small-cell lung carcinoma, CNS carcinoma, melanoma, renal carcinoma, ovaria carcinoma and breast carcinoma. 31 COMPETITION LANDSCAPE We have identified the following players as comparables and/or competitors in terms of business plans, scientific rationale and technologies: Endocyte, Inc is a private U.S. based biotechnology company focused on vitamin based drug targeting and delivery systems. Similarly to B. Twelve, Endocyte's mission is to use vitamins as "trojan horses" to target and deliver diagnostic and therapeutic agents into cells for treatment of diseases. Endocyte's lead project is the use of the vitamin folate to target and deliver anticancer agents. Protarga, Inc. is a private U.S. based pharmaceutical company that has developed a technology involving the chemical attachment of natural fatty acids to therapeutic agents that are accumulated by the cells. The Company's first product candidate, Taxoprexin(R) Injection for cancer chemotherapy, is currently being evaluated in eight Phase II clinical studies in the US and Europe. Copharos Inc. is a private U.S. based biotechnology company that has developed a method of attaching radioactive atoms to vitamin B12, such that the resulting compound can be used with a standard gamma camera to detect and image sites of cancer in the human body. This compound is designated as DTPA-adenosylcobalamin, or "DAC," which is then labeled with Indium-111, one of several common radioisotopes used for imaging. The focus of Copharos is medical imaging and breast cancer. Manticore Pharmaceuticals Inc. is a private U.S. based biotechnology company that has developed a method to target the delivery of cytotoxic anticancer drugs to tumor cells by using vitamin B12 as delivery vehicle similarly to B Twelve's approach, except that their bioconjugates are synthesized by attaching cytotoxic drugs to the cobalt atom of cobalamin. The bioconjugates need to be activated by ultrasound to cleave the C-Co bond, thereby allowing release of the drug. They also developed fluorescent cobalamin conjugates ("CobalaFluors") that may be useful as diagnostic imaging agents in breast cancer surgery and other diagnostic procedures where it is desirable to visualize cancer cells, similarly to Copharos Inc. Access Pharmaceuticals is a public U.S. based pharmaceutical company that has proprietary patents or rights to seven drug delivery technology platforms: synthetic polymer targeted delivery, vitamin mediated targeted delivery (including oral), bioerodible hydrogel technology, nanoparticles, Residerm topical delivery, carbohydrate targeting technology and agents for the prevention and treatment of viral diseases, including HIV. To our knowledge, other companies that are involved in the development and/or production, improved method of delivery or analogs of paclitaxel include but are not limited to Bristol-Myers Squibb Company, Cell Therapeutics Inc., Ivax Corporation, Bioxell Pharma Inc., Supratek Pharma Inc., Enzon Inc., Napro Biotherapeutics Inc., F.H. Faulding & Co. Limited, Phytogen Inc., Aphios Corporation, Taxolog Inc., Cytoclonal Pharmaceutics Inc., Protarga Inc., and Mylan Laboratories Inc. 32 MONOCLONAL ANTIBODIES The second aspect of B. Twelve's business is the development of human monoclonal antibodies (Mabs). There is a large spectrum of biotechnology companies engaged in the development of Mabs therapies. Invariably technologies developed by these companies target cancer, AIDS and autoimmune disorders, in addition to cardiovascular, viral and organ transplant indications as well as medical diagnostics. Antibody-based approaches developed by these companies include toxin conjugates, radioisotope conjugates, and unconjugated antibodies. Monoclonal antibodies were one of the first therapeutic products issued of the biotechnology industry. Unlike most conventional drugs, these recombinant proteins possess intrinsic properties that empower them to selectively neutralize disease-causing targets without harming healthy neighboring cells. However, in the early 1990s, the first generation of monoclonal antibodies experienced clinical trial failures due to their murine nature. Many product developments were derailed in 1992 when data from various clinical trials revealed no clinical difference between the treated group and placebo and, in fact, suggested that treatment may even have been harmful. The first generation of Mabs failed human clinical development for the following reasons: A) Immunogenicity problems or HAMA response: Since Mabs were made from murine genes, immunogenicity issues were largely responsible for causing toxicity and neutralizing efficacy. B) Inadequate cytotoxic activity: Because they originate in mice, these antibodies were unable to activate important human immune function. C) Poor target selection: Targets chosen were not appropriate for antibody-based therapy often due to target hindrance and/or expression. Among the first generation antibodies, the only therapeutic antibody to reach the market was Johnson & Jonhson's OrthoClone (OKT3), which was approved in 1986 as an immunosuppressive agent to treat patients undergoing kidney transplantation. Due to its significant toxicity profile, however, OrthoClone has remained a niche product for end-stage transplant patients with market potential of $50 million and is still the only murine monoclonal antibody authorized as therapeutic. Among cancers, lymphomas have been an attractive target for antibody therapy. A number of antigens have been associated with solid tumours, and Mabs based therapeutic products targeting those antigens have been produced. Many of them are now in various stages of clinical development and these antigens include: the epidermal growth factor receptor (EGF-R), carcinoembryonic antigen (CEA), Tag 72 (tumour-associated glycoprotein 72), LeY (Lewis Y antigen), gd2 (ganglioside D2), transferring receptor, epcam (epithelial cell adhesion molecule), tumour necrosis factor, PSMA (prostate-specific membrane antigen) and numerous others. The excitement surrounding Mabs began in November 1997, when the FDA approved RituxanTM (Rituximab) for the treatment of advanced, recurrent non-Hodgkins lymphoma -- the first time a monoclonal antibody had ever been cleared for use in cancer therapy. 33 We are aware of only three monoclonal antibodies approved in the United States for the treatment of cancer, Rituxan(R), Campath(R), and Herceptin(R), although many more are in development.
Approved Anti-Cancer Antibody Products in The United States. - ------------------------------ --------------------- ----------------------------------------- ------------ Company Product/Type Indication Status - ------------------------------ --------------------- ----------------------------------------- ------------ IDEC Pharmaceuticals/ Rituxan(R) Non-Hodgkin's lymphoma 1997 Genentech "Chimeric" - ------------------------------ --------------------- ----------------------------------------- ------------ Genentech Herceptin(R) Metastatic breast cancer 1998 "Humanized" - ------------------------------ --------------------- ----------------------------------------- ------------ Berlex Laboratories Campath(R) Leukemia 2001 "Humanized" - ------------------------------ --------------------- ----------------------------------------- ------------
Rituxan(R) binds specifically to the CD20 antigen expressed on the surfaces of normal and malignant pre-B and mature B lymphocytes. Greater than 90% of B-cell NHLs express the CD20 antigen. Herceptin(R) (Trastuzumab) is approved for the treatment of HER2 protein over-expressing metastatic breast cancer--approved for first-line use in combination with paclitaxel. Amplification of the human epidermal growth factor receptor 2 (HER2) gene results in HER2 protein overexpression. HER2 overexpression occurs in approximately 25% of breast cancer patients. Normal cells express a small amount of HER2 protein on their plasma membranes in a tissue-specific pattern. Campath(R) (alemtuzumab) works by binding to the CD52 antigen that is present on the surface of the malignant lymphocytes. After binding, the drug induces antibody-dependent lysis, or killing. This causes the removal of malignant lymphocytes from the blood, bone marrow, and other affected organs. CD52 is expressed on the surface of normal and malignant B and T lymphocytes, NK cells, monocytes, macrophages, and tissues of the male reproductive system. Today, industry sources estimate that approx. 50% of therapeutic antibodies currently in development are humanized, and in 1997, Protein Design Labs's Zenapax(R) became the first humanized antibody product to be successfully developed for commercialization. While the humanized therapeutic antibodies have a significant improved profile in every parameter (safety, efficacy, and dosing due to the lower incidence of immunogenicity) compared to their murine and chimeric counterparts, these antibodies have still some important and unanswered questions. Is there any risk of immunogenicity with prolonged treatment, and if so how long long before it sets in? Most clinical trials for antibodies in chronic therapy have been conducted in immunocompromised patients, so it still remains unclear whether or not prolonged treatment in immunocompetent patients, will trigger immunogenic reactions. To eliminate this risk altogether, fully human antibodies may be a better approach. A new generation of antibody technologies -transgenic mice and phage display - is challenging both traditional hybridoma and humanizing production methods. These novel technologies enable drug companies to produce fully human antibodies. Since both approaches are relatively new for commercial use, the majority of the fully human antibodies produced are still in early clinical or preclinical development. 34 Industry sources estimate the total antibody therapeutic market in 1999 to be $1.3 billion, up 336% and 63.1% from 1997 and 1998, respectively. Going forward, the total antibody therapeutic market in 2002 could easily reach $3.1 billion in worldwide sales from 19 approved products. This growth trend is justified for the following reasons: a) Near-term growth driven by market launch of recently approved antibody products; b) Physicians begin to embrace monoclonal antibodies as treatment option for patients; c) Additional growth driven by label expansion for existing approved antibody products; d) Long-term growth driven by a robust industry pipeline Regulatory Environment Drug Development and Approval Process B Twelve's pre-clinical and clinical trials, as well as the manufacturing and marketing of its potential products, are subject to extensive regulation for safety and efficacy by various governmental authorities around the world. The United States Food and Drug Administration ("FDA") plays a key role since it regulates drug approval for the world's largest market. The process of studying drugs intended for use in humans usually begins with pre-clinical studies involving only animals. These pre-clinical studies are followed by studies that involve humans on a scale to assess safety and which are then expanded to a larger group to assess safety and efficacy. These various studies are usually broken into four phases with multiple studies generally conducted within each phase. Throughout these pre-clinical and clinical studies drug concentrations are measured in biological fluid samples as part of the assessment of drug safety and efficacy. Preclinical Studies Preclinical drug studies involve the evaluation of drug testing in animals in a preliminary effort to determine toxicity, correct doses, side effects and efficacy in animals to provide evidence of the safety of the drug prior to its administration to humans. Bioanalytical research involves the use of instruments that can detect and measure trace quantities of drugs, metabolites, genetic material and other products in biological samples. Clinical Studies Upon successful completion of pre-clinical studies the drug undergoes a series of evaluations in humans including healthy volunteers. The pharmaceutical Company sponsoring the new drug must file an Investigational New Drug application (IND), which includes results from the pre-clinical evaluations and provides comprehensive descriptions of the proposed human clinical studies. There are four generally accepted Phases in clinical studies, but the Phases may overlap: 35 Phase I These studies usually take one year to complete and are conducted on a small number of healthy human subjects to evaluate the drug's pharmacological actions, toxicity, metabolism and pharmacokinetics. Phase II These studies take an average of two years to complete and are carried out on a relatively small number of patients suffering from the targeted condition or disease, to determine the drug's effectiveness and dose response relationship. This phase provides additional safety data and the first substantiative evidence of the drug's efficacy in humans. Phase III These studies take an average of two years to three years to complete and involve tests on a much larger population of patients suffering from the targeted condition or disease, typically several hundred to several thousand patients. Such studies measure the drug's efficacy and its side effects on a large scale and typically involve numerous hospitals and clinics. Phase IV This final phase involves monitoring the long-term benefits and risks of a drug after it has entered the market. These studies also involve examining the efficacy and safety of different dosage forms or focusing on specific sub-populations of patients for evaluation of the drug's efficacy and safety. Such studies can be carried out on thousands to tens of thousands of patients. Upon completion of Phase III clinical studies, the pharmaceutical company sponsoring the new drug assembles all the preclinical and clinical data in the form of a New Drug Application (NDA), for submission to the FDA, or a New Drug Submission (NDS) for the TPP. The review process generally takes 12 to 18 years before the drug receives approval for marketing. In Canada, these activities are regulated by the Food and Drug Act. The approval procedure is substantially similar to that of the FDA, but the rules and regulations promulgated thereunder are enforced by the Therapeutic Products and Programs ("TPP") of Health Canada. Outside the United States and Canada, and whether or not the FDA or TPP approval has been obtained, approval of a product by local regulatory authorities must be obtained prior to the commencement of commercial sales of the product in a given country. The requirements governing the conduct of clinical trials and product approvals vary widely from country to country, and the time required for approval may be longer or shorter than that required for FDA or TPP approval. Although there are some procedures for unified regulatory filings for certain European countries, in general, each country at this time has its own procedures and requirements. Drug manufacturing is also regulated, thus companies are required to ensure compliance with GMPs quality standards that require the control of production activities, raw-material procurement, complaint management, product recalls, labeling and promotional material. In addition to these standards, which are common to all drugs, manufacturers of biopharmaceutical products must demonstrate that their products are homogeneous from one lot to the next, failing which the applicable regulatory authority may prohibit the sale of a lot and possibly require that a product be recalled. Accelerated Approval in the United States The FDA has enacted regulations which are intended to accelerate the process of validating the development, assessment and marketing of new diagnostic drugs or drugs used for the treatment of serious diseases for which there is no other satisfactory treatment. This "fast-track" designation enables the FDA to 36 participate in the process of establishing research protocols and enables, but does not require it to approve the marketing of the drug immediately following the conclusion of Phase II clinical trials. The FDA may nonetheless require that Phase III clinical trials for a drug be completed even if it has approved the marketing of the drug. PLAN OF OPERATION The following discussion of our plan of operation should be read in conjunction with the consolidated financial statements and the attached notes included elsewhere in this prospectus. We have historically funded our operations with funds from private placement equity offerings. Since our inception in 1999, we have dedicated substantially all of our resources to the research and development of our technologies and related compounds. As of March 31, 2002, B Twelve has an accumulated deficit of $5,476,570, a working capital deficiency of $532,586, losses from operations of $2,959,415 in 2002, and cash used in operations of $115,081 during 2002. Our Auditors have issued a report on our consolidated financial statements included in this prospectus for the year ended March 31, 2002, and have expressed concerns that B Twelve will continue as a going concern if additional capital is not raised. We require immediately additional funds, in order to continue and complete the research and development activities currently contemplated. Because there is no minimum amount of proceeds that will be raised, investors may end up holding shares in a company that hasn't raised sufficient proceeds from the offering to continue operations and has an illiquid smaller market for its shares. Our plan of operation has been prepared assuming that we will continue to operate as a going concern. Our capability to continue as a going concern is contingent to the completion of this offering. The source, availability, and terms of such funds have not been determined and there is no assurance that we will be able to obtain any funding on acceptable terms or at all. Failure to obtain the financing or to obtain it on a timely basis will have a substantial adverse affect on our operations and our ability to complete our plan of operation in whole or in part. We require immediate and substantial additional funds, in order to continue and complete the research and development activities currently contemplated. Our capital requirements and availability of such capital depend upon many factors, including continued scientific progress and cost associated to our research and development programs, the scope and results of preclinical studies and clinical trials, the time and costs involved in obtaining regulatory approvals, the cost involved in filing, prosecuting and enforcing patent claims, the effect of competing technological developments, the cost of manufacturing scale-up, the cost of commercialization activities, and other factors which may not be within our control. If we are able to raise sufficient funds, further discovery, maintenance and development of our anti-cancer drug candidates will likely cause our operational expenses to increase over the next several years. We expect to incur significant additional operating losses for at least the next several years unless such operating losses are offset, if at all, by licensing revenues under strategic alliances with larger pharmaceutical companies that we are currently seeking. 37 Our business strategy requires that we establish and maintain good strategic alliances. Currently we are seeking strategic alliances but do not have any. We have no experience in establishing and maintaining strategic alliances and we cannot give any assurance that we will be successful in establishing one or, if we do establish one or more relationships, be able to maintain the relationship(s) in a manner that is beneficial to us. We have no experience in manufacturing, procuring products in commercial quantities or marketing, regulatory approval process and only limited experience in negotiating, setting up or maintaining research collaboration and conducting clinical trials, and there is no assurance that we will successfully continue or engage in any of these activities. Many of our drug candidates are still in research and preclinical development, which means that they have not yet been tested on humans. We will need to commit significant time and resources to develop these and additional product candidates. We are dependent on the successful completion of clinical trials and obtaining regulatory approval in order to generate revenues. Specifically, our drug candidates that appear to be promising at early stages of development may not reach the market for a number of reasons. Potential products may: i)be found ineffective or cause harmful side effects during preclinical testing or clinical trials, ii) fail to receive necessary regulatory approvals, iii) be difficult to manufacture on a large scale, iv) be uneconomical to produce, v) fail to achieve market acceptance, or vi) be precluded from commercialization by proprietary rights of third parties. Because we based several of our drug candidates on unproven novel technologies, we may never develop them into commercial products. We base many of our product candidates upon novel delivery technologies which we are using to discover and develop drugs for the treatment of cancer. This technology has not been proven. Furthermore, preclinical results in animal studies may not predict outcome in human clinical trials. Our product candidates may not be proven safe or effective. If this technology does not work, our drug candidates may not develop into commercial products. We may be unable to attain the raw materials used in the production of some of our bioconjugate constructs in sufficient quantity to meet demand when and if such product is approved. By example, paclitaxel is derived from certain varieties of yew trees and is also used in one our of drug candidates. Supply of yew trees is tightly controlled by a limited number of companies. To date we have not entered into an agreement with a supplier to provide sufficient quantity or quality of any drugs used in the construction of our bioconjugates. We currently do not have internal facilities for the manufacture of any of our products for clinical or commercial production. Business Strategy Our primary objective is to focus our financial resources and research activities on the discovery and the development of human therapeutic products, which maximize the utility and application of our platform technologies. To date we minimized the costs of infrastructure and leveraged the research we sponsored in selected medical and academic centers. 38 Our vision is to become a sustainable biopharmaceutical company offering alternative and innovative solutions to the pharmaceutical industry. We believe that this strategy would be achieved through a combination of: o Using our specialty drug delivery technology platform, to provide value-added therapeutics, both in-house and partnered; o Further leverage our strategic alliances regarding the development of fully human antibody(ies); and o Through organic growth and acquisition. B Twelve's strategy incorporates the following principal elements: o Focus on quicker to market opportunities o Establish broad applicability of its drug delivery technology platform o Expand existing and develop new collaborative relationships o Enhance intellectual proprietary position In common with other biotechnology companies, it has been our strategy to develop technologies that target the development of therapeutics which address large unmet market opportunities. A hallmark of this business strategy is to leverage strategic alliances with other pharmaceutical and biotechnology companies to enhance internal development and ultimately commercialization capabilities. We have implemented the first phase intended to leverage the development, regulatory and commercialization expertise of potential corporate partners to accelerate the development of our products while retaining full or co-promotion rights, as implemented with the research program with Medarex Inc. Moreover we will continue to focus our resources on research and development activities by outsourcing its requirements for manufacturing, regulatory and clinical monitoring activities. This should allow us to focus on our core discovery and development program and ultimately to potentially generate additional product opportunities. We believe this model is consistent with current biotechnology and pharmaceutical industry licensing practices. In addition, although out-licensing is a primary strategy of B Twelve, we may choose to retain co-development or marketing rights to particular drug products if we consider it appropriate to do so. Our objectives in seeking to out-license candidates include: o Obtaining long term revenues streams from royalty payments on the sale of the products o Providing access to the resources and experience of large pharmaceutical or biotechnology companies o Obtaining up-front payments and licensing fees for products licensing rights o Minimizing development expenditures through cost sharing programs Business Development Plan We believe that there are several applications for B Twelve's drug candidates. A number of properties of our drug delivery and vitamin B12 depletion technologies suggest a potential role for our drug candidates in the therapy of solid tumors such as colorectal and breast cancer in addition to treatment of leukemias. Specifically, B Twelve's research and product development programs include the following projects: 39
- -------------------------------- ------------- ------------------ -------------------------------------------- Technologies / Clinical Status Collaborators* Drug Candidates Market - -------------------------------- ------------- ------------------ -------------------------------------------- Drug Delivery Bioconjugates - -------------------------------- ------------- ------------------ -------------------------------------------- Paclitaxel Oncology Proof of concept New York University The University of Texas, MD Anderson Cancer Center Doxorubicin Oncology Proof of concept Carboplatinum Oncology Proof of concept - -------------------------------- ------------- ------------------ -------------------------------------------- Anchor Technology - -------------------------------- ------------- ------------------ -------------------------------------------- Targeted liposome Oncology Discovery The University of Texas, MD Anderson Cancer Center New York University - -------------------------------- ------------- ------------------ -------------------------------------------- Vitamin B12 Depletion Monoclonal Antibodies - -------------------------------- ------------- ------------------ -------------------------------------------- Transport Oncology Proof of concept Medarex Inc. protein The Research Foundation of State Receptor Oncology Development University of New York The University of Texas, MD Anderson Cancer Center - -------------------------------- ------------- ------------------ -------------------------------------------- Depletion Agents - -------------------------------- ------------- ------------------ -------------------------------------------- Receptor modulators Oncology Proof of concept New York University The University of Texas, MD Anderson Cancer Center - -------------------------------- ------------- ------------------ --------------------------------------------
*: see status with collaborators below in section "Corporate partnerships". We are conducting all our research and development through collaborative research agreements with universities or research institutions throughout North America. Currently, this strategy circumvents costly implementation and operation of laboratory facilities, reduces development costs and maximizes flexibility. B Twelve typically bears the expense of patent prosecution and may sponsor and direct some preclinical testing. However, to avoid the substantial costs and risks associated with commercialization, we may sublicense the manufacturing and marketing rights to portfolio drug candidates to one or more corporate partners in exchange for license fees, milestone payments and royalty payments. Depending on our financial capability, we may retain rights to our portfolio pharmaceutical products and develop the products ourselves. B Twelve's research network is formatted into groups with expertise in a) medicinal chemistry, b) antibody engineering and c) pre-clinical and clinical development. We have in addition a co-development research program with Medarex Inc. In order to conduct the research necessary to proceed into pre-clinical and human clinical trials, experience in several scientific areas is required. For the current effort in targeting the vitamin B12 pathway, including its receptor, these include: (a) Knowledge of vitamin B12 metabolism and cellular uptake; (b) Diseases and market awareness, with initial focus in Oncology; (c) In vitro and in vivo models to study toxicity and therapeutic efficacy of drug candidates; 40 (d) Organic synthesis, including rational drug design techniques and combinatorial chemistry; (e) Gene cloning and expression (i.e. recombinant protein technology); and (f) Scale-up manufacture of drug candidates; MILESTONES We anticipate accomplishing the following milestones in the coming months: o Secure capital to proceed with business plan o Complete manufacturing agreement for our bioconjugates o Additional in vitro and in vivo data o Add or expand collaboration agreement(s) with industrial partner(s) o Initiate formal preclinical studies for one drug candidate o Expand Company's presence at key scientific and partnering meetings o Grant applications o Acquisition and/or licensing o Strengthened intellectual property portfolio Major achievements and activities of B twelve can be summarized as follows: o Signing of a strategic co-development program with Medarex Inc. o Equity investment of $1.2M by Medarex Inc. to be used as a credit against future invoices, milestones and/or royalty fees o Initiation of a program to develop fully human monoclonal antibodies against proprietary targets o Positionement of our core technology as an enabling drug delivery technology platform, with an initial focus on cancer o Development of a methodology to rapidly construct bioconjugates of vitamin B12 (scale-up manufacture) o Demonstration of biological activity of bioconjugates of vitamin B12 to selected in vitro models o Demonstration of ability to deliver its bioconjugates of vitamin B12 in selected in vivo models o Strengthened intellectual property portfolio, bringing total number of patents to 9 issued and 17 pending (including a new patent application in the last 12 months) o Scientific presentation at the American Chemical Society We have access to a staff of over 15 professionals, most of them with a Ph.D. degree, through our academic network and institution partners. During the preclinical and clinical trials phase, we expect to increase the number of employees in about 3 years to approximately 25 employees through our research network and 6 in the Toronto's office (currently only Dr. Berger, as President & C.E.O.). DRUG DELIVERY TECHNOLOGY DEVELOPMENT PLAN Due to capital constraint, we determined to focus our financial and scientific resources to the pre-clinical development of our lead drug candidate based on paclitaxel conjugated to vitamin B12 for out-licensing. As our first drug candidate - paclitaxel conjugated to vitamin B12 - enters formal preclinical program, we intend to outsource specific study components to a Chemical Contract Manufacturer (CCM) and an integrated Contract Research Organizations (CRO) to permit the conduct of concurrent studies in order to meet time-limiting project milestones. 41 During the preclinical development of a new drug candidate, a diverse number of studies relating chemistry, formulation, animal pharmacology, toxicology, manufacturing and clinical supplies are required to meet the regulatory requirements of an Investigational New Drug (IND) submission. We are also reviewing the possibility to have a CRO as a strategic partner as opposed to a service provider. Due to the limited internal project management staff, we may prefer to outsource the entire pre-clinical program to a vertically integrated CRO capable of handling studies from discovery screening to IND filing. We anticipate a budget of about $2.0 million to file an IND with the FDA and a development time frame of 18 to 24 month. MONOCLONAL ANTIBODIES DEVELOPMENT PLAN On January 2001, B Twelve and Medarex Inc. signed an agreement for the research, development and commercialization of high affinity fully human monoclonal antibodies through the application of Medarex's UltiMAb Human Antibody Development Systemsm and cancer related targets provided by us. Under terms of the agreement, we retained the rights to develop and commercialize human antibody products resulting from this alliance. Medarex invested in B Twelve by acquiring an equity stake of its issued stock. Medarex is a shareholder of the Company with an equity investment of $1.2M value that can be applied against certain license fees and milestone payments payable by B Twelve to Medarex (see Section "Corporate Partnerships", below). The research agreement includes the creation of high-affinity, fully human antibodies against B Twelve's proprietary targets, clinical supply manufacturing expertise to be produced in Medarex state of the art cGMP manufacturing facility, and IND filing expertise. Scientific Development plan emanating from the collaboration with Medarex is outlined below: o Creation of high-affinity, fully human antibodies against B Twelve's proprietary targets o Cell line development o Purification process development o Quality control assay development and validation o Scale up of complete production process o Production and release of lot for toxicology studies o Production and release of vialed products for Phase I/II clinical trials o Preparation and maintenance of various reports and records, including SOPs o Preparation and submission of a Drug Master File to U.S. FDA, and/or European regulatory agencies By having access to Medarex' human antibody platform and development capability, we believe to be in position to rapidly and efficiently advance our development program to human clinical trials and reduce operating costs. 