-----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, GGU2Q0KE8d6rNKFw1VIeGSxaFP/1bmjkhViwMHthHC43uX+3DAhZpPJZSocDfyJm p3gKcl+RkpHvEXs+NZC3QQ== 0001032210-02-000357.txt : 20020415 0001032210-02-000357.hdr.sgml : 20020415 ACCESSION NUMBER: 0001032210-02-000357 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMMUNEX CORP /DE/ CENTRAL INDEX KEY: 0000719529 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 510346580 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12406 FILM NUMBER: 02570910 BUSINESS ADDRESS: STREET 1: 51 UNIVERSITY ST CITY: SEATTLE STATE: WA ZIP: 98101 BUSINESS PHONE: 2065870430 MAIL ADDRESS: STREET 1: 51 UNIVERSITY STREET CITY: SEATLE STATE: WA ZIP: 98101 10-K 1 d10k.txt FORM 10-K FOR THE PERIOD ENDING 12/31/2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-12406 IMMUNEX CORPORATION (exact name of registrant as specified in its charter) Washington 51-0346580 ------------------------- ------------------------- (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 51 University Street, Seattle, WA 98101 (Address of principal executive offices) Registrant's telephone number, including area code (206) 587-0430 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No_____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [ ] The approximate aggregate market value of the voting stock held by nonaffiliates of the registrant as of February 28, 2002 was: $7,769,539,784.82. Common stock outstanding at February 28, 2002: 548,236,557 shares. Documents incorporated by reference (1) Portions of the Registrant's definitive proxy statement for the annual meeting of shareholders to be held on May 16, 2002, are incorporated by reference. We will file the definitive proxy statement with the Securities Exchange Commission within 120 days after the end of the fiscal year to which this report relates. TABLE OF CONTENTS
Page ---- PART I ITEM 1. BUSINESS................................................................................ 1 General....................................................................................... 1 Pending Merger with Amgen..................................................................... 2 Products...................................................................................... 3 Cytokines and Cytokine Receptors.......................................................... 3 Marketed Products......................................................................... 3 Research and Product Development.............................................................. 5 New Indications for Marketed Products..................................................... 5 Investigational Products in Human Clinical Trials......................................... 7 Preclinical Research and Development Pipeline............................................. 8 Research Collaborations................................................................... 9 Relationship with AHP......................................................................... 11 Background................................................................................ 11 Governance Agreement...................................................................... 12 Product Rights Agreement.................................................................. 13 TACE Agreements........................................................................... 14 TNFR License and Development Agreement.................................................... 14 Agreements Related to the Manufacturing of Enbrel......................................... 15 Enbrel Promotion Agreement................................................................ 15 Voting Agreement.......................................................................... 16 Marketing and Distribution.................................................................... 17 Enbrel.................................................................................... 17 Leukine and Novantrone.................................................................... 17 Distribution.............................................................................. 17 Competition................................................................................... 17 Enbrel.................................................................................... 18 Leukine................................................................................... 20 Novantrone................................................................................ 20 Thioplex.................................................................................. 21 Raw Materials and Supply...................................................................... 21 Overview.................................................................................. 21 BI Pharma Supply Agreement................................................................ 21 MedImmune Supply Transfer Agreement....................................................... 22 Expansion of Manufacturing Facilities..................................................... 22 Governmental Regulation....................................................................... 23 Patents, Licenses and Trademarks.............................................................. 24 Patents on Biological Products............................................................ 24 Patents on Nonbiological Products......................................................... 26 Patent and Technology Licenses............................................................ 27 Trademarks................................................................................ 27 Properties.................................................................................... 27 Personnel..................................................................................... 28 Important Factors That May Affect Our Business, Our Results of Operations and Our Stock Price. 29 Risks Related to Our Business............................................................. 29 Risks Related to Our Share Price and Corporate Control.................................... 37 Risks Related to Our Proposed Merger with Amgen........................................... 38
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Page ---- ITEM 2. PROPERTIES..................................................................... 39 ITEM 3. LEGAL PROCEEDINGS.............................................................. 39 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................ 40 PART II ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS............................................................. 41 ITEM 6. SELECTED FINANCIAL DATA........................................................ 41 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................................... 42 Overview............................................................................. 42 Results of Operations................................................................ 42 Revenues......................................................................... 42 Gross Margin..................................................................... 44 Operating Expenses............................................................... 44 Merger-related costs............................................................. 46 Other Income (Expense)........................................................... 46 Provision for Income Taxes....................................................... 47 Liquidity and Capital Resources...................................................... 47 Outlook.............................................................................. 49 ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.................... 52 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................... 53 Consolidated Balance Sheets.......................................................... 54 Consolidated Statements of Income.................................................... 55 Consolidated Statements of Shareholders' Equity...................................... 56 Consolidated Statements of Cash Flows................................................ 57 Notes to Consolidated Financial Statements........................................... 58 Note 1. Organization............................................................. 58 Note 2. Basis of Presentation and Summary of Significant Accounting Policies..... 58 Note 3. Investments.............................................................. 62 Note 4. Property, Plant and Equipment............................................ 63 Note 5. Helix Project............................................................ 63 Note 6. Long-Term Obligations.................................................... 64 Note 7. Shareholders' Equity..................................................... 64 Note 8. Sale of Product Rights................................................... 66 Note 9. Income Taxes............................................................. 67 Note 10. Employee Benefits....................................................... 68 Note 11. Transactions with AHP................................................... 68 Note 12. Commitments and Contingencies........................................... 71 Note 13. Concentrations of Risk.................................................. 72 Note 14. Net Income per Common Share............................................. 73 Note 15. Agreement to Merge with Amgen Inc....................................... 74 Note 16. Subsequent Event........................................................ 74 Note 17. Quarterly Financial Results (unaudited)................................. 75 Report of Ernst & Young LLP, Independent Auditors................................ 76 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................................................ 77
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Page ---- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..... 77 ITEM 11. EXECUTIVE COMPENSATION................................. 77 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................................. 77 ITEM 13. RELATIONSHIPS AND RELATED TRANSACTIONS................. 77 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................................................ 78
iii PART I Item 1. Business Our disclosure and analysis in this report and in our 2001 Annual Report to shareholders, of which this report is a part, contain forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events. In particular, forward-looking statements include: . information concerning possible or assumed future results of operations, trends in financial results and business plans, including those relating to earnings growth and revenue growth; . statements about our merger with Amgen Inc., including with respect to business strategies, expected operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management, and markets for our stock and Amgen's stock; . statements about our product development schedule; . statements about our expectations for regulatory approvals for any of our product candidates; . statements about our future product manufacturing capabilities and product sales; . statements about the level of our costs and operating expenses relative to our revenues, and about the expected composition of our revenues; . statements about our future capital requirements and the sufficiency of our cash, cash equivalents, investments and other financing proceeds to meet these requirements; . statements about the outcome of contingencies such as legal proceedings; . other statements about our plans, objectives, expectations and intentions; and . other statements that are not historical fact. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report, in our 2001 Annual Report and in any other public statements that we make may turn out to be wrong. Inaccurate assumptions we might make and known or unknown risks and uncertainties can affect our forward-looking statements. Consequently, no forward-looking statement can be guaranteed and our actual results may differ materially. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Annual Reports on Form 10-K. Also note that we provide a cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business under the caption Important Factors That May Affect Our Business, Our Results of Operations and Our Stock Price in this report. These are risks that we think could cause our actual results to differ materially from expected or historical results. Other risks besides those listed in this report could also adversely affect us. General We are a leading biopharmaceutical company dedicated to developing immune system science to protect human health. Applying our scientific expertise in the fields of immunology, cytokine biology, vascular biology, antibody-based therapeutics and small molecule research, we work to discover new targets and new therapeutics for treating rheumatoid arthritis, or RA, asthma and other inflammatory diseases, as well as cancer and cardiovascular diseases. 1 We have successfully developed two products, Enbrel(R) (etanercept) and Leukine(R) (sargramostim, GM-CSF), and are currently marketing in the United States four products treating multiple indications, Enbrel, Leukine, Novantrone(R) (mitoxantrone for injection concentrate) and Thioplex(R) (thiotepa for injection). Our products improve quality of life and help people enjoy longer, healthier and more productive lives. Our products are all currently marketed in the United States and Enbrel is also marketed in Canada. All are available by prescription only. We are actively expanding our commercial manufacturing capacity. We currently operate a facility that produces Leukine in Seattle, Washington. On January 1, 2002, we purchased a manufacturing facility in West Greenwich, Rhode Island, from American Home Products Corporation, or AHP, that we and AHP have worked together to retrofit to accommodate the commercial production of Enbrel. We have begun preparing the supplemental filing for the Rhode Island manufacturing facility to obtain U.S. Food and Drug Administration, or FDA, approval for the facility and expect to complete the filing by mid-2002. We estimate FDA approval of this manufacturing facility in the second half of 2002. We have also broken ground on a new manufacturing facility adjacent to the retrofitted manufacturing facility in Rhode Island. When this facility is completed and approved by the FDA, which we estimate will occur in 2005, it is scheduled to produce Enbrel and possibly other products currently in development. AHP beneficially owns approximately 41% of our outstanding common stock as of December 31, 2001. AHP is one of the world's largest research-based pharmaceutical and healthcare products companies. We are a Washington state corporation and were founded in 1981. Our principle executive offices are located at 51 University Street, Seattle, Washington 98101-2936. Pending Merger with Amgen On December 17, 2001, we announced that we had entered into an Agreement and Plan of Merger with Amgen Inc. and AMS Acquisition Inc., a wholly-owned subsidiary of Amgen. Under the terms of the agreement, AMS Acquisition Inc. will be merged with and into us, we will become a wholly-owned subsidiary of Amgen and each issued and outstanding share of our common stock will be converted into the right to receive 0.44 of a share of Amgen common stock and $4.50 in cash. The merger cannot be completed unless certain conditions are satisfied, including the approval by Amgen stockholders of the issuance of shares of Amgen common stock in connection with the merger and the approval by our shareholders of the merger agreement. Approval of the merger agreement requires the affirmative vote of the holders of a majority of our common stock entitled to vote. AHP and two of its subsidiaries, MDP Holdings, Inc. and Lederle Parentals, Inc. have entered into a voting agreement with Amgen in which they have agreed, among other things, to vote their shares of our stock in favor of the merger. As noted above, AHP beneficially owns approximately 41% of our outstanding common stock as of December 31, 2001. The merger is also subject to antitrust laws, including the reporting and waiting provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976. On January 7, 2002, we and Amgen made the required premerger notification filings with the Federal Trade Commission, or FTC, and the Antitrust Division of the Department of Justice. On February 6, 2002, the FTC requested additional information and documents from us and from Amgen. In connection with the proposed merger, we intend to sell the product rights to Leukine. The divestiture of Leukine is anticipated to occur only if the proposed merger is completed. Failure to complete the merger could have a material adverse effect on our financial condition and results of operations. We have provided additional information about some of the potential adverse effects of the proposed merger under the caption Important Factors That May Affect Our Business, Our Results of Operations and Our Stock Price in this report. 2 Products Cytokines and Cytokine Receptors Many of our current biotechnology products and products under development are recombinant analogs of cytokines and cytokine receptors. Cytokines are protein messengers that coordinate the functions of immune cells, which are white blood cells, and other types of cells and tissues. We have developed recombinant cytokine products capable of expanding and activating these immune cell populations, all of which must interact to provide a normal immune response. Cytokines act upon their target cells by binding to specific cell surface receptors. The binding of a cytokine to its receptor triggers a complex series of events within a responsive cell that transmits the cytokine's signal to that cell. This signal can stimulate cell division or production of antibodies, enzymes or other cytokines. In this way, circulating cytokines can control and coordinate the function of cells located throughout the body. We have also cloned and expressed genes encoding cytokine receptors. Using genetic engineering techniques, our scientists have produced soluble versions of cytokine receptors. A soluble cytokine receptor retains the ability to bind to a specific cytokine, but lacks that portion of the natural receptor that is attached to a cell. This property enables the soluble cytokine receptor to circulate in the body after administration, where it can bind to and inactivate specific cytokines. By preventing interaction of the cytokines with immune cells, the soluble cytokine receptor can stop the development of cytokine stimulated responses. We have shown with Enbrel that soluble cytokine receptors can be effective as therapeutics to counteract cytokine mediated diseases such as RA and psoriatic arthritis, or PsA. Marketed Products Our product revenues come from the following four marketed products and are discussed below. Enbrel Leukine Novantrone Thioplex Enbrel. Enbrel is a soluble tumor necrosis factor, or TNF, receptor that inhibits the binding of TNF to TNF cell surface receptors, resulting in a significant reduction in inflammatory activity in RA and PsA. RA is a serious, chronic autoimmune disorder that causes the body's immune system to attack the lining of the joints, and can lead to joint deformity or destruction, organ damage, disability and premature death. Like RA, PsA is a chronic inflammatory disease causing joint pain and swelling that can lead to crippling along with inflamed and irritated scaly patches of skin throughout the body. Following its launch in November 1998, Enbrel has been approved by the FDA for reducing signs and symptoms and inhibiting the progression of structural damage in patients with moderately to severely active RA. In May 1999, the FDA approved Enbrel for treating moderately to severely active polyarticular-course juvenile RA, or JRA, in patients who have had an inadequate response to one or more disease-modifying, antirheumatic drugs, or DMARDs. In December 2000, the Canadian Health Protection Bureau approved Enbrel in adults for reduction in signs and symptoms of moderately to severely active RA in patients who have had an inadequate response to one or more DMARDs. Enbrel is the only TNF inhibitor that can be used as a monotherapy, without methotrexate, and the only biologic response modifier approved for use as a first-line monotherapy for RA. In January 2002, the FDA approved Enbrel for reducing the signs and symptoms of active arthritis in patients with PsA. As with RA, PsA patients can use Enbrel without methotrexate or with methotrexate in patients who do not respond adequately to methotrexate alone. Enbrel is currently the only FDA-approved treatment for PsA. 3 Revenues from sales of Enbrel were $761.9 million, or approximately 77% of our total revenue, in 2001, $652.4 million, or approximately 76% of our total revenue, in 2000, and $366.9 million, or approximately 68% of our total revenue, in 1999. We expect to continue to depend on sales of Enbrel for a substantial majority of our revenues. Enbrel was the first in a new class of drugs, known as biologic response modifiers, for treating RA and PsA. Enbrel represents a new approach to RA and PsA management and the first breakthrough treatment in many years for people with RA and PsA, who previously were treated primarily with methotrexate, a DMARD. Enbrel is sold in a powder formulation and is administered to patients twice a week as a subcutaneous injection, which means that it is injected under the skin. Because RA and PsA are chronic disorders, patients must continue taking Enbrel to continue experiencing any beneficial effects of treatment. Enbrel is a recombinant protein, which means that it is man-made by genetic engineering. Enbrel is based on a naturally occurring protein normally produced in the body and acts by binding to and neutralizing TNF thereby supplementing the body's natural process of regulating levels of TNF. TNF is one of the dominant cytokines or proteins that play an important role in the cascade of reactions that cause the inflammatory process of RA and PsA. It has been implicated in the pathogenesis of RA, PsA, psoriasis, ankylosing spondylitis, Wegener's granulomatosis, chronic heart failure, amyloidosis, myelodysplastic syndrome, cachexia and numerous other conditions. Because demand for Enbrel was projected to temporarily exceed supply, we began an Enbrel enrollment program in November 2000 to help ensure uninterrupted therapy for United States patients prescribed Enbrel before January 1, 2001. The Enbrel enrollment program called for these patients to register with us and receive an enrollment number. Through an extensive outreach campaign, the vast majority of these patients successfully enrolled and are continuing to receive Enbrel therapy. Also, as of January 1, 2001, patients considering therapy with Enbrel, but not yet receiving treatment, were invited to enroll in the program and were placed on a waiting list. These patients receive Enbrel on a first come, first served basis once additional supply of Enbrel becomes available. In August 2001, we announced the initiation of a 10,000-patient RA study designed to collect data on treatment practices, tolerability of therapies, and efficacy of current DMARDs and biologic response modifiers. The study is divided into two parts with part one a study of 5,000 RA patients requiring a change in DMARD therapy and part two a study of an additional 5,000 RA patients who will begin new treatment with Enbrel. Part one of the study began in 2001 and part two is planned to begin in 2002 when additional clinical supplies of Enbrel become available. Data from both parts is scheduled to be collected for at least five years. We own rights to Enbrel in the United States and Canada, and AHP owns rights to Enbrel in all other countries. Accordingly, we do not receive either royalties or a share of gross profits from sales of Enbrel outside the United States and Canada. We and AHP are marketing Enbrel in the United States and Canada under the Enbrel promotion agreement, which we discuss under the caption Relationship With AHP. Leukine. We launched Leukine in the United States in 1991 as our first marketed product. Leukine is a yeast produced granulocyte-macrophage colony stimulating factor, or GM-CSF. Leukine is a recombinant form of a protein, called a cytokine, that is almost identical to a protein normally produced in the body. Leukine helps to increase the number and improve the function of specific types of white blood cells. These white blood cells, which are made in the bone marrow, help prevent infections. The FDA has approved Leukine for the following indications: . facilitating allogeneic and autologous bone marrow transplant therapies currently used for treating acute myelogenous leukemia, lymphoma and Hodgkin's disease, and in rescuing patients whose bone marrow transplant grafts have failed; 4 . accelerating neutrophil recovery and reducing mortality in treating patients with acute myelogenous leukemia; and . for use in peripheral blood progenitor cell mobilization and post-transplantation support. Leukine is only available in the United States and is marketed by our specialty sales force. While Leukine is available in both multi-dose liquid and powder formulations, most of our sales are of the multi-dose liquid formulation. Revenues from sales of Leukine totaled $108.4 million, or approximately 11% of our total revenue, in 2001, $88.3 million, or approximately 10% of our total revenue, in 2000, and $69.1 million, or approximately 13% of our total revenue, in 1999. Novantrone. Novantrone is a compound similar to doxorubicin and idarubicin, two chemotherapeutic agents frequently used to treat some cancers, but with a molecular change that results in less damage to the heart. The FDA has approved Novantrone for the following indications: . initial therapy of acute nonlymphocytic leukemia; . in combination with steroids for treating patients with pain related to hormone refractory prostate cancer; and . reducing neurologic disability and/or the frequency of clinical relapses in patients with secondary progressive, progressive relapsing or worsening relapsing-remitting MS. In October 2000, the FDA approved Novantrone for the MS indication described above. MS is a chronic, debilitating disease of the central nervous system that can result in a variety of symptoms that range from numbness in the limbs to complete paralysis. Novantrone is sold in a concentrated liquid form for injection. Revenues from sales of Novantrone totaled $71.2 million, or approximately 7% of our total revenue, in 2001, $59.9 million, or approximately 7% of our total revenue, in 2000, and $44.5 million, or approximately 8% of our total revenue, in 1999. Thioplex. Thioplex is a powder formulation of thiotepa for injection. Thiotepa is a cytotoxic agent, which means that it kills cells. Thioplex is approved for the palliative treatment of a wide variety of tumor types, which means that it alleviates symptoms without curing the underlying disease. The FDA has approved Thioplex for a number of oncology indications. In 2001, Thioplex began to face generic competition. Research and Product Development Since Immunex was founded in 1981, we have focused our scientific efforts on understanding the biology of the immune system. Our goal is to understand the complex interactions between cells of the immune system and other tissues that can trigger the underproduction or overabundance of key immune system components, leading to or perpetuating serious human diseases. From this research focus we have created a portfolio of proprietary molecules and other technology that has produced a number of promising biological therapeutic candidates. We intend to further solidify our position as a leader in the innovation and commercialization of products that treat a variety of immune system disorders and inflammatory diseases and to expand our new product development into treating numerous other conditions. We spent $204.6 million in 2001, $166.7 million in 2000 and $126.7 million in 1999 on research and development. These amounts include expenses related to third-party research collaborations and the acquisition of third-party rights to development stage products. New Indications for Marketed Products We believe that an efficient way to generate increased revenue is to add new indications to a product that is already being marketed. We have increased our focus on development activities to find potential new indications for our existing drugs. By securing new indications, our strategy is to build pharmaceutical franchises and expand 5 the commercial usefulness and revenue-producing ability of our key products. We are studying our key marketed products in the indications and research areas listed below. Enbrel. We are seeking to expand the indications of Enbrel to include the following disorders, which are characterized by poor regulation of TNF: . Psoriasis. Psoriasis is a skin disorder that most commonly appears as inflamed swollen skin lesions, which can be extremely painful and disfiguring. In August 2001, we announced the results of a six-month randomized, placebo-controlled, double-blind Phase 2 clinical trial indicating that psoriasis patients treated with Enbrel experienced significant improvement compared to patients who were treated with placebo. We also collected data in our Phase 2 and 3 clinical trials in psoriatic arthritis that will assist us in evaluating the safety and efficacy of Enbrel in treating patients with psoriasis. We commenced a Phase 2/3 dose ranging clinical trial in psoriasis in the fourth quarter of 2001. We anticipate beginning another Phase 2/3 clinical trial in psoriasis during the first half of 2002. We currently expect data from the first Phase 2/3 trial to be available in 2002 and data from the second Phase 2/3 trial to be available in the first half of 2003. Although regulatory approval is never certain, we currently estimate FDA approval in 2004. . Ankylosing spondylitis. Ankylosing spondylitis is a unique form of chronic inflammatory arthritis characterized by joint stiffness, pain and extra bone growth that can result in partial or complete fusion of the spine. In November 2001, we announced results of a four-month randomized, placebo-controlled, double-blind Phase 2 clinical trial of Enbrel in patients with ankylosing spondylitis. In the trial, patients receiving Enbrel achieved a positive clinical response compared to patients receiving placebo. In the fourth quarter of 2001, we initiated a large Phase 3 clinical trial in ankylosing spondylitis. We currently expect to complete this trial in the second half of 2002. . Wegener's granulomatosis. Wegener's granulomatosis is an uncommon disease, characterized by inflammation of the blood vessels and primarily involving the lungs, kidneys, and upper respiratory tract. Following the announcement of positive Phase 2 results in 2000, we are supporting two Phase 2/3 clinical trials of Enbrel in Wegener's granulomatosis. We are also researching the use of Enbrel in treating amyloidosis, myelodysplastic syndrome, cachexia and numerous other conditions. In March 2001, we announced that guidance from an independent data monitoring board indicated that ongoing studies of Enbrel in chronic heart failure, or CHF, would not be able to meet efficacy endpoints. Based on this guidance, we and AHP ended two large randomized, placebo-controlled, double-blind Phase 2/3 clinical trials of Enbrel in patients with CHF. We are currently completing the analysis of all data from these studies. Leukine. A number of clinical trials are underway to investigate whether Leukine could be approved for additional uses. These investigational uses include: . Crohn's Disease. In the fourth quarter of 2001, we initiated a randomized, placebo-controlled, double-blind Phase 2 clinical trial of Leukine in patients with Crohn's disease. We currently expect to complete this trial in the second half of 2002. . Malignant Melanoma. In 1997, we announced positive results of an open-label Phase 2 clinical trial of Leukine as an adjuvant therapy following surgery to remove tumors in patients with advanced melanoma who were at high risk for relapse or death. This trial demonstrated that using Leukine as a therapy following surgery increased the one-year survival rate of patients with advanced stages of malignant melanoma when compared to matched historical control patients. We are supporting a controlled Phase 3 trial of Leukine in this patient population with a cooperative oncology group. . Mucositis. Data from pilot clinical trials have indicated that Leukine may ameliorate chemo/radiotherapy-induced oral mucositis. We are supporting a controlled Phase 3 clinical trial of this potential indication with a cooperative radiation-oncology group. 6 . Anti-tumor Adjuvancy. We are supporting Phase 2 clinical trials conducted by an oncology group to study the potential of Leukine as an immune adjuvant therapy in several forms of cancer. Investigational Products in Human Clinical Trials We or our collaborators are studying the following proprietary investigational biotechnology products in the indications and research areas listed below. ABX-EGF. In July 2000, we entered into a joint development and commercialization agreement for ABX-EGF, a fully human antibody created by Abgenix, Inc. ABX-EGF targets the receptor for human epidermal growth factor, or EGFr, which is overexpressed on some of the most prevalent human tumor types, including lung, prostate, pancreatic, colorectal, renal cell and esophageal. It has been demonstrated that cancer cells can become dependent on growth signals mediated through EGFr for their survival. ABX-EGF in mouse models can both eradicate established human tumors and block the growth of human tumors. In May 2001, we announced preliminary results from an ongoing Phase 1 clinical trial of ABX-EGF as monotherapy, without concomitant chemotherapy, in patients with various types of cancer. The primary objective of this Phase 1 clinical trial is to evaluate the tolerability of ABX-EGF at multiple dose levels. Following the announcement of the preliminary Phase 1 results, we and Abgenix initiated a series of Phase 2 clinical trials to evaluate the tolerability and efficacy of ABX-EGF for the treatment of several types of cancers. These include clinical trials in patients with kidney, colorectal, prostate and non-small cell lung cancer. IL-1 Receptor Type 2. Overproduction or inappropriate production of interleukin-1, or IL-1, has been implicated in the development of autoimmune, inflammatory and allergic diseases such as RA, diabetes, asthma, systemic lupus erythematosus and inflammatory bowel disease, and also in the development of osteoporosis, septic shock, stroke and periodontal disease. We have been developing IL-1 Receptor Type 2, a natural regulator of IL-1. IL-1 Receptor Type 2 works by competitively binding IL-1, which prevents IL-1 from binding to cell-surface receptors, potentially preventing a signal to the cell which can lead to inflammatory disease. Based on preclinical data, we believe that IL-1 Receptor Type 2 may be of therapeutic value in treating a number of inflammatory diseases such as those mentioned above, either alone or in combination with Enbrel. In July 2001, we announced the initiation of a Phase 1 clinical trial program of IL-1 Receptor Type 2 in RA to assess tolerability. We currently expect to have results from this program in mid-2002. Pending these results, we expect to begin a Phase 2 clinical study in the second half of 2002. HuMax(TM)-IL-15. In May 1999, we entered into an agreement with Genmab A/S, or Genmab, for HuMax-IL-15, a fully human antibody against interleukin-15, or IL-15. IL-15 is a cytokine that plays a role in the cascade of reactions that cause the inflammatory process involved in diseases such as RA, psoriasis and Crohn's disease. Under the terms of the agreement, Genmab is responsible for developing, at its cost, HuMax-IL-15 through Phase 2 clinical trials, but we retain an exclusive option to assume development responsibility of Phase 3 clinical trials, and then to market and sell HuMax-IL-15 should it receive FDA approval. In October 2001, Genmab announced the initiation of a Phase 1/2 clinical trial of HuMax-IL-15 in patients with RA. 7 Preclinical Research and Development Pipeline Innovation by our research and development operations is very important to the success of our business. Our goal is to discover, develop and bring to market innovative products that address major unmet healthcare needs. This goal has been supported by our substantial research and development investments. To obtain the most value from our development portfolio, we are focusing first on those product candidates that we believe have the largest market potential. Our most promising preclinical candidates are described below.