42 Based on discussion with Medarex, we anticipate a budget of $2.0 million to file an IND with the FDA and a development time frame of 12 to 18 month per selected antibody. CORPORATE PARTNERSHIPS B Twelve is currently conducting all of its research and development through collaborative research agreements with universities or research institutions throughout North America. Some of our product development programs depend on our ability to maintain rights under these collaboration agreements. The institutions have the power to terminate the agreements with us if we fail to meet our obligations under these agreements. If we default under any of these collaboration agreements, we may lose or partially lose our rights to market and sell any future products based on the developed technology. As date of filing of this prospectus, we have terminated only one agreement with The University of Texas. The Research Foundation of State University of New York On August 1999, The Research Foundation of State University of New York ("RFSUNY") and B Twelve have entered into a research collaboration agreement aimed to evaluate and investigate the biological activities of monoclonal antibodies and vitamin B12 related agents that have potential uses in patient care and treatment. This agreement was amended on November 2000 to reflect a material transfer agreement signed with Medarex Inc. In consideration for the work performed by RFSUNY, B Twelve agreed to pay the sum of $124,862 for the first year and a sum of $129,856 for the second year. B Twelve owes RFSUNY the sum of $97,392.00 in connection with the services provided to B Twelve under the mentioned agreement. RFSUNY and B Twelve are co-assignees on pending patent applications. Should Medarex provide B Twelve with a fully human monoclonal antibody to be further developed through clinical trials, B Twelve have an option to negotiate a new agreement with respect to an exclusive worldwide license to use the invention issued of the research agreement. Terms are to be negotiated on good faith by the parties according to reasonable and customary terms and conditions (including, but not limited to reasonable royalties) with respect to university-industry agreements. The University of Texas, MD Anderson Cancer Center On August 1999, The University of Texas, MD Anderson Cancer Center ("MD Anderson") and B Twelve have entered into a sponsored laboratory study agreement to study the pharmacology of vitamin B12 related agents, including analogues and monoclonal antibodies, against selected targets. In consideration for the work performed by MD Anderson, B Twelve agreed to pay the total sum of $84,000. This agreement was amended on November 2000 to reflect a delay in the research to be conducted by MD Anderson. Only one payment was made, and the research agreement was mutually terminated by the parties on April 2002. B Twelve is not indebted to the MD Anderson Cancer Center and the parties have no obligation to each other. 43 New York University On November 1999, New York University ("NYU") and B Twelve have entered into a collaborative research agreement to synthesize vitamin B12 analogs. Under the agreement, B Twelve granted to NYU a non-exclusive research license under patents assigned to B Twelve for the purpose of the research agreement. In consideration for the work performed by NYU, B Twelve agreed to pay the total sum of $373,250. B Twelve owes NYU the sum of $102,780.00 in connection with the services provided to B Twelve under the mentioned agreement. NYU has agreed in principle to settle the outstanding debt with the issuance of our common shares. If issued, NYU will be granted a "put" option to sell the common shares back to B Twelve after a period of three (3) years from the date of acceptance. In the event that NYU elects to exercise the "put" option, the common shares will be repurchased by B Twelve, at a purchase price of $1.00 per common share an in accordance with a mutually agreeable procedure. At the date of filing, we have not yet executed such agreement with NYU. On August 2001, NYU reported to B Twelve an invention disclosure and filed a patent application with the United States Patent Office. The patent is prosecuted by NYU and B Twelve is to reimburse NYU for all costs and fees incurred by NYU in connection with the filing, maintenance, prosecution and protection of the patent. B Twelve has an exclusive option to negotiate a new agreement with respect to an exclusive worldwide license to use the invention issued of the research agreement. Terms are to be negotiated on good faith by the parties according to reasonable and customary terms and conditions (including, but not limited to reasonable royalties) with respect to university-industry agreements. Medarex Inc. On January 2001, Medarex Inc. and B Twelve have entered into an agreement for the research, development and commercialization of novel cancer therapeutics through the application of Medarex's UltiMAb Human Antibody Development Systemsm and B Twelve's targeted technology. Under terms of the agreement, B Twelve will develop and commercialize human antibody products resulting from this alliance. Medarex is responsible for generating fully human antibodies to targets provided by B Twelve. Some of the scientific emanating from the collaboration with Medarex is outlined below: o Creation of high-affinity, fully human antibodies against B Twelve's proprietary targets o Cell line development o Purification process development o Quality control assay development and validation o Scale up of complete production process o Production and release of lot for toxicology studies o Production and release of vialed products for Phase I/II clinical trials o Preparation and maintenance of various reports and records, including SOPs o Preparation and submission of a Drug Master File to U.S. FDA, and/or European regulatory agencies We issued 400,000 fully vested shares to Medarex to be used as credit against $1,200,000 future invoiced license and royalty fees. Based on the contract valuation of $3.00 per share and anti-dilution provisions provided to Medarex, the Company valued the 400,000 shares at $1,200,000. The value, considered a prepaid expense, was recorded as deferred fees deducted from stockholders' equity, to be amortized against future invoices. 44 INTELLECTUAL PROPERTY B Twelve's business and competition position is dependent upon its ability to protect its proprietary technologies and avoid infringing the proprietary rights of others. Company's current policy is to file patent applications on what the management deems to be important technological developments that might relate to its products, methods of using its products or therapeutic indications. To date, all inventions have originated in the United States and all patents applications were originally filed in the United States. We also seek to protect some of these inventions through foreign counterpart applications in selected other countries. B Twelve's patent strategy has been to develop an "umbrella" of patents protecting its core technology and their therapeutic uses and the underlying technologies used to create them. The Company has filed a number of patent applications in the United States, the PCT Member Countries, Japan, and in most other jurisdictions to protect its proprietary rights in the development of its technologies and products. To date, 9 patents have been issued, and 17 are pending. B Twelve is co-assignee on the issued and pending patents along with different universities. The following is a list of the issued patents:
- ---------------------- ------------------------------------------------------------- --------------- ----------------- PATENT NO. TITLE ISSUED EXPIRATION - ---------------------- ------------------------------------------------------------- --------------- ----------------- NZ252,559 Anti-receptor agents to the vitamin B12/transcobalamin II 14/02/97 07/05/2013 receptor - ---------------------- ------------------------------------------------------------- --------------- ----------------- US5,688,504 Anti-receptor and growth blocking agents to the vitamin 18/11/97 11/18/2014 B12/transcobalamin II receptor - ---------------------- ------------------------------------------------------------- --------------- ----------------- US5,739,287 Biotinylated cobalamins 14/04/98 14/04/2015 - ---------------------- ------------------------------------------------------------- --------------- ----------------- US5,840,712 Receptor modulating agents 24/11/98 24/11/2015 - ---------------------- ------------------------------------------------------------- --------------- ----------------- US5,840,880 Vitamin B12 receptor modulating agents 24/11/98 24/11/2015 - ---------------------- ------------------------------------------------------------- --------------- ----------------- US5,869,465 Methods for receptor modulation and uses thereto 09/02/99 09/02/2016 - ---------------------- ------------------------------------------------------------- --------------- ----------------- US6,083,926 Water soluble vitamin B12 receptor modulating agents and 04/07/00 14/04/2015 methods relating thereto - ---------------------- ------------------------------------------------------------- --------------- ----------------- CA2,135,277 Anti-receptor and growth blocking agents to the vitamin 24/04/01 07/05/2013 B12/transcobalamin II receptor and use in preventing cellular uptake of vitamin B12 - ---------------------- ------------------------------------------------------------- --------------- ----------------- KR297,310 Anti-receptor and growth blocking agents to the vitamin 21/05/01 07/05/2013 B12/transcobalamin II receptor and use in preventing cellular uptake of vitamin B12 - ---------------------- ------------------------------------------------------------- --------------- -----------------
We believe that using our drug delivery technology to bond existing drugs may yield patentable subject matter. We do not believe that our bioconjugate constructs will infringe any third-party patents covering the underlying drug. However, we may not receive a patent for our bioconjugate constructs and we may be challenged by the holder of a patent covering the underlying drug. The patent position of biopharmaceutical firms is known to be highly uncertain and involves complex legal and factual questions. The U.S. Patent and Trademark Office has not established a consistent policy regarding the breadth of claims that it will allow in biotech patents. If it allows broad claims, the number and cost of patent interference proceedings in the U.S. and the risk of infringement litigation may increase. If it allows narrow claims, the risk of infringement may decrease, but the value of our rights under our patents, licenses and patent applications may also decrease. 45 We also rely upon trade secrets, proprietary know-how and continuing technological innovation to remain competitive. Third parties may independently develop such know-how or otherwise obtain access to our technology. While we require our employees, consultants and corporate partners with access to proprietary information to enter into confidentiality agreements, these agreements may not be honored. The management of our patent portfolio is complex, time and cost consuming. We may prefer to not maintain issued patents or not continue the application of pending patents if a) these patents become obsolete, b) we decide to not pursue the development of technologies or related products protected by these patents, or c) more favorable technologies or patents become available to us. In that regard, patents issued to third parties may cover our products as ultimately developed. We may need to acquire licenses to these patents or challenge the validity of these patents. We may not be able to license any patent rights on acceptable terms or successfully challenge such patents. The need to do so will depend on the scope and validity of these patents and ultimately on the final design or formulation of the products and services that we develop. Moreover, much of the B Twelve's know-how technology which is not patentable may constitute trade secrets. Therefore, we require our employees, consultants, advisors and collaborators to enter into confidentiality agreements. However, no assurance can be given that such agreements will provide for a meaningful protection of trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure of information. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2002, we had approximately $3,800 in cash, and $5,500 of other receivables. Net cash used in operating activities decreased to approximately $115,081 during the fiscal year ended March 31, 2002, compared to $360,906 for the same period during 2001. The decrease in net cash used in operating activities during the fiscal year ended March 31, 2002 as compared to the same period in 2001, was primarily due to decreased research and development expenses and decreased payments to vendors. Net cash used by investing activities increased to $2,316 during the fiscal year ended March 31, 2002, compared to net cash used in investing activities of zero for the same period during 2001. Net cash provided by financing activities decreased to $98,293 during the fiscal year ended March 31, 2002, compared to $263,631 for the same period during 2000. We raised less equity funds and repaid some related party loans during the fiscal year ended March 31, 2002. We have been able to control our operating cash consumption by carefully monitoring our costs. The Company continues to evaluate a variety of arrangements that would further strengthen its competitive position and provide 46 additional funding, but cannot predict whether or when any such arrangement or additional funding will be consummated or whether additional funding will be available. Without additional funding, we may have to decrease or eliminate the development of some of our products. We expect that our existing capital resources will enable us to maintain our current and planned operations until October or December 2002. We require substantial funds to: (1) continue our research and development programs, (2) in-license or acquire additional technologies and (3) conduct preclinical studies and clinical trials. We may need to raise additional capital to fund our operations repeatedly. We may raise such capital through public or private equity financings, partnerships, debt financings, bank borrowings, or other sources. Our capital requirements will depend upon numerous factors, including the following: i) the establishment of additional collaborations, ii) the development of competing technologies or products, iii) the cost of protecting our intellectual property rights, iv) the purchase of capital equipment, v)the progress of our drug discovery and development programs, vi) the progress of our collaborations, vii) payment/receipt of any option/license, milestone and royalty payment resulting from those collaborations, and vii) in-licensing and acquisition opportunities. DESCRIPTION OF PROPERTY B Twelve currently owns no real estate, nor does it hold leasehold interests. B Twelve rents its office space on a month-to-month basis. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no public trading market for the common stock being offered herein and there is no representation that a public trading market will develop in the future. As of July 31, 2002, there were 9 holders of record of our common stock. We have not declared, and do not foresee declaring, any dividends now or into the foreseeable future. We intend to retain earnings, if any, to finance the development and expansion of its business. Future dividend policy will be subject to the discretion of our Board of Directors and will be contingent upon future earnings, if any, our financial condition, capital requirements, general business conditions and other factors. Therefore, there can be no assurance that any dividends of any kind will ever be paid. EXECUTIVE COMPENSATION A) Summary Compensation Table The following table sets forth all annual and long term compensation for services in all capacities rendered to B Twelve by its executive officers and directors for each of the last three most recently completed financial years. 47
- --------------------- -------- ------------------------------- ------------------------------------ --------------- Annual Compensation Long-Term Compensation ---------------------------- -------------------------------- Awards Payouts ----------------------- --------- Securities Restricted Other Under Shares or Annual Options/ Restricted LTIP All Other Name and Salary Bonus Compensation SARs Share Payouts Compen-sation Principal Position Year $ $ $ Granted (#) Units ($) ($) ($) - --------------------- -------- ---------- ------- ------------ ------------ ------------ ---------- --------------- Jean-Luc Berger 2002 $40,000 $262,474 President and CEO 2001 $25,268 $114,525 2000 None - - --------------------- -------- ---------- ------- ------------ ------------ ------------ ---------- --------------- Georges Benarroch, 2002 None $3,000 Director 2001 None $14,525 2000 None - --------------------- -------- ---------- ------- ------------ ------------ ------------ ---------- --------------- Donald MacAdam, 2002 None $3,000 Director 2001 None $14,525 2000 None - --------------------- -------- ---------- ------- ------------ ------------ ------------ ---------- ---------------
B) Option/SAR Grants in Last Fiscal Year The following table (presented in accordance with the Regulation) sets forth stock options granted under the Share Incentive Plan during the current fiscal year to the name key employees:
- ------------------------ --------------------- ---------------------- --------------------- ---------------------- Name Number of % of Total Exercise or Base Expiration Date Securities Options/SARs Granted Price ($/Sh) Underlying to Employees in Options/SARs Fiscal Year Granted (#) - ------------------------ --------------------- ---------------------- --------------------- ---------------------- Jean-Luc Berger 262,500 31 $0.0001 Exercised in November 2001 - ------------------------ --------------------- ---------------------- --------------------- ---------------------- Uri Sagman 587,500 69 $0.0001 Exercised in February 2002 - ------------------------ --------------------- ---------------------- --------------------- ----------------------
C) Aggregated Option/SAR Exercise in Latest Fiscal Year and Fiscal Year End Option/SAR Value Table The following table (presented in accordance with the Regulation) sets forth details of all exercises of stock options/SARs during the fiscal year end March 31, 2002 by the named executive officer and employees and the fiscal year-end value of unexercised options/SARs on an aggregated basis: 48
- --------------- --------------- ------------ ------------------------------------ ------------------------------------ Number of Securities Underlying Value of Unexercised In-the-Money Options/SARs Granted at FY-End (#) Options/SARs at FY-End ($) Name Shares Value Exercisable/Unerxercisable Exercisable/Unerxercisable Acquired on Realized Exercise (#) ($) - --------------- --------------- ------------ ------------------------------------ ------------------------------------ Jean-Luc 262,500 262,474 - - - Berger - --------------- --------------- ------------ ------------------------------------ ------------------------------------ Uri Sagman 587,500 587,441 - - - - --------------- --------------- ------------ ------------------------------------ ------------------------------------
D) COMPENSATION OF DIRECTORS All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. There are no agreements with respect to the election of directors. The Board of Directors appoints officers annually and each executive officer serves at the discretion of the Board of Directors. The Company does not have any standing committees at this time. The Company does not currently maintain insurance for the benefit of the directors and officers of B Twelve against liabilities incurred by them in their capacity as directors or officers of B Twelve. B Twelve does not maintain a pension plan for its employees, officers or directors. The Company intends to obtain $500,000 insurance on the lives of its executive officers. Any Director who is independent of the Company is entitled to an annual fee of $2,000 and a fee of $200 for each meeting attended by such Director plus reasonable expenses incurred in attending such meeting, upon presentation of receipts therefor. As of the date hereof, no director has accrued any expenses. However, directors received 14,525 and 3,000 common shares for services during FY2001 and FY2002, respectively. None of the directors or senior officers of B Twelve and no associate of any of the directors or senior officers of B Twelve was indebted to B Twelve during the financial period ended March 31st, 2002 of B Twelve other than for routine indebtedness. E) EMPLOYMENT CONTRACTS The Company entered into an employment agreement with Uri Sagman in June 1999, which expired on May 31, 2001. The agreement stipulates a salary based on funding criteria and issuance of 1,200,000 common stock options, which vest based on the Company meeting stipulated milestones. The options are exercisable upon vesting at $0.0001 per share. The options were valued on the grant date using the intrinsic value method of APB 25 and the contemporaneous cash common stock sale price of $1.00 resulting in a $1.00 option value. Due to the uncertainty of meeting milestones, a compensation expense based on the estimated $1.00 value of the options will be recognized upon vesting. Through March 31, 2001, none of the options vested. In May 2001, 587,500 of the options vested, and a compensation expense of $587,441 was recognized. 49 The Company entered into an employment agreement with Jean-Luc Berger in June 2000, which expired on May 31, 2001. The agreement stipulates a salary based on funding criteria and issuance of 400,000 common stock options, which vest based on the Company meeting stipulated milestones. The options are exercisable upon vesting at $0.0001 per share. The options were valued on the grant date using the intrinsic value method of APB 25 and the contemporaneous cash common stock sale price of $1.00 resulting in a $1.00 option value. Due to the uncertainty of meeting milestones, a compensation expense based on the estimated $1.00 value of the options will be recognized upon vesting. Through March 31, 2001, none of the options vested. In May 2001, 262,500 of the options vested and a compensation expense of $262,474 was recognized. In June 2001, the above employment agreements were renewed and the remaining of 612,500 and 137,500 options under each agreement, respectively, were reaffirmed with the milestone schedule. In November 2001, the above employment agreements were terminated by the Company and the related option agreements for 612,500 and 137,000 options were also cancelled. A new consulting agreement was entered into with Jean-Luc Berger to act as the President and Chief Executive Officer. The agreement expires on November 15th, 2002 and stipulates a cash compensation of C$60,000 or about $40,000. 50 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Consolidated Financial Statements Years Ended March 31, 2002, 2001, and Cumulative from March 5, 1999 (Inception) to March 31, 2002 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Contents Page(s) ------- Independent Auditors' Report F-1 Consolidated Balance Sheet F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Changes in Stockholders' Deficiency F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-6 - F-18 Independent Auditors' Report To the Board of Directors of: B. Twelve, Inc. and Subsidiary (A Development Stage Company) We have audited the accompanying consolidated balance sheet of B. Twelve, Inc. and Subsidiary (a development stage company) as of March 31, 2002 and the related consolidated statements of operations, changes in stockholders' deficiency and cash flows for the years ended March 31, 2002 and 2001 and cumulative from March 5, 1999 (inception) to March 31, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the consolidated financial position of B. Twelve, Inc. and Subsidiary (a development stage company) as of March 31, 2002, and the consolidated results of their operations, changes in stockholders' deficiency and cash flows for the years then ended and cumulative from March 5, 1999 (inception) to March 31 2002, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 9 to the consolidated financial statements, the Company has a deficit accumulated during development stage of $5,476,570, a working capital deficiency of $532,586 at March 31, 2002, losses from operations of $2,959,415 in 2002, and cash used in operations of $115,081 during 2002, which raises substantial doubt about its ability to continue as a going concern. Management's plan in regards to these matters is also described in Note 9. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. SALBERG & COMPANY, P.A. Boca Raton, Florida July 18, 2002 F-1 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Consolidated Balance Sheet March 31, 2002 Assets Current Assets Cash $ 3,801 Other receivables 5,550 Prepaid and other assets 4,997 ----------- Total Current Assets 14,348 ----------- Property and Equipment, net 3,201 ----------- Total Assets $ 17,549 =========== Liabilities and Stockholders' Deficiency Current Liabilities Accounts payable and accrued expenses $ 543,433 Loans payable - related parties 3,501 ----------- Total Current Liabilities 546,934 ----------- Stockholders' Deficiency Common stock, $0.0001 par value, 25,000,000 shares authorized, 5,067,100 shares issued and outstanding 507 Additional paid-in capital 6,103,969 Deficit accumulated during development stage (5,476,570) Accumulated other comprehensive income 67,706 ----------- 695,612 Less: Deferred fees (1,200,000) Less: Deferred loan fee to related party (24,997) ----------- Total Stockholders' Deficiency (529,385) ----------- Total Liabilities and Stockholders' Deficiency $ 17,549 =========== See accompanying notes to consolidated financial statements. F-2 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Consolidated Statements of Operations
Cumulative from Year Ended March 31, March 5, 1999 ---------------------------- (Inception) to 2002 2001 March 31, 2002 ----------- ------------- -------------- Operating Expenses Compensation $ 893,061 $ 145,272 $ 1,363,111 Amortization 285,708 285,708 809,511 Consulting 254,345 870 904,650 Bad debt - - 12,819 Director fees 6,000 58,100 64,100 General and administrative 30,269 137,132 227,165 Research and development 298,015 342,158 907,542 Impairment loss 1,191,846 - 1,191,846 ----------- ------------- -------------- Total Operating Expenses 2,959,244 969,240 5,480,744 ----------- ------------- -------------- Loss from Operations (2,959,244) (969,240) (5,480,744) ----------- ------------- -------------- Other Income (Expense) Interest income 396 2,451 4,741 Loss on disposal of assets (567) - (567) ----------- ------------- -------------- Total Other Income (Expense) (171) 2,451 4,174 ----------- ------------- -------------- Net Loss $(2,959,415) $ (966,789) $ (5,476,570) =========== ============= ============== Net loss per share - basic and diluted $ (0.70) $ (0.31) $ (1.74) =========== ============= ============== Weighted average number of shares outstanding during the period - basic and diluted 4,247,821 3,149,154 3,149,039 =========== ============= ==============
See accompanying notes to consolidated financial statements. F-3 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Consolidated Statements of Changes in Stockholders' Equity (Deficiency) Years Ended March 31, 2002, 2001 and from Cumulative from March 5, 1999 (Inception) to March 31, 2002
Deficit Accumulated Preferred Shares Common Shares Additional During --------------------- ----------------- Paid-in Development Shares Amount Shares Amount Capital Stage -------- --------- --------- ------ ---------- ----------- Common stock issued for services to officer - $ - 300,000 $ 30 $ 299,970 $ - Common stock issued for services to consultant - - 255,000 25 254,975 - Warrants issued to consultant - - - - 345,000 - Net loss, 1999 - - - - - (900,000) -------- --------- --------- ---- ---------- ----------- Balance, March 31, 1999 - - 555,000 55 899,945 (900,000) Preferred stock issued for cash 250,000 250,000 - - - - Offering costs - - - - (17,005) - Common stock issued for intangible assets - - 2,000,000 200 1,999,800 - Common stock issued for cash upon exercise of warrants - - 100,000 10 99,990 - Foreign currency translation adjustment - - - - - - Net loss, 2000 - - - - - (650,366) -------- --------- --------- ---- ---------- ----------- Balance, March 31, 2000 250,000 250,000 2,655,000 265 2,982,730 (1,550,366) Common stock issued as director fees - - 58,100 6 58,094 - Common stock issued for cash upon exercise of warrants - - 150,000 15 149,985 - Common stock issued for cash upon exercise of warrants - - 345,000 35 - - Common stock issued to officer as compensation - - 100,000 10 99,990 - Common stock issued for cash - - 100,000 10 99,990 - Common stock issued for future services - - 400,000 40 1,199,960 - Foreign currency translation adjustment - - - - - - Net loss, 2001 - - - - - (966,789) -------- --------- --------- ---- ---------- ----------- Balance, March 31, 2001 250,000 250,000 3,808,100 381 4,590,749 (2,517,155) Preferred stock converted to common stock (250,000) (250,000) 250,000 25 249,975 - Common stock options issued for consulting services - - - - 254,346 - Common stock issued for cash upon exercise of warrants - - 125,000 13 124,987 - Common stock options issued for services - - - - 849,915 - Common stock issued for cash upon exercise of options - - 850,000 85 - - Common stock issued to directors as compensation - - 6,000 - 6,000 - Common stock issued to employee as compensation - - 3,000 - 3,000 - Common stock issued as loan fee - - 25,000 3 24,997 - Foreign currency translation adjustment - - - - - - Net loss, 2002 - - - - - (2,959,415) -------- --------- --------- ---- ---------- ----------- Balance, March 31, 2002 - $ - 5,067,100 $507 $6,103,969 $(5,476,570) ======== ========= ========= ==== ========== =========== [RESTUBBED] Accumulated Other Deferred Comprehensive Deferred Loan Income Fees Fee Total -------- ----------- --------- ----------- Common stock issued for services to officer $ - $ - $ - $ 300,000 Common stock issued for services to consultant - - - 255,000 Warrants issued to consultant - - - 345,000 Net loss, 1999 - - - (900,000) -------- ----------- --------- ----------- Balance, March 31, 1999 - - - - Preferred stock issued for cash - - - 250,000 Offering costs - - - (17,005) Common stock issued for intangible assets - - - 2,000,000 Common stock issued for cash upon exercise of warrants - - - 100,000 Foreign currency translation adjustment (5,745) - - (5,745) Net loss, 2000 - - - (650,366) -------- ----------- --------- ----------- Balance, March 31, 2000 (5,745) - - 1,676,884 Common stock issued as director fees - - - 58,100 Common stock issued for cash upon exercise of warrants - - - 150,000 Common stock issued for cash upon exercise of warrants - - - 35 Common stock issued to officer as compensation - - - 100,000 Common stock issued for cash - - - 100,000 Common stock issued for future services - (1,200,000) - - Foreign currency translation adjustment 60,054 - - 60,054 Net loss, 2001 - - - (966,789) -------- ----------- --------- ----------- Balance, March 31, 2001 54,309 (1,200,000) - 1,178,284 Preferred stock converted to common stock - - - - Common stock options issued for consulting services - - - 254,346 Common stock issued for cash upon exercise of warrants - - - 125,000 Common stock options issued for services - - - 849,915 Common stock issued for cash upon exercise of options - - - 85 Common stock issued to directors as compensation - - - 6,000 Common stock issued to employee as compensation - - - 3,000 Common stock issued as loan fee - - (24,997) 3 Foreign currency translation adjustment 13,397 - - 13,397 Net loss, 2002 - - - (2,959,415) -------- ----------- --------- ----------- Balance, March 31, 2002 $ 67,706 $(1,200,000) $(24,997) $ (529,385) ======== =========== ========= ===========
See accompanying note to consolidate financial statements. F-4 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Consolidated Statements of Cash Flows
Cumulative from Year Ended March 31, March 5, 1999 ------------------------ (Inception) to 2002 2001 March 31, 2002 ----------- --------- -------------- Cash Flows from Operating Activities: Net loss $(2,959,415) $(966,789) $(5,476,570) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 697 466 1,389 Amortization 285,708 285,708 809,511 Stock based compensation 852,915 100,000 1,252,915 Stock based consulting expense 254,345 - 854,345 Stock based director fees 6,000 58,100 64,100 Loss on disposal of equipment 567 - 567 Impairment loss 1,191,846 - 1,191,846 Changes in operating assets and liabilities: (Increase) decrease in: Other receivables (515) (2,300) (5,550) Prepaids and other assets 341 159 (4,997) Increase (decrease) in: Accounts payable and accrued expenses 252,430 163,750 543,432 ----------- --------- ----------- Net Cash Used In Operating Activities (115,081) (360,906) (769,012) ----------- --------- ----------- Cash Flows from Investing Activities: Purchase of property and equipment (2,316) - (4,463) ----------- --------- ----------- Net Cash Used In Investing Activities (2,316) - (4,463) ----------- --------- ----------- Cash Flows from Financing Activities: Proceeds from common stock issuance, net of offering costs 125,085 250,035 708,200 Proceeds from related parties, net - 13,596 30,293 Prepayment of loan to related parties (26,792) - (26,792) ----------- --------- ----------- Net Cash Provided By Financing Activities 98,293 263,631 711,701 ----------- --------- ----------- Effect of Exchange Rate on Cash 13,397 60,104 65,576 ----------- --------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents (5,707) (37,171) (3,801) Cash and Cash Equivalents at Beginning of Period 9,508 46,679 - ----------- --------- ----------- Cash and Cash Equivalents at End of Period $ 3,801 $ 9,508 $ 3,801 =========== ========= ===========
Supplemental Schedule of Non-Cash Investing and Financing Activities: The Company acquired intangible assets valued at $2,000,000 for 2,000,000 common shares in June 1999. The Company issued 400,000 common shares in 2001 for future services valued at $1,200,000. An Investor converted 250,000 preferred shares into 250,000 common shares in 2002. See accompanying notes to consolidated financial statements. F-5 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements March 31, 2002 Note 1 Nature of Business and Summary of Significant Accounting Policies (A) Nature of Business B. Twelve, Inc. was formed as a Florida corporation on March 5, 1999. B. Twelve, Ltd., B. Twelve, Inc.'s wholly-owned Canadian subsidiary (collectively referred to as the "Company"), was also formed on March 5, 1999. The Company was formed to develop innovative minimally toxic and non-immunosuppressive proprietary drugs for the treatment of cancer, arthritis, and other proliferative and autoimmune diseases. Activities during the development stage include acquisition of financing and intellectual properties and research and development activities conducted by others under contracts. (B) Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its subsidiary. All material intercompany balances and transactions have been eliminated in consolidation. (C) Basis of Presentation and Foreign Currency The accompanying consolidated financial statements are presented under accounting principles generally accepted in the United States of America and in United States dollars. The functional currency of the Company's Canadian subsidiary is the Canadian dollar. The accounts of the Canadian subsidiary are translated to United States dollars using the current rate method. Under the current rate method, all assets and liabilities are translated using exchange rates at the balance sheet date. Revenue and expense items are translated using the average rate of exchange prevailing during the period. Capital transactions are translated at their historical rates. Exchange gains and losses resulting from translation of foreign currencies are recorded in stockholders' equity as a cumulative translation adjustment component of other accumulated comprehensive income. Gains and losses resulting from foreign currency transactions are recognized in operations of the period incurred. (D) Use of Estimates In preparing consolidated financial statements, management is required to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the period presented. Actual results may differ from these estimates. In 2002, the Company estimated the valuation of intangible assets resulting in an impairment loss. (See Notes 3) F-6 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements March 31, 2002 (E) Cash Equivalents For the purpose of the consolidated cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. (F) Property and Equipment Property and equipment is stated at cost, less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is provided using the straight-line method over the estimated useful lives of the assets of six to ten years. (G) Intangible Assets Intangible assets consist primarily of patents and patents pending which purchased in June 1999. These assets were recorded at cost. The cost of patents and patents pending are amortized on a straight-line basis over the lesser of their estimated useful lives or remaining legal lives, not to exceed 17 years. Based on this policy the Company had been amortizing the purchased patents and patents pending over a seven year period through March 31, 2002. At March 31, 2002, the Company wrote-off the remaining assets balance as an impairment loss. (See Note 3) (H) Long-Lived Assets The Company uses Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of" ("SFAS 121"). SFAS 121 requires the Company to review long-lived assets including intangible assets and certain identifiable assets related to those assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. (I) Stock-Based Compensation The Company accounts for stock options issued to employees in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation cost is measured on the date of grant as the excess of the current market price of the underlying stock over the exercise price. Such compensation amounts are amortized over the shorter of the employment term or the vesting period of the option grant. The Company adopted the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to provide pro forma net income (loss) and pro forma earnings (loss) per share disclosures for employee stock option grants as if the fair-valued based method defined in SFAS No. 123 had been applied. The Company accounts for stock options or warrants issued to non-employees for goods or services in accordance with the fair value method of SFAS 123. Under this method, the F-7 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements March 31, 2002 Company records an expense equal to the fair value of the options or warrants issued. The fair value is computed using an options pricing model. (J) Research and Development Costs Research and development is conducted by others on behalf of the Company under contractual agreements and such costs are charged to expense as incurred. Research and development expense was $298,015 in 2002, $342,158 in 2001, and $907,542 from March 5, 1999 (inception) to March 31, 2002. (K) Income Taxes The Company accounts for income taxes under the Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("Statement 109"). Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period, which includes the enactment date. (L) Comprehensive Income The Company accounts for Comprehensive Income under the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("Statement No. 130"). Statement No. 130 establishes standards for reporting and display of comprehensive income and its components. Comprehensive income is the total of net income (loss) and other comprehensive income (loss). The foreign currency translation gains resulting from the translation of the consolidated financial statements of B. Twelve, Ltd. expressed in Canadian dollars to United States dollars are reported as Accumulated Other Comprehensive Income in the Consolidated Statement of Changes in Stockholders' Equity. (M) Net Loss Per Common Share Basic net loss per common share (Basic EPS) excludes dilution and is computed by dividing net loss available to common stockholder by the weighted-average number of common shares outstanding for the period. Diluted net loss per share (Diluted EPS) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The assumed exercise of the common stock equivalents was not utilized for the periods presented in the accompanying consolidated financial statements since the effect was antidilutive. At March 31, 2002, there were options to issue 500,000 common shares and 250,000 common shares placed into a trust for future grants, which may dilute future earnings per share. F-8 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements March 31, 2002 (N) Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate that value. For purposes of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The carrying amounts of the Company's short-term financial instruments, including other receivable, accounts payable, accrued expenses, and loans payable - related parties, approximate fair value due to the relatively short period to maturity for these instruments. (O) New Accounting Pronouncements Statement No. 141 "Business Combinations" ("SFAS 141") establishes revised standards for accounting for business combinations. Specifically, the statement eliminates the pooling method, provides new guidance for recognizing intangible assets arising in a business combination, and calls for disclosure of considerably more information about a business combination. This statement is effective for business combinations initiated on or after July 1, 2001. The adoption of this pronouncement on July 1, 2001 did not have a material effect on the Company's financial position, results of operations or liquidity. Statement No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142") provides new guidance concerning the accounting for the acquisition of intangibles, except those acquired in a business combination, which is subject to SFAS 141, and the manner in which intangibles and goodwill should be accounting for subsequent to their initial recognition. Generally, intangible assets with indefinite lives, and goodwill, are no longer amortized; they are carried at lower of cost or market and subject to annual impairment evaluation, or interim impairment evaluation if an interim triggering event occurs, using a new fair market value method. Intangible assets with finite lives are amortized over those lives, with no stipulated maximum, and an impairment test is performed only when a triggering event occurs. This statement is effective for all fiscal years beginning after December 15, 2001. The Company believes that the future implementation of SFAS 142 on April 1, 2002 will not have a material effect on the Company's financial position, results of operations or liquidity. Statement No. 143 "Accounting for Asset Retirement Obligations" ("SFAS 143") requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS 143 is not expected to have a material impact on the Company's financial statements. F-9 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements March 31, 2002 Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" supercedes Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). Though it retains the basic requirements of SFAS 121 regarding when and how to measure an impairment loss, SFAS 144 provides additional implementation guidance. SFAS 144 excludes goodwill and intangibles not being amortized among other exclusions. SFAS 144 also supercedes the provisions of APB 30, "Reporting the Results of Operations," pertaining to discontinued operations. Separate reporting of a discontinued operation is still required, but SFAS 144 expands the presentation to include a component of an entity, rather than strictly a business segment as defined in SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS 144 also eliminates the current exemption to consolidation when control over a subsidiary is likely to be temporary. This statement is effective for all fiscal years beginning after December 15, 2001. The Company believes that the future implementation of SFAS 144 on April 1, 2002 will not have a material effect on the Company's financial position, results of operations or liquidity. Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections," updates, clarifies, and simplifies existing accounting pronouncements. Statement No. 145 rescinds Statement 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Opinion 30 will now be used to classify those gains and losses. Statement 64 amended Statement 4, and is no longer necessary because Statement 4 has been rescinded. Statement 44 was issued to establish accounting requirements for the effects of transition to the provisions of the motor Carrier Act of 1980. Because the transaction has been completed, Statement 44 is no longer necessary. Statement 145 amends Statement 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with FASB's goal requiring similar accounting treatment for transactions that have similar economic effects. The adoption of SFAS No. 145 is not expected to have a material impact on the Company's consolidated financial statements. Note 2 Property and Equipment Property and equipment consists of the following at March 31, 2002: Computers and equipment $ 3,898 Less: Accumulated depreciation (697) ------- $ 3,201 ======= Depreciation was $697 and $466 for the years ended March 31, 2002 and 2001, respectively and $1,389 cumulative from March 5, 1999 (inception) to March 31, 2001. During 2002, furniture and fixtures were disposed of. The loss on the disposal for the year ended March 31, 2002 was $567. Note 3 Intangible Assets On June 2, 1999, the Company purchased a portfolio of patents, patents pending, and related intellectual property (collectively the "Intellectual Property") from a third party in exchange for 2,000,000 shares of F-10 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements March 31, 2002 the Company's common stock. The shares were valued at $1.00 per share based on contemporaneous cash purchases of convertible preferred stock and common stock warrants resulting in a value of $2,000,000. The Company also capitalized certain legal costs. The purchased Intellectual Property was being amortized over its estimated useful life of seven years from the acquisition date and through March 31, 2002. Amortization expense was $285,708 and $285,708 for the years ended March 31, 2002 and 2001, respectively and $809,511 cumulative from March 5, 1999 (inception) to March 31, 2002. As of March 31, 2002, management performed an impairment analysis of the intellectual property. Due to the current status of the Company as a development stage company and the inherent difficulties in projecting future revenues, management decided to take a conservative approach and recognize an impairment loss for the full book value of the asset totaling $1,191,846. Note 4 Commitments and Contingencies (A) Employment Agreements The Company entered into an employment agreement with an officer in June 1999, which expired on May 31, 2001. The agreement stipulates a salary based on funding criteria and issuance of 1,200,000 common stock options, which vest based on the Company meeting stipulated milestones. The options are exercisable upon vesting at $0.0001 per share. The options were valued on the grant date using the intrinsic value method of APB 25 and the contemporaneous cash common stock sale price of $1.00 resulting in an approximate $1.00 option value. Due to the uncertainty of meeting milestones, a compensation expense based on the estimated $1.00 value of the options will be recognized upon vesting. Through March 31, 2001, none of the options vested. In May 2001, 587,500 of the options vested, and a compensation expense of $587,441 was recognized. (See Note 5) The Company entered into an employment agreement with an officer in June 2000, which expired on May 31, 2001. The agreement stipulates a salary based on funding criteria and issuance of 400,000 common stock options, which vest based on the Company meeting stipulated milestones. The options are exercisable upon vesting at $0.0001 per share. The options were valued on the grant date using the intrinsic value method of APB 25 and the contemporaneous cash common stock sale price of $1.00 resulting in an approximate $1.00 option value. Due to the uncertainty of meeting milestones, a compensation expense based on the estimated $1.00 value of the options will be recognized upon vesting. Through March 31, 2001, none of the options vested. In May 2001, 262,500 of the options vested and a compensation expense of $262,474 was recognized. (See Note 5) In June 2001, the above employment agreements were renewed and the remaining 612,500 and 137,500 options under each agreement, respectively, were reaffirmed with the milestone schedule. However, in November 2001, those employment agreements were terminated by the Company and the related option agreements for 612,500 and 137,500 options were also cancelled. F-11 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements March 31, 2002 One of those agreements was replaced with a consulting agreement to the individual to act as President and Chief Executive Officer. (B) Leases The Company leases office space on a month-to-month basis. Rent expense in 2002, 2001, and cumulative from March 5, 1999 (inception) to March 31, 2002 was $20,000, $12,648, and $47,931, respectively. Note 5 Stockholders' Equity (A) Preferred Stock In June 2000, an investor purchased 250,000 shares of convertible preferred stock for $1.00 per share or $250,000. The stock was convertible to common stock on a one-for-one basis upon the earlier of: (i) an initial public offering by the Company, as defined (ii) the completion of a reverse take-over transaction (iii) a minimum $3,000,000 private equity financing based on a $10,000,000 valuation or (iv) the merger of the Company with another corporation or the sale of substantively all the assets of the Corporation. Upon conversion, each share of common stock issued was to be coupled with a common stock purchase warrant at an exercise price of $1.00 per share with a three-month term. In June 2001, pursuant to a letter of intent, which was ratified by the shareholders, the preferred shares were converted and the warrants were granted at an exercise price of $1.00 with an amended term not to exceed five years. (B) Common Stock and Options In March 1999, the Company issued 300,000 common shares to the officer for services, which were valued at a planned contemporaneous cash offering price for one-for-one convertible preferred stock and common stock warrants issued with an exercise price of $1.00 per share. A compensation expense of $300,000 was recorded in 1999. In March 1999, the Company issued 255,000 common shares and 345,000 common stock warrants exercisable at $0.0001 per share as a fee for assistance in the acquisition of intangible assets. The common shares were valued based on a contemporaneous cash-offering price of $1.00 per share. The warrants were valued pursuant to SFAS 123, at $1.00 per warrant. The aggregate consulting expense charged to operations in 1999 for the shares and warrants was $600,000. In June 1999, the Company issued 2,000,000 common shares for a portfolio of patents, patents pending, and related intellectual property. The portfolio was valued at $2,000,000 based on a F-12 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements March 31, 2002 $1.00 per share contemporaneous cash offering price for one-for-one convertible preferred stock and common stock warrants issued with an exercise price of $1.00. In December 1999, 100,000 common stock warrants were exercised for $100,000. In May 2000, directors were granted an aggregate 58,100 common shares for services rendered. The shares were valued at the contemporaneous cash offering price of $1.00 per share resulting in a compensation expense of $58,100 on the grant date. In May 2000, 150,000 common stock warrants were exercised for $150,000. In October 2000, 345,000 common stock warrants were exercised at $0.0001 per share or a total of $35. In October 2000, 100,000 common shares were issued to an officer as compensation for services rendered. A compensation expense of $100,000 was recognized on the grant date based on the contemporaneous cash offering price of $1.00 per common share. In December 2000, 50,000 common shares were sold to an unrelated party for $50,000 and another 50,000 common shares were sold to a stockholder for $50,000. During January 2001, the Company issued 400,000 fully vested shares to a third party research and development subcontractor (the "Vendor") to be used as credit against $1,200,000 future invoiced license and royalty fees. Based on the contract valuation of $3.00 per share and anti-dilution provisions provided to the Vendor, the Company valued the 400,000 shares at $1,200,000. The value, considered a prepaid expense, was recorded as deferred fees deducted from stockholders' equity, to be amortized against future invoices. In May 2001, two officers vested in 850,000 common stock options previously granted pursuant to their employment agreements upon the achievement of certain milestones. A compensation expense of $849,915 was recognized under APB 25 based on the intrinsic value of the options at the grant date. In November 2001 and March 2002, the 262,500 and 587,500 options, respectively, were exercised for $85 and 850,000 common shares were issued. In May 2001, a principal stockholder was granted 125,000 common stock options and a consulting expense of $254,346 was recognized pursuant to SFAS 123 based on the $3.00 fair market value of the common shares. The shareholder immediately exercised 125,000 options for 125,000 common shares at an exercise price of $125,000. (See Note 7) In May 2001, the 250,000 preferred shares were converted into 250,000 common shares. Pursuant to the warrant agreement attached to the preferred shares, an additional 250,000 warrants were issued upon conversion with an exercise term of five years at an exercise price of $1.00 per share. F-13 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements March 31, 2002 In December 2001, 3,000 shares were purchased by an employee at $0.0001 per share. A compensation expense was recognized at the actual cost of $1.00 per share or $3,000 based on a contemporaneous cash offering price. In December 2001, two directors purchased 3,000 shares each at $0.0001 per share. A directors fee was recognized at the actual cost of $1.00 per share or $6,000 based on a contemporaneous cash offering price. In March 2002, 25,000 shares were issued to a related party for $0.0001 per share as a loan fee relating to a convertible debenture issued subsequently to March 31, 2002. A deferred loan fee was recorded at $24,997 based on the contemporaneous cash offering price less the cash paid of $2.50 of $1.00. (See Note 10) (C) Stock Options and Warrants The Company issues stock options and warrants to employees, service providers, and investors. In accordance with SFAS 123, for options issued to employees, the Company applies APB Opinion No. 25 and related interpretations. During 2002 and 2001 and from March 9, 1999 (inception) to March 31, 2002, the Company granted 0, 400,000, and 1,600,000 common stock options, respectively, to officers. Due to the uncertain vesting period of these grants due to vesting contingencies, compensation expense is recognized only upon vesting. Accordingly, compensation cost of $849,915 has been recognized for 850,000 options vested in May 2001 based on the $1.00 fair market value less the $85 exercise price. The remaining 750,000 potential options under the employment agreements were terminated by the Board of Directors when the employment agreements were terminated in November 2001. (See Note 4(A)) Had compensation cost for the Company's stock-based compensation plan been determined on the fair value at the grant dates for awards under that plan, consistent with Statement of Accounting Standards No 123, "Accounting for Stock Based Compensation" (Statement No. 123), the Company's net loss for the year ended March 31, 2002 and 2001 would not have changed. The effect of applying Statement No. 123 is not likely to be representative of the effects on reported net income for future years due to, among other things, the effects of vesting. For stock options and warrants issued to non-employees, the Company applies SFAS 123. Accordingly, consulting expense of $345,000 was charged to operations in 1999 as reflected in the accompanying consolidated statements of operations from March 5, 1999 (inception) to March 31, 2002 and consulting expense of $254,346 was recognized in 2002 upon granting of 125,000 common stock options. For consolidated financial statement disclosure purposes and for purposes of valuing stock options and warrants issued to consultants, the fair market value of each stock granted was estimated on the grant date using the Black-Scholes Option-Pricing Model in accordance with SFAS 123 using the following weighted-average assumptions in 1999: expected dividend yield F-14 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements March 31, 2002 0%, risk-free interest rate of 4.53%, volatility 0% and expected term of two years and in 2002: dividend yield 0%, risk-free interest rate 3.57%, volatility 0% and expected term of one year. A summary of the options outstanding, which were granted for cash or services as of March 31, 2002, 2001, 2000, 1999 and changes during these years, are presented below:
Number of Weighted Options and Average Warrants Exercise Price ----------- -------------- Stock Options Granted in 1999 1,545,000 $ 0.0001 Balance at March 1, 1999 1,545,000 $ 0.0001 Granted 250,000 $ 1.00 Exercised (100,000) $ 1.00 ---------- ------------ Balance at March 31, 2000 1,695,000 $ 0.0886 Granted 650,000 $ 0.3847 Exercised (495,000) $ 0.3031 ---------- ------------ Balance at March 31, 2001 1,850,000 $ 0.1352 Granted 375,000 $ 1.00 Exercised (975,000) $ 0.13 Terminated (750,000) $ 0.001 ---------- ------------ Balance at March 31, 2002 500,000 $ 1.00 ========== ============ Options exercisable at March 31, 2002 500,000 $ 1.00 ========== ============ Weighted average fair value of options granted for services during 2001, 2000 and 1999 $ 1.00 ============ Weighted average fair value of options granted for services during 2002 $ 2.03 ============
The following table summarizes information about options and warrants outstanding at March 31, 2002:
Options and Warrants Outstanding Options and Warrants Exercisable ---------------------------------------------------------------- -------------------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding at Contractual Exercise Exercisable at Exercise Price March 31, 2002 Life Price March 31, 2002 Price -------- -------------- ----------- -------- -------------- -------- $ 1.00 250,000 4.17 Years 1.00 250,000 1.00 $ 1.00 250,000 1.17 Years 1.00 250,000 1.00 ------- ------- ------- ------- 500,000 $ 1.00 500,000 $ 1.00 ======= ======= ======= =======
F-15 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements March 31, 2002 Note 7 Related Parties In October 2000, 400,000 options were reserved in trust for future issuance in accordance with an anti-dilution provision in an amended stockholder agreement. During June 2001, 125,000 of these options were granted to a principal stockholder and then exercised at a price of $1.00 per share. The Company recognized a consulting expense of $254,346 based on the $3.00 current fair market value of the warrants computed pursuant to the fair market value method of SFAS 123. (See Note 5) Loans payable to related parties are non-interest bearing and due on demand. Note 8 Income Taxes The Company files separate tax returns for the parent and its Canadian subsidiary. There was no income tax expense for the years ended March 31, 2002 and 2001, due to the Company's net losses. The blended Canadian Federal and Provincial Corporate tax rate of 41.5% applies to loss before taxes of the Canadian subsidiary. The Company's tax expense differs from the "expected" tax expense for Federal income tax purposes for the years ended March 31, 2002 and 2001, (computed by applying the United States Federal Corporate tax rate of 34% to loss before taxes), as follows: Years Ended March 31, -------------------------- 2002 2001 ----------- --------- Computed "expected" tax benefit $(1,006,201) $(328,708) Stock based expenses 3,060 53,754 Foreign income taxes (3,180) (121,906) Other non-deductible items (34,411) - Change in deferred tax asset valuation allowance 1,040,732 396,860 ----------- --------- $ - $ - =========== ========= The effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at March 31, 2002 are as follows: Deferred tax assets: United States net operating loss carry forward 870,430 Canadian net operating loss carryforward 1,210,564 Canadian stock based expenses - ----------- Total gross deferred tax assets 2,080,944 Less valuation allowance (2,080,944) ----------- Net deferred tax assets $ - =========== The valuation allowance at March 31, 2001 was $1,040,262. The net change in valuation allowance during the year ended March 31, 2002 was an increase of approximately $1,040,732. The Company's subsidiary has net operating losses of approximately $2,917,021 at March 31, 2002 available to offset the subsidiaries' net income through 2007 under Canadian Federal and Provincial tax laws and the parent F-16 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements March 31, 2002 United States entity has a net operating loss carryforward of approximately $2,560,089 available to offset the parent's net income through 2022. Note 9 Going Concern As reflected in the accompanying consolidated financial statements, the Company has a deficit accumulated during development stage of $5,476,570, a working capital deficiency of $532,586 at March 31, 2002, losses from operations of $2,959,415 in 2002, and cash used in operations of $115,081 during 2002. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional funds and to successfully complete its research and development resulting in a saleable product. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management's plan of operation has been prepared assuming that the Company will continue to operate as a going concern. The capability to continue as a going concern is contingent to the completion of a current offering. The source, availability, and terms of such funds have not been determined and there is no assurance the Company will be able to obtain any funding on acceptable terms or at all. Failure to obtain the financing or to obtain it on a timely basis will have a substantial adverse affect on the Company's operations and their ability to complete the plan of operation in whole or in part. Note 10 Subsequent Event On May 1, 2002, the Company issued a $100,000, 5%, Senior Secured Convertible Debenture - Series A (the "Debenture") to a principal stockholder (the "Investor"). Unless converted, redeemed or retracted before maturity, interest payments are due May 1, 2003 and April 30, 2004. The debenture must be paid in full on the earlier of April 30, 2004 or the closing date of the next round of financing for a minimum of $1,000,000. The debenture is collateralized by a Security Agreement on all of the Company's assets, including its patents and patent applications. At any time at the option of the holder, the outstanding principal amount of the debenture is convertible into common shares of the Company at a conversion price of $1.00 a share and accrued interest shall be payable in cash at that time. The Debenture contains various covenants some of which restrict the ability of the Company to issue further debt or issue further equity securities. The debenture contains anti-dilution provisions requiring the Company to issue additional shares to the Investor, based upon a stipulated formula, if the Company sells any additional shares at less than $3.00 per share. In March 2002, an outside party received a fee of 25,000 common shares of the Company for arranging the transaction and in May 2002, the party received options to purchase 25,000 common shares at of the Company at an exercise price of $1.00 per share for a period of five years. The value of the options granted is approximately $1,600 resulting in a debt discount to be recognized as interest expense over the term of the debenture. The value of the 25,000 common shares issued as a loan fee, less cash paid of $3.00 is recorded as a $24,997 deferred loan fee at March 31, 2002 to be amortized over the term of the debenture. F-17 B. Twelve, Inc. and Subsidiary (A Development Stage Company) Notes to Consolidated Financial Statements March 31, 2002 The debenture is redeemable by the Company with a minimum of 10 and maximum of 60 days notice to the holder, but may not be redeemed by the Company before May 1, 2003. The debenture is redeemable for cash (or common shares of the Company with approval of the holder at the conversion price as defined in the debenture ) in whole, or in part from time to time at a redemption price equal to the principal plus accrued and unpaid interest. After May 1, 2003, the holder may also elect redemption in cash only, at a redemption price equal to the principal plus accrued and unpaid interest and with notice to the Company the same as above. F-18 INDEMNIFICATION OF DIRECTORS AND OFFICERS All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. There are no agreements with respect to the election of directors. The Board of Directors appoints officers annually and each executive officer serves at the discretion of the Board of Directors. The Company does not have any standing committees at this time. The Company does not currently maintain insurance for the benefit of the directors and officers of B Twelve against liabilities incurred by them in their capacity as directors or officers of B Twelve. B Twelve does not maintain a pension plan for its employees, officers or directors. The Company intends to obtain $500,000 insurance on the lives of its executive officers. Any Director who is independent of the Company is entitled to an annual fee of $2,000 and a fee of $200 for each meeting attended by such Director plus reasonable expenses incurred in attending such meeting, upon presentation of receipts therefor. As of the date hereof, no director has accrued any expenses. However, directors received 14,525 and 3,000 common shares for services rendered during FY2001 and FY2002, respectively. None of the directors or senior officers of B Twelve and no associate of any of the directors or senior officers of B Twelve was indebted to B Twelve during the financial period ended March 31st, 2001 of B Twelve other than for routine indebtedness. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION All expenses of issuance and distribution will be paid by the issuer. The Company has not received all the details of the cost associated to this offering, but it is not expected to exceed $50,000. The following amounts have being used to estimate the cost of this offering: i) registration fees $2,000, ii) cost of printing and engraving $2,500, iii) legal $10,000, iv) accounting $10,000, and v) other $2,500. RECENT SALES OF UNREGISTERED SECURITIES In March 1999, the Company issued 300,000 common shares to Uri Sagman for services rendered, which were valued at a planned contemporaneous cash offering price for one-for-one convertible preferred stock and common stock warrants issued with an exercise price of $1.00 per share. A compensation expense of $300,000 was recorded in 1999. In March 1999, the Company issued 255,000 common shares and 345,000 common stock warrants to InterUnion Financial Corporation and New Researches Corporation, respectively, exercisable at $0.0001 per share as a fee for assistance in the acquisition of intangible assets. The common shares were valued based on a contemporaneous cash-offering price of $1.00 per share. The warrants were valued pursuant to SFAS 123, at $1.00 per warrant. The aggregate consulting expense charged to operations in 1999 for the shares and warrants was $600,000. II-1 In June 1999, the Company issued 2,000,000 common shares to Receptagen Ltd., a private biotechnology company, for a portfolio of patents, patents pending, and related intellectual property. The portfolio was valued at $2,000,000 based on a $1.00 per share contemporaneous cash offering price for one-for-one convertible preferred stock and common stock warrants issued with an exercise price of $1.00. In December 1999, 100,000 common stock warrants were exercised by New Researches Corporation for $100,000. In May 2000, directors were granted an aggregate 58,100 common shares for services rendered. The shares were valued at the contemporaneous cash offering price of $1.00 per share resulting in a compensation expense of $58,100 on the grant date. In May 2000, 150,000 common stock warrants were exercised by New Researches Corporation for $150,000. In October 2000, 345,000 common stock warrants were exercised by New Researches Corporation at $0.0001 per share or a total of $35. In October 2000, 100,000 shares were issued to Jean-Luc Berger as compensation for services rendered. A compensation expense of $100,000 was recognized on the grant date based on the contemporaneous cash offering of $1.00 per common share. In December 2000, 50,000 common shares were sold to Rupert's Crossing for $50,000 and another 50,000 common shares were sold to New Researches Corporation for $50,000. In October 2000, 400,000 options were reserved in trust for future issuance in accordance with an anti-dilution provision in an amended stockholder agreement. During June 2001, 125,000 of these options were granted to Credifinance Gestion S.A. and then exercised at a price of $1.00. The Company recognized a consulting expense of $254,345 based on the $3.00 current fair market value of the warrants computed pursuant to the fair market value method of SFAS 123. In January 2001, the Company issued 400,000 fully vested shares to Medarex Inc., a third party research and development subcontractor (the "vendor") to be used as a credit against $1,200,000 future invoice license and royalty fees. Based on the contract valuation of $3.00 per share and anti-dilution provisions provided to the vendor, the Company valued the 400,000 shares at $1,200,000. The value, considered a prepaid expense, was recorded as deferred fees deducted from stockholders' equity, to be amortized against future invoices. In May 2001, Uri Sagman and Jean-Luc Berger were granted 850,000 common stock options pursuant to their option agreements upon the achievement of certain milestones. A compensation expense of $849,915 was recognized under APB 25 based on the $1.00 intrinsic value of the options at the grant date less the $85 cash paid. In November 2001 and March 2002, 262,500 (Jean-Luc Berger) and 587,500 (Uri Sagman) options, respectively, were exercised for $85 and 850,000 common shares were issued. In May 2001, Credifinance Gestion S.A., a principal stockholder, was granted 125,000 common stock options and a consulting expense of $254,345 was recognized pursuant to SFAS 123 based on the $3.00 fair market of the shares. Credifinance Gestion S.A. immediately exercised 125,000 options for 125,000 common shares at an exercise price of $125,000. II-2 In June 2000, New Researches Corporation purchased 250,000 shares of convertible preferred stock for $1.00 per share or $250,000. The Stock is convertible to common stock on a one-for-one basis upon the earlier of: (i) an initial public offering, as defined, (ii) the completion of a reverse-take-over transaction, (iii) a minimum $3,000,000 private equity financing based on a $10,000,000 valuation, or (iv) the merger of the Company with another corporation or the sale of substantively all the assets of the Corporation. In May 2001, the 250,000 preferred shares were converted by Credifinance Gestion S.A. into 250,000 common shares. Pursuant to the warrant agreement attached to the preferred shares, an additional 250,000 warrants were issued upon conversion with an exercise term of five years at an exercise price of $1.00 per share. In December 2001, the Company issued 3,000 shares each to two directors and an employee for services rendered. The Company recognized an expense of $9,000 based on a contemporaneous cash offering price of $1.00 per common share. In May 2002, The Company issued a $100,000, 5%, Senior Secured Convertible Debenture - Series A (the "Debenture") to Credifinance Gestion S.A. (the "Investor"). Unless converted, redeemed or retracted before maturity, interest payments are due May 1, 2003 and April 30, 2004. The debenture must be paid in full on the earlier of April 30, 2004 or the closing date of the next round of financing for a minimum of $1,000,000. The debenture is collateralized by a Security Agreement on all of the Company's assets, including its patents and patent applications. At any time at the option of the holder, the outstanding principal amount of the debenture is convertible into common shares of the Company at a conversion price of $1.00 a share and accrued interest shall be payable in cash at that time. The Debenture contains various covenants some of which restrict the ability of the Company to issue further debt or issue further equity securities. The debenture contains anti-dilution provisions requiring the Company to issue additional shares to the Investor, based upon a stipulated formula, if the Company sells any additional shares at less than $3.00 per share. The debenture is redeemable by the Company with a minimum of 10 and maximum of 60 days notice to the holder, but may not be redeemed by the Company before May 1, 2003. The debenture is redeemable for cash (or common shares of the Company with approval of the holder at the conversion price as defined in the debenture ) in whole, or in part from time to time at a redemption price equal to the principal plus accrued and unpaid interest. After May 1, 2003, the holder may also elect redemption in cash only, at a redemption price equal to the principal plus accrued and unpaid interest and with notice to the Company the same as above. In March 2002, the Company issued 25,000 shares to Credifinance Securities Limited, a related party, for $0.0001 per share as a loan fee relating to a convertible debenture issued subsequently to March 31, 2002. A deferred loan fee was recorded at $24,997 based on the contemporaneous cash offering price less the cash paid of $3.00. Note: All sales of stock as listed above were private sales not involving a public offering, pursuant to Section 4(2) of the Securities Act of 1933, as amended. II-3 EXHIBITS The following Exhibits are attached hereto:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------- 3.1* Articles of Incorporation 3.2* Bylaws of Corporation 5* Opinion of Legality 10.1 Amended and restated unanimous shareholders' agreement [dated January 15, 2001] 10.2* Employment agreement Uri Sagman [dated June 1st, 2001] 10.3* Employment agreement Jean-Luc Berger [dated June 1st, 2001] 10.4* Employment termination agreement Uri Sagman [dated November 15, 2001] 10.5* Employment termination agreement Jean-Luc Berger [dated November 15, 2001] 10.6* Consulting agreement Jean-Luc Berger [dated November 15, 2001] 10.7 Option agreement Uri Sagman [dated March 5, 1999] 10.8* Option agreement Uri Sagman [dated June 1, 2001] 10.9* Option agreement Jean-Luc Berger [dated June 1, 2001] 10.10 Research collaboration agreement between The Research Foundation of State University of New York and B. Twelve Ltd. [dated August 19, 1999] 10.11 Extension/Modification research collaboration agreement between The Research Foundation of State University of New York and B. Twelve Ltd. [dated November 01, 2000] 10.12 Sponsored laboratory study agreement, The University of Texas M.D. Anderson Cancer Center [dated August 31,1999] 10.13 Amendment No. 1 to research agreement, The University of Texas M.D. Anderson Cancer Center [dated November 20, 2000] 10.14 Termination Agreement, The University of Texas [dated February 28, 2002] 10.15 Collaborative research agreement, New York University [dated November 11, 1999] 10.16* Convertible Debenture - Series A - US$100,000 [dated May 1, 2002] 10.17* Price protection agreement [dated May 1, 2002] 10.18* Security agreement [dated May 1, 2002] 21* Subsidiaries of the Registrant 23.1 Independent Auditors' Consent