Molecule Indication/Research Area Status - -------- ------------------------ ------ . Receptor activator of nuclear factor Kappa Bone metabolism, Preclinical B, or RANK multiple myeloma . a-IL-4R Asthma Preclinical . TNF Related Apoptosis Inducing Ligand, or Cancer Preclinical; TRAIL/Apo2 ligand collaboration with Genentech, Inc. . TEK/ORK/TIE2 Anti-angiogenesis, cancer Preclinical . a-IL-18R Inflammation Preclinical; collaboration with Cambridge Antibody Technology Limited, or CAT . a-CD30L Inflammation/ Preclinical; autoimmunity collaboration with CAT . a-TRAIL-R2 Cancer Preclinical; collaboration with Abgenix . a-4-1BB Cancer, autoimmunity Preclinical . a-CD148 Anti-angiogenesis Preclinical . TWEAK inhibitor Anti-angiogenesis, cancer Preclinical . a-IL-1R Type 1 Inflammation Preclinical . TNF-alpha converting enzyme, or TACE, Inflammation, RA Preclinical; licensed antagonist to AHP
RANK. We have obtained preclinical data suggesting that RANK could be useful to treat cancer and are focused on developing the molecule as a treatment for multiple myeloma. In addition, stimulation of the receptor RANK results in development of osteoclasts, which resorb bone. We are also evaluating the potential of a soluble RANK receptor as an inhibitor of osteoclast development for osteoporosis and other conditions of bone resorption. Pending the results of further preclinical studies, we anticipate filing an IND for RANK in the second half of 2002. 8 a-IL-4R. We have initiated a therapeutic monoclonal antibody program to develop fully human monoclonal antibodies. We are developing an antibody directed against the IL-4R alpha chain. This receptor molecule is part of the receptor complex for both IL-4 and IL-13, two cytokines demonstrated to be important in the treatment of asthma and atopic diseases. Atopic diseases are characterized by symptoms of hay fever, asthma or hives, which are triggered upon exposure to antigens. Preclinical work with an antibody which blocks both mouse IL-4 and IL-13 from binding to their respective receptors has demonstrated that blocking both cytokines may provide beneficial biological control of disease signs and symptoms. We have derived fully human candidate antibodies of high affinity and with the ability to block binding and biological function of human IL-4 and IL-13. Following the receipt of positive results from preclinical studies of the IL-4 and IL-13 antibodies, we expect to file an IND in 2003. TRAIL/Apo2L. In May 1999, We entered into a worldwide collaboration with Genentech to co-develop and market TRAIL/Apo2L. In animal models, TRAIL/Apo2L appears to suppress tumor growth and cause remission of tumors by a direct and specific mechanism known as apoptosis. TRAIL/Apo2L binds to distinct receptors found on many tumor cells and signals these cells to destroy themselves through apoptosis. In preclinical research, TRAIL/Apo2L has been shown to cause a wide variety of tumor cells in animal models to undergo apoptosis while sparing normal cells. Preliminary toxicology studies have shown that combinations of TRAIL/Apo2L with Cisplatin(R) (platinol) can cause liver damage. Additional studies to understand the generalizability of this observation to other chemotherapies and the mechanism of action are being pursued prior to filing an IND. TEK/ORK/TIE2. We cloned the human receptor tyrosine kinase, called TEK, and received a patent on the DNA encoding TEK. Tek is the receptor for the angiopoietins that stimulate the process of blood vessel development. We have constructed a soluble TEK molecule, which has been shown in preclinical models to prevent tumor angiogenesis, or new blood vessel development. This molecule has also been shown to retard tumor growth in experimental models of cancer. ORK and TIE2 are other names for TEK. Therapeutic Monoclonal Antibodies. In addition to the antibody targeted against IL-4R mentioned above, we have identified as part of our therapeutic monoclonal antibody program candidate antibodies that are directed against CD148, 4-1BB, TRAIL-R2, IL-4R, IL-18R, IL-1R Type 1, CD30L and TWEAK receptor. Within this group of antibodies, the antibodies targeted against CD148, 4-1BB, TRAIL-R2 and TWEAK-R are each being investigated as potential treatments for cancer. Finally, inflammation and autoimmunity is the research focus of our antibodies targeted against IL-18R, IL-1R Type 1, 4-1BB and CD30L. In addition to these antibodies, we are actively validating other targets for our antibody development program. TACE. TACE, or TNF-alpha converting enzyme, is a metalloprotease that releases TNF and a variety of other proteins from the cell surface. In 1995, we entered into research and license agreements with AHP under which we granted AHP exclusive worldwide rights to develop compounds that inhibit TACE. AHP is working to develop therapeutically useful inhibitors. Research Collaborations The biotechnology industry is moving rapidly to discover and develop novel therapeutics, in part by utilizing the rapidly accumulating knowledge concerning the human genome. Several biotechnology companies have accumulated significant genetic information from large-scale genomic DNA sequencing. Much of these data have already been incorporated into patent applications by these companies, and these companies will be incorporating more of these data into future patent applications. We currently do not know the impact that this patent application activity will have on our future gene discovery efforts. We have entered into a number of important research collaborations using varied technology platforms in our continuing efforts to identify new drug candidates and capitalize on research and knowledge developed by others. Our corporate collaborators include: Abgenix, Affymetrix, Inc., Array Biopharma, Inc., CAT, Celera Genomics, Digital Gene Technologies, Inc., Genentech, Genesis Research and Development Corporation Limited, Genmab, Lexicon Genetics, Inc., Medarex, Inc., and Evotec OAI. The following discussion summarizes our key collaborations. Abgenix. In July 2000, we entered into a joint development and commercialization agreement with Abgenix for ABX-EGF, a fully human antibody created by Abgenix. Under the agreement, we made two license 9 fee payments to Abgenix upon signing of the agreement and upon commencement of Phase 2 clinical trials of ABX-EGF. Development and commercialization costs will be shared equally, as would any potential profits from sales of ABX-EGF. We have formed a joint steering committee and project team with Abgenix that will manage the development process, for which each company will share responsibility, and allocate clinical responsibilities. Abgenix has responsibility for completing the ongoing Phase 1 clinical trial, we share responsibility with Abgenix for ongoing and future Phase 2 clinical trials and we have primary responsibility for future Phase 3 clinical trials. If the clinical trials for ABX-EGF are successful and regulatory approval is received, we would play the primary role in marketing ABX-EGF, while Abgenix would retain co-promotion rights. In November 2000, we entered into a second collaboration with Abgenix to jointly discover, develop and potentially commercialize up to ten fully human monoclonal antibody therapies for the treatment of various forms of cancer. Each company will contribute five cancer-specific antigen targets during the first five years of the collaboration. Abgenix will be responsible for generating, screening and characterizing human monoclonal antibodies directed against each antigen target. We will be responsible for the performance of preclinical studies of the antibodies. Each company will have an option, exercisable at various stages of development of each antibody, to continue or discontinue its participation in the development of the antibody. If both companies decide to continue in development of an antibody, the development and commercialization costs will be shared equally, as would any potential profits from the sale of the antibody. If only one company decides to continue in the development of an antibody, it may do so at its own expense and would then be required to pay the other company a royalty on product sales. Genentech. In May 1999, we entered into a worldwide collaboration with Genentech to co-develop and market TRAIL/Apo2L. Each company had previously conducted extensive preclinical testing of different forms of TRAIL/Apo2L. The companies have formed a joint steering committee and project team which has selected Genentech's lead molecule for development, which will manage the development process, and allocate clinical, manufacturing and marketing responsibilities to each company. We and Genentech each have filed patent applications covering TRAIL/Apo2L and its uses, and we were awarded a patent covering the TRAIL gene in June 1998. Under the terms of the collaboration agreement, the companies will share all development and commercialization costs. If TRAIL/Apo2L is successful in possible future clinical trials and receives regulatory approval, both companies have the right to co-promote TRAIL/Apo2L worldwide, and will share profits from the worldwide sales of the product. Cambridge Antibody Technology. In December 2000, we entered into a five-year agreement with CAT to obtain a non-exclusive license to CAT's proprietary antibody phage display library for the discovery, development and potential commercialization of human monoclonal antibodies. Pursuant to the agreement, we pay a license fee to utilize the antibody library for reagent generation and target validation in support of our drug discovery programs. In addition, we will receive eight exclusive therapeutic antibody product options to develop antibodies against up to eight specific targets selected by us. The exercise of an exclusive product option will require us to pay CAT clinical milestone fees and royalty payments on product sales. If, after exercising an exclusive product option, we decide to terminate development of the antibody associated with that option, then we and CAT have the opportunity to co-develop the antibody or CAT has an option to solely develop the antibody, which would require CAT to pay us clinical milestone fees and royalty payments on product sales. We have already exercised an exclusive product option to develop antibodies against a specific target. In May 2001, we entered into a collaboration agreement with CAT to jointly discover, develop and potentially commercialize two particular antibodies against IL-18R and CD30L for the potential treatment of inflammatory and autoimmune disorders. Under the agreement, each company will share equal responsibility for all research and development, and split equally any potential profits generated by product sales. We contribute two proprietary targets, scientific and development expertise to the collaboration. CAT contributes its proprietary human antibody phage display technology and high throughput screening capabilities to identify human antibodies. 10 Genmab. In October 2001, we entered into a license agreement and granted Genmab a worldwide exclusive license under our patents to research, develop and commercialize antibodies against IL-15 and IL-15 receptor. Under the terms of the resulting collaboration, Genmab has responsibility for creating the antibodies against these targets and for developing them through Phase 2 clinical trials. We retain an exclusive option on each of these antibodies exercisable after Phase 2 clinical trials. Should we exercise our option for an antibody, we would complete the clinical development and would pay Genmab a license fee, milestones and share profits upon commercialization. If we do not exercise our option, Genmab will retain the right to continue to develop and potentially commercialize the antibodies and would pay milestone fees and royalties to us. Celera. In June 2000, we entered into a five-year comprehensive genomics agreement with Celera Genomics, including a subscription to Celera's current database products. The database subscription gives our researchers access to four databases developed by Celera until 2005, which is extendable until 2007 at our option. All four of Celera's databases include Celera proprietary information, as well as publicly available data. Access to the databases also provides us with associated comprehensive bioinformatics systems and tools for viewing, browsing and analyzing genomic information. We may have to make clinical milestone and royalty payments for products created using Celera database products. Medarex. In January 1999, we entered into an agreement with Medarex to access Medarex's HuMab transgenic mouse technology for the development of fully human antibodies to disease targets identified by us. We will develop and commercialize human antibody products resulting from this agreement. We are obligated to pay Medarex technology access fees and could be required to pay research payments, license fees and milestone payments, as well as royalties on commercial sales of products resulting from our agreement. Relationship with AHP Background In June 1993, we merged with American Cyanamid Company's Lederle Oncology business. In November 1994, AHP acquired all of the outstanding shares of common stock of Cyanamid. Thus, AHP became the owner of Cyanamid's then approximate 54% interest in our common stock. AHP reduced its ownership interest in our common stock by participating in our public offering in November 2000 as a selling shareholder and, as of December 31, 2001, AHP beneficially owns approximately 41% of our outstanding common stock. Before AHP's purchase of Cyanamid, we entered into an agreement with AHP under which AHP agreed to protect our rights under our agreements with Cyanamid and be bound by Cyanamid's obligations under these agreements. AHP or, in some cases, divisions or affiliates of AHP have assumed some of the rights and obligations of Cyanamid under the agreements that we entered into with Cyanamid at or after the time of the 1993 merger, including various supply, license and distribution agreements. In the following discussion, AHP refers to AHP, or its various divisions or affiliates, including Cyanamid. Immunex and AHP are parties to numerous agreements that AHP assumed from Cyanamid or that Immunex entered into directly with AHP. The agreements summarized below, in particular the governance agreement and the product rights agreement, establish the framework for our ongoing relationship with AHP. The summary is not complete and is qualified in its entirety by reference to the governance agreement and the product rights agreement themselves, which are filed as exhibits to various reports, proxy statements or other information we have filed with the SEC. In addition, as noted below, a number of these agreements will be modified (or, in some cases, terminated) upon the effectiveness of our proposed merger with Amgen. AHP has entered into certain agreements with Amgen to take effect if and when the merger is completed. We have noted certain of these agreements in this report, although we are not a party to any of these agreements. For more information on these agreements, you should refer to the definitive joint proxy statement/prospectus relating to the proposed merger, and Amgen's registration statement on Form S-4, filed with the SEC. 11 Governance Agreement The governance agreement includes, among other matters, provisions relating to: . our corporate governance, including the composition of our board of directors; . AHP's right to purchase additional shares of our common stock from us if specified events occur; . future purchases and sales of our common stock by AHP; . the requirement that members of our board designated by AHP approve specified corporate actions; and . the requirement that a supermajority of the members of our board approve specified corporate actions. In August 2000, we and AHP amended some terms of the governance agreement. The changes took effect in November 2000, after AHP's ownership interest in our common stock fell below 45% as a result of its participation as a selling shareholder in our public offering. Under the governance agreement, AHP is prohibited from transferring shares of our common stock except in an underwritten public offering, or as permitted by the volume and manner of sale limitations of Rule 144 under the Securities Act of 1933, as amended, or to a wholly-owned AHP subsidiary. Also, except in an underwritten public offering, AHP may not transfer an amount in excess of 1% of the outstanding shares of our common stock on any given day, nor may any AHP transfer result in the creation of a 5% shareholder of our common stock. AHP may, however, transfer all, but not less than all, of the shares of our common stock it beneficially owns to any other person other than an affiliate of AHP, provided that the other person has offered to acquire all of our outstanding shares of common stock on the same terms and conditions as those offered to AHP. If AHP intends to transfer its shares of our common stock, AHP is required to notify us of that intent and, for three months after that notice, we have the opportunity to present to AHP a potential buyer willing to purchase all, but not less than all, of the shares of our common stock beneficially owned by AHP and its wholly-owned subsidiaries. In the event that we present a potential buyer, AHP may not consummate a sale on terms less favorable to AHP than those proposed by the potential buyer. The governance agreement will terminate when AHP beneficially owns 95% of all classes and series of our common stock, or when AHP no longer owns any of our common stock. Concurrently with the signing of the merger agreement, Amgen and AHP entered into an agreement regarding governance and commercial matters that will become effective upon the consummation of the merger. Pursuant to this agreement regarding governance and commercial matters, AHP has agreed to take all action reasonably requested by Amgen to terminate the governance agreement. If our proposed merger with Amgen is completed, AHP will beneficially own approximately 8% of the combined entity (based on the number of Amgen and Immunex shares outstanding as of December 31, 2001). AHP entered into a Stockholders' Rights Agreement with Amgen in connection with the execution of the merger agreement containing certain provisions relating to Amgen corporate governance and AHP's conduct as a stockholder of Amgen. Among other things, AHP has agreed with Amgen: . not to participate in a proxy contest relating to Amgen or otherwise seek to control or influence Amgen's management, board of directors or policies at any time before December 16, 2006; . to vote its shares in accordance with the recommendation of the Amgen board of directors until its beneficial ownership falls below 2% of the outstanding shares of Amgen common stock; . not to sell any of the Amgen stock acquired in the merger for a period of 90 days following the completion of the merger; and . to abide by specified quarterly volume limitations for any proposed transfer of Amgen common stock after the lock-up period expires. 12 Amgen has agreed to file a shelf registration statement after the closing of the merger registering the resale from time to time by AHP of the Amgen common stock received by AHP in the merger. Amgen also granted additional demand registration rights to AHP, as specified in the stockholders' rights agreement, beginning on the first anniversary of the closing of the merger, and "piggy back" rights to participate in any underwritten public offering proposed by Amgen (if any), subject to customary limitations. Except as noted above, the stockholders' rights agreement between Amgen and AHP would terminate on the first date on which AHP beneficially owns less than 5 million shares of Amgen common stock. Product Rights Agreement In July 1998, we entered into a product rights agreement with AHP, under which we granted AHP an option to obtain royalty-bearing worldwide exclusive licenses to a limited number of our products for all clinical indications. This option is referred to as a "product call." Under the product rights agreement, AHP also owns a right of first refusal to our covered products and technologies that may only be exercised if our board decides that we will not market a covered product or technology by ourself in any part of the world where we have or acquire marketing rights. AHP's right of first refusal, which is subject to specified negotiation periods and establishment of mutually acceptable terms, applies to our covered products and technologies in all fields, including ABX-EGF, IL-1 Receptor Type 2 and TRAIL, but not including Leukine, IL-15 and several of our other products. We are not obligated to accept any offer for our covered products and technologies under AHP's right of first refusal. The product rights agreement provides AHP with a product call for up to four of our products over the period discussed below. The product rights agreement also provides that AHP must exercise a product call within specified time periods beginning with our decision to formally designate the product as an investigational new drug, or IND, track product and ending when the first positive Phase 2 clinical data for that product is available, or AHP will lose the right to use a product call on that product. Some of our products are excluded from AHP's product calls, including Enbrel, Nuvance, Leukine, Novantrone, IL-15, any product we marketed on or before July 1, 1998, and several other products. We are currently within the time period during which AHP may exercise a product call with respect to ABX-EGF, IL-1 Receptor Type 2 and TRAIL/Apo2L. We are developing ABX-EGF in collaboration with Abgenix and TRAIL/Apo2L in collaboration with Genentech. AHP's product call with respect to ABX-EGF and TRAIL/Apo2L covers only our, and not our collaborators', rights to the product. If AHP exercises a product call for one of our products, we will enter into an elected product agreement with AHP granting AHP exclusive worldwide rights (or if less than exclusive worldwide rights are held by us, all of our rights) to this product for all indications. Under the elected product agreement, AHP will pay us an initial fee, milestone payments and royalties on any future worldwide net sales of the product after regulatory approvals. The initial fee, milestone payments and royalties are determined by the development stage of the product when AHP exercises the product call. In total, the initial fees and milestone payments range from $25 million if we have given the product IND status, up to $70 million if we have given notice to AHP that data from the first positive Phase 2 clinical trial results are available for the product. The royalties AHP pays to us increase based on the development stage of the product and based on the product attaining specified annual net sales thresholds. Under the product rights agreement, we have the right to keep ownership of up to two of our products for which AHP has exercised product calls, referred to as a "conversion right," in exchange for our commitment to pay milestone payments and royalties to AHP and, in the case of the second exercise of our conversion right only, an initial fee. Our milestone payments to AHP are fixed at one-half the amount AHP would otherwise pay us for a product call, and our royalties payable to AHP are always fixed at the lowest of the four levels of royalties that AHP would otherwise pay us after exercising a product call. If we exercise one of our conversion rights for one of our products, which must be exercised within 30 days after AHP exercises one of its product calls, we will enter into a converted product agreement with AHP for the product that provides for us to make payments to AHP as discussed above, unless AHP has exercised its option to obtain a replacement product call, 13 as discussed below. We cannot exercise our conversion rights on both of the first two product calls AHP exercises. If we exercise a conversion right, AHP may within 30 days elect to obtain one replacement product call from us. AHP's right to elect a replacement call may be exercised only one time. If AHP makes this election, AHP waives its right to receive any applicable initial fee, milestone payments and royalties from us on this converted product. If either party exercises its rights under the product rights agreement and acquires or retains rights to one of our products, the company that exercised these rights assumes independent development responsibility for that product, including the payment of all costs for future product development. AHP's rights to exercise product calls under the product rights agreement terminates upon the first to occur of the following events: . AHP has exercised product calls and entered into elected product agreements for four of our products, subject to our two conversion rights and AHP's replacement product call; . June 30, 2008, with an additional year if we exercise both of our conversion rights; or . the later of June 30, 2003, or the date following which AHP has received a total of eight opportunities to exercise a product call for a product for which AHP has requested and obtained specified product information, except that this number increases to nine opportunities in specified circumstances. AHP's right of first refusal to our covered products and technologies terminates June 30, 2003. In connection with the proposed merger between us and Amgen, AHP and Amgen have entered into an agreement regarding governance and commercial matters which relates to, among other things, AHP's rights under the product rights agreement. AHP and Amgen have agreed that, upon the closing of the merger and in exchange for a payment to AHP of $25 million, AHP's rights under the product rights agreement will be terminated. AHP has entered into an Agreement Regarding Governance and Commercial Matters with Amgen. This agreement provides that, among other things, if AHP exercises a product call, replacement product call or right of first refusal at any time before completion of the proposed merger with Amgen, and the merger is completed, AHP will rescind its exercise of such product call in exchange for refund by Amgen or Immunex of payments previously made by AHP in connection with the product call, replacement product call or right of first refusal. TACE Agreements In December 1995, we entered into research and license agreements with AHP relating to tumor necrosis factor alpha converting enzyme, or TACE. Pursuant to these TACE agreements, we granted AHP a worldwide exclusive license under our intellectual property relating to TACE, and agreed to collaborate with AHP in developing TACE inhibitors, in consideration of specified fixed payments for research services, and contingent additional payments that are payable upon achieving specified research and clinical milestone events. In September 1997, in conjunction with the promotion agreement for Enbrel discussed below, we and AHP amended one of the TACE agreements to substantially increase the royalty payable by AHP to us on the first TACE molecule approved by the FDA, if any. TNFR License and Development Agreement In July 1996, we entered into a TNFR license and development agreement with AHP under which we retained marketing rights to Enbrel in the United States and Canada, and AHP retained marketing rights to Enbrel outside of the United States and Canada. The TNFR agreement also addresses joint project management, cost sharing for development activities related to Enbrel, manufacturing responsibilities, intellectual property protection and disposition of rights upon relinquishment or termination of product development. 