- ---------- * Previously filed. II-4 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------- Amendment No. 2 To Form SB-2 REGISTRATION STATEMENT UNDER The Securities Act of 1933 --------------------- B. TWELVE, Inc. --------------------- In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Toronto State of Province of Ontario, Canada on July 30, 2002. (Registrant) /s/ Jean-Luc Berger - ------------------------------------------------------------ By (Signatures and Title) /s/ Jean-Luc Berger, President & CEO, Director - -------------------------------------------------- In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated: (Signature) /s/ [ILLEGIBLE] /s/ Donald MacAdam -------------------------------------------------------- (Title) [ILLEGIBLE] Director -------------------------------------------------------- [ILLEGIBLE] Donald MacAdam (Date) -------------------------------------------------------- II-5 EX-10.1 3 ex10-1.txt SHAREHOLDERS AGREEMENT AMENDED AND RESTATED UNANIMOUS SHAREHOLDERS' AGREEMENT Amended and restated unanimous shareholders' agreement dated January 15, 2001 among B. TWELVE, INC. (herein "B 12" or the "Corporation"), DR. URI SAGMAN ("Sagman"), CREDIFINANCE CAPITAL CORP. ("Credifmance"), NEW RESEARCHES CORPORATION ("NRC"), LIFMAC, S.A. ("Lifmac"), GEORGES BENARROCH ("Benarroch"), DONALD MACADAM ("MacAdam"), DR JEAN-LUC BERGER ("Berger"), RUPERT'S CROSSING (Rupert's Crossing") and MEDAREX, INC. ("Medarex"). WHEREAS: 1. Sagman, Credifinance, NRC, Lifmac, Benarroch, MacAdam, Berger, Rupert's Crossing and Medarex are the registered and beneficial owners of all the outstanding shares in the capital of the Corporation. 2. Sagman, NRC, Credifinance and Berger hold options and/or warrants to acquire additional common shares of the Corporation as described below. 3. The authorized capital of the Corporation consists of 25,000,000 shares of common stock ("Common Shares") and 1,000,000 shares of preferred stock ("Preferred Shares"). 4. On the date hereof, there are issued and outstanding 3,808,100 Common Shares, 250,000 Preferred Shares and 2,250,000 Common Share Options/Warrants which are legally and beneficially owned by and recorded on the Corporation's books as follows:
NAME OF PREFERRED COMMON COMMON SHARE SHAREHOLDER SHARES SHARES OPTIONS/WARRANTS ----------- ------ ------ ---------------- Dr. Uri Sagman Nil 314,525 1,200,000 Credifinance Nil 255,000 Nil New Researches Corporation 250,000 2,385,000 250,000 Lifinac, S.A. Nil 260,000 Nil Georges Benarroch Nil 14,525 Nil Donald MacAdam Nil 14,525 Nil Dr. Jean-Luc Berger Nil 114,525 400,000 Rupert's Crossing Nil 50,000 Nil Credifinance, in trust Nil Nil 400,000 Medarex, Inc. Nil 400,000 Nil
5. The Preferred Shares are convertible into an equal number of Common Shares on the earlier to occur of (i) an Initial Public Offering (as hereinafter defined), (ii) the completion of a reverse-take-over transaction (resulting in a publicly quoted or exchange listed company), (iii) a minimum $3,000,000 private equity financing based on a $10,000,000 valuation and (iv) the merger of the Corporation with another corporation or the sale of substantially all the assets of the Corporation (in both cases having a minimum transaction value of $10.000,000). Each Common Share issued on conversion shall be coupled with a three (3) month warrant to subscribe for an additional Common Share at an exercise price of $1.00 per Common Share. 6. The Corporation and the Shareholders hereto further acknowledge and agree that the Corporation will be creating and implementing a stock incentive plan (the "Stock Option Plan") whereby directors, officers, employees and service providers of and to the Corporation (other than Sagman in the event that he still holds options referred to in Recital 4 above) will be eligible to acquire Common Shares (at fair market value) in an amount not to exceed 10% of the Common Shares outstanding from time to time. 7. The Corporation and the Shareholders have entered into this Agreement to establish their respective rights and obligations in respect of the issued and unissued shares of the Corporation, the management and conduct of its business and various other matters hereinafter set forth. NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the respective covenants and agreements hereinafter contained and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto), the parties hereto covenant and agree with each other as follows: ARTICLE 1-INTERPRETATION 1.1 DEFINED TERMS As used in this Agreement, the following tens have the following meanings: "Act" means the Florida Business Corporations Act as may be amended from time to time, and shall be deemed to be any act substituted therefor. "Affiliate" means an "affiliate" as that ten is defined in the Act and, for the purposes of such definition, the definition of "Subsidiary" provided herein shall apply. "Agreement" means this agreement and all schedules attached hereto and any and all amendments made hereto by written agreement among the parties hereto. "AICPA" means the American Institute of Certified Public Accountants. "Annual Business Plan" has the meaning specified in Section 6.1. "Arm's Length" has the meaning specified to such term by the US Internal Revenue Code. "Articles" means the Articles of Incorporation attached to the Certificate of Incorporation of the Corporation as may be amended or restated from time to time. "Associate" means an "associate" as that ten is defined in the Securities Act of 1933. "Bylaws" means the bylaws of the Corporation from time to time in force and effect. "Business" has the meaning specified in Section 4.1. "Business Day" means any day other than Saturday, Sunday or a day on which banks are closed for business in Florida. "Business Plan" means the business plan pertaining to the conduct of the Corporation's Business prepared by the Corporation, a copy of which is attached as Schedule "A" hereto. "Common Shares" means the shares of common stock in the capital of the Corporation. 2 "Control" has the meaning specified thereto in the Act as in effect on the date hereof and without reference to any amendments thereto after the date hereof. "Directors", "Board of Directors" and "Board" means the persons who are, from time to time, duly elected as directors of the Corporation. "Expert" means a national accounting firm to be agreed upon by the Corporation, Credifinance, NRC and Medarex within 5 days after any one gives notice to the others of its desire to appoint an expert or, if they are unable to agree, then "Expert" means PricewaterhouseCoopers, Certified Public Accountants, or an affiliate thereof, or if none of the foregoing is able or willing to accept an appointment to undertake any valuation of Shares under and as contemplated in this Agreement, then "Expert" shall mean Deloitte & Touche, Certified Public Accountants, or an affiliate thereof. "Fair Market Value" means, for the purposes of valuation by the Expert hereunder, the highest cash price in terms of money which would be obtained as at the date specified in the applicable Section hereof if all the Shareholders of the Corporation sold all of their respective Shares in an open and unrestricted market (recognizing that the Shares are securities of a corporation which cannot offer its securities to the public) without compulsion to a willing and knowledgeable purchaser acting at arms' length and where in determining such Fair Market Value: (1) the value of each Common Share is based on the value of all Common Shares; (2) no diminution or accretion in value is attributed to any majority or minority interest (other than in determining Fair Market Value for a purchase by the Corporation from a trustee in bankruptcy); (3) the value of any insurance on the life of any shareholder or employee and the proceeds of such insurance shall be excluded; (4) the value of all intangible and unrecorded assets is included; and (5) the value of each Prefer -red Share shall be equal to the redemption price for such share set forth in the Articles. "Initial Public Offering" means the closing of an offering or offerings pursuant to a receipted prospectus under the United States Securities Act of 1933, as amended, or similar document filed under other applicable securities laws in the United States or Canada, covering the offer and sale of Common Shares for the account of the Corporation to the public in which the Common Shares are listed on a major North American stock exchange (excluding The Canadian Venture Exchange, Montreal Exchange, Bulletin Board and any Canadian unlisted market) or The NASDAQ Stock Market. "Person" means an individual, partnership, corporation or other entity. "Preferred Shares" means the shares of preferred stock in the capital of the Corporation. "Progress Report" has the meaning specified in Section 6.1. "Prospective Customers" shall mean, for the purposes of Article 8, Persons canvassed or solicited by the Corporation at any time up to the date upon which a Person ceases to be a Shareholder, officer, director or an employee of the Corporation. "Related Parties" means Shareholders and Persons related to Shareholders as the term "related" is defined in the US Internal Revenue Code and "Related Party" shall mean any one of such parties. "Senior Management Group" means initially, Sagman and Berger, but shall include all future senior offcers of the Corporation appointed by the Board. "Shareholders" means collectively Sagman, Credifinance, NRC, Lifrnac, Benarroch, MacAdam, Berger, Rupert's Crossing and Medarex and any person to whom a Shareholder transfers any Shares, or to whom 3 Shares are issued, in accordance with the terms of this Agreement and "Shareholder" means, individually, any one of them. "Shares" means collectively the Common Shares and the Preferred Shares. "Stock Option Plan" has the meaning set forth in the recitals to this Agreement. "Subsidiary" means a corporation controlled by the Corporation and on the date hereof includes B Twelve Limited, an Ontario company. Notwithstanding the definition of "Subsidiary", a corporation that is consolidated with the Corporation for accounting purposes shall be deemed to be a Subsidiary for all purposes hereof. "Territory" means all countries who are members of the United Nations. The provision of a Table of Contents, the division of this Agreement into Articles and Sections and the insertion of headings are for convenient reference only and are not to affect its interpretation. 1.2 GENDER AND NUMBER. Any reference in this Agreement to gender includes all genders and words importing the singular number only shall include the plural and vice versa. 1.3 Governing Law. This Agreement shall be governed and interpreted and enforced in accordance with the laws of the State of Florida and the United States federal laws applicable therein. 1.4 SEVERABILITY. Each provision of this Agreement is intended to be severable. If any provision hereof is illegal or invalid, such provision shall be deemed to be severed and deleted herefrom and such illegality and invalidity shall not affect the validity or enforceability of the remainder hereof. 1.5 Currency. All references to dollars in this Agreement shall be to U.S. dollars. 1.6 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the parties hereto with regard to the subject matter hereof and supersedes all prior agreements, understandings, representations or warranties, negotiations and discussions, whether oral or written, among the parties hereto with respect thereto, including without limitation any agreements among the shareholders of the Corporation entered into prior to the date hereof, which are hereby terminated. 1.7 Amendment. No amendment of this Agreement shall be binding unless in writing and signed by all of the parties hereto. 1.8 Waiver. No waiver by any party hereto of any breach of any of the provisions of this Agreement shall take effect or be binding upon such party unless in writing and signed by such party. Unless otherwise provided therein, such waiver shall not limit or affect the rights of such party with respect to any other breach. 1.9 Time of Essence. Time shall be of the essence of this Agreement. 1.10 Further Acts. The parties hereto agree to execute and deliver such further and other documents and perform and cause to be performed such further and other acts and things as may be necessary or desirable in order to give full effect to this Agreement and every part hereof. 1.11 Accounting Principles. References in this Agreement to generally accepted accounting principles shall be deemed to be the generally accepted accounting principles from time to time approved by the AICPA, or any 4 successor institute, applicable as of the date on which such calculation is made or required to be made in accordance with generally accepted accounting principles. ARTICLE 2 - TERM OF AGREEMENT 2.1 Term. Subject to Section 13.2, this Agreement shall come into force and effect on the date hereof and shall terminate on the earlier of a) the date on which only one Shareholder holds Shares; b) the date this Agreement is terminated by written agreement of the parties hereto; c) the date upon which there shall occur an Initial Public Offering; d) the date upon which all of the Shares are acquired by a reporting issuer within the meaning of the Securities Act of 1933; and e) the sale of all of the Shares of the Corporation to a third party in compliance with this Agreement. ARTICLE 3 - IMPLEMENTATION OF AGREEMENT 3.1 Shareholder Covenants. Each of the Shareholders covenants and agrees that it shall vote or cause to be voted the Shares of the Corporation owned by it to accomplish and give effect to the terms and conditions of this Agreement and that it shall otherwise act in accordance with the provisions and intent of this Agreement. 3.2 CONFLICT. Subject to the provisions of the Act, in the event of any conflict between the provisions of this Agreement and the Articles and the Bylaws, the provisions of this Agreement shall govern. The parties hereto acknowledge and agree that as the date hereof conflicts may exist between this Agreement and the Articles and the Bylaws. Each of the Shareholders agrees to vote or cause to be voted the Shares owned by it so as to cause the Articles or the Bylaws to be amended to resolve each such conflict and any other conflicts in favour of the provisions of this Agreement. 3.3 Covenants by the Corporation. The Corporation consents to the terms of this Agreement and hereby covenants with each of the other parties hereto that it will at all times during the term of this Agreement be governed by the terms and provisions hereof in carrying on its business and affairs, and each of the Shareholders shall vote or cause to be voted their respective Shares of the Corporation to cause the Corporation to fulfil its foregoing covenants. ARTICLE 4 - CORPORATION'S BUSINESS AND PURPOSE 4.1 Business and Purpose. The business and purpose of the Corporation is to conduct activities in the biotechnology and pharmaceutical areas. The Corporation's primary objective is to focus its research activities on the discovery and the development of therapeutic products which maximize the utility and application of its platform technologies and provide an integrated approach for the treatment and/or management of human lift threatening diseases or other serious disorders. ARTICLE 5 - DIRECTORS AND SHAREHOLDERS 5.1 Number of Directors. The Corporation shall, unless otherwise agreed in writing by those Shareholders holding at least sixty (60) percent of all Shares, have a minimum of three (3) and a maximum of seven (7) directors. 5 5.2 Nomination and Election of Directors. a) Nomination. Until changed by a resolution of the Shareholders, the directors of the Corporation shall be Dr. Uri Sagman, Georges Benarroch, Donald MacAdam and Dr. Jean-Luc Berger. b) Indemnity. The Corporation hereby indemnifies each Director and his or her heirs and legal representatives against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him or her in respect of any civil, criminal or administrative proceeding to which he or she is made a party by reason of being or having been a director of the Corporation provided (i) he or she acted honestly and in good faith with a view to the best interests of the Corporation; and (ii) in the case of a criminal or administrative proceeding that is enforced by a monetary penalty, he or she had reasonable grounds for believing that his or her conduct was lawful. 5.3 Term of Office. The term of office of a Director shall commence on the date of that individual's election to the Board and shall terminate at the close of the next following annual meeting of the Shareholders, or until their successors are elected. 5.4 POWERS AND DUTIES OF DIRECTORS. Subject to the Act and the provisions hereof, the Directors shall manage or supervise the Corporation's Business except as such authority may be delegated by the Directors from time to time, and in exercising such authority the Directors and their delegates shall conduct the Corporation's Business or cause it to be conducted in all material respects in accordance with the Business Plan (as such plan may be amended from time to time) unless the parties hereto shall otherwise agree in writing. 5.5 INSURANCE. The Corporation shall arrange director's insurance coverage for the Directors of the Corporation on terms and conditions and in an amount acceptable to NRC. 5.6 BOARD MEETINGS. The Board shall meet at least once every two months. Any Director shall be entitled to convene a meeting of Directors upon notice given as specified in Section 5.7. 5.7 EXERCISE OF AUTHORITY. a) QUORUM. Unless otherwise agreed to in writing by all of the Directors, but always subject to the Act and subsection 5.7(b), a quorum of any meeting of the Board shall consist of a majority of Directors. b) PROCEEDING WITHOUT QUORUM. Notwithstanding the provisions of subsection 5.7(a), if proper original notice of a meeting of the Board, specifying the business to be transacted at the meeting, is given and a quorum of Directors is not present, then a meeting of the Board may thereafter be held on 48 hours written notice of the second meeting to transact the business set forth in the original notice and, subject to the Act, any members of the Board present at that meeting shall constitute a quorum for the transaction of the business set out in the original notice in respect of that meeting and such business may be transacted by a majority vote of those Directors in attendance at the meeting. c) Notice. Unless all of the Directors are present (except where a Director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called) or those absent waive notice, no meeting of Directors shall be validly convened unless 48 hours' written notice thereof is given in accordance with the provisions of the Bylaws. d) Content of Notice. No resolution with respect to any matter may be put to any meeting of the Board unless the notice of the meeting contains reasonable detail of the matter or unless all of the Directors 6 either are present and do not object to the matter being put to the meeting or otherwise waive the provisions of this subsection 5.7(d). e) Voting. Except as otherwise herein provided, decisions of the Board shall be effective only if approved by a majority of the votes cast at a meeting of the Directors or by written resolution signed by all of the Directors. f) Compensation Committee. The Board shall appoint a Compensation Committee and shall delegate the responsibility for making decisions relating to compensation of all senior employees of the Corporation to such Compensation Committee. The Compensation Committee shall consist of three (3) members, one of whom shall be a nominee of NRC, one of whom shall be Sagman (provided that Sagman shall be prohibited from voting on matters relating to his own compensation) and one of whom shall be independent of management. In order to be effective, all decisions of the Compensation Committee shall be made by a unanimous vote of its members entitled to vote at a meeting or in writing. g) AUDIT COMMITTEE. The Board shall appoint an Audit Committee and shall delegate the responsibility for the review and approval of the financial statements of the Corporation to such Audit Committee. The Audit Committee shall consist of three (3) members, one of whom shall be Sagman, one of whom shall be a nominee of NRC and one of whom shall be independent of management. In order to be effective, all decisions of the Audit Committee shall be made by a unanimous vote of its members at a meeting or in writing. h) Scientific Advisory Board/Committee. The Board shall appoint a Scientific Advisory Board/Committee and shall delegate the responsibility to it for the review of the research and development of the Corporation's platform technology. i) Other Committees. The Board shall have the right to appoint such other committee(s) as it deems necessary and in so doing, shall delegate specific responsibilities to such committee(s). 5.8 Senior Officers. a) The Corporation shall have six (6) months following the date of this Agreement to retain the services of a Chief Financial Officer and/or Chief Operating Officer acceptable to NRC and if the Corporation fails to do so, NRC shall have the right following such six (6) month period to appoint such Chief Financial Officer and/or Chief Operating Officer of the Corporation in its sole discretion. b) Throughout the currency of this Agreement, members of the Senior Management Group may be compensated as determined by the Compensation Committee. 5.9 Directors Fees. Any Director who is independent of the Corporation shall be entitled to an annual fee of $2,000 and a fee of $200 for each meeting attended by such Director plus reasonable expenses incurred in attending such meeting, upon presentation of receipts therefor. 5.10 Extraordinary Matters. Notwithstanding any provision to the contrary in the Articles, the Bylaws or this Agreement, the following matters shall require the written approval of the Shareholders holding sixty-six and two-thirds (66 2/3's) of the Shares in addition to any requirements required by law: a) the taking or institution of any proceedings for the winding-up, reorganization or dissolution of the Corporation or any of its Affiliates; 7 b) the making of an assignment for the benefit of any creditors of the Corporation or of any of its Affiliates; c) the amalgamation, consolidation, merger of, or the entering into of any agreement to amalgamate, consolidate or merge, the Corporation with any corporation, partnership, joint venture or firm, or the continuance or corporate reorganization of the Corporation of any kind or the purchase of any securities of any Person; d) the sale, lease, exchange or other disposition of all or substantially all of the assets of the Corporation or of any of its Affiliates or any sale, lease, exchange, or other disposition of any such assets out of the ordinary course of business; e) the sale of any shares held by the Corporation in any of its Subsidiaries; f) the issuance of any shares by any Subsidiary; g) the purchase or redemption by the Corporation of any Shares other than as expressly provided in this Agreement; h) the declaration, payment or setting aside for payment of any dividend, the distribution of any surplus or earnings, the return of any capital, the repayment or retirement of any indebtedness of the Corporation to any Shareholder, or any other payment or distribution of assets of the Corporation to any Shareholder, other than to or in favour of NRC (as a holder of Preferred Shares). i) the amendment of the Articles or Bylaws (other than as contemplated by Section 3.2 hereof); j) the guarantee or indemnification by the Corporation of, or the grant of security by the Corporation for, the debts or obligations of any corporation, partnership, joint venture, firm or person; k) the making of any loans with, the granting of any other financial assistance to or the entering into of any agreements with any Shareholder or Associate of such Shareholder; 1) the amendment of any provision of this Agreement; m) other than as set forth in Section 5.8 for the Senior Management Group, the payment of any advance, salary, bonus, consulting fee, management fee, incentive compensation or bonus or other payment to any Director, former director, officer, Shareholder, employee or Affiliate (excluding the market value of goods sold or services provided in the ordinary course of business) of the Corporation or to any person related by blood, adoption or marriage to any of the foregoing or to any corporation not dealing at Arm's Length with any such person or the creation of any agreement which would obligate the Corporation to make any such payment, except to the extent that such fees, bonuses or other payments constitute normal remuneration payable to bona fide employees of the Corporation and have been specifically approved in connection with the Annual Business Plan; n) the acquisition or agreement to acquire any capital asset, any lease or agreement to lease of real or personal property or any acquisition or agreement to acquire property which is not contemplated by the Business Plan as may be amended, if at all, or by the duly approved Annual Business Plan or which would exceed the aggregate amount approved by the Business Plan (or by the duly approved Annual Business Plan) for such matters; 8 o) any material change in the Corporation's Business or the taking of any action which may lead to or result in such material change; p) the incorporation or acquisition of any corporation that would be an Affiliate of the Corporation: q) the hypothecation, mortgage, pledge or any act otherwise encumbering the Corporation's assets or any of them except as may be required by bankers in connection with the Corporation's normal banking activities and arranged lines of credit; r) the issuance or allotment of Shares or the granting of any right, option or privilege to acquire any Shares, other than as contemplated in this Agreement; s) any change in the number of issued and outstanding shares in the capital of the Corporation or any increase or reduction in the capitalization of the Corporation, including, without limitation, byway of any split, conversion or exchange of Shares; and t) any amendment, modification or termination of any agreements between the Corporation and any of its Subsidiaries. 5.11 SUBSIDIARIES AND AFFILIATES. The provisions of Section 5.10 shall apply mutatis mutandis to any Subsidiary of the Corporation. 5.12 MEETINGS OF SHAREHOLDERS. The quorum for the transaction of business at any meeting of the Shareholders shall be two persons present in person or by proxy holding at least 50% of the Shares entitled to vote at the meeting. No meeting shall continue with the transaction of business in the absence of a quorum. Subject to Section 5.10, all questions before the Shareholders shall be decided by a majority of those voting. The Chairman of the meeting of the Shareholders shall be decided by a majority of those voting. The Chairman of the meeting of the Shareholders will not have a second or deciding vote. Notwithstanding the provisions of this subsection 5.12, if proper notice of a meeting of the Shareholders is given and a quorum of Shareholders is not present, then a meeting of the Shareholders may thereafter be held on 48 hours written notice of the second meeting to transact the business set forth in the original notice and, subject to the Bylaws and the Act, any Shareholders present at that meeting shall constitute a quorum for the transaction of the business set out in the original notice in respect of that meeting and such business may be transacted by a majority of voting Shares of Shareholders in attendance at the meeting. 5.13 Key Person Insurance. The Corporation covenants with the Shareholders that the Corporation will insure and keep insured the life of Sagman under a policy of "key person life insurance" in the amount of $1,000,000 with the Corporation as the sole beneficiary under such policy. 5.14 Auditors. The Board shall have the responsibility of selecting auditors for the Corporation, subject to the approval of NRC. 5.15 STOCK OPTIONS AND WARRANTS. The Corporation hereby discloses that there are no outstanding stock options or warrants, other than those listed in the recitals to this Agreement. 9 ARTICLE 6 - FINANCIAL & ACCOUNTING PRACTICES 6.1 Financial Information. a) The Corporation shall deliver to all Shareholders within forty-five (45) days of the financial year end of the Corporation one copy of its annual financial statements, which shall be prepared on a consolidated basis and be audited by independent auditors of the Corporation. Such statements shall include a balance sheet and a statement of income, retained earnings and changes in financial position, together with all supporting schedules and working papers. Such financial statements shall be signed by an authorized officer of the Corporation and shall be accompanied by a report of the auditors of the Corporation (which report shall not be qualified). b) The Corporation shall furnish to its Shareholders no later than thirty (30) days prior to the end of the financial year ending March 31, 2000, and thereafter no later than thirty (30) days prior to the end of each financial year an Annual Business Plan for the next financial year which shall consist of the detailed budget for such financial year providing information supplementary to and consistent with the Business Plan (as same may be amended from time to time). For the purposes of this Agreement, "ANNUAL BUSINESS PLAN" means, for any financial year, monthly detailed pro forma balance sheets, income statements and statements of changes in financial position for the Corporation prepared in accordance with generally accepted accounting principles on a consolidated basis and approved by its Board of Directors together with such explanations, notes and information which in the reasonable opinion of the Corporation explain and supplement the information so provided and a capital expenditure plan indicating the nature and amount of capital expenditures proposed to be incurred in such financial year. c) The Corporation shall also provide its Shareholders a monthly financial report within thirty (30) days after the end of each month which report shall consist of a balance sheet and income statement, including year-to-date information. d) The Corporation shall also deliver to each of its Shareholders within thirty (30) days after the end of each financial quarter one copy of its unaudited quarterly financial statements which shall be prepared on a consolidated basis and shall include the balance sheet and statements of income, retained earnings and changes in financial position, together with all supporting schedules and notes to the financial statements; and e) The Corporation shall also furnish to each of its Shareholders within thirty (30) days after the end of each financial quarter a Progress Report. For purposes of this Agreement, "Progress Report" means, for the period in question, a written report describing and summarizing the activities being undertaken by the Corporation, which report shall include a summary of all progress made toward established scientific and corporate milestones and any recommendation to change any such milestones, if necessary. 