14 Agreements Related to the Manufacturing of Enbrel Under the TNFR agreement, we agreed with AHP to negotiate the terms of a supply agreement for the commercial supply of Enbrel to AHP outside the United States and Canada. In November 1998, we and AHP entered into an Enbrel Supply Agreement with Boehringer Ingelheim Pharma KG, or BI Pharma, for the commercial supply of Enbrel to Immunex in the United States and Canada, and to AHP outside of the United States and Canada. In August 2000, we and AHP entered into several new agreements related to the manufacturing of Enbrel, including a preliminary agreement that we would purchase the biotechnology manufacturing facility in West Greenwich, Rhode Island owned by AHP, which has been retrofitted to increase manufacturing capacity of Enbrel. In addition, we and AHP agreed that a substantial majority of the Enbrel produced by BI Pharma will be allocated to us until the Rhode Island manufacturing facility receives regulatory approval and produces specified quantities of Enbrel. In November 2001, we signed a definitive purchase agreement for the Rhode Island manufacturing facility. We assumed ownership of the facility on January 1, 2002 and subsequently made a deposit toward the purchase price. A final payment is due for final costs incurred by AHP in December 2001. In connection with the signing of the purchase agreement for the Rhode Island manufacturing facility, we and AHP entered into a collaboration and global supply agreement related to the manufacture, supply, inventory, and allocation of defined supplies of Enbrel produced at the Rhode Island manufacturing facility, and a new Rhode Island manufacturing facility under construction as well as particular supplies of Enbrel produced by either BI Pharma in Germany or AHP at a manufacturing facility AHP is constructing in Ireland. However, until the Rhode Island manufacturing facility receives regulatory approval, our August 2000 agreement with AHP will continue to govern the allocation of supplies of Enbrel. Enbrel Promotion Agreement In September 1997, we entered into an Enbrel promotion agreement with AHP, under which AHP, acting through its subsidiary Wyeth-Ayerst, acquired the rights to promote Enbrel to all appropriate customer segments in the United States and Canada for all approved indications other than oncology. Under the terms of the Enbrel promotion agreement, AHP was obligated to pay us up to $100 million in nonrefundable scheduled payments for the United States and Canadian promotion rights to Enbrel. We have earned and received all of the scheduled payments. Under the Enbrel promotion agreement, AHP has agreed to reimburse us for more than a majority of the clinical and regulatory expenses we incur in connection with the filing and approval of any new indications for Enbrel in the United States and Canada, excluding oncology and RA indications. AHP's reimbursement of these clinical and regulatory expenses under the Enbrel promotion agreement is in addition to the existing cost-sharing arrangement between us for development costs related to Enbrel as provided in the TNFR agreement. The additional AHP reimbursement for clinical and regulatory expenses under the Enbrel promotion agreement, a portion of which is payable upon regulatory filing of any new indication and the remainder of which is payable upon regulatory approval of any new indication, if any, applies for that part of the United States and Canadian clinical and regulatory expenses for Enbrel for which we are otherwise financially responsible under the cost-sharing provisions in the TNFR agreement. AHP has also agreed to reimburse us under the Enbrel promotion agreement for less than a majority of specified patent expenses related to Enbrel, including any up-front license fees and milestones, as well as patent litigation and interference expenses. In addition, AHP agreed to pay a majority of the marketing expenses and sales force costs for Enbrel incurred prior to and during the two years following commercial launch of Enbrel in the United States and Canada. In November 2000, we began sharing AHP's United States marketing and selling expenses for Enbrel equally. Similarly, beginning with the third year following commercial launch of Enbrel in Canada, we will share AHP's Canadian marketing and selling expenses for Enbrel equally. Under the Enbrel promotion agreement, we may elect at any time to supplement AHP's detailing and promotion of Enbrel in the United States with our own sales force to detail Enbrel for any approved indications promoted by AHP. Detailing means visiting and communicating with physicians by sales representatives to 15 increase physician prescribing preferences for the detailed product. We will share our sales force costs with AHP on an equal basis. In February 2002, our own sales force began detailing Enbrel in the United States for both its RA and PsA indications. We record any and all product sales of Enbrel in the United States and Canada under the Enbrel promotion agreement. We pay AHP a percentage of any and all annual gross profits of Enbrel in the United States and Canada attributable to all indications for Enbrel, other than oncology indications, on a scale that increases as gross profits increase. We retain a majority percentage of these nononcology gross profits in the United States and Canada on an annual basis. We are entitled to keep all of the gross profits attributable to any future United States or Canadian oncology indications for Enbrel. Also, we will pay AHP specified residual royalties on a declining scale based on any and all net sales of Enbrel in the United States and Canada in the three years following the expiration or termination of AHP's detailing and promotion of Enbrel. If AHP sells or distributes a biologic product in the United States and Canada that is directly competitive with Enbrel, as defined in the Enbrel promotion agreement, and subject to several exclusions, AHP will give us prior written notice and, upon our request, we will attempt in good faith to either establish mutually acceptable terms with AHP under which we will co-promote this competitive biologic product or establish other terms for a commercial relationship with AHP, or negotiate an adjustment to the gross profits allocated to AHP under the Enbrel promotion agreement. If we are unable to establish acceptable terms with AHP within 90 days of our request, we may at our option reacquire from AHP all marketing rights to Enbrel in the United States and Canada and terminate the Enbrel promotion agreement, subject to our payment of substantial amounts to AHP over a defined period. If AHP obtains a biologic product that is directly competitive with Enbrel through the acquisition of another company and we reacquire the marketing rights to Enbrel in the United States and Canada, AHP's primary field sales force that had detailed Enbrel in the relevant territory within the United States and Canada for a specified period may not sell, detail or otherwise distribute the competitive biologic product for a specified period in the United States and Canada. Under the Enbrel promotion agreement, an Enbrel management committee was formed containing an equal number of representatives from us and from AHP. The Enbrel management committee is responsible for areas including strategic planning, approval of an annual marketing plan and product pricing. In connection with the proposed merger between us and Amgen, AHP and Amgen have entered into an amended and restated promotion agreement related to the promotion of Enbrel in the United States and Canada. If the merger is completed and we become a wholly-owned subsidiary of Amgen, this agreement would take effect, and Amgen has agreed that it would cause us to sign the agreement. Under the amended and restated promotion agreement, AHP and Immunex will jointly market and sell Enbrel to all appropriate customer segments in the United States and Canada for all approved indications other than oncology. The rights to promote Enbrel for oncology in the United States and Canada are reserved to Immunex under the amended and restated promotion agreement. Voting Agreement In connection with the proposed merger between us and Amgen, AHP and two of its subsidiaries entered into a voting agreement with Amgen in which they agreed, among other things, to vote their shares of our stock in favor of the merger and against competing acquisition proposals and certain other material changes to us, including changes to the board of directors, our capitalization and our corporate structure. Further, AHP and its subsidiaries agreed not to transfer any of their shares of our common stock, other than to an AHP shareholder or wholly-owned subsidiary of AHP that is subject to the voting agreement. As of December 31, 2001, AHP beneficially owns approximately 41% of our outstanding common stock. 16 Marketing and Distribution Through our marketing and professional services organization, we explain the approved uses and advantages of our products to medical professionals in the United States. We work to have our products included in managed care organization formularies, which are lists of recommended or approved medicines and other products compiled by pharmacists and physicians, by demonstrating the qualities and treatment benefits of our products. AHP's marketing organization, working together with us, performs similar activities for Enbrel. Marketing prescription pharmaceuticals depends to a degree on complex decisions about the scope of clinical trials made years before product approval. All drugs must complete clinical trials required by regulatory authorities to show that they are safe and effective for treating one or more particular medical problems. A manufacturer may choose, however, to undertake additional studies to demonstrate additional advantages of a product, such as a better tolerability profile or greater cost effectiveness than existing therapies. Enbrel Under the Enbrel promotion agreement, Immunex and Wyeth-Ayerst jointly promote Enbrel in the United States and AHP promotes Enbrel in Canada to healthcare providers such as doctors and hospitals, pharmacy benefit managers and managed care organizations. AHP sales representatives currently detail Enbrel in the United States and Canada. As discussed under the caption Relationship With AHP, we also have the right to supplement AHP's detailing of Enbrel in the United States and Canada with our own sales force. In February 2002, we began detailing Enbrel in the United States through our own dedicated sales force. We have focused our sales force on double covering certain key rheumatologists currently visited by Wyeth-Ayerst sales representatives and on promoting the new PsA indication for Enbrel to dermatologists. In addition to AHP's and our coordinated selling and marketing efforts for Enbrel in the United States, we have allied health professionals to support educational needs of healthcare providers in the United States relating to Enbrel. Leukine and Novantrone We market Leukine and Novantrone to healthcare providers in the United States through a specialty sales force of over 100 sales representatives and sales managers. Distribution We distribute our products through pharmaceutical wholesalers and specialty distributors, as well as to end users such as oncology clinics, physicians' offices, hospitals and pharmacies. A significant majority of our sales are made to three pharmaceutical wholesalers. For Enbrel, rather than stocking inventory of product at wholesalers, we drop-ship wholesaler orders for Enbrel directly to pharmacies for end users. We receive and process product orders through a centralized customer service and sales support group. A third party provides us with shipping, warehousing and data processing services on a fee basis. Because demand for Enbrel was projected to temporarily exceed supply, we began an Enbrel enrollment program in November 2000 to help ensure uninterrupted therapy for United States patients prescribed Enbrel before January 1, 2001. The Enbrel enrollment program called for these patients to register with us and receive an enrollment number. Through an extensive outreach campaign, the vast majority of these patients have successfully enrolled and are continuing to receive Enbrel therapy. Also, as of January 1, 2001, patients considering therapy with Enbrel, but not yet receiving treatment, were invited to enroll in the program and were placed on the waiting list. These patients receive Enbrel on a first come, first served basis once additional supply of Enbrel becomes available. Competition Competition in researching, developing, manufacturing and marketing biopharmaceuticals, and pharmaceutical products generally, is intense. There are other companies, including established pharmaceutical 17 and biotechnology companies, that are researching, developing and marketing products based on related or competing technologies that are or will compete with our currently marketed products or products being developed by us. These competitors, in some cases, have substantially greater capital resources, greater marketing experience, and larger research and development staffs and manufacturing facilities than we do. The principal means of competition vary among product categories. The following technological innovations are important to success in our business: . efficacy; . tolerability; . ease of use by patients; and . cost effectiveness. We compete with other pharmaceutical firms in performing research and clinical testing, acquiring patents, developing efficient manufacturing processes, securing regulatory approvals and marketing the resulting products to physicians. We believe that our strategic focus on immunology has resulted in expertise that can be applied to reduce development times, create innovative and cost-saving research techniques, optimize product quality, and discover new products and applications. We possess manufacturing facilities to produce recombinant protein products using microbial or mammalian cell culture technologies. Professional services, clinical, legal, regulatory affairs, marketing and sales staffs have been developed to enhance our scientific resources. We possess a sales force and offer comprehensive professional services, including continuing medical educational programs, publications, literature searches and treatment information. These professional services are particularly important for our oncology products because, historically, new cancer drugs provide incremental treatment advances, but few outright cures. Therefore, physicians rely heavily on peer-reviewed clinical data in making treatment decisions. Enbrel A number of companies, including those listed below, are marketing or developing biological or other products that compete or are expected to compete with Enbrel to some degree. Johnson & Johnson. In November 1999, Johnson & Johnson received FDA approval for Remicade for use with methotrexate for treating patients with RA who have had inadequate response to methotrexate alone. In January 2001, the FDA granted marketing approval to Remicade, in combination with methotrexate, for inhibiting the progression of structural damage in patients with moderately to severely active RA who have had an inadequate response to methotrexate. The FDA had previously approved Remicade for treating Crohn's disease in August 1998. Remicade is a chimeric part-mouse, part-human monoclonal antibody. Centocor and Ortho-McNeil Pharmaceutical, Inc., both Johnson & Johnson affiliates, are co-promoting Remicade for RA in the United States. Other companies, as listed below, have developed nonbiological and biological products for treating some aspects of RA. Although we do not currently expect these products to directly compete with Enbrel in patients with advanced RA, they may compete with Enbrel in patients with earlier-stage RA or be used in patients that do not respond to Enbrel. Some of these products are COX-2 inhibitors, a relatively new class of drugs for arthritis and pain that are generally as effective as initial RA therapy with nonsteroidal anti-inflammatory drugs. We believe that Enbrel may be effective in combination with some of these products, as well as with some other DMARDs for RA. . Aventis. In September 1998, Hoechst Marion Roussel (now Aventis) received FDA approval for Arava(R) (leflunomide) for treating active RA to reduce signs and symptoms and to retard structural damage as evidenced by x-ray erosions and joint space narrowing. Arava is an oral treatment for RA, has side effects similar to methotrexate, and is priced significantly less than Enbrel. 18 . Pharmacia Corporation. Pharmacia received FDA approval for Celebrex(R) (celecoxib) in December 1998 for relieving the signs and symptoms of osteoarthritis and RA. Celebrex is a COX-2 inhibitor, and is priced significantly less than Enbrel. Celebrex is an oral treatment and is co-promoted by G.D. Searle & Co., a pharmaceutical unit of Pharmacia, and Pfizer Inc. . Merck. Merck received FDA approval for Vioxx(R) (rofecoxib) in May 1999 for relieving the signs and symptoms of osteoarthritis, for managing acute pain in adults, and for treating primary dysmenorrhea. Vioxx is a COX-2 inhibitor, and is priced significantly less than Enbrel. . Various Generic Competitors. Methotrexate (rheumatrex) is a cytotoxic or immunosuppressive that acts as an anti-inflammatory agent. It is a DMARD used in conjunction with other DMARDs or other therapies for treatment of severe RA. Other DMARDs for RA include gold, sulphaslazine and Plaquinil. . Amgen. In November 2001, Amgen received FDA approval for Kineret(TM) (anakinra) for the reduction in signs and symptoms of moderately to severely active RA in adult patients who have failed one or more DMARDs. Kineret can be used alone or in combination with DMARDs, except it is not labeled for use with Enbrel or Remicade. Kineret requires a high dose in a daily injection when used in combination with other drugs, such as methotrexate. In addition, there are several other pharmaceutical and biotech companies, including those listed below, conducting research and development activities with respect to potential RA therapies. Further, immune modifying drugs currently marketed for treatment of other diseases are being evaluated in RA. Some or all of these potential RA therapies may gain regulatory approval and compete, directly or indirectly, with Enbrel. . Abbott Laboratories/Knoll. Abbott and its affiliate Knoll Pharmaceuticals Company Inc. are developing D2E7 as a fully human monoclonal antibody that binds to TNF. D2E7 is currently the subject of a pivotal development program for RA. In March 2001, Abbott acquired the pharmaceutical business of BASF, which includes the global operations of Knoll. . Pharmacia/Celltech Group plc. Pharmacia and Celltech are developing CDP870, a humanized, pegylated TNF-alpha inhibitor. Pegylation is a process whereby the active molecule is combined with polyethylene glycol. Pegylation can increase the time the molecule remains in the body and extend the time between administrations. Pharmacia and Celltech have completed Phase 2 clinical trials of CDP870 and are scheduled to initiate Phase 3 clinical trials in 2002. . Genentech/Hoffman-LaRoche Inc and Ares-Serono. Genentech and Roche are evaluating Rituxan(R), marketed for treatment of non-Hodgkin's lymphoma, in a Phase 2 clinical study for RA. In a similar strategy, Ares-Serono has completed enrollment in Phase 2 clinical trials for Rebif(R), which is currently marketed outside the United States for multiple sclerosis, and its TNF antagonist TBP-1, in RA. Either or both of these companies could pursue regulatory approval for these products for use in RA. . Regeneron Pharmaceuticals Incorporated. Regeneron is developing a biologic against IL-1, IL-1 TRAP. Favorable results of this molecule were released at the November 2001 American College of Rheumatology meeting and Regeneron has stated publicly that it will move into Phase 2 testing shortly. . Amgen. Amgen is developing sTNF-R1 (soluble TNF-receptor type 1), a TNF modulator, which is in Phase 2 clinical trials in RA. Amgen is also conducting trials to evaluate the safety and efficacy of using a combination of sTNF-RI and Kineret in the treatment of moderate to severe RA. . Various Competitors. P38 MAP kinase is an enzyme that regulates the production of IL-1ss, IL-6 and TNF-a and modulates COX-2. This target is considered by many scientists to be a promising target for RA therapy. Several pharmaceutical and biotechnology companies, including Vertex and Scios, have development programs against this target. 19 . Vertex Pharmaceuticals Incorporated/Aventis Pharmaceuticals. Vertex and its partner Aventis are working together to develop and commercialize pralnacasan, an orally available IL-1ss Converting Enzyme, or ICE, inhibitor for the treatment of inflammatory disease. Pralnacasan is currently in Phase 2 trials in patients with RA. . Alexion Pharmaceuticals Inc. Alexion is developing an antibody that inhibits the complement cascade. Phase 2 clinical data presented at the November 2001 American College of Rheumatology meeting have shown merit to this approach as a potential RA therapy. In January 2000, Alexion initiated Phase 2b clinical trials and is developing plans to conduct further studies towards FDA approval. . Various Competitors. Celgene is working with Selective Cytokine Inhibitory Drugs, or SelCIDs, to combat inflammation. SelCIDs have been determined to have an inhibitory effect on phosphodiesterase type 4 enzyme, or PDE-4, which in turn may inhibit TNF-a production. In addition, Glaxo SmithKline and Altana have begun Phase 3 development programs for PDE-4 inhibitors in respiratory indications and ICOS Corporation has begun Phase 1 development programs for PDE-4 with RA as the lead indication. Successful development of these products would likely lead to testing in treatment of RA. . Immune Response Corporation. Immune Response Corporation, or IRC, has completed a Phase 2b clinical trial with RA patients using a proprietary immune-based vaccine therapy. IRC identified unique T cell receptors, or TCRs, so that patients may be vaccinated with portions of these TCR proteins, called TCR peptides, that are specific to these autoreactive T cells. The Phase 2b clinical trial reportedly demonstrated safety and a significant treatment effect. Leukine Several companies are marketing or developing products that compete or are expected to compete with Leukine. For example, Amgen has been marketing its competing granulocyte-colony stimulating factor, or G-CSF, product since early 1991 and has achieved a majority share of sales of CSF in the United States. Amgen has developed a sustained duration G-CSF molecule, Neulasta(TM) (pegfilgrastim), Amgen's pegylated version of Neupogen that was approved by the FDA on January 31, 2002. Novantrone A number of companies, including those listed below, are marketing products that compete with Novantrone for its oncology indications or may compete with Novantrone for its new MS indication. In October 2000, the FDA approved Novantrone for reducing neurologic disability and/or the frequency of clinical relapses in patients with secondary progressive, progressive relapsing or worsening relapsing-remitting MS. It is not approved for primary progressive MS. Other treatments currently approved for MS require a subcutaneous or intramuscular self-injection on a daily or weekly basis. If the FDA were to approve new MS indications for any of the marketed MS products covering any of the MS indications for Novantrone, our sales of Novantrone in MS could be adversely affected. . Biogen. Biogen is marketing Avonex(R) (interferon beta-1a) for relapsing-remitting forms of MS. Avonex recently completed a Phase 3 clinical trial in secondary progressive MS. Biogen, in co-development with Elan, has just begun phase 3 clinical trials of the new product, Antegren (natalizumab) in relapsing-remitting MS. . Berlex Laboratories, Inc. Berlex, a subsidiary of Schering A.G., is marketing Betaseron(R) (interferon beta-1b) for relapsing-remitting MS. Berlex filed for FDA approval of an expanded indication for Betaseron for secondary progressive MS in June 1998. . Serono. Serono is seeking marketing approval for use of Rebif(R) in treatment of relapsing-remitting MS. Serono announced on October 8, 2001 that it had submitted to the FDA a supplemental biologics license application, or sBLA, for this indication. 20 . Teva Pharmaceuticals Industries Limited. Teva is marketing Copaxone(R) (glatiramer acetate for injection) for relapsing-remitting MS. . Pharmacia. Pharmacia has been marketing Idamycin(R) (idarubicin) for acute myelogenous leukemia and Emcyt (estramustine) for prostate cancer. . Bedford Laboratories. Bedford Laboratories, a division of Ben Venue Laboratories, Inc., is marketing Cerubidine(R) (daunorubicin) for acute myelogenous leukemia. Thioplex In 2001, Thioplex began to face generic competition. Raw Materials and Supply Overview Along with our third-party manufacturers, we purchase raw materials essential to our business in the ordinary course of business from numerous suppliers. Substantially all the raw materials used to manufacture our recombinant protein products and other products are available from multiple sources. However, two of the raw materials used in the production of Enbrel and our other recombinant protein products, other than Leukine, are manufactured by single suppliers. No serious shortages or delays in obtaining raw materials were encountered in 2001. All finished dosage forms of Enbrel are currently manufactured by BI Pharma and packaged by a third-party contract packager. We manufacture all Leukine bulk drug substance, which is then vialed and labeled by third parties. All finished dosage forms for our nonbiological products, Novantrone and Thioplex, are manufactured by AHP subsidiaries or sourced by AHP from third-party manufacturers. We presently do not have our own capabilities for producing and labeling final drug products from bulk drug substances or bulk proteins. We rely upon unaffiliated third parties and AHP to vial and label the drug products we market. BI Pharma Supply Agreement In November 1998, we and AHP entered into a long-term supply agreement with BI Pharma to manufacture commercial quantities of Enbrel. Until our retrofitted Rhode Island manufacturing facility receives FDA approval, our sales of Enbrel are entirely dependent on BI Pharma manufacturing the product. We have made significant purchase commitments to BI Pharma under the BI Pharma supply agreement to manufacture commercial inventory of Enbrel. Under the BI Pharma supply agreement, BI Pharma has reserved a specified level of production capacity for Enbrel, and our purchase commitments for Enbrel are manufactured from that reserved production capacity. The BI Pharma supply agreement contains provisions for increasing or decreasing BI Pharma's reserved production capacity for Enbrel, subject to lead-times and other related terms. Because of the long lead-time required for ordering raw materials for Enbrel and for scheduling BI Pharma's facilities, we are required to submit a rolling three-year forecast for manufacturing the bulk drug for Enbrel, and a rolling forecast for a shorter period for the number of finished vials of Enbrel to be manufactured from the bulk drug. A significant portion of each of the above forecasts becomes a purchase commitment when issued to BI Pharma. We have submitted firm orders for the maximum production capacity that BI Pharma currently has reserved for Enbrel. BI Pharma's pricing of Enbrel depends on specified production assumptions that the parties have made relating to the production efficiency of manufacturing Enbrel. Under the BI Pharma supply agreement, the pricing of Enbrel is also subject to volume discounts depending on the amount of Enbrel ordered during each 21 calendar year. We and AHP will be responsible for substantial payments to BI Pharma if we and AHP fail to use a specified percentage of the production capacity that BI Pharma has reserved for Enbrel each calendar year, or if the BI Pharma supply agreement is terminated prematurely under specified conditions. In June 2000, we, AHP and BI Pharma amended the BI Pharma supply agreement to offer BI Pharma financial incentives to provide additional near-term production capacity for Enbrel, to facilitate process improvements for Enbrel, and to extend the term of the agreement. As an incentive to BI Pharma, we will pay more to BI Pharma on a per unit basis for any additional production runs provided over a specified period, which will result in an increase in our incremental costs for these runs. BI Pharma's ability to provide additional production runs depends in part on factors beyond its control, including contractual commitments to other customers. BI Pharma was able to provide limited additional capacity in 2001 and we expect similar additional capacity to be provided in 2002. Limited additional production capacity may be available in future years. For a discussion of the factors affecting our supply of Enbrel under the BI Pharma supply agreement, see the caption Important Factors That May Affect Our Business, Our Results of Operations and Our Stock Price--Limits on our current source of supply for Enbrel will constrain our sales growth unless and until additional manufacturing capacity for Enbrel is approved in this report. MedImmune Supply Transfer Agreement In March 2001, we entered into a supply transfer agreement with MedImmune Inc. in order to potentially increase our supply of Enbrel from BI Pharma. Both Enbrel and MedImmune's product Synagis(R) (palivizumab) are manufactured by BI Pharma. The transfer agreement provided that, in the event additional manufacturing capacity for Synagis is obtained elsewhere and MedImmune relinquished manufacturing capacity that it had reserved at BI Pharma with respect to defined time periods, we would pay MedImmune specified amounts, if any capacity relinquished by MedImmune is transferred by BI Pharma to the manufacture of Enbrel. We also pay BI Pharma more on a per unit basis for these additional production runs. We have received some additional supplies of Enbrel as a result of the transfer agreement. Expansion of Manufacturing Facilities On January 1, 2002, we purchased from AHP a large-scale biopharmaceutical manufacturing facility in West Greenwich, Rhode Island. We and AHP have invested substantial sums and worked closely together to retrofit the Rhode Island manufacturing facility to accommodate the commercial production of Enbrel bulk drug. As presently configured, we currently estimate that, when fully completed and approved by the FDA, the retrofitted Rhode Island manufacturing facility could, on an annual basis, double our current United States and Canadian supply of Enbrel. We have begun preparing for the supplemental filing for the Rhode Island facility with the FDA and expect to complete the filing by mid-2002. We estimate FDA approval of this facility in the second half of 2002. In November 2001, we broke ground on the BioNext Project(TM), a new manufacturing plant to be built adjacent to our existing retrofitted manufacturing facility in Rhode Island. When the facility is completed and approved by the FDA which we estimate will occur in 2005, it is scheduled to produce Enbrel and possibly other products currently in development. We may also build additional manufacturing capacity at Rhode Island or other locations to help meet the manufacturing requirements for Enbrel and our products under development and to improve our ability to attract collaborative partners with products under development. For a discussion of our agreements with AHP related to the manufacturing of Enbrel, see the caption Relationship with AHP--Agreements Related to the Manufacturing of Enbrel in this report. 22 Governmental Regulation The manufacturing and marketing of pharmaceutical products in the United States requires the approval of the FDA under the federal Food, Drug and Cosmetic Act. Similar approvals by comparable agencies are required in foreign countries. The FDA has established mandatory procedures and safety standards that apply to the clinical testing, manufacture and marketing of pharmaceutical and biotechnology products. Obtaining FDA approval for a new therapeutic product is never assured, may take several years and involves spending substantial resources. Data from human clinical trials are submitted to the FDA in a new drug application, or NDA, for drugs or a BLA for biologics. For products to be marketed in Canada, these submissions are made to the Canadian Health Protection Bureau, or CHPB, in a new drug submission, or NDS. Data from clinical trials for new indications or uses for approved products are submitted to the FDA in a supplemental NDA for drugs and in sBLA. Data regarding manufacturing and bioequivalence of generic drug products are submitted to the FDA in an abbreviated new drug application, and to the CHPB in an abbreviated NDS. Preparing any of these regulatory submissions involves considerable data collection, verification and analysis. Completion of clinical trials may take several years or more. The length of time generally varies substantially according to the type, complexity, novelty and intended use of the product candidate. We estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:
Estimated Completion Clinical Phase Period -------------- ---------- Phase 1 1 Year Phase 2 1-2 Years Phase 3 2-4 Years
Our commencement and rate of completion of clinical trials may vary or be delayed by many factors, including those described in this report. Any products manufactured or distributed by us pursuant to FDA approvals are subject to extensive continuing regulation by the FDA, including record-keeping requirements and a requirement to report adverse experiences with the drug. In addition to continued compliance with standard regulatory requirements, the FDA also may require post-marketing testing and surveillance to monitor the safety and efficacy of the marketed product. Adverse experiences with the product must be reported to the FDA and may result in changes in labeling of products. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product are discovered following approval. The federal government regulates recombinant DNA research activity through National Institutes of Health, or NIH, guidelines for research involving recombinant DNA molecules. We comply with the NIH guidelines which, among other things, restrict or prohibit some types of recombinant DNA experiments and establish levels of biological and physical containment of recombinant DNA molecules that must be met for various types of research. Many other laws regulate our operations, including, among others, the Occupational Safety and Health Act, the Environmental Protection Act, the Nuclear Energy and Radiation Control Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act, Title III of the Superfund Amendments and Reauthorization Act (Community Right-to-Know and Emergency Response Act), national restrictions on technology transfer, federal regulations on the protection of human subjects in clinical studies, the protection of animal welfare in preclinical studies, import, export and customs regulations and other present or possible future local, state or federal regulation. From time to time Congressional committees and federal agencies have indicated an interest in implementing further regulation of biotechnology and its applications. 23 Patents, Licenses and Trademarks Patents, trade secrets and other proprietary rights are very important to us. We have obtained U.S. and foreign patents and have filed applications for additional U.S. and foreign patents covering numerous aspects of our technology. We cannot be certain that any of our pending or future applications will result in issued patents or that the rights granted under existing or future patents will provide competitive advantages to us or our licensees. We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation to develop and maintain our competitive position. We cannot be certain that others will not acquire or independently develop the same or similar technology, or that our issued patents will not be circumvented, invalidated or rendered obsolete by new technology. Due to unresolved issues regarding the scope of protection provided by some of the patents owned or licensed to us, as well as the possibility of patents being granted to others, we cannot be certain that the patents owned by or licensed to us and our licensees will provide substantial protection or commercial benefit. The rapid rate of development and the intense research efforts throughout the world in biotechnology, the significant time lag between the filing of a patent application and its review by appropriate authorities and the lack of sufficient legal precedents concerning the validity and enforceability of some types of biotechnology patent claims make it difficult to predict accurately the breadth or degree of protection that patents will afford our or our licensees' biotechnology products or their underlying technology. It is also difficult to predict whether valid patents will be granted based on biotechnology patent applications or, if they are granted, to predict the nature and scope of the claims of these patents or the extent to which they may be enforceable. Under United States law, although a patent has a statutory presumption of validity, the issuance of a patent is not conclusive as to validity or as to the enforceable scope of its claims. Accordingly, we cannot be certain that the patents owned or licensed to us will afford protection against competitors with similar inventions, nor can we be certain that those patents will not be infringed or designed around by others or that others will not obtain patents that we will need to license or design around. It is our policy to respect the valid patent rights of others. We have obtained patent licenses from various parties covering technologies relating to our products. However, we may need to acquire additional licenses or, if these licenses are denied or are unavailable on commercially reasonable terms, we may need to prevail in the event that litigation is commenced by patent owners to interfere with the development or commercialization of our products. We intend to pursue protection of multiple forms of intellectual property where appropriate, including, but not limited to, patents and trade secrets for all significant inventions, discoveries and developments in our various areas of research. In addition, we will seek Orphan Drug exclusivity for all significant inventions, discoveries and developments when appropriate. Under our product rights agreement with AHP, AHP has an option to obtain royalty-bearing worldwide exclusive licenses to a limited number of our products for all product indications. This option is discussed more fully under the caption Relationship With AHP. Patents on Our Biological Products Enbrel. Enbrel is a fusion protein consisting of a dimer of two subunits, each comprising a TNF receptor domain derived from a TNF receptor known as "p80," fused to a segment derived from a human antibody molecule known as an "Fc domain." We believe that we were the first to isolate a recombinant DNA encoding p80 TNFR and also the first to express the protein using recombinant DNA technology. We have been issued U.S. patents covering p80 TNFR, DNAs encoding p80 TNFR, and methods of using TNFR:Fc, including for the treatment of arthritis. We were granted a European patent in December 1995 covering p80 TNFR DNAs, proteins and related technology. Two other companies, BASF and Yeda Research & Development Company, Ltd., filed patent applications disclosing partial amino acid sequence information of specified TNF-binding proteins, or TBPs, shortly prior to the time we filed our patent applications claiming the full-length p80 TNFR DNAs and proteins corresponding in part to the TBPs disclosed by BASF and Yeda Research. BASF was issued a U.S. patent based on its TBP 24 disclosure. Due to limitations in the claims of the BASF U.S. patent, we believe that it cannot be asserted to cover Enbrel. Consequently, we have not entered into a license with BASF for its U.S. patent. This BASF U.S. patent lost an interference proceeding, which BASF is currently appealing through a United States district court action. In June 2000, we entered into a royalty-bearing license agreement with respect to the BASF TBP patent family excepting the U.S. patent. If BASF were able to validly assert its U.S. TBP patent to cover TNFR:Fc in the United States, our commercialization of Enbrel made in the United States could be impeded. The Yeda Research TBP patents and patent applications are controlled by Ares-Serono International S.A. and its affiliate Inter-Lab Ltd. (collectively Serono). In January 1999, we entered into a settlement agreement with Serono under which we and Serono agreed to settle potential disputes concerning the patents and patent applications controlled by Serono that relate to TBPs. Under the settlement, Serono has agreed not to assert any of the foregoing patent rights against the manufacture, use or sale of Enbrel in any territory in consideration of the payment of fees and royalties by us to Serono for a specified term in respect of the net sales of Enbrel sold or manufactured in designated countries, including Germany and the United States, where Yeda Research's patent rights have been filed. After the effective dates on which we filed our patent applications, Hoffmann-La Roche, or Roche, and Amgen, through Synergen Inc., also filed patent applications directed to p80 TNFR DNAs. No patents covering full-length TNFR or the intact extracellular domain of TNFR have been issued to Roche. In January 1998, the European Patent Office granted a patent to Amgen claiming DNA and amino acid sequences encoding a variant of p80 TNFR disclosed in the Amgen application that differs from that disclosed in our granted patents covering p80 TNFR. We have filed an opposition to this Amgen patent. Since an application giving rise to our patents covering TNFR and disclosing the relevant DNA sequence was filed earlier than Amgen's first application disclosing the relevant DNA sequence, we believe that the Amgen patent cannot be legally asserted to cover TNFR:Fc, which includes the sequences patented by us. If Amgen were able to validly assert TNFR patents to cover TNFR:Fc, our or AHP's commercialization of Enbrel could be impeded in any territories in which these patents were in force, which territories include Germany but do not currently include the United States. Amgen has agreed with AHP, however, that if our proposed merger with Amgen is completed, Amgen will not assert these rights against AHP in connection with AHP's development, distribution or sale of Enbrel anywhere in the world outside of the United States and Canada. We have also been granted a royalty-bearing worldwide exclusive license under patent rights jointly owned by Aventis SA (through its predecessor Hoechst AG) and Massachusetts General Hospital claiming cytokine receptor-Fc fusion proteins, including TNFR:Fc. Roche has filed patent applications with claims covering TNFR:Fc fusions, which were filed after the Aventis and Massachusetts General Hospital patent applications licensed to us. Roche has been granted a patent containing these claims in Japan. In September 1999, we entered into a royalty-bearing worldwide co-exclusive license agreement with Roche under these Roche patents and patent applications. ZymoGenetics, Inc. and Genentech have separately been issued U.S. patents having claims directed to specified fusion proteins comprising immunoglobulin constant region domains and specified processes for making these proteins, and have also filed corresponding European applications that have not yet been granted. On March 7, 2002, ZymoGenetics filed a patent infringement lawsuit against us in the United States District Court for the Western District of Washington. ZymoGenetics seeks a declaration of infringement and available remedies under the patent laws, including monetary damages and injunctive relief. We fully intend to vigorously defend ourselves against the allegations of ZymoGenetics. In May 1999, we entered into a royalty-bearing worldwide co-exclusive license agreement under the Genentech patents under which we made an up-front payment to Genentech, a portion of which was reimbursed to us by AHP under the Enbrel promotion agreement. The Kennedy Institute of Rheumatology has been issued a patent having some claims directed to a method of treating arthritis by co-administering methotrexate and a soluble TNF receptor or a functional portion thereof. We do not believe that the Kennedy Institute of Rheumatology patent would be successfully asserted against Enbrel. 25 In general, with respect to any of the patents discussed above, it is our intention to mount a vigorous defense should any patent be asserted against activities relating to Enbrel, or, in appropriate cases, to take a license under appropriate terms. At this time, however, we do not know whether any of these patents will be asserted against activities relating to Enbrel, and, if so, what the outcome of any litigation or licensing negotiations would be. We may be required to obtain licenses to patents or other proprietary rights from third parties to label and sell Enbrel for new indications. Licenses required under third-party patents or proprietary rights may not be made available on terms acceptable to us, if at all. If we do not obtain any required licenses, we could be unable to label and sell Enbrel for one or more new indications. Leukine. We have been issued three U.S. patents covering an altered, or analog, form of GM-CSF (sargramostim) that we market under the Leukine trademark. From July 1990 to January 1998, a GM-CSF interference proceeding had been pending in the U.S. Patent and Trademark Office, or PTO, directed to human GM-CSF DNAs. Novartis AG prevailed in the interference and has subsequently received several patents relating to GM-CSF. As part of the resolution of the interference, Novartis agreed not to assert its GM-CSF patent rights against us in exchange for royalties on sales of Leukine in the United States and Canada. Research Corporation Technologies, Inc., or RCT, has also received a U.S. patent relating to GM-CSF. We have received a royalty-bearing nonexclusive license to the RCT GM-CSF patent in the United States and Canada. ABX-EGF. Under our collaboration agreement with Abgenix, each company has cross-licensed to the other company certain proprietary rights related to the development and commercialization of ABX-EGF. Glaxo Wellcome Inc. has a family of patents that it is asserting against Genentech in ongoing litigation. If any of the claims of these patents are finally determined in the litigation to be valid and if they can be asserted by Glaxo to be infringed by ABX-EGF, then we may need to obtain a license should one be available. Should a license be denied or unavailable on commercially reasonable terms, our commercialization of ABX-EGF could be impeded in any territories in which these patents were in force. Genentech owns a U.S. patent that relates to inhibiting the growth of tumor cells involving an anti-EGF receptor antibody in combination with a cytotoxic factor We do not believe that this Genentech patent would be successfully asserted against any currently anticipated commercial sales of ABX-EGF. ImClone Systems, Inc. has announced that it has rights to a patent covering a composition of matter of any EGFr monoclonal antibody that inhibits the binding of EGF to its receptor in combination with any anti-neoplastic agent, as well as the therapeutic use of such combinations. We do not believe that this patent would be successfully asserted against any currently anticipated commercial sales of ABX-EGF. In addition, other third parties have or may receive other patents relating to EGFr monoclonal antibodies, their manufacture, or their use. We will evaluate the scope and validity of each such patent to ascertain the relevance of such patent to our planned activities. IL-1R Type 2. In 1998, we were granted a U.S. patent covering methods of using soluble IL-1R Type 2 to regulate an IL-1 mediated immune or inflammatory response in a mammal. Previously we have received two U.S. patents covering the DNA and the protein for IL-1R Type 2. We have additional U.S. and foreign patent applications pending relating to IL-1R Type 2. Patents on Nonbiological Products Novantrone. Certain uses of Novantrone are covered by two U.S. patents. A U.S. patent assigned to us covering methods of using mitoxantrone to treat leukemia and solid tumors does not expire until April 2006, and another U.S. patent covering methods of using mitoxantrone to treat neuroimmunologic diseases, including MS, which is licensed to us, does not expire until June 2005. 26 Patent and Technology Licenses Under our royalty-bearing patent and technology license agreements, we are obligated to pay royalties on our sales of products produced using the licensed technologies. We pay royalties to university licensors of specific yeast and mammalian-cell expression technologies employed in making Leukine and some other products. We are also obligated to pay royalties to Aventis, Novartis and RCT on sales of Leukine, and to Aventis, Massachusetts General Hospital, Serono, Genentech, Roche and Abbot Laboratories (formerly BASF Corporation) on sales of Enbrel. From time to time we may elect to enter into other royalty-bearing license agreements with licensors of patents with claims related to our products or technologies. We cannot be sure, however, that patent license negotiations with any licensors can be successfully completed, or that the total royalties payable under any agreements resulting from license negotiations will not have a material adverse effect on our business. We have also commenced a licensing program under our cytokine receptor patents to enable other companies to use our patented cytokine receptors in drug screening. Under this program, we granted a license to use G-CSF receptor, or G-CSFR, for drug screening to multiple companies over the past few years. We have commenced a licensing program under our patents covering our Expression Augmenting Sequence Element, or EASE. We have granted nonexclusive royalty-bearing licenses to two companies and are actively negotiating licenses with others. Trademarks We own all of our trademarks used in our business. Properties Our principal place of business is located in two adjacent buildings in downtown Seattle, Washington. These buildings, comprising a total of 197,574 square feet, house our primary laboratory and office facilities, as well as a 10,000-square-foot microbial pharmaceutical manufacturing facility licensed by the FDA to produce Leukine. The current lease for these buildings extends to 2005, and both buildings have two five-year renewal options. In addition to our primary facility, we lease a total of approximately 203,673 square feet of additional office and research space in multiple other buildings located in downtown Seattle and approximately 34,000 square feet of office and laboratory space in two buildings in Bothell, Washington. The total current rent payments for the foregoing facilities were approximately $12.8 million in 2001 and are forecast to be approximately $14.1 million in 2002. We own a manufacturing and development center in Bothell, Washington that includes a process development facility, completed in 2000, dedicated to accelerating development of our manufacturing processes. This center also includes a large-scale microbial protein manufacturing facility and a separate mammalian cell-based protein manufacturing facility. These facilities were used to produce Enbrel for our clinical trials in 1997; however, these facilities lack sufficient capacity to produce commercial quantities of Enbrel. We own approximately 20 acres of undeveloped land adjacent to our manufacturing and development center in Bothell, Washington. On January 1, 2002, we purchased a commercial biopharmaceutical manufacturing facility from AHP. The manufacturing facility, which we and AHP worked together to retrofit to accommodate the commercial production of Enbrel bulk drug, is located on a 75-acre site in West Greenwich, Rhode Island. In November 2001, we broke ground on the BioNext Project(TM), a new manufacturing plant to be built adjacent to the existing manufacturing facility in Rhode Island. When the BioNext Project is completed and approved by the FDA, which we estimate will occur in 2005, it is scheduled to produce Enbrel and, possibly, other products currently in development. The total cost for the BioNext Project, excluding financing costs, is expected to be up to approximately $550 million. 27 We also own 29 acres of land in Seattle, Washington known as Terminal 88. The Terminal 88 site is the location for our new research and technology center currently under construction, which we expect will allow us to consolidate most of our non-manufacturing operations to one site. The initial phase of the center is known as the Helix Project. We have also acquired additional acreage adjacent to Terminal 88 for potential future expansion of the project, and may continue these acquisitions. We currently expect to complete the Helix Project and take occupancy in late 2003. The total cost for the project, including financing costs, is expected to be up to $750 million. In March 2001, we entered into a seven and one-half year lease to finance the Helix Project. The total cost of the project, including financing costs, is expected to be up to $750.0 million. As part of the lease transaction we are required to restrict, as collateral, cash or investment securities worth $765.0 million during the construction of the project and 102% of the funds borrowed by the lessor thereafter. The restricted investments consist primarily of money market investments with maturities of one-year or less and are carried at fair value. These investments are held in our name, are restricted as to their withdrawal and are classified as non-current on our balance sheet until such assets are available to be released from the collateral. The lease is classified as an operating lease for financial reporting purposes, which means that the cost to construct the facility and related financing obligation are not reflected on our balance sheet. The construction costs of the Helix Project are paid by the lessor, who is the borrower under a loan that is funded using the proceeds of commercial paper. We have the ability to purchase the project at any time prior to the expiration of the lease for the then-remaining lease balance and, upon the occurrence of particular events, we may be required to purchase the project from the lessor for the then-remaining lease balance. The then-remaining lease balance would be equal to the outstanding amount of the lessor's financing of project costs. At the end of the lease term, if we elect not to renew the lease or do not exercise our option to purchase the facility, we have guaranteed to pay any loss incurred by the lessor upon the sale of the facility for amounts up to 89.5% of the project costs. At December 31, 2001 the construction costs incurred and the amount financed under the lease totaled approximately $106.0 million and is expected to total $750.0 million at completion of the Helix Project. Lease payments begin upon completion of the facility, which is expected to be no later than September 2003, and are variable throughout the lease term based on a LIBOR rate. Personnel In our innovation-intensive business, our employees are vital to our success. We believe we have good relationships with our employees, and none of our employees is covered by a collective bargaining agreement. As of December 31, 2001, we employed 1,618 people, 454 of whom have graduate degrees in various subjects. The employee count as of December 31, 2001 includes approximately: . 671 employees in research and development; . 347 employees in manufacturing; and . 285 employees in sales and marketing. These numbers do not include an aggregate of approximately 350 employees who joined Immunex as a result of our acquisition of the biopharmaceutical manufacturing facility that we purchased from AHP effective January 1, 2002. Each of our employees has entered into a confidentiality agreement that contains terms requiring disclosure of ideas, developments, discoveries or inventions conceived during employment, and assignment to us of all proprietary rights to these matters. 