6.2 Maintain Books. The Corporation shall maintain accurate and complete books and records of all transactions, receipts, expenses, assets and liabilities of the Corporation in accordance with generally accepted accounting principles, consistently applied as approved and adopted by the Board. 6.3 Review of Books. The Shareholders agree that NRC, Medarex and Credifmance shall, at its own expense, be entitled to appoint a representative, agent or designee to review, on reasonable notice, all books, documents and records of the Corporation and shall be entitled to make copies thereof for their oven purposes. NRC and its respective representatives, agents and designees shall have the right to discuss at any time with management 10 personnel of the Corporation, such matters pertaining to the financial position, operations, investments and financings as may be of interest to NRC or such representative, agent or designee from time to time. 6.4 FISCAL YEAR. The fiscal year of the Corporation shall end on the 31 st day of March in each year, or such other date as is agreed to by the Board. 6.5 OBLIGATIONS OF A PUBLIC COMPANY. The Corporation acknowledges that Medarex is a public company and that the Corporation shall cause its officers, directors, employees, auditors and other professional advisors to provide Medarex and its respective officers, directors, employees, auditors and other professional advisors with reasonable access on prior written notice and during normal business hours to financial and other information which is reasonably requested regarding the Corporation and its Subsidiaries, and to otherwise co-operate reasonably with Medarex, and its officers, directors, employees, auditors and other professional advisors to enable Medarex to satisfy the reporting and other obligations imposed on Medarex by the Securities Exchange Commission ("SEC") and any other regulatory authorities to the extent that Medarex is subject to such laws and regulations. ARTICLE 7 - SALE AND ISSUANCE OF SHARES 7.1 SALE AND ISSUE RESTRICTIONS. a) Except as otherwise set forth in this Agreement, none of the Shareholders may sell, grant an option to sell, encumber, pledge or create a security interest in or otherwise deal with any of its Shares in the Corporation provided however that Shares may be pledged to the banker of the Corporation from time to time as security for indebtedness of the Corporation owed to such banker. b) No proposed dealing with any Shares (including the issuance thereof) in violation of this Agreement shall be valid, and the Corporation shall not record or transfer any of the Shares dealt with in violation of this Agreement in the records of the Corporation nor shall any voting rights attached to such Shares be exercised, nor shall any dividends be paid on such Shares during the period of such violation. Such disqualification shall be in addition to and not in lieu of any other remedies to enforce the provisions of this Agreement. c) Notwithstanding anything else herein contained, every transfer of all or a portion of the Shares held by a Shareholder, and any issue of Shares by the Corporation, in addition to the requirements of the Articles, shall be subject to the condition that the proposed transferee, or holder, if not already bound by this Agreement, shall first enter into an agreement with the other parties hereto to be bound hereby. For greater certainty, but without limiting the foregoing, each of the Shareholders shall be bound by the provisions of this Agreement in respect of any Shares which may be acquired by such Shareholder after the date hereof in accordance with the provisions of this Agreement. 7.2 Offer. If at any time a Shareholder or group of Shareholders, acting in concert (hereinafter collectively referred to as the "Selling Shareholder"), desires to sell to a third party with whom the Selling Shareholder is dealing at Arm's Length all but not less than all of the Shares of the Selling Shareholder, the Selling Shareholder shall obtain from the third party a bona fide offer in writing which offer shall be irrevocable for a period of 45 days (hereinafter in this Section 7.2 and Sections 7.3, 7.4 and 7.5 referred to as the "Offer") which it is ready and willing to accept, to purchase all of the Shares for the amount thereof set forth in the Offer by cash or certified cheque and shall give notice in writing to the other Shareholders of the receipt of the Offer within 10 days thereof together with a copy thereof. The Offer may but need not also provide for the purchase of indebtedness owed by the Corporation to the Selling Shareholder. 11 11 7.3 Tag-Along and Purchase Rights. If NRC is not a Selling Shareholder, under Section 7.2, NRC shall have the right to elect, by notice in writing to the Selling Shareholder, within 30 days from the date of receipt of a copy of the Offer, to: a) as a condition precedent to any sale of the Shares by the Selling Shareholder, require the third party to amend the Offer to provide for the purchase of that number of Shares which are the subject matter of the Offer such that each of the Selling Shareholder and NRC shall sell from their respective holdings of Shares a fraction of the number of Shares which are the subject matter of the Offer, which fractions shall have as their numerators, in the case of Selling Shareholder, the number of Shares held by the Selling Shareholder, and in the case of NRC, the number of Shares held by NRC, and the denominator of both such fractions shall be the sum of the number of Shares held by the Selling Shareholder and NRC, for the same price per Share, and at the same time and on the same terms and conditions as contained in the Offer, in which case NRC shall become a "Selling Shareholder" for purposes of this Article 7; or b) if the Selling Shareholder is not NRC, as a condition precedent to any sale of the Shares by the Selling Shareholder, require the third party to amend the Offer to provide for the purchase of all of the Shares (or such lesser number as is the subject matter of the Offer) held by NRC, for the same price per Share, and at the same time and on the same terms and conditions as contained in the Offer, in which case NRC shall become a "Selling Shareholder" for purposes of this ARTICLE 7. 7.4 RIGHT OF FIRST REFUSAL. Except in the case where Section 7.6 or Section 7.9 shall apply, the other Shareholders shall have the irrevocable right, exercisable by written notice given to the Selling Shareholder within 30 days after the giving of the notice by the Selling Shareholder, to purchase all but not less than all of the Shares of the Selling Shareholder or, if NRC has exercised its option set forth in Section 7.3, the number of Shares of the initial Selling Shareholder and of NRC which are the subject matter of the Offer (in either case, the "Selling Shareholders Shares"), and, if provided for in the Offer, indebtedness owed by the Corporation to the Selling Shareholder on the terms and conditions and for the amount set forth in the Offer by cash or certified cheque pro rata in proportion to their respective holdings of Shares (or in such other proportions as they may agree among themselves). In the event that one or more of the Shareholders elects to purchase his or its pro rata proportion of the Selling Shareholders Shares and, if applicable, indebtedness owed to the Selling Shareholder and one or more of the Shareholders declines to elect to so purchase, the Shareholder(s) electing to so purchase shall have the further right and option, exercisable by notice in writing within 5 days of being notified by the Selling Shareholder that one or more of the Shareholders has declined to so purchase, to purchase the remaining Selling Shareholders Shares and, if applicable, indebtedness owed to the Selling Shareholder on the same terms and conditions and for the amount set forth in the Offer by cash or certified cheque pro rata in proportion to their respective holdings of Shares of such Shareholders (or in such other proportions as they may agree among themselves). If there shall remain Shares which no Shareholder has elected to purchase, notwithstanding that one or more Shareholders has elected to purchase Selling Shareholders Shares pursuant to this Section 7.4, the right of any Shareholders to acquire the Selling Shareholders Shares and, if applicable, the indebtedness owed to the Selling Shareholder shall be null and void and the provisions of Section 7.5 shall apply. 7.5 Sale of Shares. Right of First Refusal Not Exercised. If following compliance with Section 7.4 there shall remain Shares which no Shareholder has elected to purchase, the Selling Shareholder shall accept the Offer and complete the transaction with the said third party in accordance with the terms and conditions of such third party's Offer and the parties hereby agree to take all steps and proceedings required to have such third party entered on the books of the Corporation as a shareholder and, if applicable, as a debtholder of the Corporation, provided that if the sale of such Shares to the third party is not completed, the provisions of Article 7 shall again apply to any proposed sale of Shares. The Selling Shareholder is hereby irrevocably appointed the agent and attorney of the Shareholders and each of them for the purposes of effecting registration of the third party 12 12 as a Shareholder of the Corporation. The Board of Directors or the Shareholders (including the Selling Shareholder), as the case may be, before consenting to the transfer of the purchased Shares to the third party, shall require proof that the sale took place in accordance with the third party's Offer and the Board of Directors shall refuse the recording of the transfer of the purchased Shares which may have been sold otherwise than in accordance with the provisions of such Offer and of this Agreement. 7.6 DRAG-ALONG RIGHTS. If any of the Shareholders receive a Take-Over Bid, as hereinafter defined, which such Shareholder(s) wish to accept, such recipient Shareholder(s) shall forthwith provide a copy of the Take-Over Bid to the other Shareholders together with a notice that he, she or it wishes to invoke the provisions of this Section 7.6 in which case if Shareholders holding not less than 60% of the total number of issued and outstanding Shares wish to accept such Take-Over Bid, such Shareholders shall have the right to require the other Shareholders, on 10 days notice in writing to such other Shareholders, to sell all of the Shares held by them to the third party pursuant to the terms of the Take-Over Bid for the amount set forth in the Take-Over Bid. The Corporation is hereby irrevocably appointed the agent and attorney of all the Shareholders and each of them for the purposes of effecting registration of the third party as a Shareholder and, if applicable, debtholder of the Corporation in completing the sale of the Shares of such other Shareholders to the third party in accordance with this Section 7.6. For purposes hereof, "TAKE-OVER BID" shall mean an offer for all of the Shares made by a third party dealing at Arm's Length with all of the Shareholders and the Corporation which complies with the following: a) the purchase price shall in no event be less than $3.00 and shall be paid in cash or, certified cheque or bank draft, in full, at the closing; b) the Take-Over Bid must provide for a purchase of the Preferred Shares at a price which is the greater of (i) the amount per Preferred Share as would have been payable had all Preferred Shares been converted to Common Shares pursuant to the provisions of the Articles immediately prior to the purchase and (ii) redemption price per Preferred Share contained in the Articles; c) the Take-Over Bid shall not provide for the provision of management, consulting or other fees, the payment for any non-competition covenant, or the payment of salary which NRC in its sole discretion determines to be reasonably attributable to the purchase price as opposed to, fair consideration for future services to be rendered by the Shareholders or any of their Affilites, including the purchaser, or any other Person with whom the Shareholder does not deal at arm's length. In addition, no other consideration may be paid by the offeror or its Affiliates otherwise than as set forth in the offer; d) NRC shall be required to represent and wan-ant only that (i) its Shares are owned by it with a good and marketable title thereto, free and clear of any liens, charges, mortgages and encumbrances, (ii) it has the power to convey the Shares, and e) the liability of NRC under the purchase agreement including, without limitation, liability for a breach of representation or warranty or for a claim under an indemnity shall be several and not joint and several and shall not, under any circumstances, exceed the lesser of its pro rata proportion of any claim and the purchase price payable to NRC ; and f) the Take-Over Bid shall contain no provision which would prevent or restrict NRC's ability to make investments in any business. 7.7 RIGHTS OF PURCHASER. Any purchaser of Shares from any Shareholder in accordance with the provisions of this Agreement shall be entitled to all of the benefits accruing to such Shareholder hereunder and shall be subject to the obligations of such Shareholder hereunder. 13 13 7.8 Ranking of Shares. Notwithstanding anything herein contained to the contrary, no offer for the purchase of the Shares shall be made by a party hereto or considered or accepted by a party hereto unless the purchase price contained in the offer attributable to each Preferred Share is the greater of (i) the amount per Preferred Share as would have been payable had all Preferred Shares been converted to Common Shares pursuant to the provisions of the Articles immediately prior to the purchase and (ii) redemption price per Preferred Share contained in the Articles. ARTICLE 8 - NON-COMPETITION 8.1 Non-Competition. For the period ending on the second anniversary of the date that any Shareholder ceases directly or indirectly to be a Shareholder (the "RESTRICTED PERIOD"), such Shareholder, other than NRC and Medarex, shall not, on his or her own behalf or on behalf of or in connection with any Person, directly or indirectly, in any capacity whatsoever including as an employer, employee, mandatary, principal, agent, joint venturer, partner, shareholder or other equity holder, independent contractor, licensor, licensee, franchiser, franchisee, distributor, consultant, supplier, trustee or by and through any corporation, company, cooperative, partnership, trust, entity with juridical personality, unincorporated association or otherwise carry on, be engaged in, have any financial or other interest in or be otherwise commercially involved in any endeavour, activity or business in all or part of the Territory which: a) Subject to the provisions of Section 8.6, is substantially the same as or in competition with the Corporation's Business or the Subsidiaries' Business; or b) In any way involves the acquisition, reorganization or consolidation of Persons engaged in the Corporation's Business or the Subsidiaries' Business. 8.2 NON-SOLICITATION OF CUSTOMERS. For the period ending on the second anniversary of the date that any Shareholder ceases directly or indirectly to be a Shareholder, such Shareholder, other than NRC and Medarex, shall not, on his or her own behalf or on behalf of or in connection with any other Person, directly or indirectly, in any capacity whatsoever including as an employer, employee, mandatary, principal, agent, joint venturer, partner, shareholder or other equity holder, independent contractor, licensor, licensee, franchiser, franchisee, distributor, consultant, supplier, cooperative, partnership, trust, entity with juridical personality, unincorporated association or otherwise in connection with the Corporation's Business or the Subsidiaries' Business: a) Canvass or solicit the custom of (or procure or assist the canvassing or soliciting of the custom of) any customer of the Corporation or its Subsidiaries; b) Accept (or procure or assist the acceptance of) any business from any customer of the Corporation or its Subsidiaries; c) Canvass or solicit the custom of (or procure or assist the canvassing or soliciting of the custom of) any Prospective Customer: d) Accept (or procure or assist the acceptance of) any business from any Prospective Customer; e) Supply (or procure or assist the supply of) any goods or services to any customer of the Corporation or its Subsidiaries; or f) Supply (or procure or assist the supply of) any goods or services to any Prospective Customer. 14 8.3 Non-Solicitation of Employees. For the period ending on the second anniversary of the date that any Shareholder ceases directly or indirectly to be a Shareholder, such Shareholder shall not, on his or her own behalf or on behalf of or in connection with any other Person, directly or indirectly, in any capacity whatsoever including as an employer, employee, mandatary, principal, agent, joint venturer, partner, shareholder or other equity holder, independent contractor, licensor, licensee, franchiser, franchisee, distributor, consultant, supplier, trustee, or by and through any corporation, company, cooperative, partnership, trust, entity with juridical personality, unincorporated association or otherwise: a) Employ, offer employment to or solicit the employment or engagement of or otherwise entice away from the employment of the Corporation or the Subsidiaries any individual who is employed by the Corporation at the time that such person ceases to be a Shareholder whether or not such individual would commit any breach of his contract or terms of employment by leaving the employ of the Corporation or the Subsidiaries, or b) Procure or assist any Person to employ, offer employment or solicit the employment or engagement of or otherwise entice away from the employment of the Corporation or the Subsidiaries any individual who is employed by the Corporation or the Subsidiaries at the time that such person ceases to be a Shareholder whether or not such individual would commit any breach of his contract or terms of employment by leaving the employ of the Corporation or the Subsidiaries. 8.4 Non-Interference. Such Shareholder ceasing directly or indirectly to be a Shareholder shall not on its own behalf or on behalf of or in connection with any other Person, directly or indirectly, in any capacity whatsoever including as an employer, employee, mandatary, principal, agent, joint venturer, partner, shareholder or other equity holder, independent contractor, licensor, licensee, franchiser, franchisee, distributor, consultant, supplier, trustee, or by and through any corporation, company, cooperative, partnership, trust, entity with judicial personality, unincorporated association or otherwise, interfere or attempt to interfere with the Corporation's Business or the Subsidiaries' Business or persuade or attempt to persuade any customer, Prospective Customer, employee or supplier of the Corporation or any of the Subsidiaries to discontinue or alter such Person's relationship with the Corporation or any of the Subsidiaries. 8.5 PORTFOLIO EXCEPTION. Such Person ceasing to be a Shareholder and the shareholders of such Shareholder shall not be in default under this Agreement by virtue of his holding as a passive investor not more than five percent (5%) of the issued and outstanding shares of a corporation, the shares of which are listed on a recognized stock exchange within the Territory and with which such Person has no other connection whatsoever. 8.6 PROVISO. Nothing in this Article 8 shall derogate from a Shareholder's obligation to comply with Article 13 of this Agreement. ARTICLE 9 - REPRESENTATIONS AND WARRANTIES 9.1 General. Each Shareholder hereby represents and warrants to each of the other Shareholders and to the Corporation that such Shareholder: a) is neither a party to nor bound by any agreement regarding the ownership of its Shares, other than this Agreement or an agreement to effect a transfer of Shares in accordance with the terms of this Agreement; b) is not a party to, bound by or subject to any indenture, mortgage, lease, agreement, instrument, charter or bylaw provision, statute, regulation, order, judgment, decree or law which would be violated, contravened or breached by, or under which any default would occur as a result of the execution and 15 delivery by such Shareholder of this Agreement or the performance by such Shareholder of any of the terms hereof; and c) owns its Shares beneficially and as of record with good and marketable title thereto free and clear of all legal rights and encumbrances. 9.2 THE CORPORATION. The Corporation hereby represents and warrants to each Shareholder that, as at the date of this Agreement: a) the Corporation is a Florida corporation; b) the Corporation carries on no business other than the Corporation's Business; c) there are no outstanding options or agreements by the Corporation to issue securities in the capital of the Corporation and no understandings capable of becoming such agreements, other than those options described in the recitals to this Agreement; and d) the recitals to this Agreement are true and correct. ARTICLE 10 - ADDITIONAL CAPITAL 10.1 RELATED PARTY Loans. All loans from any Related Party shall be made on commercially reasonable terms and conditions. a) Such loans are hereby expressly subordinated, to the extent and in the manner provided in this Section 10.1, without any further action or documentation whatsoever being necessary to give effect to such subordination, in right of payment to the prior payment in FULL OF ALL other obligations of the Corporation for borrowed money, including without limitation the Preferred Shares, all charges and security interests created thereby and all indebtedness, liabilities and obligations secured thereby (collectively, the "OTHER INDEBTEDNESS"). b) In the event of any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings relative to the Corporation or to its property or assets, or in the event of any proceedings for voluntary liquidation, dissolution or other winding-up of the Corporation, whether or not involving insolvency or bankruptcy, or any marshaling of the assets and liabilities of the Corporation (collectively referred to as a "PROCEEDING"), the holders of Other Indebtedness shall be entitled to receive payment in full of all the Other Indebtedness before any lending Related Party shall be entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities which may be payable or deliverable in any such event in respect of his, her or its Related Party loan. c) Upon any payment or distribution of assets of the Corporation referred to in this Section 10.1, any lending Related Party shall be entitled to call for and rely upon a certificate, addressed to such lending Related Party, of the person making any such payment or distribution for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Other Indebtedness and other indebtedness of the Corporation, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 10.1. d) Subject to the payment in full of all Other Indebtedness, any lending Related Party shall be subrogated to the rights of the holders of Other Indebtedness to receive payments and distribution of assets of the Corporation in respect of and on account of Other Indebtedness, to the extent of the application 16 thereto of moneys or other assets which would have been received by such lending Related Party but for the provisions of Section 10.1, until the principal of and interest on the Other Indebtedness shall be paid in full. No payment or distribution of assets of the Corporation to the lending Related Party which would be payable or distributable to the holder of Other Indebtedness pursuant to this Section 10.1 shall (to the extent paid over to or held for the account of holders of Other Indebtedness), as between the Corporation, its creditors (other than the holders of0ther Indebtedness) and such lending Related Party, be deemed to be a payment by the Corporation to or on account of such lending Related Party, it being understood that the provisions of this Section 10.1 are, and are intended, solely for the purpose of defining the relative tights of the lending Related Party, on the one hand, and the holders of the Other Indebtedness on the other hand. Nothing contained in this Section 10.1 is intended to or shall impair, as between the Corporation and its creditors (other than the holders of Other Indebtedness and the lending Related Party), the obligation of the Corporation, which is unconditional and absolute, to pay to the lending Related Party the principal of and interest on his, her or its Related Patty loan and any other amounts payable under his, her or its Related Party loan as and when the same shall become due and payable in accordance with the terms hereof, or to affect the relative tights of the lending Related Patty and creditors of the Corporation, other than the holders of the Other Indebtedness, nor shall anything herein or therein prevent the lending Related Patty from exercising all remedies otherwise permitted by applicable law upon default under his, her or its Related Patty loan subject to the rights, if any under this Section 10.1, of the holders of Other Indebtedness upon the exercise of any such remedy. e) In the event that, notwithstanding the foregoing provisions of this Section 10.1, the lending Related Party shall have received any payment after a Proceeding has commenced before all Other Indebtedness has been paid in FULL, THE lending Related Patty shall hold such payment in trust for the benefit of the holders of Other Indebtedness and shall forthwith upon the completion of the Proceeding pay such payment over to such holders of Other Indebtedness for application against unpaid Other Indebtedness. f) For greater certainty, this Section 10.1 shall not be construed so as to prevent the lending Related Patty from receiving and retaining any payments on account of his, her or its Related Party loan which are made (A) in a manner that is consistent with the terms of his, her or its Related Party loan and (B) at any time when no event of default, as defined in any Other Indebtedness or the instrument creating the same, has occurred and is continuing and in respect of which notice has been given by or on behalf of the holders of Other Indebtedness to the Corporation and the Related Party. Until written notice shall be given to the Related Patty by or on behalf of any holder of any Other Indebtedness of the occurrence of any default with respect to such Other Indebtedness or the existence of any other facts which would have the result that any payment with respect of any Related Patty loan would be in contravention of the provisions of this Section 10.1, the lending Related Party shall be entitled to assume that no such default has occurred, or that no such facts exist. g) The holders of Other Indebtedness shall be entitled to rely and shall be third patty beneficiaries of the provisions of this Section 10. 1. h) The provisions of this Section 10.1 shall have no application to loans made by NRC to the Corporation. 10.2 FUTURE DEBT FINANCING. If the Corporation requires additional capital by way of debt, it shall first advise NRC of its requirements in writing. Upon receiving such notice, NRC shall have 10 days within which to notify the Corporation if it wishes to provide the required financing on such terms and conditions as may be negotiated between such parties. During that time, the Corporation shall provide to NRC, at its request, all such information as NRC may reasonably require to make its determination. In the event that the parties are unable 17 to agree upon the terms of the financing within such 45 day period, the Corporation shall deliver, within 5 days following the expiry of such 45 day period, a term sheet outlining the terms and conditions upon which it would be prepared to proceed with the financing. NRC shall have a further period of 5 days within which to accept or reject the terns of financing. In the event that either NRC rejects the terms of financing or fails to give notice within the prescribed time period as aforesaid, the Corporation shall be free to pursue obtaining its debt financing with other Persons on terms no less favourable to the Corporation or more favourable to such Persons than those set forth in the tern sheet provided to NRC . 10.3 FUTURE EQUITY FINANCINGS. If the Corporation requires additional capital by way of equity, the Corporation shall provide written notice to the Shareholders specifying the terms and conditions of the proposed equity issue including the amount of financing to be raised, the type of security to be issued, the price per security to be issued and the target completion date. Each Shareholder shall have the irrevocable right, exercisable by written notice given to the Corporation within 15 days after the giving of above notice by the Corporation, to participate in the equity financing on a pro rata basis based on the number of Shares held by such Shareholder on the terms and conditions set forth by the Corporation. In the event that one or more Shareholders elects to subscribe for his or its pro rata proportion of the proposed equity issue and one or more Shareholders declines to so subscribe, the Shareholder(s) electing to so subscribe shall have the further right and option, exercisable by notice in writing within 5 days of being notified by the Corporation that one or more Shareholders has declined to so subscribe, to subscribe for the remaining equity on the same terms and conditions as set forth by the Corporation in proportion to their respective holdings of Shares (or in such other proportions as they may agree among themselves). The foregoing procedure shall be repeated as often as is necessary until the equity issue is fully subscribed or until there remains equity which no Shareholder has elected to subscribe for. If there remains equity which no Shareholder has elected to subscribe for, the Corporation may elect to proceed with the equity financing in an amount equal to the amount subscribed for under this Section 10.3 or decline to proceed and to pursue its equity capital requirements through other sources on terms and conditions no more favourable than the terms and conditions specified to the Shareholders. 10.4 EXCEPTIONS TO PRE-EMPTIVE RIGHTS. Notwithstanding Section 10.3 hereof, no Shareholder shall have any rights thereunder in respect of a) the issue of any options or shares of the Corporation pursuant to a stock option plan for employees and other persons approved by the Board of Directors, or pursuant to option or other agreemen(pound) with employees of the Corporation approved by the Board of Directors (or the Compensation Committee) and in each case consented to in accordance with Section 5.10 hereof; b) shares issued as a stock dividend or pursuant to the exercise of conversion privileges, options (including options under the Stock Option Plan) or rights previously granted by the Corporation in accordance with Section 10.3; or c) the issue of any shares of the Corporation under the exercise of any warrants or option agreements described in the recitals to this Agreement. ARTICLE 11 - DEMAND AND PIGGYBACK REGISTRATION RIGHTS 11.1 a) Each of the Shareholders may, at any time after the completion by the Corporation of an Initial Public Offering, on its own or in conjunction with one or more other Shareholders' request the Corporation in writing (a "Request") to register Shares owned by such Shareholder(s) under the United States Securities Act (if, at such time, the Corporation has previously registered any Shares under the United States Securities Act). Upon receipt of such Request, subject to the provisions of Subsection 11.1 (b) hereof, the Corporation shall use all reasonable efforts to cause the Shares specified in the Request to be registered or qualified for distribution, as the case may be in accordance with the following 18 provisions of this Article 11 as soon as reasonably practicable so as to permit the sale thereof and in connection therewith prepare and file, in such appropriate form as the Corporation in its discretion shall determine, a registration statement under the United States Securities Act to effect such registration and seek to have such registration statement become effective as promptly as practicable; provided however, that each such Request shall: (i) specify the number of Shares proposed to be offered and sold, (ii) express the present intention of the Shareholder(s) making the Request to offer or cause the offering of such Shares for distribution, (iii) describe the nature or method required by such Shareholder(s) in respect of the proposed offer and sale thereof and (iv) contain the undertaking of such Shareholder(s) to provide all such information and materials and take all such action within its control and knowledge as may be required in order to permit the Corporation to comply with all applicable requirements of the SEC and to obtain any desired acceleration of the effective date of such registration if applicable. Upon any registration becoming effective or any Shares becoming qualified for distribution, as the case may be pursuant to this Article 11, the Corporation shall use its reasonable commercial efforts to keep such registration statement or prospectus, as the case maybe, current for a period of 120 days. b) The Corporation shall not be required to register any Shares or qualify any distribution pursuant to Subsection 11.1 (a) hereof more often than once in any six (6) month period and, in any event, unless the proposed aggregate sale price of the Shares specified in the Request is greater than $1,000,000. c) The Corporation shall be entitled, no more than once in any twelve (12) month period, to postpone, for a period of time (which shall not exceed 60 days without the consent of a majority of the Shareholders who have made a Request (the "Majority Requesting Shareholders")), the Request for a demand offering under this Section 11.1 (which postponement shall also apply for the purposes of Section 11.2) if the Corporation determines, in the good faith exercise of its reasonable business judgment, that such Request could materially interfere with a bona fide financing, acquisition or other material business plans of the Corporation or would require disclosure of non-public information, the PREMATURE disclosure of which could materially, negatively and adversely affect the Corporation or such transaction. If the Corporation postpones the demand offering requested under this Section 11.1, the Corporation shall promptly (but not later than three Business Days following the determination to postpone the demand offering) notify the Shareholders who have delivered a Request, as well as the Demanding Shareholders (as hereinafter defined), if applicable, of the determination to postpone the demand offering and of the facts on which such determination is based. If the Corporation postpones the demand offering requested under this Section 11.1, the Corporation shall promptly (but not later than three Business Days afterwards) notify the Shareholders who have delivered a Request, as well as the Demanding Shareholders (as hereinafter defined), if applicable, when the events or circumstances permitting such postponement have ended and at that time shall proceed with the demand offering as requested and in accordance with this Agreement. If the Corporation shall postpone the demand offering pursuant to this Subsection 11.1(c), then any related Request may thereafter be withdrawn by the Shareholder(s) giving notice of withdrawal to the Corporation. Upon such withdrawal, the withdrawn Request shall not count as an exercise of the demand registration rights granted herein. 