28 The success of our business depends, in large part, on our continued ability to attract and retain highly qualified management, scientific, manufacturing and sales and marketing personnel. Competition for personnel among companies in the biotechnology and pharmaceutical industries is intense, and we cannot assure you that we will be able to attract and retain necessary personnel. Important Factors That May Affect Our Business, Our Results of Operations and Our Stock Price Risks Related to Our Business We may be unable to sustain or increase profitability or raise sufficient additional capital, which could result in a decline in our stock price. Future operating performance is never certain, and if our operating results fall below the expectations of securities analysts or investors, the trading price of our common stock will likely decline. Although we have been profitable in each year for the past four years, we may be unable to sustain or increase profitability on a quarterly or annual basis. Moreover, we anticipate that our operating and capital expenditures will increase significantly in 2002 and in future years primarily due to: . additional spending to support the marketing and sales of Enbrel; . working capital requirements for sales of Enbrel; . growth in research and development expenses as we progress with the development of our clinical and preclinical product candidates; . design and construction of our planned new research and technology center in Seattle, Washington; . investment in additional manufacturing capacity for our existing products and products in development, including additional investment in the retrofitted manufacturing facility in Rhode Island that we purchased from AHP in January 2002 and in constructing a new commercial manufacturing facility at the same location; and . expenditures on merger-related costs if the merger with Amgen is not completed. Our ability to generate sufficient cash flow, or to raise sufficient capital, to fund our operating and capital expenditures depends on our ability to improve operating performance. This in turn depends, among other things, on increasing sales of our existing products, especially Enbrel, and initiating and growing sales of new products. In order to realize adequate sales on new products, we must successfully acquire new products from others or successfully complete product development efforts and obtain timely regulatory approvals of our lead clinical products. We may not successfully acquire, develop and commercialize these products. If we are unable to increase sales of Enbrel, or if sales of Enbrel decline, our revenue growth will be significantly limited, which could result in a decline in our stock price. Because we depend, and expect to continue to depend, on sales of a single product, Enbrel, for a substantial majority of our revenues, decreased or lower-than-anticipated demand for Enbrel, or our inability to meet demand, could materially adversely affect our operating results and harm our business. Because we only began marketing Enbrel in 1998, its long-term effects are largely unknown. Adverse developments regarding the long-term safety and efficacy of Enbrel could adversely affect demand for the product, or restrict our ability to market and sell it for its current or potential indications. Other factors that would adversely affect sales of Enbrel include: . competition from existing products for treating RA or development of new products; . our inability to maintain adequate and uninterrupted sources of supply to meet demand; 29 . events adversely affecting the ability of our manufacturing collaborators to produce Enbrel; . our inability to gain FDA approval to produce Enbrel at our retrofitted manufacturing facility in Rhode Island; . contamination of product lots or product recalls; . our inability to gain regulatory approval to market Enbrel for indications other than RA; and . changes in private health insurer reimbursement rates or policies for Enbrel. For the year ended December 31, 2001 and 2002, sales of Enbrel accounted for 79% of our product sales. We expect revenue generated by Enbrel to continue to account for a substantial majority of our product sales. Limits on our current source of supply for Enbrel will constrain our sales growth unless and until additional manufacturing capacity for Enbrel is approved. We may be limited in our ability to expand our operations or improve operating results because our sales growth is constrained by limits on our current source of supply for Enbrel. We estimate that all foreseeable supply of Enbrel from BI Pharma in 2002 should support the actively ordering patients enrolled in the Enbrel enrollment program. The enrolled patients do not include the patients on the program's waiting list. This base of enrolled patients, together with new patients that would receive Enbrel based on FDA approval of our retrofitted manufacturing facility in Rhode Island, which we estimate will occur in the second half of 2002, could potentially yield U.S. and Canadian sales of Enbrel up to approximately $1.0 billion in 2002. Actual United States and Canadian supply of Enbrel could be lower since our supply is impacted by many manufacturing and production variables, such as whether and when our Rhode Island manufacturing facility will be approved by the FDA, the timing and actual number of production runs, production success rate, bulk drug yield and the timing and outcome of product quality testing. Our sales of Enbrel will be adversely affected if we at any time are unable to provide an uninterrupted supply of Enbrel to all of the patients enrolled in the program. We have worked with AHP to substantially increase our supply of Enbrel for sale in the United States and Canada. We anticipate that in the near term Enbrel would be produced at two sites: BI Pharma, currently our sole source supplier, and our retrofitted Rhode Island manufacturing facility, which we estimate will be approved by the FDA in the second half of 2002. Actual U.S. and Canadian supply of Enbrel in 2002 will be primarily dependent on BI Pharma's production schedule for Enbrel, the result of manufacturing process improvements for Enbrel, the timing of FDA approval of the Rhode Island manufacturing facility to produce Enbrel, and the other factors listed below. It is difficult to predict our actual near-term supply of Enbrel with certainty because of the many complex variables involved in the supply equation. Factors that will affect our actual supply of Enbrel at any time include, without limitation, the following: . Variability in BI Pharma's production cycle. BI Pharma does not produce Enbrel continuously; rather, it produces the drug through a series of periodic campaigns throughout the year. The amount of commercial inventory available to us at any time depends on a variety of factors, including the timing and actual number of BI Pharma's production runs, level of production yields and success rates, timing and outcome of product quality testing and amount of vialing capacity. We have made substantial investments in manufacturing process improvements for Enbrel produced by BI Pharma, and have received FDA approval of the process improvements, that we anticipate could result in an incremental increase in the level of production yields for Enbrel commencing in early 2002. . Timely completion and approval of the Rhode Island manufacturing facility. We have invested substantial sums and worked closely together with AHP to retrofit the Rhode Island manufacturing facility that we purchased from AHP in January 2002 to accommodate the commercial production of Enbrel bulk drug. We and AHP have reached agreements regarding the allocation of Enbrel produced at the BI Pharma facility and that may be produced at the Rhode Island manufacturing facility. As presently configured, we currently estimate that, once fully operational and approved by the FDA, the 30 Rhode Island manufacturing facility could, on an annual basis, double our current U.S. and Canadian supply of Enbrel. We anticipate commencing production runs and building commercially significant quantities of inventory of Enbrel bulk drug at the Rhode Island manufacturing facility prior to estimated FDA approval of the facility. We would not be able to sell, and may be required to write off, inventory unless and until the Rhode Island manufacturing facility and our contract manufacturer for vialing the Enbrel bulk drug manufactured at the Rhode Island facility are approved by the FDA, which approval is not assured. We estimate FDA approval of the Rhode Island manufacturing facility and our vialing contract manufacturer in the second half of 2002. We cannot assure you that any of these estimated dates will prove accurate. . Potential bottlenecks in the vialing process. BI Pharma schedules the vialing production runs for Enbrel in advance, based on the expected timing and yield of bulk drug production runs. Therefore, if BI Pharma realizes production yields beyond expected levels, or provides additional manufacturing capacity for Enbrel, it may not have sufficient vialing capacity for all of the Enbrel bulk drug that it produces. As a result, even if we are able to increase our supply of Enbrel bulk drug, BI Pharma may not be able to vial the extra bulk drug in time to prevent any supply interruptions. Similarly, once the Rhode Island manufacturing facility has been approved by the FDA, we will be dependent on the vialing capacity of a third party or third parties for the Enbrel bulk drug produced. If the market demand for Enbrel continues to grow, there may be further supply limitations even after the Rhode Island manufacturing facility begins producing Enbrel. For the longer term, our plan includes construction of a new large-scale cell culture commercial manufacturing facility, known as the BioNext Project, at the site of the current Rhode Island manufacturing facility, which is estimated to be completed in 2005. In addition, AHP is constructing a new manufacturing facility in Ireland, which is expected to increase the United States and Canadian supply of Enbrel. We and AHP also have reached an agreement regarding the allocation of Enbrel that may be produced at the new Rhode Island manufacturing facility and the Ireland manufacturing facility. If additional manufacturing capacity at the Rhode Island site or the Ireland manufacturing facility is not completed, or if these manufacturing facilities do not receive FDA approval before we encounter supply constraints, our future sales growth would again be restricted. If third-party manufacturers or suppliers fail to perform, we will be unable to meet demand for some of our products. For all drug products that we market, we rely on unaffiliated third parties and AHP to fill and label vials with our bulk drugs and to provide packaging and, in the case of Enbrel, the self-injection syringe. We would be unable to obtain these materials or products for an indeterminate period of time if AHP's subsidiaries or third-party manufacturers or suppliers, including BI Pharma, were to cease or interrupt production or services or otherwise fail to supply these materials, products or services to us or AHP for any reason, including due to labor shortages or disputes or due to regulatory requirements or action. This in turn could materially reduce our ability to satisfy demand for these products, which could adversely affect our operating results. AHP either manufactures through its subsidiaries or sources through third-party manufacturers all finished dosage forms and bulk active raw materials for our nonbiological products, Novantrone and Thioplex. In addition, two of the raw materials used to produce Enbrel and our other recombinant protein products under development are manufactured by single suppliers. Our preclinical and clinical testing of potential products could be unsuccessful, which could adversely affect our operating results. Before obtaining regulatory approvals for the sale of any of our potential products, we must subject these products to extensive preclinical and clinical testing to demonstrate their safety and effectiveness in humans. If these tests are unsuccessful, we will be unable to commercialize new products and, as a result, we may be unable to sustain or increase profitability. Results of initial preclinical and clinical testing are not necessarily indicative 31 of results to be obtained from later preclinical and clinical testing and, as a result, we may suffer significant setbacks in advanced clinical trials. We may not complete our clinical trials of products under development and the results of the trials may fail to demonstrate the safety and effectiveness of new products to the extent necessary to obtain regulatory approvals. The rate of completion of clinical trials depends, in part, on the enrollment of patients, which in turn depends on factors such as the size of the patient population, the proximity of target patients to clinical sites, the eligibility criteria for the trial and the existence of competitive clinical trials. Any delay in planned patient enrollment in our current or future clinical trials may result in increased costs, trial delays or both. Our products and product candidates are subject to extensive regulatory approval processes and ongoing regulation, which can be costly and time-consuming and subject us to unanticipated delays or lost sales. The FDA imposes substantial requirements on our products before it permits us to manufacture, market and sell them to the public. Compliance with these requirements is costly and time-consuming, and could delay or prevent sales of new products or sales of our existing products for new indications. To meet FDA requirements, we must spend substantial resources on lengthy and detailed laboratory tests and clinical trials. It typically takes many years to complete tests and trials for a product. The actual length of time involved depends on the type, complexity and novelty of the product. The FDA may not approve on a timely basis, if at all, some or all of our future products or may not approve some or all of our applications for additional indications for our previously approved products. If we violate regulatory requirements at any stage, whether before or after marketing approval is obtained, we may be fined or forced to remove a product from the market or may experience other adverse consequences, including delay or increased costs, which could materially harm our financial results. Additionally, we may not be able to obtain approval for the labeling claims necessary or desirable for promoting our products. Even if approval is obtained, we may be required or may elect to undertake post-marketing trials. We may be required to perform additional clinical trials or change the labeling of our products if we or others identify side effects after our products are on the market, which could adversely affect sales of the affected products. If we or others identify side effects after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and reformulation of our products, additional clinical trials, changes in labeling of our products and changes to or re-approvals of our manufacturing facilities may be required, any of which could have a material adverse effect on sales of the affected products and on our business and results of operations. Because Enbrel has only been marketed since 1998, its long-term effects on the development or course of serious infection, malignancy and autoimmune disease are largely unknown and more rarely occurring side effects may not be known. In May 1999, we announced an update to the package insert for Enbrel to advise doctors not to start using Enbrel in patients who have an active infection, and for doctors to exercise caution when considering using Enbrel in patients with a history of recurring infections or with underlying conditions that may predispose patients to infections. In October 2000, we again revised the package insert for Enbrel in response to spontaneous adverse events reported to us, including rare cases of hematologic and central nervous system disorders. The causal relationship between these adverse events and therapy with Enbrel remains unclear. In January 2001, we revised the package insert for Enbrel to advise doctors that rare cases of central nervous system disorders, include seizures, and rare cases of tuberculosis have also been reported in patients using Enbrel. It is possible that additional spontaneous adverse events will be reported to us as experience with Enbrel continues. If we or others identify new adverse events for patients treated with Enbrel, additional precautions, warnings or other changes in the label for Enbrel may be required. 32 Our ability to discover, develop or commercialize products could be adversely affected if our research and marketing collaborations are terminated. We have relationships with various collaborators who conduct research at our request. Some of our collaborators also have shared marketing rights to products subject to the collaboration. These collaborators are not our employees. As a result, we have limited control over their activities and, except as otherwise required by our collaboration agreements, can expect only limited amounts of their time to be dedicated to our activities. Our ability to discover, develop and commercialize products will depend in part on the continuation of these collaborations. If any of these collaborations are terminated, we may not be able to enter into other acceptable collaborations. In addition, our existing collaborations may not be successful. Disputes may arise between us and our collaborators as to a variety of matters, including financing obligations under our agreements and ownership of intellectual property rights. These disputes may be both costly and time-consuming and may result in delays in the development and commercialization of products. Competition and technological developments could render our products obsolete or noncompetitive. To succeed, we must maintain a competitive position with respect to technological advances. We are engaged in fields characterized by extensive research efforts and rapid technological development. New drug discoveries and developments in the fields of genomics, rational drug design and other drug discovery technologies are accelerating. Many companies and institutions, both public and private, are developing synthetic pharmaceuticals and biotechnological products for human therapeutic application, including the applications we have targeted. Several products are currently approved for treating RA. In particular, we face competition for Enbrel, principally from the generic drug methotrexate and from Johnson & Johnson's product Remicade. There are other products in late-stage development that are targeting RA. Depending on the market acceptance of these products or potential products, our sales of Enbrel could be adversely affected. A number of our competitors have substantially more capital, research and development, regulatory, manufacturing, marketing, human and other resources and experience than we have. Furthermore, large pharmaceutical companies recently have been consolidating, which has increased their resources and concentrated valuable intellectual property assets. As a result, our competitors may: . develop products that are more effective or less costly than any of our current or future products or that render our products obsolete; . produce and market their products more successfully than we do; . establish superior proprietary positions; or . obtain FDA approval for labeling claims that are more favorable than those for our products. If we are unable to protect and enforce our patents and proprietary rights and gain access to patent and proprietary rights of others, we may be unable to compete effectively. Our success depends in part on obtaining, maintaining and enforcing our patents and other proprietary rights and on our ability to avoid infringing the proprietary rights of others. Third parties have obtained or are seeking patents which, if issued or granted, may have a material adverse effect on our ability to successfully commercialize Enbrel in the United States. On March 7, 2002, ZymoGenetics filed a patent infringement lawsuit against us in the United States District Court for the Western District of Washington. ZymoGenetics seeks a declaration of infringement and available remedies under the patent laws, including monetary damages and injunctive relief. If ZymoGenetics prevails, our ability to market and sell Enbrel could be adversely affected unless we are able to negotiate a license or similar arrangement. Although we have a substantial intellectual property portfolio, which includes patents and patent applications, we cannot be certain that we will be able to protect and enforce our rights. Patent law relating to the 33 scope of claims in the biotechnology field is still evolving and, consequently, patent positions in our industry may not be as strong as in other more well-established fields. Accordingly, the PTO may not issue patents from the patent applications owned by or licensed to us. If issued, the patents may not give us an advantage over competitors with similar technology. The issuance of a patent is not conclusive as to its validity or enforceability and it is uncertain how much protection, if any, will be given to our patents if we attempt to enforce them or they are challenged in court or in other proceedings. A third party may challenge the validity or enforceability of a patent after it is issued by the PTO. It is possible that a competitor may successfully challenge our patents or that a challenge will result in limiting their coverage. Moreover, the cost of litigation to uphold the validity of patents and to prevent infringement can be substantial. If the outcome of litigation is adverse to us, third parties may be able to use our patented invention without paying us. It is also possible that competitors may infringe our patents or successfully avoid them through design innovation. While we pursue patent protection for products and processes where appropriate, we also rely on trade secrets, know-how and continuing technological advancement to develop and maintain our competitive position. Therefore, others may independently develop substantially equivalent information or techniques, or otherwise gain access to or disclose our technology. We may not be able to effectively protect our rights in unpatented technology, trade secrets and confidential information. Our policy is to have each employee enter into a confidentiality agreement that contains provisions prohibiting the disclosure of confidential information to anyone outside Immunex. The research and development contracts we enter into with our scientific consultants generally contain confidentiality and nondisclosure provisions. These confidentiality agreements may not be honored and we may be unable to protect our rights to our unpatented trade secrets. We may be required to obtain licenses to patents or other proprietary rights from third parties to develop, manufacture and commercialize our products, to label and sell our products for new indications or, in the event we do not prevail in a dispute over the patent rights of others, in order to continue our current activities. Licenses required under third-party patents or proprietary rights may not be made available on terms acceptable to us, if at all. If we do not obtain the required licenses, we could encounter delays in product development while we attempt to redesign products or methods or we could be unable to develop, manufacture or sell products requiring these licenses at all. Our customers may not get reimbursed from third parties, which could adversely affect our sales. The affordability of our products depends substantially on governmental authorities, private health insurers and other organizations, such as health maintenance organizations, reimbursing most of the costs of our products and related treatments to our customers. Low reimbursement levels may reduce the demand for, or the price of, our products, which could prevent us from maintaining or achieving profitability on specific products. Since Medicare currently will not reimburse patients for self-administered drugs, Medicare does not cover prescriptions of Enbrel. Although we have been able to obtain sufficient reimbursement for most of our other products, governmental authorities or third parties, or both, may decrease their reimbursement rates or change their reimbursement policies. In addition, we may be unable to obtain sufficient reimbursement for our future products. Our selling practices for products reimbursed by Medicare or Medicaid may be challenged in court, which could result in claims for substantial money damages or changes in our pricing procedures. The federal government and several state agencies have initiated investigations into our pricing practices and could seek substantial money damages or changes in the manner in which we price our products. If changes are mandated, they could adversely affect the sales of those products. In the United States, pharmaceutical companies frequently grant discounts from list price to physicians and suppliers who purchase their products. Discounts on multiple-source, or generic, pharmaceuticals may be substantial. Government reports have noted 34 that government programs that reimburse medical providers for drugs on the basis of the average wholesale price or wholesale acquisition cost, such as Medicare and Medicaid in many states, may provide significant margins to providers who are able to obtain large discounts from pharmaceutical companies. According to press reports, approximately 20 pharmaceutical companies are under investigation by the U.S. Department of Justice, U.S. Department of Health and Human Services and/or state agencies related to the pricing of their products. We have received a notice from the U.S. Department of Justice requesting us to produce documents in connection with a Civil False Claims Act investigation of the pricing of our current and former products for sale and eventual reimbursement by Medicare or state Medicaid programs. We also have received similar requests from the U.S. Department of Health and Human Services and state agencies. Several of our current and former products are or were regularly sold at substantial discounts from list price. We require in our contracts of sale that the purchasers appropriately disclose to governmental agencies the discounts that we give to them. We do not know what action, if any, the federal government or any state agency will take as a result of their investigations. On November 27, 2001, the Action Alliance of Senior Citizens of Greater Philadelphia filed suit in the United States District Court for the Western District of Washington against us alleging monopolistic, anticompetitive conduct in an industry-wide scheme to defraud the consumer by manipulating the average wholesale price and selling drugs to physicians at prices below the reimbursement cost charged to Medicare. On December 19, 2001, Citizens for Consumer Justice and others filed suit against us and other pharmaceutical companies in the United States District Court for the District of Massachusetts making similar allegations. One of these two proposed class action lawsuits alleges violations of antitrust laws; the other alleges violation of both antitrust and RICO laws. Similar proposed class actions have been filed in approximately a dozen courts across the country against most of the major pharmaceutical companies. At this time, we do not know what relief is being sought from us. We may be required to defend lawsuits or pay damages for product liability claims. Product liability is a major risk in testing and marketing biotechnology and pharmaceutical products. We face substantial product liability exposure in human clinical trials and for products that we sell after regulatory approval. Product liability claims, regardless of their merits, could be costly and divert management's attention, or adversely affect our reputation and the demand for our products. We currently maintain product liability insurance coverage based on our product portfolio, sales volumes and claims experienced to date. However, this insurance may not provide us with adequate coverage against potential liabilities either for clinical trials or commercial sales. In the future, insurers may not offer us product liability insurance, may raise the price of this insurance or may limit the coverage. We may be required to pay damages for environmental accidents and to incur significant costs for environmental compliance. Our research and development activities involve the controlled use of hazardous materials, chemicals, viruses and radioactive compounds. In the event of an environmental accident, we could be held liable for any resulting damages, and any liability could materially affect our financial condition. We cannot eliminate the risk of accidental contamination or injury from these materials. In addition, we may be required to incur significant costs to comply with federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials and some types of waste products. If we are unable to attract and retain key employees and consultants, our business could be harmed. The success of our business depends, in large part, on our continued ability to attract and retain highly qualified management, scientific, manufacturing and sales and marketing personnel. Competition for personnel among companies in the biotechnology and pharmaceutical industries is intense. We may be disadvantaged in our attempts to attract and retain personnel by the fact that we have announced the proposed merger with Amgen. 35 We have taken steps to minimize the effect of the proposed merger on our hiring and retention efforts. For example, we have adopted the Immunex Corporation Retention Plan to provide for conditional retention awards to all employees of Immunex who regularly work at least 20 hours per week, including the executive officers other than our Chief Executive Officer. This plan provides for a lump sum cash payment to each such employee who remains employed by Immunex through the effective time of the proposed merger. However, we cannot assure you that we will be able to attract or retain the personnel necessary to support the growth of our business. A deterioration in the financial condition of major pharmaceutical wholesalers could result in substantial lost receivables. In 2001, approximately 70% of our product sales were made to three pharmaceutical wholesalers. Financial insolvency by one or more of these wholesalers would require us to write off all or a portion of the amounts due us. As of December 31, 2001, the amount due us from these three wholesalers totaled $82.0 million. We maintained credit insurance coverage during 2001 based on our credit exposure. However, we have elected not to renew this insurance during the 2002 policy year. Foreign currency exchange rate fluctuations could cause our profits to decline. Adverse currency fluctuations between the U.S. dollar and the Euro could cause our manufacturing costs to increase and our profitability to decline. Under the terms of our supply agreement with BI Pharma for Enbrel, the price for our product orders initially is set in Euros. We have the option, at the time of any firm order, to pay the purchase price in Euros, or to fix the currency exchange rate on the date of the order and pay the purchase price in U.S. dollars. Accordingly, future currency exchange rate fluctuations could substantially increase the manufacturing cost of our future product orders. In addition, if we elect to pay the purchase price of any future orders in Euros, currency fluctuations between the time of that order and the time of payment could substantially increase our manufacturing costs for that order. Future acquisitions, mergers or investments in businesses, products or technologies could harm our business, operating results and stock price. We may acquire, merge with or invest in other businesses, products or technologies that are intended to complement our existing business. From time to time, we have had discussions and negotiations with companies regarding business combinations or investing in these companies' businesses, products or technologies, and we regularly engage in these discussions and negotiations in the ordinary course of our business. Our management has limited prior experience in assimilating acquired or merged companies. Any acquisitions or investments we complete will likely involve some or all of the following risks: . difficulty of assimilating the new operations and personnel, products or technologies; . commercial failure of the new products; . disruption of our ongoing business; . diversion of resources; . inability of management to maintain uniform standards, controls, procedures and policies; . difficulty of managing our growth and information systems; . reduction in the overall growth rate of the combined organization; . risks of entering markets in which we have little or no prior experience; and . impairment of relationships with employees or customers. In addition, future acquisitions, mergers or investments could result in potentially dilutive issuances of equity securities, use of cash or incurrence of debt and assumption of contingent liabilities, any of which could have an adverse effect on our business and operating results or the price of our common stock. 36 Risks Related to Our Share Price and Corporate Control Our stock price is volatile and the value of your investment may be subject to sudden decreases. Our common stock price, like that of other biotechnology companies, is volatile. Our common stock price may fluctuate due to factors such as: . developments related to the pending merger with Amgen or the operating results or stock price of Amgen; . actual or anticipated fluctuations in our quarterly and annual operating results; . actual or anticipated product supply constraints; . changes in the estimated or actual completion and approval dates for future manufacturing facilities; . adverse developments regarding the safety or efficacy of our products or changes to the labels for our products; . clinical trial results and other product-development announcements by us or our competitors; . loss of any of our key executives; . regulatory announcements, proceedings or changes; . announcements in the scientific and research community; . competitive product developments; . intellectual property and legal developments; . changes in reimbursement policies or medical practices; . mergers or strategic alliances in the biotechnology and pharmaceutical industries; . any business combination we may propose or complete; . any financing transactions we may propose or complete; or . broader industry and market trends unrelated to our performance. During periods of stock market price volatility, share prices of many biotechnology companies have often fluctuated in a manner not necessarily related to the companies' operating performance. Accordingly, our common stock may be subject to greater price volatility than the market as a whole. Unless and until the proposed merger with Amgen is completed, AHP has governance and other rights under existing agreements and owns a substantial portion of the outstanding shares of our common stock and therefore has substantial rights in connection with a number of strategic decisions. The interests of AHP could be different than those of the other holders of our common stock generally. The concentrated holdings of our common stock by AHP and its resulting control over many of our strategic decisions may result in a delay or the deterrence of possible changes in our control, which may reduce the market price of our common stock. As of December 31, 2001, AHP beneficially owns approximately 41% of the outstanding shares of our common stock. Under our governance agreement with AHP, unless and until AHP's percentage ownership of the outstanding shares of our common stock drops below 35%, AHP, through members of our board of directors designated by AHP, will continue to exercise significant control over many of our strategic and operational decisions. So long as AHP has the right to designate at least two directors, which applies if AHP's beneficial ownership of our common stock is at least 35%, many actions that we may wish to take will require the approval of at least one director designated by AHP. These actions include, with specified exceptions: . any change in the composition of our board (other than directors designated by us); . consolidations, mergers or similar transactions above a specified threshold; 37 . any change in our capital stock; and . any change in our governing documents, as well as specified operating decisions, such as incurring incremental indebtedness above a specified threshold. The interests of AHP with regard to these matters may be different than the interests of other holders of our common stock generally. Future sales of shares by AHP could affect our stock price. Sales of substantial amounts of our common stock, or the perception that these sales may occur, could adversely affect prevailing market prices for our common stock. Under our governance agreement, AHP has demand and piggyback registration rights with respect to its shares of our common stock. As a result, AHP could cause a significant number of shares of our common stock to be registered and sold in the public market, which could cause our stock price to decline. In connection with the proposed merger between us and Amgen, AHP and Amgen have entered into a shareholder voting agreement under which AHP has agreed not to sell or transfer any shares of our common stock, other than to AHP's subsidiaries, for the term of the voting agreement. Risks Related to Our Proposed Merger with Amgen Failure to complete the merger with Amgen could negatively impact our stock price and future business and operations. If the merger with Amgen is not completed for any reason, we may be subject to a number of material risks, including the following: . if the merger agreement is terminated, we may be required in specific circumstances, to pay a termination fee of $475 million to Amgen or reimburse up to $15 million of Amgen's expenses, . the price of our common stock may decline to the extent that the current market price of that stock reflects an assumption that the merger will be completed, and . we must pay our expenses related to the merger, including substantial legal, accounting and financial advisory fees, and employee retention bonuses, even if the merger is not completed. This could affect our results of operations and cash liquidity and potentially our stock price. Some customers may, in response to the announcement of the merger, delay or defer purchasing decisions, which could affect our revenues. Similarly, current and prospective employees may experience uncertainty about their future role with Amgen until Amgen's strategies with regard to us are announced or executed. This may adversely affect our ability to attract and retain key management, research and development, manufacturing, sales and marketing and other personnel. Further, if the merger agreement is terminated and our board of directors determines to seek another merger or business combination, it may not be able to find a partner willing to pay an equivalent or more attractive price than that which would have been paid in the merger with Amgen. We believe that the price of our common stock is based in large part on the price of Amgen common stock; the price of Amgen's common stock may be affected by factors different from those affecting the price of our common stock. Upon completion of the merger with Amgen, the holders of our common stock will become holders of Amgen common stock. In addition, prior to the completion of the merger and unless the merger agreement with Amgen is terminated, we believe that the price of our common stock will be determined in part by the expectation that the merger will be completed and that our shareholders will become shareholders of Amgen, and the price of our common stock will be affected by the price of Amgen common stock. 38 Amgen's business differs somewhat from our business, and Amgen's results of operations and the price of Amgen common stock may be affected by factors different from those that affect our results of operations and the price of our common stock before the merger. Item 2. Properties See the disclosure under the caption Properties, in Item 1. Item 3. Legal Proceedings On November 27, 2001, the Action Alliance of Senior Citizens of Greater Philadelphia filed suit in the United States District Court for the Western District of Washington against us alleging monopolistic, anticompetitive conduct in an industry-wide scheme to defraud the consumer by manipulating the average wholesale price and selling drugs to physicians at prices below the reimbursement cost charged to Medicare. On December 19, 2001, Citizens for Consumer Justice and others filed suit against us and other pharmaceutical companies in the United States District Court for the District of Massachusetts making similar allegations. One of these two proposed class action lawsuits alleges violations of antitrust laws; the other alleges violations of both antitrust and RICO laws. Similar proposed class actions have been filed in approximately a dozen courts across the country against most of the major pharmaceutical companies. At this time, we do not know what relief is being sought from us. According to press reports, approximately 20 pharmaceutical companies are under investigation by the U.S. Department of Justice, U.S. Department of Health and Human Services and/or state agencies related to the pricing of their products. We have received a notice from the U.S. Department of Justice requesting that we produce documents in connection with a Civil False Claims Act investigation of the pricing of our current and former products for sale and eventual reimbursement by Medicare or state Medicaid programs. We also have received similar requests from the U.S. Department of Health and Human Services and state agencies. Several of our current and former products are or were regularly sold at substantial discounts from list price. We require in our contracts of sale that purchasers appropriately disclose to governmental agencies the discounts that we give to them. We do not know what action, if any, the federal government or any state agency will take as a result of their investigations. On December 14, 2001, a lawsuit was filed by David Osher against Immunex, all members of the Immunex board of directors (Edward V. Fritzky, Kirby L. Cramer, Robert J. Herbold, John E. Lyons, Joseph M. Mahady, Edith W. Martin, Peggy V. Phillips, Lawrence V. Stein and Douglas E. Williams) and AHP in the King County Superior Court of Washington. The suit is denominated as a class action purportedly on behalf of a class of Immunex shareholders. The complaint alleges that AHP and our board of directors breached their fiduciary duties owed to our shareholders by stalling the merger discussions as a result of positions taken by AHP in the negotiations relating to its control of Immunex and its marketing rights in future Immunex products. The complaint further alleges that AHP and our board of directors are favoring their own interests and not acting in good faith toward the plaintiff and other members of the purported class. The plaintiff seeks relief: . ordering the action to be maintained as a class action and certifying plaintiff as the class representative; . enjoining, preliminarily and permanently, defendants from proceeding, or closing, the merger or any transaction that improperly favors interests of AHP; . rescinding and setting aside the merger in the event that it is consummated; . awarding plaintiff the costs of the action including attorneys' and experts' fees; and . granting such other and further relief as the court may deem just and proper. On December 18, 2001, a lawsuit was filed by Adele Brody against Immunex, Messrs. Fritzky, Williams, Mann and Pea, Ms. Phillips, and the marital community of each named individual in the King County Superior 39 Court of Washington. The suit is denominated as a class action purportedly on behalf of a class of Immunex shareholders. The complaint alleges, among other things, that the defendants breached their fiduciary duty to the purported class by failing to take all reasonable steps to assure the maximization of shareholder value, including the implementation of a bidding mechanism to foster a fair auction of Immunex to the highest bidder, or the exploration of strategic alternatives which would return a greater value to plaintiff and the other members of the purported class. The complaint further alleges that defendants are continuing to breach their fiduciary duties in order to entrench themselves in office and to receive the benefits of negotiating only with Amgen. The plaintiff seeks relief: . ordering the action to be maintained as a class action and certifying plaintiff as the class representative; . enjoining, preliminarily and permanently, Amgen's offer for the acquisition of Immunex stock owned by plaintiff and the other member of the purported class; . rescinding the transaction and granting rescissionary damages in the event that the merger is consummated; . directing defendants to pay plaintiff and the other members of the purported class damages and to account for all profits and any special benefits obtained by defendants; . awarding plaintiff the costs of the action including attorneys' and experts' fees; and . granting such other and further relief as the court may deem just and proper. On December 20, 2001 a lawsuit was filed by Edwin Weiner against Immunex, Messrs. Fritzky, Williams, Mann and Pea, Ms. Phillips, and the marital community of each named individual in the King County Superior Court of Washington. The allegations and the relief requested in the Weiner complaint are substantially identical to those in the Brody complaint described above. While these cases are in their early stages,we believe that the cases are without merit and we intend to contest them vigorously. AHP has advised Immunex that it also believes the lawsuit to which it is a defendant is without merit and AHP intends to contest it vigorously. On March 7, 2002, ZymoGenetics filed a patent infringement lawsuit, related to U.S. patents having claims directed to specified fusion proteins comprising immunoglobulin constant region domains and specified processes for making these proteins, against us in the United States District Court for the Western District of Washington. ZymoGenetics seeks a declaration of infringement and available remedies under the patent laws, including monetary damages and injunctive relief. We fully intend to vigorously defend ourselves against the allegations of ZymoGenetics. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of our shareholders during the fourth quarter of our fiscal year ended December 31, 2001. 40 PART II Item 5. Market Price of the Registrant's Common Stock and Related Stockholder Matters Our common stock is traded on the Nasdaq National Market under the symbol IMNX. The following table sets forth for each period indicated the high and low sales prices for our common stock as quoted on the Nasdaq National Market.
2001 2000 ------------- ------------- High Low High Low ------ ------ ------ ------ 1st Quarter $46.38 $10.75 $83.60 $27.75 2nd Quarter 18.99 11.81 69.88 24.19 3rd Quarter 19.67 13.85 67.13 39.50 4th Quarter 29.58 18.62 49.88 33.06
There were approximately 2,132 holders of record of our common stock as of February 28, 2002, which does not include the number of shareholders whose shares are held of record by a broker or clearing agency, but does include such a broker or clearing agency as a holder of record. We have not paid any cash dividends since our inception. We currently do not intend to pay any cash dividends in the foreseeable future, but intend to retain all earnings, if any, for use in our business operations. Under the terms of the governance agreement with AHP, AHP has the right to purchase additional shares of our common stock in order to maintain its percentage ownership interest in us following the issuance of our common stock. We did not issue any stock to AHP during 2001. We issued to AHP 1,042,995 shares for $28,859,000 in 2000 and 3,498,726 shares for $40,777,000 in 1999. We believe that the sales of these securities to AHP were exempt from registration under the Securities Act of 1933, as amended, under Section 4(2) thereof and Regulation D promulgated thereunder. Item 6. Selected Financial Data (in millions, except per share amounts) The following table shows selected financial data for the fiscal years 1997 to 2001.
Year Ended December 31, -------------------------------------- 2001 2000 1999 1998 1997 -------- -------- ------ ------ ------ Consolidated Statement of Operations Data: Product sales $ 959.6 $ 828.8 $519.3 $169.9 $149.7 Other revenues 27.2 33.0 22.4 73.6 35.6 Total revenues 986.8 861.8 541.7 243.5 185.3 Research and development 204.6 166.7 126.7 120.0 109.3 Selling, general and administrative 423.0 344.4 216.7 93.8 71.3 Net income (loss) 170.0 154.4 44.3 1.0 (15.8) Diluted earnings (loss) per share 0.30 0.28 0.08 0.00 (0.03) 2001 2000 1999 1998 1997 -------- -------- ------ ------ ------ Consolidated Balance Sheet Data: Total assets $2,295.3 $2,039.4 $941.2 $325.3 $227.3 Long-term obligations 0.8 0.8 450.8 2.3 5.6 Shareholders' equity 2,063.7 1,838.1 355.3 247.5 176.2
41 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview In 2001, we generated net income of $170.0 million, compared to net income of $154.4 million in 2000 and net income of $44.3 million in 1999. The improvement in operating results is primarily due to increased U.S. sales of Enbrel, which was first approved by the FDA in November 1998. We have received additional approvals for Enbrel from the FDA subsequent to the initial approval in November 1998. Enbrel is currently approved for reducing signs and symptoms, and for inhibiting the progression of structural damage in patients with moderately to severely active RA. Enbrel is also approved for treating moderately to severely active polyarticular-course JRA in patients who have had an inadequate response to one or more disease-modifying, antirheumatic drugs, or DMARDs. In 2001, we also began selling Enbrel in Canada. Primarily as a result of increased sales of Enbrel, revenues increased to $986.8 million in 2001, compared to $861.8 million in 2000 and $541.7 million in 1999. Our operating expenses have increased over the past three years, primarily as a result of manufacturing, selling and marketing expenses for Enbrel. In addition, we have significantly increased spending on research and development activities in order to increase our product development opportunities and to support the ongoing development of Enbrel for use in additional indications. Other income has increased significantly primarily due to an increase in interest income. Our funds available for investment purposes has increased as a result of a $450.0 million convertible subordinated note issued to AHP in May 1999, net proceeds of $771.2 million from our public offering of common stock in November 2000 and improved operating cash flow. In addition, interest expense decreased in 2001 due to the conversion by AHP of its convertible note into our common stock in October 2000. Results of Operations Revenues (in millions)
2001 2000 1999 ------ ------ ------ Enbrel $761.9 $652.4 $366.9 Leukine 108.4 88.3 69.1 Novantrone 71.2 59.9 44.5 Other product sales 18.1 28.2 38.8 ------ ------ ------ Total product sales 959.6 828.8 519.3 Royalty and contract revenue 27.2 33.0 22.4 ------ ------ ------ Total revenues $986.8 $861.8 $541.7 ====== ====== ======
Product sales increased to $959.6 million in 2001, compared to $828.8 million in 2000 and $519.3 million in 1999. This improvement was primarily due to increased sales volume of Enbrel as the product has continued to gain acceptance for treatment of RA and, to a lesser extent, higher realized selling prices through price increases. Sales of Enbrel made up 79% of our total product sales in 2001. Under an Enbrel promotion agreement with AHP, Enbrel is being promoted in the United States and Canada by Wyeth-Ayerst, the pharmaceutical division of AHP. AHP shares in the gross profits from U.S. and Canadian sales of Enbrel and we share the related costs of selling, marketing and distributing Enbrel. Our share of these expenses and the amount of gross profits shared with AHP from sales of Enbrel are included in selling, general and administrative expenses. Growth in sales of Enbrel during 2001 was constrained as demand exceeded the available supply. To manage the supply of Enbrel we implemented an Enbrel enrollment program in November 2000 to help ensure that patients in the United States prescribed Enbrel would receive an uninterrupted supply. Further, despite the supply constraints, we were able to increase the number of active patients by approximately 20,000 during 2001. This was accomplished through active management of supply from our manufacturing collaborator of Enbrel, BI Pharma. In addition, we offered financial incentives to BI Pharma and were able to obtain limited additional supply. The increase in sales of Enbrel in 2000 compared to 1999 was primarily due to increased volume and, to a lesser extent, higher realized selling prices. 42 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Sales of Leukine totaled $108.4 million in 2001, compared to $88.3 million in 2000 and $69.1 million in 1999. The increase in sales of Leukine during 2001 reflects increased unit demand. We have been able to grow demand for Leukine through efforts to differentiate Leukine from its competition and through competitive pricing to our customers. Because of our pricing structure, we experienced a small decrease in realized selling prices during 2001. The increase in sales of Leukine during 2000 reflected increased unit demand and higher realized selling prices. During 2000, we hired additional sales representatives to promote Leukine. We also discontinued distributor price discounts, which contributed to improved profitability. Sales of Novantrone totaled $71.2 million in 2001, compared to $59.9 million in 2000 and $44.5 million in 1999. In October 2000, the FDA approved Novantrone for reducing neurologic disability and/or frequency of clinical relapses in patients with progressive, progressive relapsing or worsening relapsing-remitting MS. This led to an increase in sales of Novantrone in 2001 compared to 2000. In addition, we increased the selling price of Novantrone in both 2001 and 2000. We believe that some of the sales of Novantrone during the fourth quarter of 2001 represent inventory stocking by distributors. This will likely have a negative impact on sales of Novantrone in the first quarter of 2002. The improvement in sales of Novantrone during 2000 compared to 1999 is primarily due to increased unit volume and higher realized selling prices. During 2000 we hired additional sales representatives to promote Novantrone. Sales of our other products decreased to $18.1 million in 2001, compared to $28.2 million in 2000 and $38.8 million in 1999. On June 30, 2001, we sold our rights to the pharmaceutical products Amicar, methotrexate sodium injectable, leucovorin calcium and Levoprome to Xanodyne Pharmacal, Inc., or Xanodyne. The sale resulted in a gain of $16.0 million, which was included in other income. We also agreed to sell to Xanodyne, at cost, our remaining inventory for these products on hand at June 30, 2001. We did not recognize any material revenues or expenses related to these products in the second half of 2001. As a result of the sale, our only other marketed product is Thioplex. Two competitors launched generic versions of Thioplex during 2001 and realized selling prices and sales volume for Thioplex have declined. Sales of our other products decreased in 2000 compared to 1999 primarily due to decreased sales volume of Thioplex. Royalty and contract revenue consists primarily of royalties earned under license agreements, license fees and milestone payments. Royalties are received quarterly or semi-annually based on product sales made by the licensee in the preceding royalty reporting period. Royalty revenue is recognized based on the period in which the underlying products are sold and as such, requires us to estimate royalty income for the then current quarterly or semi-annual royalty period. If we are unable to reasonably estimate royalty income under a particular agreement, for example where the market for the underlying product is highly variable, we will recognize revenue only when actual amounts are known. License fees and milestones are recognized in revenue based on the terms of the underlying agreement. To the extent a license fee or milestone has an ongoing service or performance requirement or is dependent upon a future contingency, revenue is deferred and recognized over the applicable service period or when the contingency is resolved. Royalty and contract revenue totaled $27.2 million in 2001, compared to $33.0 million in 2000 and $22.4 million in 1999. In 2001, royalty revenue comprised $25.0 million of total royalty and contract revenue compared to $6.6 million in 2000 and $9.4 million in 1999. During 2001, we began recognizing royalty revenue from Ivax Corporation, or Ivax, on sales of paclitaxel injection, a generic form of Bristol-Myers Squibb Company's Taxol(R). During the third quarter of 2001, another competitor began selling an alternative generic form of Taxol(R). As a result, under our royalty agreement with Ivax, our royalty revenue from Ivax significantly declined in the fourth quarter of 2001. The remaining royalty and contract revenue during 2001 consisted primarily of amounts recognized under existing royalty and license agreements. During 2000, we earned $25.0 million in milestones from AHP under the Enbrel promotion agreement. In February 2000, we earned a milestone of $10.0 million from AHP under the Enbrel promotion agreement, when net sales of Enbrel in the United States exceeded $400.0 million for the preceding 12-month period. In June 2000, we earned $15.0 million from AHP under the terms of the Enbrel promotion agreement when an expanded indication for Enbrel was approved by the FDA for reducing signs and symptoms and delaying structural damage in patients with 43 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) moderately to severely active RA. These were the final scheduled payments to be earned by us under the Enbrel promotion agreement with AHP. The remaining royalty and contract revenue during 2000 consisted primarily of amounts recognized under existing royalty and license agreements. In 1999, we earned $10.0 million from AHP when net sales of Enbrel in the United States exceeded $200.0 million for the preceding 12-month period. The remaining royalty and contract revenue during 1999 consisted primarily of amounts recognized under existing royalty and license agreements. Gross Margin Gross margin was 73.3% in 2001, compared to 70.7% in 2000 and 69.3% in 1999. The increase in gross margin in 2001, compared to 2000, was due to: . lower costs from BI Pharma, our manufacturing collaborator for Enbrel. We realized a yield enhancement price reduction that more than offset incremental incentive payments to BI Pharma for additional supply; . lower foreign exchange rates on purchases of Enbrel from BI Pharma, which is located in Germany; . higher realized prices from sales of Enbrel and Novantrone; and . increased sales of Novantrone, our highest margin product. Partially offsetting these items was increased sales of Enbrel. Like Leukine, Enbrel is a biologic, and generally has a higher manufacturing cost than traditional pharmaceutical products and is subject to multiple royalty obligations. Gross margin was higher in 2000 compared to 1999 due to: . lower costs for Enbrel primarily due to a reduction in internal costs and favorable exchange rates on purchases of Enbrel from BI Pharma; and . a favorable mix of sales of our products. Operating Expenses Research and development expense includes staffing and support costs of our internal research staff and management, supplies used in research and development activities, rent and facility expense for our lab and office space utilized by research and development personnel, depreciation of lab and process development equipment and owned facilities, the costs of conducting clinical studies, including clinical drug and expenses of clinical research organizations, consulting and contracted services directly related to research and development, our share of costs under collaborative research agreements and payments to acquire rights to development-stage technology. Research and development expense does not include an allocation of general and administrative expense, with the exception of certain shared services such as information systems, purchasing and engineering services. Research and development expense increased to $204.6 million in 2001, compared to $166.7 million in 2000 and $126.7 million in 1999. During 2001, our largest expense and the biggest increase in research and development expense was due to the ongoing development of Enbrel, primarily due to spending on the following: . Rheumatoid arthritis. We are conducting several long-term follow-up studies and post-approval commitments to the FDA to continue to evaluate the safety of Enbrel; . Psoriatic arthritis. We completed our Phase 3 clinical trial of Enbrel in psoriatic arthritis and submitted a supplemental Biologics License Application, or sBLA, for use of Enbrel in this indication in July 2001. The FDA approved Enbrel for reducing the signs and symptoms of active arthritis in patients with psoriatic arthritis in January 2002; 44 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) . Psoriasis. We completed a Phase 2 clinical trial of Enbrel in patients with Psoriasis and we commenced a Phase 3 dose ranging clinical trial in the fourth quarter of 2001; . Ankylosing spondylitis. We completed a Phase 2 clinical trial of Enbrel in patients with ankylosing spondylitis and, in the fourth quarter of 2001, initiated a large Phase 3 clinical trial; . Wegener's granulomatosis. Following announcement of positive Phase 2 results in 2000, we are supporting two Phase 2/3 clinical trials of Enbrel in Wegener's granulomatosis; . Chronic Heart Failure. In March 2001, we announced that guidance from an independent data monitoring board indicated that ongoing studies in chronic heart failure, or CHF, would not be able to meet efficacy endpoints. Based on this guidance, we and AHP ended two large Phase 2/3 clinical trials of Enbrel. We continued to incur costs to close out the trials and gather and analyze data from the studies; and . We are researching the use of Enbrel in treating amyloidosis, myelodysplastic syndrome, cachexia and numerous other conditions. In addition to Enbrel, we incurred significant costs related to development of other products and product candidates. Our more significant efforts are described below. ABX-EGF. In July 2000, we entered into a joint development and commercialization agreement for ABX-EGF, a fully human antibody created by Abgenix, Inc. In 2001, we completed a Phase 1 clinical trial of ABX-EGF as a monotherapy in patients with various types of cancer. Following the announcement of the preliminary Phase 1 results, we and Abgenix initiated a series of Phase 2 clinical trials to evaluate the tolerability and efficacy of ABX-EGF for the treatment of several types of cancers. These include clinical trials in patients with kidney, colorectal, prostate and non-small cell lung cancer. IL-1 Receptor Type 2. Based on preclinical data, we believe that IL-1 Receptor Type 2 may be of therapeutic value in treating a number of inflammatory diseases either alone or in combination with Enbrel. In July 2001, we initiated a Phase 1 clinical trial of IL-1 Receptor Type 2 in RA to assess tolerability. TRAIL/Apo2L. In May 1999, we entered into a worldwide collaboration with Genetech to co-develop and market TRAIL/Apo2L. We are continuing preclinical studies to obtain safety and efficacy information and additional preclinical studies are planned. Leukine. A number of clinical trials are underway to investigate whether Leukine could be approved for additional uses. Research and development spending on Leukine during 2001 was higher as compared to 2000 primarily due to a potential indication for Leukine in Crohn's disease. In the fourth quarter of 2001, we initiated a Phase 2 clinical trial of Leukine in patients with Crohn's disease. During 2001, we announced results of two Phase 2 studies for Nuvance. The results of the studies indicated that Nuvance was generally well-tolerated, but provided no apparent improvement in opening lung airways over a four-week period for patients with persistent asthma. We are continuing to evaluate the evidence from the studies to determine any future development options for Nuvance. The increase in research and development expense in 2001 also reflects the costs of an expanded discovery research effort. Beginning in 2001, we have made a concerted effort to increase the number of molecules that enter the clinical development stage each year. Accordingly, we increased the hiring of internal research staff and have expanded our laboratory space to support this growth. 