11.2 a) If at any time after the completion of an Initial Public Offering, one or more Shareholder(s) proposes to deliver a Request to the Corporation (in this Article 11, the "Demanding Shareholders"), the Demanding Shareholders shall, contemporaneously with its delivery of a Request to the Corporation, give written notice (the "Offer Notice") to the other Shareholders (the "PARTICIPATING SHAREHOLDERS") SETTING forth the same information asset out in the Request. Upon receipt of an Offer Notice, the Participating Shareholders shall be entitled, on written notice (the "Participating Notice") to the Corporation and the Demanding Shareholder(s), within ten days after receipt of the Offer Notice, to send notice to the Corporation and the Demanding Shareholder(s) specifying the 19 number of Shares which the Participating Shareholder wishes to have registered under the registration or qualified under the prospectus referred to in the Request. Upon receipt by the Corporation of one or more Participating Notices from Participating Shareholder(s), the Corporation shall, subject to the provisions of Section 11.2(b) hereof, use all reasonable efforts to cause the Shares specified in the Participating Notice(s) to be registered or qualified for distribution, as the case may be, so as to permit the sale thereof contemporaneously with the registration or qualification of the Shares of the Demanding Shareholder pursuant to its Request in the same manner and on the same terms and conditions as the Shares of the Demanding Shareholder. b) If the underwriter(s) or agent(s) retained by the Demanding Shareholder(s) in connection with the sale of Shares pursuant to a registration or qualification referred to in this Article 11, if any, advises that, in its sole opinion, the inclusion in such registration or qualification of any or all of Shares proposed to be included by one or more of the Participating Shareholder(s) as stated in the Participating Notice(s) would not be appropriate, then the number of Shares of all such Shareholder(s) to be included in such registration shall be reduced to such number (including nil) as such underwriter(s) or agent(s) advises could be included in such registration or qualification without interfering with the successful marketing of the Shares proposed to be sold by the Demanding Shareholder and the Participating Shareholder(s) under such registration or qualification or the price at which such Shares would be sold and each Demanding Shareholder and Participating Shareholder shall be entitled to sell up to its Proportionate Amount (which for these purposes is the proportion which the number of Shares beneficially owned by it bears to the number of Shares owned by all of the Demanding Shareholders and Participating Shareholders) of the number, if any, which such underwriter(s) or agent(s) advised would be able to be sold by such Shareholders without adversely affecting the successful and profitable marketing of the Shares proposed to be sold by the Demanding and Participating Shareholders. 11.3 a) In addition to the rights provided in Sections 11.1 and 11.2 hereof, at any time after the completion of an Initial Public Offering, the Corporation shall, as soon as reasonably practicable but in any event not less than 15 days prior to the filing of any registration statement under the United States Securities Act relating to the public offering of Shares or any security of the Corporation convertible into or exercisable for any Shares, by the Corporation or any of its shareholders, give written notice of such proposed filing and of the proposed date thereof to each of the Shareholders who at such time own at least 5% of the outstanding fully-participating shares of the Corporation, and if, on or before the 5th day following the date on which such notice is given, the Corporation shall receive a written request that the Corporation include among the securities covered by such registration statement or prospectus the Shares owned by any of such Shareholders (or such part thereof proposed by any of them) for offering for sale in a manner and on terms set forth in such request, the Corporation shall include such Shares in such registration statement or prospectus, if filed, so as to permit such Shares to be sold or disposed of in the manner and on the terms of the offering thereof set forth in such request; b) Notwithstanding the foregoing. if the underwriter(s) or agent(s) retained by the Corporation in connection with the proposed public offering, if any, advises at any time that, in its sole opinion, the inclusion in the proposed offering, of Shares owned by the Senior Management Group, proposed to be included in such offering would not be appropriate then the Senior Management Group shall be deemed to have withdrawn their respective notices requesting that such Shares be included in the proposed offering; and c) Notwithstanding the provisions of Subsection 11.3(a), but subject to Subsection 11.3(b), if the underwriter(s) or agent(s) retained by the Corporation in connection with the proposed offering, if any, advises at any time that, in its sole opinion, the inclusion in such offering of Shares owned by 20 the Shareholders proposed to be included in such offering would not be advisable, then the maximum number of Shares owned by the Shareholders proposed to be included in such offering shall be reduced to such number (including nil) as such underwriter(s) or agent(s), in its sole discretion, advises could be included in such offering without adversely affecting the successful and profitable marketing of the Shares proposed to be issued by the Corporation or the price at which such Shares would be sold, and each Shareholder shall be entitled to sell up to its Proportionate Amount (which for these purposes is the proportion which the number of Shares beneficially owned by it bears to the number of Shares owned by all of the Shareholders) of the number, if any, which such underwriter or agent advised would be able to be sold by such Shareholders without adversely affecting the successful and profitable marketing of the Shares proposed to be issued by the Corporation or the price at which such Shares would be sold. d) Notwithstanding Section 11.3 (a) the Corporation shall not be required to include in the registration statement or prospectus contemplated by Section 11.3 (a) any shares requested to be so included by any Shareholder unless the proposed aggregate sale price of the securities proposed to be offered by the Corporation and the Shares of the Shareholders that would otherwise be included in such registration statement or prospectus is at least $2.5 million; 11.4 The Corporation shall be responsible for the preparation of any registration statement, prospectus, agreements or documents and related papers and filings in connection with this Article 11 hereof and except to the extent otherwise required by law (including, without limitation, the policies or rules of any applicable securities regulation authority), shall pay all expenses relating to such registration, provided however, that each of the Shareholders hereby agrees to be liable for and pay directly its own legal fees and disbursements, if any, and any underwriting discounts and commissions applicable to any sale of Shares by the applicable Shareholder. 11.5 a) In connection with any offering of Shares registered or qualified pursuant to this Agreement, the Corporation: (i) shall furnish to each of the Shareholders such number of copies of any prospectus (including any preliminary prospectus) or registration statement and prospectus or registration statement supplement or amendment as it may reasonably request in order to effect the offering and sale of Shares to be offered and sold, but only while the Corporation shall be required under the provisions of this Agreement to cause the registration statement or prospectus to remain current; and (ii) shall take such action as shall be necessary to qualify the shares covered by such registration under such provincial, blue sky or other U.S. state or Canadian securities laws for offer and sale as the Shareholder shall reasonably request. If requested in connection with an offering in accordance with Section 11.1 or 11.2 hereof the Corporation shall enter into an underwriting agreement with a nationally recognized investment banking firm or firms selected by the Shareholders requesting the registration of their Shares and approved by the Corporation (which approval will not be unreasonably withheld) containing representations, warranties, indemnities and agreements then customarily included by an issuer in underwriting agreements with respect to secondary distributions. b) In connection with any offering of Shares registered pursuant to this Agreement, the Corporation shall, subject to applicable law: (i) furnish each of the Shareholders requesting the registration of its Shares, at the Corporation's expense, with unlegended certificates representing ownership of the Shares being sold in such denominations as such Shareholder shall request: and 21 (ii) instruct the transfer agent and registrar of the Shares to release any stop transfer orders with respect to the Shares being sold. 11.6 a) In the event of any qualification of Shares pursuant to this Article 1 I hereof, the Corporation shall hold harmless and indemnify each of the Shareholders, any of the Shareholders' officers, directors and employees (collectively, the "INDEMNIFIED PARTIES") FROM and against any losses, claims, damages or liabilities to which any of them may be subject under any applicable securities laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any prospectus or registration statement under which such Shares were distributed, or any document incidental to the qualification or sale of such Shares, or which arise out of or are based upon the omission or alleged omission to state therein any material fact required to be stated therein or necessary to make the statement not misleading, or any violation by the Corporation of any applicable securities laws relating to action or inaction required by the Corporation in connection with such qualification or sale under such securities laws; provided, however, that the Corporation will not be liable in any case to any extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any such prospectus, registration statement or document in reliance upon and in conformity with information furnished to the Corporation by any of Indemnified Parties, specifically for use in the preparation thereof. b) The Shareholders agree to indemnify and hold harmless the Corporation, and each of its officers, directors, employees and each person, if any, who controls the Corporation within the meaning of either Section 15 of the United States Securities Act, or Section 20 of the United States Exchange Act, to the same extent as the foregoing indemnity from the Corporation to the Shareholders, but only with respect to information furnished in writing to the Corporation by the Shareholder expressly for use in any registration statement or prospectus contemplated in this Article 11. This indemnity agreement SHALL SURVIVE THE TRANSFER of such Shares by the Shareholder and will be in addition to any liability that the Shareholder may otherwise have. c) Each of the Indemnified Parties shall, promptly after receipt of notice of the commencement of any action against such Indemnified Party in respect of which indemnity may be sought pursuant to Subsection 11.6(a) hereof, notify the Corporation in writing of the commencement thereof. The omission of any Indemnified Party so to notify the Corporation of any such action shall not relieve the Corporation from any liability in respect of such action which it may have to such Corporation on account of the indemnity pursuant to Subsection I 1.6(a) hereof unless the Corporation was prejudiced by such omission, and in no event shall relieve the Corporation from any other liability which it may have to such Indemnified Party. In case any such action shall be brought against an Indemnified Party and it shall notify the Corporation of the commencement thereof the Corporation shall be entitled to assume the defense thereof, with counsel satisfactory to such Indemnified Party, and after notice from the Corporation to such Indemnified Party of its election so to assume the defense thereof the Corporation shall not be liable to such Indemnified Party under Subsection 11.6(a) hereof for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. No admission of liability shall be made by the Indemnified Party without the consent of the Corporation. If after having been notified by the Indemnified Party of the commencement of any action against such Indemnified Party in respect of which indemnity may be sought, the Corporation fails to assume the defense of such suit on behalf of the Indemnified Party within 10 days of receiving notice thereof, the Indemnified Party shall have the right to employ counsel in respect of the defense of such suit and the fees and expenses of such counsel shall be at the expense of the Corporation. 22 ARTICLE 12 - GENERAL MATTERS 12.1 No AGENCY OR PARTNERSHIP. Nothing contained in this Agreement shall make or constitute any party the representative, agent, principal or partner of any other party and it is understood that no party has the capacity to make commitments of any kind whatsoever or incur obligations or liabilities binding upon any other party. 12.2 Notice. Any notice, direction or other communication to be given under this Agreement shall be in writing and given by delivering it or sending it by telecopy or other similar form of recorded communication addressed:
If to the Corporation at: B. Twelve, Inc c/o 701 Northpoint Parkway Suite 330 West Palm Beach, Florida 33407 Attention: Dr. Uri Sagman Telephone: (561) 471-1002 Telecopier (561) 471-5777 If to Sagman at: Dr. Uri Sagman 13 Old Forest Hill Road Toronto, Ontario MSP 2P6 Telephone: (416) 486-6429 Telecopier: (416) 481-1796 If to Credifinance at: 1232 North Ocean Way Palm Beach, Florida 33480 Attention: Mr. Georges Benarroch Telephone: (561) 845-2849 Telecopier. (561) 844-0517 If to NRC at: New Researches Corporation 10 rue Pierre Fatio CH-1204 Geneva, Switzerland Attention: Mr. Michel Woodtli Telephone: (4122) 310 7150 Telecopier (4122) 310 7610 If to Benarroch: Georges Benarroch 68 rue Spontini Paris 75016 France Telephone: 33-1-47275637 If to MacAdam: Donald MacAdam Grace Street, P.O. Box 1288 Port Dover, Ontario NOA 1 NO 23 Telephone: (416) 802-8722 Telecopier: (519) 583-3166 If to Berger: Dr. Jean-Luc Berger 207 Robert Hicks Drive North York, Ontario M3R 3R3 Telephone: (416) 661-3521 Telecopier: (416) 661-7596 If to Lifmac: Lifinac, S.A. 33 Avenue des Champs Elysees, 75008 Paris, France Attention: Mr. G. Serfati Telephone: 33-15-856-2200 Telecopier: 33-15-856-2203 If to Rupert's Crossing: Rupert's Crossing 1580 Guiness House 727 7'(degree) Avenue S.W. Calgary, Alberta T2P OZ5 Attention: Mr. Michael Binnion Telephone: (403) 777-1571 If to Medarex: Medarex, Inc. 707 State Road #206 Princeton, New Jersey 08540 Attention: Vice President & General Counsel Telephone: (609) 430-2880 Telecopier: (609) 430-2850
Any such communication shall be deemed to have been validly and effectively given (i) if personally delivered, on the date of such delivery if such date is a Business Day and such delivery was made prior to 4:00 p.m. (Toronto time) and otherwise on the next Business Day, or (ii) if transmitted by telecopy or similar means of recorded communication on the Business Day following the date of transmission. Any Party may change its address for service from time to time by notice given in accordance with the foregoing and any subsequent notice shall be sent to such Party at its changed address. 12.3 ENDORSEMENT OF SHARE CERTIFICATES. Any and all certificates representing Shares now or hereafter beneficially owned by the Shareholders during the term of this Agreement shall have endorsed thereon, in bold type, the following legend: "The securities evidenced by this certificate are subject to the terms of and disposition and transfer of such securities is restricted in accordance with, the provisions of an amended and restated unanimous shareholders' agreement made as of January 15, 2001 made between the Corporation and each and all of the holders of shares. A copy of the said agreement, together with all amendments and 24 supplements thereto, is available for inspection from the Secretary of the Corporation on request and without charge at its registered office." 12.4 Assignment. Neither this Agreement nor any rights or obligations hereunder are assignable by the parties hereto without the prior written consent of the other parties hereto, subject to the rights of Shareholders to sell their Shares pursuant to the terms of this Agreement and provided that the purchaser of such Shares agrees to be bound hereby. This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, legal personal representatives, successors and permitted assigns. COUNTERPARTS AND FACSIMILE. This Agreement may be executed in any number of counterparts and all such counterparts taken together shall be deemed to constitute one and the same instrument. Any Party may execute this Agreement by facsimile which shall be deemed for all purposes to be an original. 12.6 PUBLICITY. Notwithstanding Section 13.1, NRC, Medarex and Credifinance shall have their respective right to disclose to whomsoever in any manner their ownership of shares in the capital of the Corporation and the debt owing (if any) by the Corporation to them. ARTICLE 13 - CONFIDENTIALITY ARTICLE 13.1 CONFIDENTIALITY. The parties hereto agree to treat all information, data, reports and other records ("information") relating to the Corporation's Business as confidential and will not disclose such information to any other person other than their legal advisors or auditors without the prior written consent of the other parties; provided, however, that no Shareholder shall be liable for any such disclosure of such information of such Shareholder if such information: a) becomes generally available to the public other than as a result of a disclosure by the Shareholder or its representatives in violation of this Agreement; b) was available to the Shareholder on a non-confidential basis without violation of this Agreement prior to its disclosure by the Corporation or its representatives; c) becomes available to the Shareholder on a non-confidential basis without violation of this Agreement from a source other than the Corporation or its representatives provided that such source is not bound by a confidentiality agreement with the Corporation or a duty of confidentiality to or in respect of the Corporation to the knowledge of the Shareholder; or d) is required by law to be disclosed by the Shareholder, provided that the Shareholder first notifies the Corporation that it believes it is required to disclose such information and it allows the Corporation a reasonable period of time to contest the disclosure of such information. Nothing in this Section or elsewhere in this Agreement shall be construed so as to prevent or limit Credifinance's ability to issue news releases or otherwise release or disclose information in accordance with its obligations pursuant to applicable law as a public corporation. 25 13.2 Survival. The terms of this Article 13 and of Article 8 shall survive any termination of this Agreement without limit as to time. IN WITNESS WHEREOF the Parties have caused this Agreement to be executed by their respective duly authorized officer. B. TWELVE, INC. CREDIFINANCE CAPITAL CORP. Per: /s/ DR. URI SAGMAN Per: /s/ GEORGES BENARROCH ------------------------------- --------------------------------- Authorized Signing Officer Authorized Signing Officer President & CEO NEW RESEARCHERS CORPORATION LIFMAC, S.A. Per: /s/ [Illegible] Per: /s/ [Illegible] ------------------------------- --------------------------------- Authorized Signing Officer Authorized Signing Officer MEDAREX, INC. RUPERT'S CROSSING Per: /s/ [Illegible] Per: /s/ [Illegible] ------------------------------- --------------------------------- Authorized Signing Officer Authorized Signing Officer /s/ [Illegible] /s/ [Illegible] - ----------------------------------- ------------------------------------- Witness DR. URI SAGMAN /s/ [Illegible] /s/ [Illegible] - ----------------------------------- ------------------------------------- Witness GEORGES BENARROCH /s/ [Illegible] /s/ [Illegible] - ----------------------------------- ------------------------------------- Witness DONALD MACADAM /s/ [Illegible] /s/ [Illegible] - ----------------------------------- ------------------------------------- Witness JEAN-LUC BERGER 26 EX-10.7 4 ex10-7.txt OPTION AGREEMENT SAGMAN Exhibit 10.7 OPTION AGREEMENT Option agreement dated as of March 5, 1999 between B. TWELVE, INC., a corporation existing under the laws of the State of Florida (the "Corporation") and DR. URI SAGMAN, an individual residing in the Province of Ontario (the "Optionee"). WHEREAS the Optionee is an employee of the Corporation and plans to render faithful and efficient service to the Corporation in that capacity; AND WHEREAS the Corporation desires to continue to receive the benefit of the services of the Optionee and to more fully identify his interest with the Corporation's future and success; AND WHEREAS the Corporation desires to grant to the Optionee an option to purchase shares of common stock of the Corporation in the event the Optionee achieves certain anticipated corporate/scientific milestones upon and subject to the terms and conditions hereinafter provided; AND WHEREAS the corporate milestones for the Corporation are correlated with the anticipated progress in the scientific research and corporate development of the Corporation. Specifically, the scientific objectives of the Corporation are aligned with the planned research and development of the following three (3) scientific platforms (each a "Scientific Platform" and collectively, the "Scientific Platforms"): 1. VITAMIN B 12 ANALOGUES - these are chemically modified Vitamin B12 molecules that are targeted to the Vitamin B12 receptor with potential applications for the treatment of patients with either cancer or some forms of arthritis or potentially other diseases of the immune system. 2. ANTIBODIES TO TRANSCOBALAMIN II - TRANSCOBALAMIN II ("TC II") is a protein that is found in the blood stream. Vitamin B 12 combines with TC II in the blood stream and in turn the Vitamin B12 and TC II complex combines with the Vitamin B12 receptor on the cell surface. Monoclonal antibodies to TC II are aimed at inhibiting the binding of TC II alone or combined with Vitamin B 12 to bind to the Vitamin B12 receptor. 3. ANTIBODIES TO THE VITAMIN B,2 RECEPTOR - THE Vitamin B12 receptor is a cell surface protein that is the target for Vitamin B,, and TC II complex. Monoclonal antibodies to the Vitamin 13,2 receptor are aimed at inhibiting the binding of the Vitamin B1z and TC II complex to Vitamin B12 receptor. The milestones outlined below (each a "Milestone" and collectively, the "Milestones") describe the anticipated achievements of the scientific and corporate effort of the Corporation with regard to the Scientific Platforms above described. With respect to the "Vitamin B,1 analogue" Scientific Platform, there are two (2)Milestones described as follows: FIRST MILESTONE Demonstration that new Vitamin B,1 analogues are active in cell culture bioassays. New Vitamin B,2 analogues are to be developed based on the understanding and characterization of existing analogues already developed and available to the Corporation. Existing or new Vitamin B12 analogues are to be characterized by their ability to alter the biological activity (i.e. apoptosis) of either cancer cells, cells of the immune system or other appropriate cell culture bioassays. SECOND MILESTONE Demonstration that new Vitamin B11 analogues are active in animal models. Selected candidates (Vitamin B12 analogues) obtained in sufficient quantities (i.e. scale-up) are to be tested in animal models for biological activity against cancer, for modulation of the immune system or other appropriate standard systems. With respect to the "Antibodies to Transcobalamin II" Scientific Platform, there are three (3) Milestones described as follows: Third Milestone Alteration of selected murine monoclonal antibody candidate to the TC II protein or to the TCII - Vitamin Bl2 complex to a form suitable for human administration. Specific type(s) of monoclonal antibodies already developed are to be selected and characterized in preparation for altering the mouse antibodies to a form suitable for administration to humans. Selected murine monoclonal antibody(ies) are to be altered (chimerization or humanization) to form a product suitable for administration to humans. Fourth Milestone Determination of the biological activity of the new humanized monoclonal(s). Chimeric or humanized antibody(ies) specific to the TC II and/or to the TC II Vitamin B12 complex, obtained are to be assayed for its cell in vitro biological activity in cell culture bioassays. Fifth Milestone Demonstration that new monoclonal antibody(ies) to TCII is (are) active in animal models. Once developed and produced in sufficient amounts monoclonal antibody(ies) to TC II are to be tested in suitable (i.e. human graft-model) animal models for biological activity. 2 With respect to the "Antibodies to the Vitamin B12 Receptor" Scientific Platform, there are three (3) Milestones described as follows: Sixth Milestone Cloning and expression of the gene responsible for the Vitamin B12 receptor. In order to develop monoclonal antibodies to the Vitamin B12 receptor, a pure form of the receptor is required. Accordingly, the process of isolating the Vitamin B12 receptor is to be obtained by cloning and by sequencing the gene for the receptor. SEVENTH MILESTONE Obtaining the Vitamin B12 receptor in pure and sufficient quantity for characterization. The Vitamin B12 receptor is to be available in pure form and sufficient amount from either the expression of the Vitamin B12 gene product (i.e. gene product) or from isolation and purification of the receptor from cell membrane lysates. EIGHTH MILESTONE Obtaining monoclonal antibody production to the Vitamin B12 receptor. Purified form of the Vitamin B12 receptor is to be used to develop monoclonal antibodies to the Vitamin B12 receptor using standard hybridoma and/or appropriate cloning technology. The above milestones are hereinafter referred to as the "First Milestone", "Second Milestone", Third Milestone", "Fourth Milestone", "Fifth Milestone", "Sixth Milestone", "Seventh Milestone" and "Eighth Milestone", respectively. NOW THEREFORE in consideration of the foregoing, the sum of $10.00 and the mutual agreements contained herein and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto agree as follows: 1. OPTION TO PURCHASE. The Corporation hereby grants to the Optionee, on and subject to the terms and conditions hereinafter set forth, the irrevocable right and option (the "Option") exercisable in accordance with the terms of this Agreement to purchase from the Corporation a maximum of 1,200,000 authorized and unissued common shares in the capital of the Corporation (the "Optioned Shares") at purchase price of $.0001 per Optioned Share (the "Option Price"). 2. VESTING OF THE OPTION. --------------------- (a) The Option shall vest with respect to 300,000 of the Optioned Shares (the "First Milestone Optioned Shares"), upon the achievement by the Optionee of all parts of the First Milestone, which the Optionee is to use his best efforts to achieve on or before May 31, 2001. 3 (b) The Option shall vest with respect to 300,000 of the Optioned Shares (the "Second Milestone Optioned Shares"), upon the achievement by the Optionee of the Second Milestone, which the Optionee is to use his best efforts to achieve on or before May 31, 2001. (c) The Option shall vest with respect to 100,000 of the Optioned Shares (the "Third Milestone Optioned Shares"), upon the achievement by the Optionee of all parts of the Third Milestone, which the Optionee is to use his best efforts to achieve on or before May 31, 2001. (d) The Option shall vest with respect to 100,000 of the Optioned Shares (the "Fourth Milestone Optioned Shares"), upon the achievement by the Optionee of the Fourth Milestone, which the Optionee is to use his best efforts to achieve on or before May 31, 2001. (e) The Option shall vest with respect to 100,000 of the Optioned Shares (the "Fifth Milestone Optioned Shares"), upon the achievement by the Optionee of the Fifth Milestone, which the Optionee is to use his best efforts to achieve on or before May 31, 2001. (f) The Option shall vest with respect to 150,000 of the Optioned Shares (the "Sixth Milestone Optioned Shares"), upon the achievement by the Optionee of the Sixth Milestone, which the Optionee is to use his best efforts to achieve on or before May 31, 2001. (g) The Option shall vest with respect to 75,000 of the Optioned Shares (the "Seventh Milestone Optioned Shares"), upon the achievement by the Optionee of the Seventh Milestone, which the Optionee is to use his best efforts to achieve on or before May 31, 2001. (h) The Option shall vest with respect to 75,000 of the Optioned Shares (the "Eighth Milestone Optioned Shares"), upon the achievement by the Optionee of the Eighth Milestone, which the Optionee is to use his best efforts to achieve on or before May 31, 2001. (i) Notwithstanding the vesting requirements set out in subsections 2(a) through (h) above, all Optioned Shares not already vested shall vest immediately in the event of the following: (i) the sale of all or substantially all of the Corporation's assets for net proceeds to the Corporation of $9,000,000; 4 (ii) the sale of all the shares of the Corporation; and (iii) the termination without Cause (as defined below) of Sagman as an employee of the Corporation. In this agreement, "Cause" shall mean: (i) fraud, embezzlement or gross insubordination on the part of the Optionee; (ii) conviction or the entry of a plea of nolo contendere by the Optionee for any felony or indictable offence; (iii) a material breach of, or the willful failure or refusal by the Optionee to perform and discharge, his duties, responsibilities or obligations under any agreement with the Corporation or any of its subsidiaries or affiliates that is related to the Optionee's employment with the Corporation (other than by reason of disability or death) that is not corrected within thirty (30) days immediately following written notice to the Optionee by the Corporation, such notice to state with specificity the nature of the breach, failure or refusal; provided that if such breach, failure or refusal cannot reasonably be corrected within thirty (30) days of written notice thereof, correction shall be commenced by the Optionee within such thirty (30) day period and completed within a reasonable period thereafter; or (iv) any act of willful misconduct by the Optionee which (A) is intended to result in substantial personal enrichment of the Optionee at the expense of the Corporation or any of its subsidiaries or affiliates, or (B) has a material adverse impact on the business or reputation of the Corporation or any of its subsidiaries or affiliates (such determination to be made by the Board in its reasonable judgment). (j) Notwithstanding the dates prescribed for vesting set out in subsectiona 2(a) through (h) above, the Optionee shall still have the right to exercise the Optioned Shares pertaining to the achievement of a specific Milestone if such Milestone is achieved on or before December 31, 2001. 3. EXERCISE OF OPTION. The Option with respect to vested Optioned Shares shall be exercisable prior to the end of the Term. 4. Term. ---- (a) Subject to Subsection 4(b) below, the Option shall be exercisable until five (5) years from the date the Option is granted (the "Term"). At the end of the Term, all vested or unvested Options granted hereunder shall expire and shall no longer be exercisable. 5 (b) (i) If the Optionee ceases to be an employee of the Corporation by reason of his death or voluntary resignation: (A) Any vested Options shall be exercisable by the Optionee or his estate, as the case may be, until the first (1St) anniversary of the date of the Optionee's death or voluntary resignation. (B) The vesting of Options held by the Optionee automatically shall cease on the date of the Optionee's death or voluntary resignation. (ii) If the Optionee is terminated for Cause, any vested Options held by the Optionee shall be exercisable by the Optionee for a period of three (3) months from termination; provided however, if the Optionee is dismissed for Cause and the Corporation achieves one or Milestones in the three (3) month period subsequent to his dismissal, the Optionee shall be entitled to exercise the Optioned Shares relating to such Milestone(s) for a further period of thirty (30) days from the date in which the Optionee is informed that such Milestone(s) was achieved. (iii) If the Optionee is terminated otherwise than for Cause, any vested Options held by the Optionee shall be exercisable by the Optionee for a period of three (3) months from termination. 5. MANNER OF EXERCISE OF OPTION. During the Term, the Optionee, subject to the provisions of this Agreement, may exercise the Option to purchase on a cumulative basis, to the extent hereinafter provided, all or any part of the number of Shares subject to the Option which have vested in accordance with Section 2 until the total number of Optioned Shares subject to the Option stated in Section 1 has been purchased; provided, however, that the Option may only be exercised (in each case to the nearest full Optioned Share) during the Term and in units of 25,000 Optioned Shares or such fewer number of Optioned Shares as may remain subject to this Option. 6. NOTICE OF EXERCISE OF OPTION. This Option shall be exercised upon providing notice in writing to the Corporation addressed to Corporation at such place as the Corporation's executive office may then be located (the "Notice"), which Notice shall indicate the number of Optioned Shares (which have vested) for which the Option is being exercised, and which Notice shall be accompanied by payment in full to the Corporation of the Option Price for such Optioned Shares in cash or by certified cheque. 6 7. RIGHT OF A SHAREHOLDER. After receipt of (i) a Notice, and (ii) payment in full of the Option Price for the Optioned Shares for which the Option is being exercised, the Corporation shall, within five (5) business days, take all actions necessary to issue such Optioned Shares to the Optionee and to prepare and deliver share certificates representing such Optioned Shares so issued and register such Optioned Shares in the name of the Optionee. The Optionee shall have no right as a shareholder with respect to such Optioned Shares until the issuance of such share certificates, and no adjustment shall be made for dividends or other rights for which the record date is prior to the time such share certificates are issued. The Corporation shall deliver share certificates in respect of such Optioned Shares within five (S) business days after receipt of items (i) and (ii) above. The issuance of the Optioned Shares is conditional upon the Optionee entering into an agreement with the other shareholders of the Corporation agreeing to be bound by the provisions of the unanimous shareholders agreement dated June 2, 1999 among the Corporation and its shareholders in respect of the Optioned Shares. 