45 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The increase in research and development expense during 2000 compared to 1999 was due to the continuing development of: . Enbrel for treating CHF, RA, psoriatic arthritis and other diseases; . Nuvance for treating persistent asthma; . Avrend (CD40 ligand) for treating renal cell cancer; . ABX-EGF for treating cancer, in collaboration with Abgenix, Inc., which included payment of a $5.0 million initial licensing fee; . TRAIL/Apo2L for treating cancer, in collaboration with Genentech; and . IL-1 Receptor Type 2 for treating inflammation, osteoporosis and other diseases. The increase in research and development expense during 2000 also reflected expenses related to additional collaborative agreements we entered into during 2000 with Celera Genomics and Cambridge Antibody Technology Limited. We also increased staffing, laboratory space and spending on research equipment and information technology to support our discovery research activities. Selling, general and administrative expense increased to $423.0 million in 2001, compared to $344.4 million in 2000 and $216.7 million in 1999. The increase was primarily due to expenses associated with selling and marketing Enbrel. Under the terms of the Enbrel promotion agreement, AHP assumed a majority of these expenses in the United States and Canada in the year following launch of Enbrel, and a decreasing majority of these expenses in the second year following launch of Enbrel. In November 2000, we and AHP began to equally share the U.S. marketing and selling expenses incurred under the Enbrel promotion agreement equally. AHP also shares in the gross profits from U.S. and Canadian sales of Enbrel. Our share of costs incurred under the Enbrel promotion agreement, including the obligation to AHP for its share of the gross profits from U.S. and Canadian sales of Enbrel, totaled $282.0 million in 2001, $222.5 million in 2000 and $120.3 million in 1999. In addition to expenses incurred under the Enbrel promotion agreement, selling, general and administrative expense increased in 2001 due to the following: . increased staffing levels and other infrastructure costs primarily for legal and administrative functions and increased office space; . increased selling and marketing expenses for Leukine and Novantrone; and . an approximate 50% increase in insurance premiums. The increase in selling, general and administrative expense in 2000, compared to 1999, was primarily due to expenses associated with selling and marketing Enbrel. The increase also reflects spending for: . increased staffing levels and other infrastructure costs; . selling expenses for Leukine and Novantrone; and . preparing for FDA approval for Novantrone for treating worsening forms of MS. Merger-related costs On December 17, 2001, we announced that we had entered into an Agreement and Plan of Merger with Amgen. We incurred $5.6 million of merger-related costs in the fourth quarter of 2001 related to financial advisory, legal and accounting fees. Other income (expense) Interest and other income, net increased to $115.1 million in 2001, compared to $59.8 million in 2000 and $26.4 million in 1999. The increase during 2001 is primarily due to increased income earned on our investments 46 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) as a result of higher average cash and investment balances. The issuance of a $450.0 million convertible subordinated note to AHP in May 1999, proceeds from our public offering of common stock in November 2000 and improved operating cash flow resulted in a significant increase in funds available for investment purposes. Additionally, we realized a gain of $16.0 million in the second quarter of 2001 from the sale of our rights in primarily generic pharmaceutical products Amicar, methotrexate sodium injectable, leucovorin calcium and Levoprome. The conversion of the AHP convertible note on October 31, 2000 into shares of our common stock resulted in a $10.7 million decrease in interest expense during 2001, as compared to 2000. Interest income increased in 2000, as compared to 1999, due to increased funds available for investment as a result of proceeds from AHP's conversion of its convertible subordinated note, proceeds from our public offering of common stock in November 2000, improved operating cash flows and sales of common stock to AHP and to our employees. Improved investment returns also contributed to the increase in 2000 compared to 1999. Provision for income taxes The provision for income taxes totaled $42.5 million, or 20% of pre-tax income in 2001, compared to $2.3 million, or 1% of pre-tax income in 2000 and $12.5 million, or 22% of pre-tax income in 1999. During 2001, we utilized our remaining research and experimentation credit carryforwards available to offset federal tax expense for financial reporting purposes. Accordingly, our effective tax rate during 2001 reflects a rate based on the federal statutory rate, adjusted for the benefit of the utilization of our research and experimentation credits carryforwards to offset reported tax expense. During 2000, federal income tax expense, for financial reporting purposes, was entirely offset by utilizing net operating loss, or NOL, carryforwards and research and experimentation credit carryforwards. In 2000, the provision for income taxes consisted only of our tax obligations in the states in which we sell our products. During 1999, the benefit from the utilization of our NOL carryforwards was first used to reduce the recorded value of goodwill and intangible product rights related to our 1993 merger with a subsidiary of American Cyanamid Company to zero and then to reduce federal income tax expense for financial reporting purposes. Liquidity and Capital Resources Cash, cash equivalents and short-term investments totaled $857.8 million at December 31, 2001 and $1,604.8 million at December 31, 2000. These amounts are held in a variety of interest-bearing instruments, including government and corporate obligations and money market accounts. Operating activities provided cash of $224.3 million in 2001, compared to $171.9 million in 2000 and $112.7 million in 1999. The increase in operating cash flow in 2001 was due primarily to an increase in cash generated from product sales and an increase in interest earned on our investments. Working capital changes resulted in a $6.8 million increase in operating cash flow. Working capital decreased $749.5 million during 2001 due primarily to the purchase of non-current investments and the deposit on the Rhode Island manufacturing facility, both discussed below. The increase in operating cash flow in 2000 was primarily due to improved operating results, partially offset by a decrease from changes in working capital. We expect operating cash flows to be positive in 2002 although lower than in 2001 due to higher working capital requirements related to a build-up of inventory of Enbrel produced at our Rhode Island manufacturing facility. We expect to begin full-scale production and building commercially significant quantities of inventory of Enbrel bulk drug at the Rhode Island manufacturing facility beginning in the first half of 2002, prior to the estimated FDA approval of the facility. However, we will not be able to sell this inventory and may be required to write off inventory unless and until the Rhode Island facility and our contract manufacturer are approved by the FDA. We expect to file for FDA approval of the Rhode Island facility and our vialing contract manufacturer in mid-2002, and we estimate FDA approval in the second half of 2002. Accordingly, we will utilize operating cash flow to fund this inventory build-up which is expected to total between $80.0 million and $120.0 million assuming FDA approval in the second half of 2002. We have also made commitments to purchase inventory 47 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) from our manufacturing collaborator for Enbrel, BI Pharma, totaling $161.0 million over the next three years. In addition, our accounts receivable will continue to be directly affected by U.S. and Canadian sales of Enbrel and accounts payable will continue to be affected by costs incurred under the Enbrel promotion agreement. Accordingly, operating cash flows are highly dependent on sales and inventory levels of Enbrel. Cash used in investing activities totaled $610.6 million in 2001, compared to $730.6 million in 2000 and $403.2 million in 1999. Investing activities during 2001 included the purchase of $765.0 million of investments held as collateral in the lease financing of our planned new research and technology center, discussed below. We also purchased other investments using funds from our public offering of common stock in November 2000. These investments were partially offset by sales of investments as we liquidated some of our long term debt securities in order to provide the collateral funding. In March 2001, we entered into a seven and one-half year lease to finance construction of our new research and technology center in Seattle, Washington, known as the Helix Project. The total cost of the project, including financing costs, is expected to be up to $750.0 million. As part of the lease transaction, we are required to restrict as collateral cash or investment securities worth $765.0 million during the construction of the project and 102% of the funds borrowed by the lessor thereafter. The restricted investments consist primarily of money market investments with maturities of one-year or less and are carried at fair value. These investments are held in our name, are restricted as to their withdrawal and are classified as non-current on our balance sheet. The lease is classified as an operating lease for financial reporting purposes, which means that the cost of the facility and related financing obligation are not reflected on our balance sheet. The construction costs of the Helix Project are paid by the lessor, who is the borrower under a loan that is funded using the proceeds of commercial paper. In order to support the placement of the commercial paper, a syndicate of banks has agreed to provide a back-up credit facility that is subject to an annual renewal commitment. If all or some of the banks elect not to renew their commitment under this back-up credit facility, they would be required to provide a bank loan for the duration of the lease term in an amount equal to the size of their commitment under the back-up credit facility. However, the rates on such bank loan may not be as favorable as the rates obtained using the commercial paper for financing. We may, at any time during the term of the lease, purchase the facility for the amount of cumulative financed project costs incurred. At the end of the lease term, if we elect not to renew the lease or do not exercise our option to purchase the facility, we have guaranteed to pay any loss incurred by the lessor upon the sale of the facility for amounts up to 89.5% of the project costs. Under the terms of the agreement, we are required to maintain certain financial ratios and meet other covenants regarding the conduct of our business. If we were to violate any of these covenants and were unable to restructure the financing or obtain a waiver, we could be obligated to pay the lessor the cumulative financed project costs at such time. Our proposed merger with Amgen, discussed below, would violate one of these covenants. We expect to review this financing arrangement in light of the merger and the anticipated needs of the combined company. We may be able to renegotiate the relevant terms of the covenants or obtain a waiver if it was in the best interest of the combined company. At December 31, 2001, the construction costs incurred and amount financed totaled approximately $106.0 million and is expected to total $750.0 million at completion of the project. Lease payments begin upon completion of the facility, which is expected to be no later than September 2003, and are variable throughout the lease term based on the LIBOR rate. We collaborated with AHP on the construction of a large-scale manufacturing facility in Rhode Island intended for the production of Enbrel. AHP acquired the facility in 1999 and we have worked together to retrofit the facility to accommodate the commercial production of Enbrel. In November 2001, we entered into an 48 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) agreement to acquire the facility on January 1, 2002. As part of the agreement, we made a $192.8 million deposit in 2001 toward the purchase price. We made an additional payment totaling $279.9 million following close of the purchase in January 2002. A final payment totaling $27.1 million is due for final costs incurred by AHP in December 2001. The purchase of the Rhode Island manufacturing facility was funded from our existing cash and investments. In November 2001, we initiated construction on the BioNext Project, a new manufacturing plant to be built adjacent to the existing manufacturing facility in Rhode Island. When the facility is completed, which is currently estimated to be in 2005, it is planned to produce Enbrel and possibly new products currently in development. Together, the new facility and the retrofitted facility are expected to be larger than any other cell culture manufacturing center currently in existence. We incurred costs totaling approximately $15.2 million during 2001 on the BioNext Project and we anticipate the total cost of this new facility to be approximately $550.0 million. The costs of the BioNext Project are being funded through existing cash and investments. We have no current plans to finance this project. Other purchases of property, plant and equipment include costs related to validation of our process development facility in Bothell, Washington, purchases of computer hardware, computer software, research equipment and expansion of our existing office and laboratory space. We also purchased property adjacent to the location of the Helix Project to be held to accommodate possible future growth. Net cash provided by financing activities totaled $32.4 million in 2001, compared to $850.7 million in 2000 and $507.6 million in 1999. During 2001, we received $22.3 million in proceeds from sales of common stock to employees under our employee stock option plans and employee stock purchase plan. We also received $10.1 million in proceeds from the lease financing of our research and technology center. These amounts were a reimbursement for expenditures we incurred prior to finalizing the lease agreement. We believe that our current capital resources, cash generated from operations and the financing proceeds for our planned research and technology center are adequate to satisfy our working capital and capital expenditure requirements for at least the next two years. Outlook On December 17, 2001, we announced that we had entered into an Agreement and Plan of Merger with Amgen Inc. The merger is contingent upon approval of both our shareholders and Amgen's stockholders and subject to review by the Federal Trade Commission, or FTC and other regulatory authorities. We currently expect the merger to close in the second half of 2002 if we obtain all necessary approvals and the other conditions to closing are satisfied, however the closing could be delayed by review of the transaction by the FTC and the Securities Exchange Commission, or SEC, and other regulatory authorities. In connection with the proposed merger, we intend to sell the product rights to Leukine, as it competes directly with Amgen's product Neupogen. The divestiture of Leukine is anticipated to occur only if the merger is completed. We incurred $5.6 million of merger related expenses in the fourth quarter of 2001 and will incur merger-related costs in 2002 in the range of $40.0 to $45.0 million primarily related to financial advisory, legal and accounting fees. The majority of the 2002 costs are contingent upon the consummation of the merger and, accordingly, are not expected to significantly impact our operating results unless and until the merger is completed. We expect product sales to increase in 2002 primarily from increased sales of our lead product, Enbrel. Demand for Enbrel continues to grow as the product gains acceptance for treatment of RA. Furthermore, in January 2002, the FDA approved Enbrel as the first treatment indicated to reduce signs and symptoms of active arthritis in patients with psoriatic arthritis, adding an additional market opportunity for the product. We will begin promoting Enbrel to dermatologists in this indication in the first quarter of 2002. Similar to 2001, growth in sales of Enbrel will continue to be limited by supply, however, we estimate that, when approved by the FDA, our manufacturing facility in Rhode Island could, on an annual basis double our current United States and 49 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Canadian supply of Enbrel. We estimate this approval in the second half of 2002. The increase in supply of Enbrel is expected from the following sources: . Manufacturing yield improvements from a new manufacturing process recently implemented at our manufacturing collaborator for Enbrel, BI Pharma; . A small increase in production runs at BI Pharma obtained by acquiring manufacturing capacity previously committed by BI Pharma to MedImmune; and . FDA approval of the Rhode Island manufacturing facility for the production of Enbrel, which we estimate in the second half of 2002. During 2002, we expect a temporary decline in the gross margin of Enbrel. In order to secure additional supply of Enbrel, we have offered BI Pharma financial incentives to provide additional near-term production capacity for Enbrel. BI Pharma was able to provide limited additional capacity in 2001 and we expect similar amounts of additional capacity to be provided in 2002. Also, as noted above, we were able to obtain access to BI Pharma manufacturing capacity previously committed to MedImmune. We agreed to make payments to MedImmune for the rights to this capacity. The supply of Enbrel from these production runs will be received in early 2002 and will negatively impact our gross margin as the incremental payments to MedImmune flow through cost of product sales. Lastly, we expect to begin full-scale production of Enbrel at our Rhode Island manufacturing facility beginning in the first half of 2002. Our per-unit production costs may initially be higher than current costs per unit due to inefficiencies and other costs associated with the start-up of a major manufacturing facility. Enbrel manufactured at the Rhode Island facility will not be available for sale until such time that the facility is approved by the FDA. We expect FDA approval in the second half of 2002 and the cost of inventory produced at that time to be in the range of $80.0 million to $120.0 million. If we were unable to sell the inventory manufactured at the facility, we would be required to charge the costs to expense. Beyond 2002 we expect gross margins on Enbrel to improve as production becomes more efficient at the Rhode Island manufacturing facility and the incremental costs associated with additional manufacturing capacity at BI Pharma are reduced. We also expect to realize increased sales of Novantrone due to continuing penetration in the market for MS. The approval of Novantrone for treatment of worsening MS in October 2000 represents a timely market opportunity for this product as sales in the oncology setting are gradually eroding due to increased competition. We are focusing our promotional efforts for Novantrone on the top neurologists and MS treatment centers and anticipate that increased sales in our MS indication will exceed any near term decline in oncology sales. The rate of increase in demand for Leukine is expected to moderate in 2002. We have successfully increased sales of Leukine in recent years through product differentiation and targeted sales and marketing efforts. Our promotional efforts in 2002 will continue to focus on markets where we believe Leukine provides unique advantages and growth opportunities. The growth rates of Leukine may be impacted by the FDA approval in early 2002 of Neulasta, Amgen's pegylated version of Neupogen, a product that competes directly with Leukine in its major markets. It is uncertain what impact this new product will have on sales of Leukine. As noted above, we currently plan to divest Leukine in connection with our proposed merger with Amgen. Our only other marketed product is Thioplex. Two competitors launched generic versions of Thioplex during 2001 and as a result, realized selling prices and sales volume have declined. Sales of Thioplex are not expected to be significant in the future. Revenues earned from existing royalty, license and other similar agreements are expected to decrease in 2002 primarily due to decreased royalty revenue earned on sales by Ivax of paclitaxel injection, a generic form of Taxol. The royalty rate on sales of paclitaxel injection decreased significantly following the introduction into the market in June 2001 of additional generic formulations of Taxol. We have identified several internal technology and product candidate outlicensing opportunities and we may enter into agreements to license the technology or 50 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) product rights. We cannot predict the timing of such agreements, if any, or the amount of any revenue recognized from those agreements. We expect to continue to increase spending on research and development in 2002 by 10% to 15% as compared to 2001, reflecting an increased investment in discovery research and spending on clinical and process development. We have made a concerted effort to increase the number of molecules that enter the clinical development stage each year. These efforts are reflected as an increase in discovery research expense through increased staffing and facility costs as we expand our efforts in the search for promising product candidates. Correspondingly, as the number of product candidates entering the development stage increase, our costs associated with scaling-up process development to manufacture the clinical product requirements as well as the costs of conducting the clinical trials are also increasing. During 2002 our largest research and development expense will continue to be incurred in the ongoing development and support of Enbrel. In addition to supporting several long-term follow-up clinical trials of Enbrel in RA, we are initiating a 10,000 patient study to provide information about the use, safety and efficacy of Enbrel in RA. In the fourth quarter of 2001, we initiated Phase 2/3 clinical trials of Enbrel in ankylosing spondylitis and psoriasis and we anticipate beginning an additional Phase 2/3 clinical trial in psoriasis during the first half of 2002. We are also supporting two Phase 2/3 clinical trials of Enbrel in Wegener's granulomatosis and are researching the use of Enbrel in numerous other diseases. We will continue to incur significant costs on the development of ABX-EGF for treatment of several types of cancer, in collaboration with Abgenix. ABX-EGF is currently in Phase 2 clinical trials. Spending on development of IL-1 Receptor Type 2 will increase significantly as Phase 1 clinical trials continue in 2002 and, depending on the results of these trials, we expect to initiate a Phase 2 clinical trial in mid-2002. Other expense increases are expected from development of RANK, a molecule that we anticipate moving into Phase 1 clinical trials in 2002 for treatment of cancer and on studies of Leukine for treatment of Crohn's disease. Spending on development of TRAIL/Apo2L for treatment of cancer, in collaboration with Genentech, is not expected to increase from prior periods as further preclinical studies to evaluate safety and efficacy are planned. Selling, general and administrative expense potentially could increase by approximately 20% in 2002, driven primarily by expenses associated with selling and marketing Enbrel. Under the Enbrel promotion agreement with AHP, AHP shares in the gross profits from U.S. and Canadian sales of Enbrel and we share the costs of selling, marketing and distributing Enbrel in the U.S. and Canada. In anticipation of FDA approval of the Rhode Island manufacturing facility for the production of Enbrel, which we estimate in the second half of 2002, we are increasing our promotional and selling activities to capitalize on the additional supply that is expected to become available. In addition, we will incur increased costs related to the launch of Enbrel in psoriatic arthritis and we are supplementing AHP's sales efforts related to Enbrel by hiring our own dedicated sales force. AHP will equally share the costs of our dedicated sales force. Selling and marketing costs related to Leukine and Novantrone are not expected to increase. Spending for general and administrative expense is expected to increase due to increased staffing, expanded facilities and significantly higher insurance costs for much of our coverage due to higher premiums in the insurance market. Our investments are primarily debt securities that are affected by the general level of interest rates in the United States. Interest rates have recently reached historical lows that has depressed, and is expected to continue to depress, the rate of return we earn on our investments. In addition, with the purchase of the Rhode Island manufacturing facility from AHP in January 2002, the amount of funds that are available for investment purposes is expected, on average, to be lower in 2002 than in 2001. Accordingly, we expect to see a decline in interest income earned in 2002. During 2001 we utilized the remaining research and experimentation credit carryforwards to reduce our tax expense for financial reporting purpose. Accordingly, our effective tax rate in 2002 will increase as compared to the 20% effective tax rate in 2001, and is expected to approximate the full federal statutory rate of 35%. All remaining NOL carryforwards are attributable to stock option deductions. The benefit of these NOL 51 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) carryforwards will be recorded as an increase to equity when realized. Due to the treatment of remaining NOL's and the utilization of all R&D credit carryovers in 2001, the estimated effective tax rate in the future will approximate the statutory federal and state tax rates. Item 7A. Qualitative and Quantitative Disclosures About Market Risk We maintain an investment portfolio of various holdings, types, and maturities. These securities are classified as available for sale and are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income. Investments The following table presents the impact of hypothetical changes in interest rates on the fair value of our interest rate sensitive investments, assuming interest rate changes of 50, 100 and 150 basis points, or BPS (in thousands):