8. TRANSFER OF OPTION. The Option granted pursuant to this Agreement shall not be assignable or transferable by the Optionee, except to members of the Optionee's immediate family provided that the Optionee continues to be bound by the provisions of this Agreement. 9. ADJUSTMENT. In the event that prior to the exercise of the Option, there is any change in the number of outstanding common shares of the Corporation as a result of (i) the consolidation, merger or amalgamation of the Corporation with or into another body corporate; (ii) the conversion, exchange, redesignation, reclassification, consolidation or subdivision of the common shares; or (iii) any other capital reorganization of the Corporation whether by reorganization, arrangement, stock dividend, transfer, sale, continuance or otherwise,, then the number of the Optioned Shares subject to the Option and the Option Price thereof shall be adjusted appropriately. 10. NECESSARY APPROVALS. The obligation of the Corporation to sell and deliver the Optioned Shares on the exercise of the Option is subject to the approval of any governmental authority or stock exchanges on which the shares in the capital of the Corporation are listed for trading which may be required in connection with the authorization, issuance or sale of the Optioned Shares by the Corporation. If any of the Optioned Shares cannot be issued to any Optionee after the exercise of the Option therefor for any reason including, without limitation, the failure to obtain such approval, then the obligation of the Corporation to issue such Optioned Shares shall terminate and any Option Price paid to the Corporation shall be returned to the Optionee. 11. CHANGES TO MILESTONES OR SCIENTIFIC PLATFORMS. The Milestones described in this Agreement have been defined for the Scientific Platforms described in this Agreement. The parties to this Agreement recognize, however, that it is conceivable that the Scientific Platforms and/or the Milestones described in this Agreement may have to be altered or adjusted, from time to time, based on the actual results of the scientific research conducted by the Corporation or as new approaches to scientific research evolve. The parties to this Agreement agree that any new approaches and changes in direction of the Corporation's Scientific Platforms, Milestones and related research must be approved by the Board of Directors. 7 In the event one or more new Milestones or one of the existing Scientific Platforms should be altered or discontinued by the Corporation, the parties further acknowledge that the Board of Directors of the Corporation shall have the power and discretion to vest, substitute or cancel any or all of the options allocated to existing Milestones. 12. Currency. All monetary amounts in this Agreement refer to lawful money of the United States of America. 13. Governing Law. This Agreement and the Option shall be governed by and interpreted and enforced in accordance with the laws of the State of Florida and the federal laws of the Unites States of America applicable therein. 14. Enurement. This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, successors and permitted assigns. IN WITNESS WHEREOF the parties have caused this option agreement to be executed by their respective duly authorized officers. B. TWELVE, INC. Per: /s/ Jean-Luc Berger ---------------------------- Jean-Luc Berger, Director [Illegible] /s/ DR. URI SAGMA - ------------------------ --------------------------------- Witness: DR. URI SAGMA BY SIGNING, DR. SAGMAN ACKNOWLEDGES THAT HE UNDERSTANDS THE CONTENTS OF THIS AGREEMENT AND THAT HE HAS BEEN GIVEN THE OPPORTUNITY TO OBTAIN INDEPENDENT LEGAL ADVICE AND HAS EITHER DONE SO OR HAS CHOSEN NOT TO OBTAIN SUCH ADVICE. 8 EX-10.10 5 ex10-10.txt COLLABORATION AGREEMENT Exhibit 10.10 RESEARCH COLLABORATION AGREEMENT BETWEEN THE RESEARCH FOUNDATION OF STATE UNIVERSITY OF NEW YORK AND B TWELVE LTD. AGREEMENT made this 19 day of August 1999 by and between THE RESEARCH FOUNDATION OF STATE UNIVERSITY OF NEW YORK, a non-profit, educational corporation organized and existing under the laws of the State of New York, with its principal offices located at State University Plaza, Albany, New York (mailing address: Post Office Box 9, Albany New York 12201-0009), hereinafter referred to as the "FOUNDATION", acting on behalf of the State University of New York Health Science Center at Brooklyn, hereinafter referred to as "UNIVERSITY," and B TWELVE LTD., a corporation organized and existing under the laws of the Province of Ontario, with its principal office located at Suite 3303, 130 Adelaide Street West, Toronto, Ontario, Canada, M5H 3P5, hereinafter referred to as "COLLABORATOR". WHEREAS, COLLABORATOR is engaged in the development of Vitamin B12-related agents that have potential utilization in patient care and treatment; and WHEREAS, UNIVERSITY has existing antibodies to human transcobalamin II which inhibit the uptake of Vitamin B12 as described in Exhibit A (hereinafter referred to as the "Antibodies"), as well as research facilities and situations that would allow investigation and study of other Vitamin B12-related agents as described in Exhibit B (hereinafter referred to as the "Research Plan"); a copy of both Exhibits A and B are attached hereto and incorporated in their entirety herein by reference; and WHEREAS, both COLLABORATOR and UNIVERSITY consider it desirable to evaluate the Antibodies and perform the Research Plan; NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein, COLLABORATOR and UNIVERSITY agree as follows: I. Evaluation of the Antibodies 1. Providing Antibodies/Option to License a. UNIVERSITY agrees to provide the Antibodies to COLLABORATOR for the purpose of evaluation of potential therapeutic utility. UNIVERSITY further agrees to provide COLLABORATOR any required or necessary technical support and/or know-how for evaluation of the same by COLLABORATOR during the period of this Research Collaboration Agreement. Page 1 of 9 b. UNIVERSITY hereby grants COLLABORATOR an option to negotiate and acquire an exclusive, world-wide. royalty bearing license to the Antibodies (including patent applications. patents and copyrights thereon) following COLLABORATOR evaluation of the same. DIVERSITY hereby warrants that it has the exclusive right to license the Antibodies subject only to any residual rights of the United States government pursuant to 35 U.S.C. 200 et. seq. COLLABORATOR shall have six (6) months from the date of receipt of the Antibodies (and any required or necessary technical support and/or know-how for evaluation of same) to exercise this option by giving written notice to UNIVERSITY of the same. COLLABORATOR agrees to comply with U.S. Government regulations concerning inventions sponsored by the U.S. Government. c. If COLLABORATOR elects to exercise its option to negotiate and acquire such a license in the time and manner provided in Article I.1.b. herein above, COLLABORATOR and UNIVERSITY agree to enter into good faith negotiations regarding the terms and conditions of said license, and further agree to negotiate license fee rates and other payments that are fair and reasonable to both parties. If UNIVERSITY and COLLABORATOR fail to enter into an agreement during that period of time [the license option period], COLLABORATOR shall have a right of first refusal to any terms generally more favorable offered by UNIVERSITY to a third party for a period of one (1) year thereafter. d. In the event that the parties fail to reach an agreement regarding the terms and conditions of said license as provided in Article I.1.c. herein above, six (6) months after COLLABORATOR notification to UNIVERSITY of COLLABORATOR exercise of said option pursuant to Article I.1.b. herein above, UNIVERSITY shall have the right to enter into a license agreement concerning the Antibodies with a third party. II. Collaborative Research 1. Research Team The Parties agree to establish a joint research and development team (hereinafter referred to as the "Team") comprising at least the Principal Investigators designated pursuant to Article II.3.3. herein to conduct and monitor the research in accordance with the Research Plan. Although members of the Team shall be considered as having been delegated to the Team, they shall continue to remain employed by their respective employers under their respective terms of employment. 2. Review of `Work Periodic conferences shall be held by the Team to review work progress. 3. Principal Investigators Research work under this Agreement will be performed by the UNIVERSITY Laboratory identified in the Research Plan and the UNIVERSITY Principal Investigator(s) designated in the Research Plan will be responsible for the scientific and technical conduct of this project on behalf of the Page 2 of 9 UNIVERSITY. Also designated in the Research Plan is the COLLABORATOR Principal Investigator who will be responsible for the scientific and technical conduct of this project on behalf of the COLLABORATOR. 4. Research Plan Change The Research Plan may be modified by mutual written consent of the Principle Investigators. Substantial changes in the scope of the Research Plan will be treated as amendments under Article 111.18. III. Performance of the Research 1. Engagement COLLABORATOR agrees to engage the services of UNIVERSITY as an independent contractor to perform the Research. The Research will be under the supervision of Dr. Edward V. Quadros, Associate Professor of Medicine (Research), Department of Medicine, and Dr. Sheldon P. Rothenberg, Professor of Medicine, Department of Medicine (hereinafter referred to as "Principal Investigators"), at UNIVERSITY, with the assistance of appropriate associates and colleagues at UNIVERSITY as may be required. No other persons may be substituted for the Principal Investigators without COLLABORATOR's written approval. COLLABORATOR may exercise the Termination provisions of Article III.16. herein below if satisfactory substitutes are not identified. 2. Research UNIVERSITY agrees as an independent contractor to conduct the Research. Such Research was originally approved by UNIVERSITY in accordance with UNIVERSITY policy and may be subsequently amended only in accordance with UNIVERSITY policy and the written agreement of UNIVERSITY and COLLABORATOR as provided for in Article III.18. herein below. UNIVERSITY will apply its best efforts to complete the Research, and will follow commonly accepted professional standards. 3. Invention and Patents a. For all purposes herein, "Invention" shall mean discovery, concept or idea whether or not patentable or copyrightable, which (i)- arises out of work performed pursuant to the obligations of this Agreement; (ii) is conceived and/or reduced to practice during the term of the Agreement as defined in Article III.15. herein below; and (iii) includes but is not limited to processes, methods, software, formulae, techniques, compositions of matter, devices, and improvements thereof and know-how relating, thereto. An Invention made, using UNIVERSITY facilities, solely by one or both of the Principal Investigators and/or other UNIVERSITY personnel as identified in Article III.1. herein above or agents of UNIVERSITY shall be the sole property of UNIVERSITY. An invention made jointly by employees or agents of UNIVERSITY, using, UNIVERSITY's facilities, and COLLABORATOR, using COLLABORATOR's facilities, shall be jointly owned by UNIVERSITY and COLLABORATOR. An Invention made solely by employees or agents of COLLABORATOR, using COLLABORATOR's facilities, shall Page 3 of 9 be the sole property of COLLABORATOR and are not subject to the terms and conditions of this Agreement. b. In the event that an Invention is made. either solely by employees or agents of UNIVERSITY. using UNIVERSITY facilities. or jointly by employees or agents of UNIVERSITY and COLLABORATOR. using UNIVERSITY or COLLABORATOR facilities, UNIVERSITY and COLLABORATOR agree to give notice of such Invention to each other within three (3) months of the identification of such Invention. Within six (6) months of notice of Invention, UNIVERSITY and COLLABORATOR will thereupon exert their best reasonable efforts in cooperation with each other to investigate, evaluate and determine to the mutual satisfaction of both parties, the disposition of rights to the Invention, including whether. by whom. and where any patent applications are to be filed. c. If, after consultation with COLLABORATOR, it is agreed by the parties that a patent application should be filed, UNIVERSITY will prepare and file appropriate United States and foreign patent applications on an Invention made under this Agreement, and COLLABORATOR, will pay the cost of preparing, filing and maintenance thereof. If COLLABORATOR notifies UNIVERSITY that it does not intend to pay the costs of an application, then UNIVERSITY may file such application at its own expense, and COLLABORATOR shall have no rights to such Invention except those provided in Article III.3.d. herein below. UNIVERSITY will provide COLLABORATOR a copy of any patent application filed on an Invention made under this Agreement, as well as copies of any documents received or filed during prosecution thereof. COLLABORATOR agrees to maintain any such application and documents in confidence until it is published by UNIVERSITY or by the respective patent office. d. UNIVERSITY hereby grants COLLABORATOR a royalty free license, during the period of this Research Collaborative Agreement, to use an Invention made under this Agreement within COLLABORATOR's own organization for research purposes only, including subsidiaries if 50% or more owned by COLLABORATOR. e. In addition, UNIVERSITY hereby grants COLLABORATOR an option to negotiate and acquire an exclusive, world-wide, royalty-bearing license to the Invention (as well as patent applications, patents, and copyrights thereon), provided that COLLABORATOR shall pay all costs and expenses associated with patent and copyright filing, prosecution, issuance, and maintenance thereof. COLLABORATOR shall have six (6) months from the date of notice of Invention from UNIVERSITY pursuant to Article III.3.b. herein above. to Live written notice to UNIVERSITY exercising said option. UNIVERSITY may, at its discretion, grant further extensions to this option period. If UNIVERSITY and COLLABORATOR fail to enter into an agreement during that period of time [the license option period], COLLABORATOR shall have a right of first refusal to any terms generally more favorable offered by UNIVERSITY to a third party for a period of one (1) year thereafter. Page 4 of 9 f. In the event that COLLABORATOR elects to exercise its option to negotiate and acquire such a license in the time and manner provided in Article II1.3.e. herein above. the parties agree to enter into good faith negotiations regarding the terms and conditions of said license and further agree to negotiate to license fee rates and other payments that are fair and reasonable to both parties. g. In the event that the parties fail to reach an agreement regarding the terms and conditions of said license, six (6) months after COLLABORATOR's notification to L:\IVERSITY of COLLABORATOR's exercise of said option pursuant to Article III.3.e herein above unless the option period has been extended by UNIVERSITY at its discretion, UNIVERSITY shall have the right to enter into a license agreement concerning the same Invention with a third party. 4. Confidentialitv: Because UNIVERSITY and COLLABORATOR will be cooperating with each other in this Research, and because each may reveal to the other in the course of this Research certain confidential information, UNIVERSITY and COLLABORATOR agree to use best efforts to hold in confidence any confidential information which (a) is obtained from the other during, the course of this work and (b) is related thereto and (c) is marked as "CONFIDENTIAL", and each party will use best efforts not disclose the same to any third party without the express written consent of the other party to this Agreement. This requirement shall remain in force for a period of five (5) years following completion of work under this Agreement. Nothing in this paragraph shall in any way restrict the rights of either UNIVERSITY or COLLABORATOR to use, disclose or otherwise deal with any information which: a. Can be demonstrated to have been in public domain as of the effective date of this Agreement or comes into the public domain through the term of this Agreement through no act of the recipient; or b. Can be demonstrated to have been known to the recipient prior to the execution of this Agreement; or c. Can be demonstrated to have been rightfully received by the recipient after disclosure under this Agreement from a third party who did not require the recipient to hold it in confidence or limit its use and who did not acquire it, directly or indirectly, under obligation of confidentiality to the disclosing party. 5. Publication Rights. Notwithstanding the provisions of Article IIIA. of this Agreement, UNIVERSITY may publish scientific papers relating to the Research performed under this Agreement. In the event that UNIVERSITY wishes to publish, UNIVERSITY shall notify COLLABORATOR of its desire to publish at least sixty (60) days in advance of publication and shall furnish to COLLABORATOR a written description of the subject matter of the publication in order to permit COLLABORATOR to review and comment thereon. In order to fully protect the rights of UNIVERSITY and COLLABORATOR, any contemplated publication containing details of the Research, whether or not patentable may be withheld at COLLABORATOR's request until a patent Page 5 of 9 application is filed or other appropriate steps to protect commercial value have been completed. 6. Publicitv. UNIVERSITY acknowledges COLLABORATOR's intention to distribute periodically informational releases and announcements to the news media regarding the progress of the Research. COLLABORATOR shall not release such materials containing the name of UNIVERSITY or any of its employees without prior written approval by an authorized representative of UNIVERSITY, and said approval shall not be unreasonably withheld. Should UNIVERSITY reject the news release, UNIVERSITY and COLLABORATOR agree to discuss the reasons for UNIVERSITY's rejection, and every effort shall be made to develop an appropriate informational news release within the bounds of accepted academic practices. COLLABORATOR reserves the same right in the event that UNIVERSITY desires to distribute a news release concerning the Research. 7. Responsibility. The parties agrees to assume individual responsibility for the actions and omissions of their respective employees, agents and assigns in conjunction with the Research. 8. Independent Contractor. While UNIVERSITY and COLLABORATOR will Cooperate in the Research performed under this Agreement, COLLABORATOR will not have the right to control the activities of UNIVERSITY in performing the services provided herein, and UNIVERSITY shall perform services hereunder only as an independent contractor, and nothing herein contained shall be construed to be inconsistent with this relationship or status. Under no circumstances shall UNIVERSITY be considered to be an employee or went of COLLABORATOR. This Agreement shall not constitute, create or on any way be interpreted as a joint venture, partnership or formal business organization of any kind. 9. Title to Equipment. UNIVERSITY shall retain title to all equipment purchased and/or fabricated by it with funds provided by COLLABORATOR under this Agreement. 10. Survivorship. The provisions of Article I and III.3., 4., 6. and 13. shall survive any expiration or termination of this Agreement. 11. Reports and Meetings. Written project reports summarizing the Research shall be provided to COLLABORATOR by UNIVERSITY every three (3) months, and a final report shall be submitted by UNIVERSITY within sixty (60) days of the conclusion of the term of this Agreement as identified in Article 111. 15. herein below. During the term of this Agreement, representatives of UNIVERSITY will meet with representatives of COLLABORATOR at times and places mutually agreed upon to discuss the progress and results of the Research, as well as future work to be conducted. 12. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other party; provided, however, that Page 6 of 9 COLLABORATOR may assign this Agreement to any purchaser or transferee of all or substantially all of COLLABORATOR's business upon prior written notice to UNIVERSITY. 13. Indemnification. UNIVERSITY shall. to the extent authorized under the Constitution and the laws of the State of New York, indemnify and hold harmless COLLABORATOR from liability resulting from the negligent acts or omissions of UNIVERSITY, its agents or employees pertaining to the activities to be carried out pursuant to the obligations of this Agreement: provided, however, that UNIVERSITY shall not hold COLLABORATOR harmless from claims arising out of the negligence of COLLABORATOR. its officers, agents or any person or entity not subject to UNIVERSITY's supervision or control. COLLABORATOR shall indemnify and hold harmless UNIVERSITY, their regents, officers, agents and employees from any liability or loss resulting from judgments or claims against them arising out of the activities to be carried out pursuant to the obligations of this Agreement or the use by COLLABORATOR of the results of the Research, provided, however, that the following is excluded from COLLABORATOR's obligation to indemnify and hold harmless: a. The negligent failure of UNIVERSITY to comply with any applicable governmental requirements; or b. The negligence of willful malfeasance by a regent, officer, agent or employee of UNIVERSITY. 14. Award. a. SPONSOR agrees to pay UNIVERSITY an amount not to exceed one hundred and twenty four thousand and eight hundred and sixty two dollars and 00/1000 ($124,862), for expenses and other related costs incurred in conjunction with the Research. This amount, as shown by approximate category of expense in Exhibit C (for information purposes only), shall be payable according to the following schedule: Payment Date Research Period Payment Amount ------------ --------------- -------------- 1. Aug. 1, 1999 1. Aug. 1 - Oct. 31, 1999 1. $31.215.50 2. Nov. 1, 1999 2. Nov. 1 -Jan. 31, 2000 2. 531,215.50 3. Feb. 1, 2000 3. Feb. 1 - Apr 30, 2000 3. 531,215.50 4. May 1, 2000 4. May 1-July 31, 2000 4. S31,215.50 b. At the end of the Basic term specified in Article 111. 15. below (i.e., Research Period 4.) UNIVERSITY shall refund to COLLABORATOR any difference between the amount paid by COLLABORATOR and the amount incurred in conjunction with the Research during the Basic term. Any difference remaining after the Basic term Pace 7 of 9 may. at COLLABORATOR's option, be applied to COLLABORATOR's payments due during future terms. 15. Basic Term. This Agreement shall become effective as of the date written above and. unless earlier terminated as hereinafter provided. shall continue in force for one (1) year, from August 1,1999 through July 31, 2000. 16. Default and Termination. In the event that either party to this Agreement shall be in default of any of its material obligations hereunder and shall fail to remedy such default within thirty (30) days after receipt of written notice thereof, the party not in default shall have the option of terminating this Agreement by giving written notice thereof. notwithstanding anything to the contrary contained in this Agreement. Termination of this Agreement shall not affect the rights and obligations of the parties that accrued prior to the effective date of termination. COLLABORATOR shall pay UNIVERSITY for all reasonable expenses incurred or committed to be expended as of the effective termination date, subject of the maximum amount as specified in Article III.14. herein above, and any payments made in excess of this amount shall be promptly refunded to COLLABORATOR. 17. Entire Agreement. The parties acknowledge that this Agreement and attached Exhibits A, B and C represent the sole and entire Agreement between the parties hereto ' pertaining to the Research and that such supersedes all prior Agreements, understandings, negotiations and discussions between the parties regarding same, whether oral or written. There are no warranties, representations or other Agreements between the parties in connection with the subject matter hereof except as specifically set forth herein. No supplement, amendment, alteration, modification, waiver or termination of this Agreement shall be binding unless executed in writing by the parties hereto. 18. Reform of Agreement. If any provision of this Agreement is, becomes or is deemed invalid, illegal or unenforceable in any United States jurisdiction, such provision shall be deemed amended to conform to applicable laws so as to the valid and enforceable; or if it cannot be so amended without materially altering the intention of the parties, it shall be stricken, and the remainder of this Agreement shall remain in full force and effect. ' 19. Notices. Any notices, statements, payments, or reports required by this Agreement shall be considered given if sent by United States Certified Mail postage prepaid and addressed as follows: If to UNIVERSITY: The Research Foundation of State University of New York Office of Sponsored Program Services Post Office Box 9 Albany, New York 12201-0009 Page 8 of 9 If to COLLABORATOR: President B Twelve Ltd. Suite 3303, 130 Adelaide Street `Vest Toronto, Ontario M5H 3P5 20. Governing Law. This Agreement shall be governed and interpreted in accordance with the substantive laws of the State of New York and with applicable laws of the United States of America. IN WITNESS WHEREOF, UNIVERSITY and COLLABORATOR entered into this Agreement effective as of the date first herein above written. COLLABORATOR: UNIVERSITY: /s/ Uri Sagman /s/ Dennis M. Loudon ---------------------------- ------------------------------- Signature Signature Dr. Uri Sagman Dennis M. Loudon - --------------------------------- ------------------------------------ Name Name President and CEO Senior Associate Attorney - --------------------------------- ------------------------------------ Title Title Attachments: Exhibit A Exhibit B Exhibit C Page 9 of 9 EXHIBIT A Receptor blocking antibodies (monoclonal Type I) This mAb blocks the binding, of TCII - CbI to the cell surface receptor (TCR). 1. R2-2 (ATCC HB 11939) 2. R3-11 (ATCC HB 11938) 3. R4-7 (ATCC HB 11940) Cobalamin blocking antibodies (monoclonal Type II) This mAb blocks the binding CbI to TCII. 1. 1-6b1 2. 1-9b1 3. 3-9b1 4. 2-bbl 5. 5-18bl Binding (Does not affect receptor or Cbl binding) (monoclonal Type III) This mAb binds TC II at a site distant to the Cbl binding or receptor binding region of TCII. 1. 1-12b 2. Q 1-2b 3. Q 2-2b 4. 3. 5b EXHIBIT B Receptor - Transcobalamin II as a target for inducing auoptosis and for delivery of therapeutic compounds to cells A research proposal submitted to: B Twelve Ltd, Toronto, Canada Co-Principal Investigators: Edward V. Quadros, Ph.D. Sheldon P. Rothenberg, M.D. Introduction: Background. Research Objectives: 1. TCII receptor (TCR) 2. Generation of monoclonal antibodies (mAb) to TCR 3. Evaluation of monoclonal antibodies to human TCII for cross-species reactivity 4. Cobalamin analogues EX-10.11 6 ex10-11.txt EXTENSION COLLABORATION AGREEMENT Exhibit 10.11 EXTENSION/MODIFICATION RESEARCH COLLABORATION AGREEMENT BETWEEN THE RESEARCH FOUNDATION OF STATE UNIVERSITY OF NEW YORK AND B TWELVE LTD Modification No. 1 R.F. Account No. 412-6544A The Agreement heretofore entered into between THE RESEARCH FOUNDATION OF STATE UNIVERSITY OF NEW YORK (Foundation) and B TWELVE LTD (Contractor) made effective as of the 19th day of August, 1999 is hereby amended as follows: 1. Amend Article I Evaluation of the Antibodies to the following subparts; e) In addition to providing the existing murine-antibodies as provided in subparagraph a.., Foundation will also provide transcobalamin II (TCII) protein to Collaborator, an perform certain other related responsibilities, in accordance with the Research Plan Amendment. It is understood and agreed that Collaborator will share the TCII with a Research Laboratory designated by Foundation and Collaborator, for the sole purpose of enabling the Research Laboratory to generate humanized monoclonal antibodies (human-mAB). Transfers of TCII to the Research Laboratory will occur only after the Research Laboratory has executed a Confidentiality Agreement which, among other provisions, prohibits the Research Laboratory from making any commercial use of the TCII or human-mAB, unless Research Laboratory first obtains a license from Foundation. Any costs incurred by Research Laboratory in preparing the human-mAB will be borne solely by Collaborator and /or Research Laboratory. Moreover, the results of services performed by Research Laboratory will be considered work-for-hire. Consequently, Collaborator will assure that human-mAB prepared by Research Laboratory, as well as technical information and data concerning human-mAB, are shared with Foundation. f) Ownership of intellectual property resulting form activities under this agreement, and allocation of license and other rights, will be determined by Foundation and Collaborator based on their respective intellectual contributions to the development of such intellectual property. 2. Amend Article III, Performance of Research, subpart 14 award to add the following: a) i. In addition to Phase I support totaling $124,862.00, SPONSOR agrees to pay UNIVERSITY the additional sum of One Hundred Twenty Nine Thousand Eight-Hundred Fifty-Six Dollars ($129,856.00) for th additional Research obligations described in Exhibit B as amended and attached. This additional compensation, as shown by approximate category of expense described in Exhibit C as amended and attached, shall be payable according to the following schedule: Payment Date Research Period Payment Amount - ------------ --------------- -------------- 1. Oct. 31, 2000 1. Aug. 1 - Oct. 31, 2000 1. $32, 464.00 2. Nov. 31, 2000 2. Oct. 1 - Jan. 31, 2001 2. $32, 464.00 3. Jan. 1, 2001 3. Feb. 1 - Apr. 30, 2001 3. $32, 464.00 4. May 1, 2001 4. May 1 - July 31, 2001 4. $36, 464.00 3. Amend Article 15. Basic Term as follows: This agreement shall continue in force for two (2) years, from August 1, 1999 through July 31, 2001. 4. Except as amended as herein above set forth, the said agreement between the parties is hereby ratified and confirmed and shall continue in full force and effect according to its terms. THE RESEARCH FOUNDATION OF B TWELVE LTD STATE UNIVERSITY OF NEW YORK By: /s/ Robert S. Mason By: /s/ Uri Sagman -------------------------------- ------------------------------ Robert S. Mason Uri Sagman Contract and Grant Specialist President & CEO Office of Sponsored Program Services Dated: 11/01/00 Dated: Feb. 27, 2001 ------------------ ----------------------- EXHIBIT B AMENDMENT (October 2000) Research Objectives for the 2nd Year 1. Purify additional TCR for monoclonal Ab production and protein sequence determination. 2. Initiate production on monoclonal Ab to human TCR in collaboration with Medarex, Inc. We propose the following outline for this project: o Inject 3 transgene mice with 10g of purified TCR. o This is to be followed by two additional injections of 5 g each at 10-15 day intervals or at an interval to be determined after discussions with Medarex. o The mice are to be bled 2 weeks after the last injection and serum sent to SUNY-Downstate for testing. Medarex will also screen for anti TCR antibodies by ELISA assay. We will provide the antigen for this analysis. o We will test each of the samples for anti TCR antibodies that block the uptake of TCII-Cbl by K562 cells. Results of this test will determine the next stage of mAb production. o Assuming that one, or all three mice will be used for the next stage of mAb generation; the fusion of spleen derived lymphocytes with myeloma cells. Culture medium from positive wells by ELISA assay will be sent to SUNY-Downstate for identifying samples containing anti TCR antibodies that block the uptake of TCII-Cbl. 3. Test Cbl analogues for binding to TCII. This aspect of the project will proceed as the availability of Cbl analogues synthesized by Dr. Steve Wilson at NYU become available and may be extended to include testing the effect of these analogues on TCII-Cbl uptake and cell growth in cultured cell lines. EXHIBIT C AMENDMENT (October 2000) Proposed Budget for the Second Year ----------------------------------- Personnel Effort Base Salary Benefits Total - --------- ------ ----------- -------- ----- Edward C. Quadros, Ph.D. 40% $34,533 $10,187 $ 44,720 Research Associate 100% $36,538 $10,779 $ 47,317 Subtotal: $ 92,037 Supplies - -------- Reagents and Radioisotopes $ 20,800 Sterile disposable plasticware Laboratory Supplies Travel - ------ Scientific Meetings $ 2,080 Subtotal Direct Costs $114,917 Indirect Costs @ 13% 14,939 Total Costs $129,856 EX-10.12 7 ex10-12.txt LABORATORY STUDY AGREEMENT Exhibit 10.12 LSA SPONSORED LABORATORY STUDY AGREENIENT THIS Agreement is made this __________ day of __________ , 1999, between The University of Texas M.D. Anderson Cancer Center, 1515 Holcombe Boulevard, Houston, Texas 77030 ("Institution"), a component of The University of Texas System ("System"), and B Twelve, Inc., 3303-130 Adelaide Street, Toronto, Canada M5H 3P5 ("Sponsor"), to conduct a laboratory study and evaluation ("Study"). Institution and Sponsor agree as follows: 1. PROTOCOL 1.1 Institution agrees to use its best efforts to conduct the Study, as an independent contractor, in accordance with Institutional policy, applicable laws and regulations and the Project, "Pharmacology of Vitamin B 12 Analogs and Antibodies Developed Against Transcobalamin and its Cell Receptor" as described in Exhibit A attached hereto and incorporated herein. The Study will be supervised by Robert A. Newman, Ph.D., (Principal Investigator"), at Institution,- with assistance from associates and colleagues as required. 1.2 Sponsor agrees to engage the services of Institution to conduct the Study and further agrees to provide at no cost to Institution the (samples, drugs, materials) for the conduct of the Study. 2. AWARD 2.1 In consideration for performance of the Study by Institution, Sponsor shall pay Institution Eighty- four Thousand and No/100 Dollars ($84,000.00) for Study expenses and other related costs. This amount, shown by approximate category of expense in Exhibit B attached hereto for information only, is payable in four (4) quarterly installments in the amount of Twenty-one Thousand and NO/100 Dollars (S21,000.00) each. The first payment is payable within thirty (30) days of the date herein above. 3. TERM 3.1 This Agreement shall continue in force until the earlier of completion of the Study as mutually agreed upon by the parties or twelve (12) months from the date set forth above; provided, however, that either party may terminate the Agreement by giving thirty (30) days advance notice to the other. 3.2 Upon early termination of this Agreement, Sponsor shall be liable for all reasonable costs incurred or obligated by Institution at the time of such termination, subject to the maximum amount specified in Article 2. Sponsor shall pay Institution for such costs within thirty (30) days of receipt of an invoice for same. 3.3 Upon termination of this Agreement, Institution shall return Sponsor's materials and equipment to Sponsor. 4. INDENIYIFICATION 4.1 Institution shall, to the extent authorized under the Constitution and laws of the State of Texas, indemnify and hold Sponsor harmless from liability resulting from the negligent acts or omissions of Institution, its agents or employees pertaining to the activities to be carried out pursuant to the obligations of this Agreement; provided, however, that Institution shall not hold Sponsor harmless from claims arising out of the negligence or willful malfeasance of Sponsor, its officers, agents, or employees, or any person or entity not subject to Institution's supervision or control. 4.2 Sponsor shall indemnify and hold harmless System, Institution, their Regents, officers, agents and employees from any liability or loss resulting from judgments or claims against them arising out of the activities to be carried out pursuant to the obligation of this Agreement, including but not limited to the use by Sponsor of the results of the Study; provided, however, that the following is excluded from Sponsor's obligation to indemnify and hold harmless: a. the negligent * failure of Institution to comply with any applicable governmental requirements or to adhere to the terms of the Protocol; or b. the negligence or willful malfeasance by a Regent, officer, agent, or employee of Institution or System. 5. PUBLICATION AND CONFIDENTIALITY 5.1 The parties reserve the right to publish or otherwise make public the data resulting from the Study. The party so wishing to publish or make public shall submit any such manuscript or release to the other party for comment thirty (30) days prior to publication or release. 5.2 Except as otherwise required by law or regulation, neither party shall release or distribute any materials or information containing the name of the other party or any of its employees without prior written approval by an authorized representative of the non-releasing party, but such approval shall not be unreasonably withheld. 5.3 Each party shall hold in confidence for three (3) years after the termination of this Agreement any confidential information identified as confidential and obtained from the other party during the course of this Study. Nothing herein, however, shall prevent Institution or any other component of System from using any information generated hereunder for ordinary research and educational purposes of a university. 6. LNTELLECTUAL PROPERTY 6.1 Title to all inventions and discoveries made by Institution resulting from the research performed hereunder shall reside in Institution; title to all inventions and discoveries made by Sponsor resulting from the research performed hereunder shall reside in Sponsor; title to all inventions and discoveries made jointly by Institution and Sponsor resulting from the research performed hereunder shall reside jointly in Institution and Sponsor. Inventorship shall be determined in accordance with U.S. Patent law. 2 6.2 After consultation with Sponsor regarding the advisability of filing patent applications, Institution shall file appropriate United States and foreign patent applications for wholly or jointly owned Institution inventions. Institution will provide Sponsor, on a confidential basis, a copy of any such application filed and any documents received or filed during prosecution thereof and will provide Sponsor the opportunity to comment thereon. On any application on which an employee of Sponsor is named as a co-inventor, Sponsor will cooperate in obtaining execution of any necessary documents by its employees. 6.3 Institution agrees to grant to Sponsor an option to negotiate an exclusive, worldwide, royalty bearing license to make, use or sell under any invention or discovery owned wholly or partly by Institution and made or conceived and reduced to practice during the term of this Agreement or within six (6) months thereafter and directly resulting from the performance of the research hereunder, with right to sublicense with accounting to University. Sponsor shall have three (3) months from disclosure of any invention or discovery to notify Institution of its desire to enter into such a license agreement, and a license agreement shall be negotiated in good faith within a period not to exceed siX (6) months from Sponsor's notification to Institution of its desire to enter into a license agreement, or such period of time as to which the parties shall mutually agree. 6.4 If Sponsor and Institution fail to enter into an agreement during that period of time, Sponsor shall have a right of first refusal with respect to any terms generally more favorable offered by Institution to a third patty for a period of one (1) year thereafter. 6.5 In the event Sponsor elects to exercise its option to negotiate a license in accordance with the procedures detailed above, it shall be obligated to pay all expenses, including attorney's fees, incurred in searching prior art, obtaining search opinions, preparing applications, filing, prosecuting, enforcing or maintaining a patent or patent application with respect to the licensed invention in any country in which the patent or application is filed. 7. GENERAL 7.1 This Agreement, including the attached Exhibit A and B, constitutes the entire and only Agreement between the parties relating to the Study, and all prior negotiations, representations, agreements, and understandings are superseded hereby. No agreements altering or supplementing the terms hereof, including the exhibits attached hereto, may be made except by a written document signed by the duly authorized representatives of the parties. 7.2 Any conflicts between the Protocol and this Agreement are controlled by this Agreement. 7.3 This Agreement shall be construed and enforced in accordance with the laws of the State of Texas. 7.4 This Agreement anticipates educational training and may involve health science postgraduates and other students of the Institution. 3 IN WITNESS WHEREOF, Institution and Sponsor hereby enter into this Agreement, effective as of the date first set forth above, and execute two (2) original counterparts. Sponsor The University of Texas M.D. Anderson Cancer Center By: /s/ Uri Sagman By: /s/ Carleen Brunelli ------------------------- ------------------------------------ Uri Sagman Carleen Brunelli, Ph.D., M.B.A. Title: President Executive Director, Date: Aug. 31, 1999 Research Administration Date: 8-25-99 I have read this agreement and understand my obligations hereunder: By: /s/ Robert A. Newman ------------------------------------ Robert A. Newman, Ph.D. Principal Investigator By: /s/ Robert C. Bast ------------------------------------ Robert C. Bast, Jr., M.D. Head, Division of Medicine Make Payment to: The University of Texas M.D. Anderson Cancer Center Attn: Manager, Grants and Contracts Accounting P.O. Box 297402 Houston, TX 77297 Tax I.D. 74 6001118 A1 4 EX-10.13 8 ex10-13.txt AMEND 1 TO RESEARCH AGREEMENT EXHIBIT 10.13 AMENDMENT No. 1 TO RESEARCH AGREEMENT This Amendment No. I to Research Agreement ("Amendment") is made and entered into as of November 20, 2000 by and between B-Twelve, Inc. ("Sponsor") and The University of Texas M.D. Anderson Cancer Center ("Institution"), a component of the University of Texas System ("System"). RECITALS A. Sponsor and Institution entered into a Sponsored Research Agreement dated August 31, 1999 (the "Agreement"). B. Sponsor and Institution wish to amend the terms of the Agreement as set forth below. NOW, THEREFORE, it is hereby agreed as follows: 1. Section 2 of the Agreement shall be revised to read in its entirety as follows: "In consideration for performance of the Study by Institution, Sponsor shall pay Institution Eighty four Thousand and no/100 Dollars (S84,000.00) for Study related costs expenses and other costs. This amount shall be payable in four quarterly installments in the amount of Twenty-one Thousand and no/100 Dollars (521,000.00) each. The first payment has been made. The second payment is payable by December 31, 2000. " 2. Section 3.1 of the Agreement shall be revised to read in its entirety as follows: This Agreement shall continue in force until the earlier of completion of the Study as mutually agreed upon by the parties or until October 31, 2001; provided, however, that either party may terminate the Agreement by giving thirty (30) days advance notice to the other." 3. Except as expressly provided in this Amendment, all other terms, conditions and provisions of the Agreement shall continue in full force and effect as provided therein. THIS SECTION IS INTENTIONALLY LEFT BLANK. IN WITNESS WHEREOF, Sponsor and Institution have entered into this Amendment effective as of the date first set forth above. B-TWELVE, INC. THE UNIVERSITY OF TEXAS M.D. ANDERSON CANCER CENTER By /s/ Uri Sagman By /s/Leonard S. Zwelling --------------------------- ----------------------------- Uri Sagman, M.D., FRCPC Leonard A. Zwelling, M.D., M.B.A. President and CEO Vice President for Research Administration Date: Nov. 20, 2000 Date: 11/27/00 ------------------------- -------------------------- I have read this Amendment and understand my obligations hereunder: /s/Robert A. Newman --------------------------------- Robert A. Newman, Ph.D. Principal Investigator /s/Thomas D. Brown, M.D. ---------------------------------- Thomas D. Brown, M.D. Head Ad Interim, Division of Cancer Medicine Reviewed and Approved /s/R. Moore ------------------------------------ Date: 11-21-00 ----------------------------- EX-10.14 9 ex10-14.txt TERMINATION AGREEMENT Exhibit 10.14 TERMINATION AGREEMENT This Termination Agreement (the "Agreement") is made and entered into this 28th day of February, 2002, by and between The University of Texas M.D. Anderson Cancer Center ("UTMDACC"), a component institution of The University of Texas System, and B. Twelve, Inc. ("BTI"). WHEREAS, UTMCACC and BTI entered into a Sponsored Laboratory Study Agreement dated August 31, 1999, which was amended by an Amendment No. 1 to Research Agreement dated November 20, 2000 (the "SLS Agreement"); WHEREAS, the SLS Agreement provided for BTI to sponsor a study (the "Study") undertaken by UTMDACC and Dr. Robert Newman (the "Principal Investigator"); WHEREAS, BTI is in default of its financial obligations to UTMDACC under the SLS Agreement; and WHEREAS, the parties desire to terminate the SLS Agreement; NOW THEREFORE, for good and valuable consideration, including in consideration of the mutual benefits, terms, and conditions expressed herein, the parties hereby agree as follows: 1. The SLS Agreeement is hereby terminated, and as a consequence of which, all terms and provisions of the SLS Agreement are hereafter null, void, and unenforceable. Neither party shall hereafter owe any duty or obligation to the other under the SLS Agreement. 2. The parties hereby release, waive, and relinquish all rights, claims and benefits under the SLS Agreement. 3. UTMDACC and the Principal Investigator shall have the unrestricted right to continue and pursue the Study in any manner and with any other party or sponsor and without any obligation to BTI. 4. This Agreement shall be governed by the laws of the State of Texas without regard to its conflicts of law provisions. 5. This Agreement may be signed in multiple counterparts, each of which shall be deemed an original, but all of which together shall be one and the same instrument. NOW THEREFORE, having agreed to the terms and provisions set forth herein, the parties have caused this Agreement to be signed as of the date written above by the duly authorized representatives below. THE UNIVERSITY OF TEXAS B. TWELVE, INC. M.D. ANDERSON CANCER CENTER By: /s/Leonard A. Zwelling By: /s/Jean-Luc Berger - ------------------------------------- ------------------------- Leonard A. Zwelling, M.D., M.B.A. Jean-Luc Berger, Ph.D. Vice President for Research Administration President & C.E.O. Date: 3/14/02 Date: February 28, 2002 - ------------------------------------- ------------------------- Reviewed and approved for signature:(illegible) ----------------------- Approved for signature: /s/Robert A. Newman - ------------------------------ Robert A. Newman, Ph.D. EX-10.15 10 ex10-15.txt COLLABORATIVE AGREEMENT Exhibit 10.15 COLLABORTIVE RESEARCH AGREEMENT This Agreement, made and effective as of November 11, 1999, ("the Effective Date") is by and between: NEW YORK UNIVERSITY (hereinafter "NYU"), a corporation organized and existing under the laws of the State of New York and having a place of business at 70 Washington Square South, New York, New York 10012, USA AND --- B TWELVE, INC. (hereinafter "CORPORATION"), a corporation organized and existing under the laws of the State of Florida having its principal office at 3303-130 Adelaide Street West, Toronto, Ontario, Canada M5H 3P5. RECITALS -------- WHEREAS, Dr. Stephen R. Wilson of NYU (hereinafter "the NYU Scientist") has expertise and performs research in organic chemistry drug design and synthesis; WHEREAS, NYU is willing to perform the NYU Research Project (as hereinafter defined); WHEREAS, CORPORATION is prepared to sponsor the NYU Research Project; WHEREAS, subject to the terms and conditions hereinafter set forth NYU is willing to grant to CORPORATION and CORPORATION is willing to accept from NYU an option to acquire a license to use and practice the Research Technology (as hereinafter defined); NOW, THEREFORE, in consideration of the mutualpromises and agreements contained herein, the parties hereto hereby agree as follows: 1 1. Definitions. ------------ Whenever used in this Agreement, the following terms shall have the following meanings: a. "Corporation Entity" shall mean any company or other legal entity which controls, or is controlled by, or is under common control with, CORPORATION; control means the holding of more than twenty-five and one tenth percent (25.1%) or more of i) the capital and/or ii) the voting rights and/or iii) the right to elect or appoint directors. b. "Field" shall mean design and chemical synthesis of cyanocobalamin (vitamin B12) derivatives. c. "NYU Know-How" shall mean any information and materials including, but not limited to, pharmaceutical, chemical, biological and biochemical products,, information and trade secrets, know-how, technical and non-technical data, materials, methods and processes and any drawings, plans diagrams, specifications and/or other document containing such information, discovered, developed or acquired by, or on behalf of students or employees of NYU during the term and in the course of the performance of the NYU Research Project; d. "NYU Patents" shall mean all United States and foreign patents and patent applications, and any divisions, continuations, in whole or in part, reissues, renewals and extensions thereof, and pending applications therefore which claim inventions that are made by students or employees of NYU during the term and in the course of the performance of the NYU Research Project. e. "NYU Research Project" shall mean the investigations during the Research Period (as hereinafter defined) into the Field under the supervision of the NYU Scientist in 2 accordance with the research program, described in annexed Appendix I, which forms an integral part hereof. f. "Option Period" means the period from the Effective Date (as defined below) to the date 180 days after the end of the Research Period. g. "Research Period" shall mean the two-year period commencing on the Effective Date hereof and any extension thereof as to which NYU and CORPORATION shall mutually agree in writing. h. "Research Technology" shall mean all NYU Patents and NYU Know-How. 2. Effective Date. -------------- This Agreement shall be effective as of the Effective Date and shall remain in full force and effect until it expires or is terminated in accordance with Section 9 hereof. 3. Performance of the NYU Research Project. --------------------------------------- a. In consideration of the sums to be paid to NYU as set forth in Section 4, below, NYU undertakes to perform the NYU Research Project under the supervision of the NYU Scientists during the Research Period. If, during the Research Period the NYU Scientist shall cease to supervise the NYU Research Project, then NYU shall endeavor to find from among the scientists of NYU a scientist or scientists acceptable to CORPORATION to continue the supervision of the NYU Research Project in place of the NYU Scientist. Nothing herein contained shall be deemed to impost an obligation on NYU to find a replacement for the NYU Scientist. b. Nothing contained in this Agreement shall be construed as a warranty on the part of NYU that any results will be achieved by the NYU Research Project, or that the Research Technology and/or any other results achieved by the NYU Research Project, if any, are or will be commercially exploitable and furthermore, NYU makes no warranties whatsoever as to the commercial or scientific value of the 3 Research Technology and/or as to any results which may be achieved in the NYU Research Project. c. The NYU Scientist shall prepare semi-annual reports within thirty (30) days after the end of each six month period after the Effective Date, summarizing the results of the work conducted on the NYU Research Project during such six-month period. Within sixty (60) days after the end of the Research Period, the NYU Scientist shall prepare a written report summarizing the results of the work conducted on the NYU Research Project. d. At mutually agreed upon times, representatives of CORPORATION may meet with the NYU Scientist to review and discuss the conduct and results of the NYU Research Project. e. CORPORATION shall grant to NYU a non-exclusive research license under CORPORATION patents identified in Appendix II attached herein, for the purpose of the performance of the NYU Research Project. f. NYU will have full authority and responsibility for the NYU Research Project. All students and employees of NYU who work on the NYU Research Project will do so as employees or students of NYU, and not as employees of CORPORATION. 4. Funding of the NYU Research Project. ----------------------------------- a. As compensation to NYU for work to be performed on the NYU Research Project during the Research Period, subject to any earlier termination of the Research Project pursuant to Section 3.a. hereof, CORPORATION will pay NYU the total sum of U.S. $373,250, payable according to the following schedule: for the first year of the Research Period a total sum of U.S. $222,560 payable in four (4) equal consecutive quarterly installments of U.S. $555,640 each, commencing upon the Effective Date and on the first business day of the 3rd, 6th, and 9th month commencing after the Effective Date, and for the second year of the Research 4 Period a total sum of U.S. $150,690 payable in four (4) equal consecutive quarterly installments of U.S. $37,672.50 each, commencing upon the first business day of the 12th, 15th, 18th and 21st month commencing after the Effective Date. b. Nothing in this Agreement shall be interpreted to prohibit NYU (or the NYU Scientist) from obtaining additional financing or research grants for the NYU Research Project from government agencies, which grants or financing may render all or part of the NYU Research Project and the results thereof subject to the patent rights of the U.S. Government and its agencies, as set forth in Title 35 U.S.C. ss.200 et seq. 5. Title. ------ a. All right, title and interest, in and to the Research Technology, and to any other results achieved by the NYU Research Project, and in and to any drawings, plans, diagrams, specifications and other documents containing any of the Research Technology shall vest solely in NYU. b. Subject to the rights granted to CORPORATION pursuant to Section 6, hereof, for so long as the NYU Scientists is employed by NYU, any and all inventions made by the NYU Scientist and relating to the Field shall be owned solely by NYU. 6. Option to Negotiate the New Agreement ------------------------------------- a. For the term of the Option Period and subject to the satisfaction by CORPORATION of the conditions set forth in 6.b. hereof, NYU hereby grants to CORPORATION the exclusive option at any time during the Option Period to negotiate a new agreement with respect to an exclusive option at any time during the Option Period to negotiate a new agreement with respect to an exclusive worldwide license to use and practice the Research Technology (the "New Agreement"). b. CORPORATION may exercise the option set forth above by providing NYU with written notice that CORPORATION is prepared to negotiate the New Agreement. 5 c. CORPORATION shall have no right to undertake any commercial use (including trials in humans) of the Research Technology or the manufacture, or sale of a product based on the Research Technology, unless and until CORPORATION and NYU execute the New Agreement pursuant to Section 6, hereof. d. NYU shall not, during the Option Period, grant to any third party any rights, or take any action inconsistent with, the rights granted to CORPORATION under this Agreement. e. The New Agreement that may be negotiated for the aforesaid Research Technology shall include reasonable and customary terms and conditions (including, but not limited to reasonable royalties) with respect to university-industry agreements. 7. Patents and Patent Applications. ------------------------------- a. NYU will promptly disclose to CORPORATION in writing any inventions which constitute potential NYU Patents. b. CORPORATION shall maintain all disclosures in confidence and shall not deliver or divulge them to any person or entity. c. At the initiative of CORPORATION or NYU, the parties shall consult with each other regarding the prosecution of all patent applications in respect of any inventions pertaining to the Research Technology, including but without limitation, the timing of the filing of such applications, the jurisdiction within which foreign counterparts of such applications should be filed and other details pertaining to the procurement and maintenance of patent rights. d. Notwithstanding anything to the contrary in Section 7.c. hereof, NYU shall determine the patentability of any invention pertaining to the Research Technology, and the desirability of filing or prosecuting patient applications thereon. e. All patent applications and patents pertaining to NYU Patents shall be filed, prosecuted and maintained by NYU through patent counsel selected by NYU, after 6 consultation with CORPORATION, at the expense of CORPORATION. Against the submission of invoices, CORPORATION shall reimburse NYU for all costs and fees incurred by NYU in connection with the filing, maintenance, prosecution and protection of the NYU Patents. f. NYU and CORPORATION shall assist, and cause their respective employees and consultants to assist each other, in assembling inventorship information and data for the filing and prosecution of patent applications on inventions pertaining to the Research Technology. The scope, content and inventorship of such patent applications and the prosecution thereof, will be determined solely by NYU after consultation with CORPORATION as set forth in Section 7.c. hereof. g. Nothing herein contained shall be deemed to be a warrant by NYU that NYU can or will be able to obtain any patent or patents on any patent application or applications in the NYU Patents or any portion thereof, or that any of the NYU Patents will afford adequate or commercially worthwhile protection. 8. Publication. ------------ a. Prior to submission for publication of a manuscript describing the results of any aspect of the NYU Research Project, NYU shall send CORPORATION a copy of the manuscript to be submitted, and shall allow CORPORATION thirty (30) days from the date of such mailing to determine whether the manuscript contains such subject matter for which patent protection should be sought prior to publication of such manuscript, for the purpose of protecting an invention made by the NYU Scientist during the course and in the performance of the NYU Research Project. Should CORPORATION believe the subject matter of the 30-day period from the mailing date of such manuscripts to CORPORATION by NYU, CORPORATION shall give written notification to NYU of: i) its determination that such manuscript contains patentable subject matter for which patent protection should be sought; and 7 ii) the countries in which such patent protection should be sought. b. After the expiration of such 30-day period from the date of mailing such manuscript to CORPORATION, unless NYU has received the written notice specified above from CORPORATION, NYU shall be free to submit such manuscript for publication to publish the disclosed research results in any manner consistent with academic standards. c. Upon receipt of such written notice from CORPORATION, NYU will thereafter delay submission of the manuscript for an additional period of up to sixty (60) days to permit the preparation and filing in accordance with Section 8, hereof of a U.S. patent application by NYU on the subject matter to be disclosed in such manuscript. After expiration of such 60-day period, or the filing of a patent application on each such invention, whichever shall occur first, NYU shall be free to submit the manuscript and to publish the disclosed results. 9. Expiry and Termination. ---------------------- a. Unless earlier terminated pursuant to this Section 9.b. or 9.c. below, this Research Agreement will terminate upon the expiration of the Option Period. The provisions of Sections 9, 12 and 15 hereof shall survive and remain in full force and effect after any expiration, cancellation or termination of this Agreement, including early termination as set forth below. b. At any time prior to expiration of this Agreement pursuant to Section 9.a. hereof, any party may terminate this Agreement for cause, as "cause" is described below, by giving written notice to the other party. Cause for termination by one party of this Agreement shall be deemed to exist if the other party materially breaches or defaults in the performance or observance of any of the provisions of this Agreement and such breach or default is not cured within sixty (60) days after receipt of written notice thereof from the non-breaching party. 8 c. Any party to this Agreement may, upon giving notice of termination, immediately terminate this Agreement upon receipt of notice that any party has become insolvent or has suspended business or has filed a voluntary petition or an answer admitting the jurisdiction of the U.S. Bankruptcy Court in the material allegations of, or has consented to, an involuntary petition purporting to be pursuant to any reorganization or insolvency law of any jurisdiction, or has made an assignment for the benefit of creditors or has applied for or consented to the appointment of a receiver or trustee for a substantial part of its property. d. Any amount payable hereunder by one of the parties to the other, which has not been paid by the date on which such payment is due, shall bear interest from such date until the date on which such payment is made, at the rate of two percent (2%) per annum in excess of the prime rate prevailing at the Citibank, N.A., in New York, New York, during the period of arrears and such amount and the interest thereon may be set off against any amount due, whether in terms of this Agreement or otherwise howsoever, to the part in default by any non-defaulting party. e. Termination of this Agreement shall not relieve the parties of any obligation to the other party incurred prior to such termination. 11. No Assignment. ------------- Neither CORPORATION not NYU shall have the right to assign, delegate or transfer at any time to any party, in whole or in part, any or all of the rights, duties and interest herein granted without first obtaining the written consent of the other to such assignment. 12. Confidential Information ------------------------ CORPORATION shall maintain any and all of the Research Technology in confidence and shall not release or disclose any tangible or intangible component thereof to any 9 third party without first receiving the prior written consent of NYU to said release or disclosure. This obligation of confidentiality shall not apply to any component of the Research Technology which is part of the public domain prior to the Effective Date of this Agreement or which becomes a part of the public domain not due to some unauthorized act by or omission of CORPORATION after the Effective Date of this Agreement or which is disclosed to CORPORATION by a third party who has the right to make such disclosure. 13. Representations and Warranties by CORPORATION. --------------------------------------------- CORPORATION hereby represents and warrants to NYU as follows: a. CORPORATION is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida. CORPORATION has been granted all requisite power and authority to carry on its business and to own and operate its properties and assets. The execution, delivery and performance of this Agreement have been duly authorized by the Board of Directors of CORPORATION; b. There is no pending or, to CORPORATION's knowledge, threatened litigation involving CORPORATION which WOULD HAVE ANY EFFECT ON THIS agreement or on CORPORATION's ability to perform its obligations hereunder, and c. There is no indenture, contract, or agreement to which CORPORATION is a party or by which CORPORATION is bound which prohibits or would prohibit the execution and delivery by CORPORATION of this Agreement or the performance or observance by CORPORATION of any term or condition of this Agreement. 14. Representations and Warranties by NYU. ------------------------------------- NYU hereby represents and warrants to CORPORATION as follows: a. NYU is a corporation duly organized, validly existing and in good standing under the laws of the State of New York. NYU has been granted all requisite power and 10 authority to carry on its business and to own and operate its properties and assets. The execution, delivery and performance of this Agreement have been duly aiuthorized by the Board of Trustees of NYU. b. There is no pending or, to NYU's knowledge, threatened litigation involving NYU which would have any effect on this Agreement or on NYU's ability to perform its obligations hereunder; and c. There is no indenture, contract or agreement to which NYU is a party or by which NYU is bound which prohibits or would prohibit the execution and delivery by NYU of this Agreement or the performance or observance by NYU of any term or condition of this Agreement. 15. Use of Name. ----------- Without the prior written consent of the other party, neither CORPORATION nor NYU shall use the name of the other party or any adaptation thereof or of any staff member, employee or student, of the other party. i) in any product labeling, advertising, promotional or sales literature; ii) in connection with any public offering or private placement documentation pr prospectus or in conjunction with any application for regulatory approval, unless disclosure is otherwise required by law, in which case either party may make factual statements concerning the Agreement or file copies of the Agreement after providing the other party with an opportunity to comment and reasonable time within which to do so on such statement in draft Except as provided herein, neither NYU nor CORPORATION will issue public announcements about this Agreement or the status or existence of the NYU Research Project without prior written approval of the other party. 11 16. Miscellaneous. ------------- a. In carrying out this Agreement the parties shall comply with all local, state and federal laws and regulations including but not limited to, the provisions of Title 35 United States Code ss.200 et seq. and 15 CFR ss.368 et seq. b. If any provision of this Agreement is determined to be invalid or void, the remaining provisions shall remain in effect. c. This Agreement shall be deemed to have been made in the State of New York and shall be governed and interpreted in all respects under the laws of the State of New York. d. Any dispute arising under this Agreement shall be resolved in an action in the courts of New York State or the federal courts located in New York State, and the parties hereby consent to personal jurisdiction of such courts in any such action. e. All payments or notices required or permitted to be given under this Agreement shall be given in writing and shall be effective when either personally delivered or deposited, postage prepaid, in the United States registered or certified mail, addressed as follows: To NYU: New York University School of Medicine 550 First Avenue New York, NY 10016 USA Attention: Isaac T. Kohlberg Vice Provost 12 and Office of Legal Counsel New York University Bobst Library 70 Washington Square South New York, NY 10012 Attention: Kathy Schultz To CORPORATION: B Twelve, Inc. 3303-130 Adelaide Street West Toronto, Ontario M5H 3P5 CANADA Attention: Uri Sagman, M.D., F.R.C.P.(C) President and CEO Or such other address or addresses as either party may hereafter specify by written notice to the other. Such notices and communications shall be deemed effective on the date of delivery of fourteen (14) days after having been sent by registered or certified mail, whichever is earlier. f. This Agreement (and the annexed Appendices) constitute the entire Agreement between the parties and no variation, modification or waiver of any of the terms or conditions hereof shall be deemed valid unless made in writing and signed by both parties hereto. This Agreement supersedes any and all prior agreements or understandings, whether oral or written, between CORPORATION and NYU. 13 g. No waiver by either party of any non-performance or violation by the other party of any of the covenants, obligations or agreements of such other party hereunder shall be deemed to be a waiver of any subsequent violation or non-performance of the same or any other covenants, agreement or obligation, nor shall forbearance by any party be deemed to be a waiver by such party of its rights or remedies with respect to such violation or non-performance. h. The descriptive headings contained in this Agreement are included for convenience and reference only and shall not be held to expand, modify or aid in the interpretation, construction or meaning of this Agreement. i. It is not the intent of the parties to create a partnership or joint venture or to assume partnership responsibility or liability. The obligations of the parties shall be limited to those set out herein and such obligations shall be several and not joint. IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date and year first above written. NEW YORK UNIVERSITY By: /s/ Isaac T. Kohlberg ------------------------------------ Isaac T. Kohlberg Title: Vice Provost Date: 11/11/99 B TWELVE, INC. By: /s/ Uri Sagman ------------------------------------- Uri Sagman Title: President Date: Nov. 11, 1999 14 APPENDIX I Research Plan The goal of the proposal is to synthesize monomeric and dimeric vitamin B12 analogs based on known chemistry and provide those compounds to B Twelve, Inc for testing. We plan to develop solid-phase combinatorial chemistry to accelerate the discovery of more effective B12 analogs. EX-23.1 11 ex23-1.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23.1 Independent Auditors' Consent We consent to the use of our report dated July 18, 2002 on the consolidated financial statements of B. Twelve, Inc. and Subsidiary as of March 31, 2002 and 2001 and cumulative from March 5, 1999 (inception) to March 31, 2002 included herein on the registration statement of B. Twelve, Inc. on Form SB-2, as amended and to the reference to our firm under the heading "Experts" in the prospectus. Our report dated July 18, 2002 contains an explanatory paragraph that states that the Company has operating losses, an accumulated deficit, cash used in operations and has a working capital deficiency, which raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty. SALBERG & COMPANY, P.A. Boca Raton, Florida August 21, 2002 -----END PRIVACY-ENHANCED MESSAGE-----