Valuation of Securities Valuation of Securities Given an Interest Rate Given an Interest Rate Increase of X Basis Points Fair Value as of: Decrease of X Basis Points -------------------------------- December 31, -------------------------------- 150 BPS 100 BPS 50 BPS 2001 (50 BPS) (100 BPS) (150 BPS) ---------- ---------- ---------- ----------------- ---------- ---------- ---------- Investments with contractual maturity dates $1,442,057 $1,453,038 $1,464,047 $1,473,262 $1,486,089 $1,497,133 $1,508,235 ========== ========== ========== ========== ========== ========== ========== December 31, 2000 ----------------- Investments with contractual maturity dates $1,557,312 $1,565,564 $1,574,517 $1,582,084 $1,592,489 $1,601,803 $1,609,220 ========== ========== ========== ========== ========== ========== ==========
Market risk exposure at December 31, 2001 has decreased compared to December 31, 2000 due to the decrease in the size of the investment portfolio. We also hold investments in equity securities that are sensitive to changes in the stock market. The fair value of our equity investments at December 31, 2001 was $31,950,000 and $48,627,000 at December 31, 2000. For each one percent change in the fair value of the underlying securities, the fair value of our equity investments at December 31, 2001 would change by $320,000. Foreign exchange forward contracts We periodically enter into foreign exchange forward contracts related to inventory purchases to offset the impact of currency fluctuations in the Euro. We monitor our foreign currency exposures daily to maximize the overall effectiveness of our foreign currency hedge positions. It is our policy to enter into forward contracts with maturity dates of no later than eighteen months. We do not enter into foreign exchange forward contracts for trading purposes. 52 Item 8. Financial Statements and Supplementary Data
Page in Form 10-K --------- Consolidated Balance Sheets at December 31, 2001 and 2000 54 Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999 55 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999 56 Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 57 Notes to Consolidated Financial Statements for the years ended December 31, 2001, 2000 and 1999 58 - 75 Report of Ernst & Young LLP, Independent Auditors 76
53 IMMUNEX CORPORATION Consolidated Balance Sheets (In thousands, except share and per share data)
December 31, ---------------------- 2001 2000 ---------- ---------- Assets Current assets: Cash and cash equivalents $ 198,777 $ 552,767 Short-term investments 659,037 1,052,043 Accounts receivable--trade, net 85,005 89,864 Accounts receivable--AHP 11,462 4,177 Other receivables 25,382 22,384 Inventories 34,440 19,371 Prepaid expenses and other current assets 23,118 15,675 ---------- ---------- Total current assets 1,037,221 1,756,281 Property, plant and equipment, net 200,429 174,049 Restricted cash and investments 765,000 - Deposit to AHP on Rhode Island manufacturing facility 192,778 - Property held for future development 45,565 33,382 Investments 31,950 48,627 Intangible product rights and other, net 22,365 27,034 ---------- ---------- Total assets $2,295,308 $2,039,373 ========== ========== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 106,967 $ 93,905 Accounts payable--AHP 84,345 75,119 Accrued compensation and related items 31,778 25,422 Current portion of long-term obligations 31 31 Other current liabilities 7,743 5,964 ---------- ---------- Total current liabilities 230,864 200,441 Long-term obligations 764 796 Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value, 30,000,000 shares authorized, none outstanding - - Common stock, $.01 par value, 1,200,000,000 shares authorized, 545,294,346 and 540,856,394 outstanding at December 31, 2001 and 2000, respectively 2,153,184 2,092,294 Accumulated other comprehensive income 25,372 30,681 Accumulated deficit (114,876) (284,839) ---------- ---------- Total shareholders' equity 2,063,680 1,838,136 ---------- ---------- Total liabilities and shareholders' equity $2,295,308 $2,039,373 ========== ==========
See accompanying notes. 54 IMMUNEX CORPORATION Consolidated Statements of Income (In thousands, except per share amounts)
Year ended December 31, ---------------------------- 2001 2000 1999 -------- -------- -------- Revenues: Product sales $959,586 $828,828 $519,287 Royalty and contract revenue 27,219 33,001 22,431 -------- -------- -------- 986,805 861,829 541,718 Operating expenses: Cost of product sales 256,123 243,144 159,269 Research and development 204,649 166,712 126,682 Selling, general and administrative 422,999 344,383 216,714 Merger-related costs 5,619 - - -------- -------- -------- 889,390 754,239 502,665 -------- -------- -------- Operating income 97,415 107,590 39,053 Other income (expense): Interest and other income, net 115,097 59,795 26,427 Interest expense (58) (10,737) (8,656) -------- -------- -------- 115,039 49,058 17,771 -------- -------- -------- Income before income taxes 212,454 156,648 56,824 Provision for income taxes 42,491 2,296 12,500 -------- -------- -------- Net income $169,963 $154,352 $ 44,324 ======== ======== ======== Net income per common share: Basic $ 0.31 $ 0.30 $ 0.09 ======== ======== ======== Diluted $ 0.30 $ 0.28 $ 0.08 ======== ======== ======== Number of shares used for per share amounts: Basic 542,900 506,847 489,390 ======== ======== ======== Diluted 569,077 549,250 529,974 ======== ======== ========
See accompanying notes. 55 IMMUNEX CORPORATION Consolidated Statements of Shareholders' Equity (In thousands)
Accumulated Common Stock Other Total ------------------ Comprehensive Accumulated Shareholders' Shares Amount Income Deficit Equity ------- ---------- ------------- ----------- ------------- Balance, January 1, 1999 481,782 $ 729,750 $ 1,228 $(483,515) $ 247,463 Net income for the year ended December 31, 1999 - - - 44,324 44,324 Change in fair value of investments, net - - 1,491 - 1,491 ---------- Comprehensive income 45,815 Common stock issued to employees 8,739 21,275 - - 21,275 Common stock issued to AHP 3,498 40,777 - - 40,777 ------- ---------- ------- --------- ---------- Balance, December 31, 1999 494,019 791,802 2,719 (439,191) 355,330 Net income for the year ended December 31, 2000 - - - 154,352 154,352 Change in fair value of investments, net - - 27,962 - 27,962 ---------- Comprehensive income 182,314 Proceeds from the sale of common stock, net of offering costs of $2,393 20,000 771,207 - - 771,207 Conversion of subordinated note by AHP, net 15,544 449,206 - - 449,206 Common stock issued to employees 10,250 40,592 - - 40,592 Common stock issued to AHP 1,043 28,859 - - 28,859 Capital contribution from AHP - 10,628 - - 10,628 ------- ---------- ------- --------- ---------- Balance, December 31, 2000 540,856 2,092,294 30,681 (284,839) 1,838,136 Net income for the year ended December 31, 2001 - - - 169,963 169,963 Cumulative effect of adopting FAS 133 - - 7,641 - 7,641 Change in fair value of forward contracts, net - - (3,348) - (3,348) Change in fair value of investments, net - - (9,602) - (9,602) ---------- Comprehensive income 164,654 Tax benefit from stock option exercises - 38,554 - - 38,554 Common stock issued to employees 4,438 22,336 - - 22,336 ------- ---------- ------- --------- ---------- Balance, December 31, 2001 545,294 $2,153,184 $25,372 $(114,876) $2,063,680 ======= ========== ======= ========= ==========
See accompanying notes. 56 IMMUNEX CORPORATION Consolidated Statements of Cash Flows (In thousands)
Year ended December 31, ----------------------------------- 2001 2000 1999 ----------- ----------- --------- Operating activities: Net income $ 169,963 $ 154,352 $ 44,324 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 31,110 21,781 20,081 Deferred income tax provision 38,554 - 12,051 Gain on sale of product rights (16,000) - - Other (6,122) - (990) Cash flow impact of changes to: Accounts receivable (5,424) (54,644) (32,842) Inventories (14,475) (6,123) 11,296 Prepaid expenses and other current assets (3,150) (9,236) (1,713) Accounts payable, accrued compensation and other current liabilities 29,829 65,750 60,525 ----------- ----------- --------- Net cash provided by operating activities 224,285 171,880 112,732 Investing activities: Purchases of restricted cash and investments (765,000) - - Deposit to AHP on Rhode Island manufacturing facility (192,778) - - Purchases of property, plant and equipment (65,011) (80,675) (35,563) Purchases of property held for future development (13,413) (27,509) - Proceeds from sales of investments 1,458,545 1,108,858 69,538 Proceeds from maturities of investments 156,116 34,085 38,305 Purchases of investments (1,205,093) (1,755,881) (460,050) Proceeds from sale of product rights 16,000 - - Acquisition of rights to marketed products, net - (9,500) (15,500) Other - - 78 ----------- ----------- --------- Net cash used in investing activities (610,634) (730,622) (403,192) Financing activities: Proceeds from lease financing 10,055 - - Proceeds from common stock offering, net - 771,207 - Proceeds from common stock issued to employees 22,336 40,592 21,275 Proceeds from common stock issued to AHP - 28,859 40,777 Proceeds from capital contribution from AHP - 10,628 - Proceeds from convertible subordinated note--AHP, net - - 449,000 Other (32) (547) (3,422) ----------- ----------- --------- Net cash provided by financing activities 32,359 850,739 507,630 ----------- ----------- --------- Net increase (decrease) in cash and cash equivalents (353,990) 291,997 217,170 Cash and cash equivalents, beginning of period 552,767 260,770 43,600 ----------- ----------- --------- Cash and cash equivalents, end of period $ 198,777 $ 552,767 $ 260,770 =========== =========== =========
See accompanying notes. 57 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 1. Organization We are a leading biopharmaceutical company dedicated to developing immune system science to protect human health. Applying our scientific expertise in the fields of immunology, cytokine biology, vascular biology, antibody-based therapeutics and small molecule research, we work to discover new targets and new therapeutics for treating rheumatoid arthritis, asthma and other inflammatory diseases, as well as cancer and cardiovascular diseases. We operate in a highly regulated and competitive environment. Our business is regulated primarily by the FDA. The FDA regulates the products we sell, our manufacturing processes and our promotional activities. Obtaining approval for a new therapeutic product is never certain, generally takes many years and is very costly. Competition in researching, developing and marketing biotechnology and pharmaceutical products is intense. Any of the technologies covering our existing products or products under development could become obsolete or diminished in value by discoveries and developments of other organizations. Our market for pharmaceutical products is primarily the United States. Our sales are primarily to pharmaceutical wholesalers. During 2001, approximately 70% of our product sales were made to three of these wholesalers and approximately 79% of our product sales were from the sale of Enbrel. In June 1993, we merged with a subsidiary of American Cyanamid Company, or Cyanamid. In November 1994, American Home Products, or AHP, acquired all of Cyanamid's outstanding shares of common stock. Thus, AHP became the owner of Cyanamid's then approximate 54% interest in our common stock. In November 2000, AHP sold 60,500,000 shares of our common stock in a public offering. As a result, AHP now holds an approximate 41% interest in us. We have also entered into additional agreements with AHP (see Note 11). All references to AHP include AHP and its various affiliates, divisions and subsidiaries, including Cyanamid. On December 17, 2001, we announced that we had entered into an Agreement and Plan of Merger with Amgen Inc. (see Note 15). Note 2. Basis of Presentation and Summary of Significant Accounting Policies Use of Estimates The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States. In preparing the financial statements, management must make estimates and assumptions that affect reported amounts and disclosures. Principles of consolidation The consolidated financial statements include our accounts and those of our wholly-owned subsidiary, Immunex Manufacturing Corporation. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash equivalents Cash equivalents include items almost as liquid as cash, such as demand deposits or debt securities with maturity periods of 90 days or less when purchased. Our cash equivalents are carried at fair market value. 58 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 2. Basis of Presentation and Summary of Significant Accounting Policies, continued Investments Marketable equity securities and debt securities are classified as available-for-sale. Available-for-sale securities are carried at fair value, based on current market rates, with the unrealized gains and losses being reported as a separate component of shareholders' equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses are included in other income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. We review our investments on a regular basis for impairment. Securities trading below their original costs for a period of time considered "other than temporary" are written down to current fair value. Our investments in debt securities, excluding the $765,000,000 in restricted cash and investments (see Note 5), are available for use in our current operations and have been classified as short-term investments. Our equity securities are intended to be a long-term investment. Inventories Inventories are stated at the lower of cost, using a weighted-average method, or market. The components of inventories are as follows (in thousands):
2001 2000 ------- ------- Raw materials $ 4,133 $ 4,779 Work in process 24,602 11,987 Finished goods 5,705 2,605 ------- ------- Total inventories $34,440 $19,371 ======= =======
Depreciation and amortization The cost of buildings and equipment is depreciated evenly over the estimated useful lives of the assets, which range from three to 31.5 years. Leasehold improvements are amortized evenly over either their estimated useful life, or the term of the lease, whichever is shorter. Property held for future development We have purchased land and buildings adjacent to the location of our new research and technology center in Seattle, Washington. The property will be held to accommodate future growth. We also own some property intended for the possible future expansion of our manufacturing facilities. These properties are recorded at cost. Intangible product rights Intangible product rights and other intangible assets are amortized evenly over their estimated useful lives, ranging from five to 15 years. Accumulated amortization totaled $16,556,000 at December 31, 2001 and $13,085,000 at December 31, 2000. Derivatives and Hedging Activities Effective January 1, 2001, we adopted Statement of Financial Accounting Standard, or SFAS, 133 (Accounting for Derivative and Hedging Activities) which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging 59 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 2. Basis of Presentation and Summary of Significant Accounting Policies, continued activities. SFAS 133, as amended, requires the recognition of all derivative instruments as either assets or liabilities in the balance sheet at fair value. The adoption of SFAS 133 impacts our accounting for certain forward exchange contracts related to hedging cash outflows on future purchases of Enbrel. We have entered into forward foreign currency contracts to reduce the impact of future currency rate fluctuations related to those purchase commitments for Enbrel that are denominated in Euros. The forward contracts have been designated as cash-flow hedges and, as of December 31, 2001, were considered highly effective. The ineffective portion of these hedges was not material during 2001. We do not enter into any forward contracts for trading purposes. If it became probable that the cash outflow related to a purchase of inventory would not occur, we would be required to reclassify gains or losses from the unused portion of the contract from other comprehensive income to other income or expense in the statements of income. The unrealized gain from our forward exchange contracts of approximately $4,293,000 at December 31, 2001 (which consists of $7,641,000 of unrealized gains upon adoption of SFAS 133, realized gains of approximately $2,229,000 and unrealized losses of $1,119,000 experienced during 2001) is included in other current assets and accumulated other comprehensive income. Gains and losses included in other comprehensive income are reclassified to earnings when the hedged item is recognized in earnings. Revenues Product sales are recognized when product is shipped to our customers. Our sales are made FOB shipping point and we believe that collectibility is reasonably assured at the time of shipment. Product sales are recorded net of reserves for estimated chargebacks, returns, discounts, Medicaid rebates and administrative fees. We maintain reserves based on historical results that we believe are sufficient to cover estimated future requirements. Allowances for discounts, returns and bad debts, which are netted against accounts receivable, totaled $25,529,000 at December 31, 2001 and $26,323,000 at December 31, 2000. Reserves for chargebacks, Medicaid rebates and administrative fees are included in accounts payable and totaled $18,601,000 at December 31, 2001 and $18,056,000 at December 31, 2000. Shipping and handling costs are included in cost of product sales and are not significant. Revenues earned under royalty, licensing and other contractual agreements are recognized based upon required performance under the terms of the underlying agreements. Royalties from licensees are received quarterly or semi-annually in arrears, based on third-party product sales and are recognized based on the period in which the underlying products are sold. If we are unable to reasonably estimate royalty income under a particular agreement, we will recognize revenue when actual amounts are known. License fees, milestones and other contract fees for which no further performance obligations exist, and there is no continuing involvement by us, are recognized on the earlier of when the payments are received or when collection is assured. If there is an ongoing service or performance requirement, or payments are dependent upon a future contingency, revenue is deferred and recognized over the applicable service period or when the contingency is resolved. Advertising Costs The costs of advertising are expensed as incurred. We incurred advertising costs of $5,098,000 in 2001, $4,163,000 in 2000 and $2,843,000 in 1999. Net income per common share Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is calculated using the weighted average number of common 60 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 2. Basis of Presentation and Summary of Significant Accounting Policies, continued shares outstanding plus the weighted average dilutive effect of outstanding stock options using the "treasury stock" method and the weighted average effect of convertible debt, if dilutive. Reclassifications For comparison purposes, prior-year amounts in the consolidated financial statements have been reclassified to conform to current-year presentations. Impact of Recently Issued Accounting Standards During June 2001, the Financial Accounting Standards Board, or FASB, issued SFAS 141 (Business Combinations) and SFAS 142 (Goodwill and Other Intangible Assets). SFAS 141 requires all business combinations initiated after June 30, 2001 be accounted for under the purchase method and that certain acquired intangible assets in a business combination be recognized as assets separate from goodwill. SFAS 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment and that intangible assets other than goodwill be amortized over their useful lives. The provisions of SFAS 142 will be effective for January 1, 2002. Currently, we expect that the adoption of these standards will not have a significant impact on our financial position, cash flows or results of operations. During June 2001, the FASB issued SFAS 143 (Accounting for Asset Retirement Obligations) which will be effective on January 1, 2003. This Statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We are currently evaluating this statement and do not anticipate the adoption of SFAS 143 will have a material impact on our financial position, cash flows or results of operations. During August 2001, the FASB issued SFAS 144 (Accounting for the Impairment or Disposal of Long-Lived Assets) which is effective for the Company on January 1, 2002. This Statement supersedes FASB Statement 121 (Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of) and other related accounting guidance. We are currently evaluating this statement and do not anticipate the adoption of SFAS 144 will have a material impact on our financial position, cash flows or results of operations. 61 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 3. Investments Information about our investments follows (in thousands):
Gross Gross Amortized Unrealized Unrealized December 31, 2001 Fair Value Cost Gains Losses - ----------------- ---------- ---------- ---------- ---------- Money market, commercial paper and other $ 831,157 $ 824,459 $ 7,706 $(1,008) Corporate debt securities 275,732 274,664 4,216 (3,148) U.S. government and agency obligations 366,373 358,486 8,417 (530) Corporate equity securities 31,950 26,525 7,639 (2,214) ---------- ---------- ------- ------- $1,505,212 $1,484,134 $27,978 $(6,900) ========== ========== ======= ======= December 31, 2000 - ----------------- Money market, commercial paper and other $ 137,411 $ 137,397 $ 16 $ (2) Corporate debt securities 667,572 660,583 9,089 (2,100) U.S. government and agency obligations 777,101 770,055 7,072 (26) Corporate equity securities 48,627 31,995 22,453 (5,821) ---------- ---------- ------- ------- $1,630,711 $1,600,030 $38,630 $(7,949) ========== ========== ======= =======
2001 2000 ---------- ---------- Classification in the balance sheet: Cash and cash equivalents $ 49,225 $ 530,041 Short-term investments 659,037 1,052,043 Restricted cash and investments 765,000 - Investments 31,950 48,627 ---------- ---------- $1,505,212 $1,630,711 ========== ==========
The following table summarizes contractual maturity information for securities with known maturity dates at December 31, 2001 (in thousands):
Amortized Fair Value Cost ---------- ---------- Less than one year $ 652,048 $ 648,838 Due in 1-5 years 604,584 593,772 Due after 5 years 216,630 214,999 ---------- ---------- Total $1,473,262 $1,457,609 ========== ==========
Realized gains were $16,304,000 for 2001 and $6,438,000 for 2000. Realized losses were $6,816,000 for 2001 and $2,158,000 for 2000. There were no material realized gains or losses for 1999. We review our investments on a regular basis for impairment. Securities trading below their original costs for a period of time considered "other than temporary" are written down to current fair value. During 2001, we wrote down approximately $1,976,000 of securities meeting this criteria. There were no securities written down in 2000 and 1999. 62 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 4. Property, Plant and Equipment The major categories of property, plant and equipment, at historical cost, consist of the following (in thousands):
2001 2000 --------- -------- Land $ 18,273 $ 17,874 Buildings and improvements 104,935 103,188 Equipment 147,540 108,886 Leasehold improvements 46,960 39,971 --------- -------- 317,708 269,919 Less accumulated depreciation and amortization (117,279) (95,870) --------- -------- Property, plant and equipment, net $ 200,429 $174,049 ========= ========
Note 5. Helix Project In March 2001, we entered into a seven and one-half year lease to finance construction of our new research and technology center in Seattle, Washington, known as the Helix Project. The total cost of the project, including financing costs, is expected to be up to $750,000,000. As part of the lease transaction, we are required to restrict as collateral, cash or investment securities worth $765,000,000 during the construction of the project and 102% of the funds borrowed by the lessor thereafter. The restricted investments consist primarily of money market investments with maturities of one-year or less and are carried at fair value. These investments are held in our name, are restricted as to their withdrawal and are classified as non-current on our balance sheet. The lease is classified as an operating lease for financial reporting purposes, which means that the cost of the facility and related financing obligation are not reflected on our balance sheet. The construction costs of the Helix Project are paid by the lessor, who is the borrower under a loan that is funded using the proceeds of commercial paper. In order to support the placement of the commercial paper, a syndicate of banks has agreed to provide a back-up credit facility that is subject to an annual renewal commitment. If all or some of the banks elect not to renew their commitment under this back-up credit facility, they would be required to provide a bank loan for the duration of the lease term in an amount equal to the size of their commitment under the back-up credit facility. However, the rates on such bank loan may not be as favorable as the rates obtained using commercial paper for financing. In addition, we may, at any time during the term of the lease, purchase the facility for the amount of cumulative financed project costs incurred. At the end of the lease term, if we elect not to renew the lease or do not exercise our option to purchase the facility, we have guaranteed to pay any loss incurred by the lessor upon the sale of the facility for amounts up to 89.5% of the project costs. Under the terms of the agreement, we are required to maintain certain financial ratios and meet other covenants regarding the conduct of our business. If we were to violate any of these covenants and were unable to restructure the financing or obtain a waiver, we could be obligated to pay the lessor the cumulative financed project costs at such time. Our proposed merger with Amgen (see Note 15) would violate one of these covenants. We expect to review this financing arrangement in light of the merger and the anticipated needs of the combined company. We may be able to renegotiate the relevant terms of the covenants or obtain a waiver if it was in the best interest of the combined company. At December 31, 2001, the construction costs incurred and amount financed totaled approximately $106,000,000 and is expected to total $750,000,000 at completion of the project. Lease payments begin upon completion of the facility, which is expected to be no later than September 2003, and are variable throughout the lease term based on a LIBOR rate (see Note 12). 63 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 6. Long-Term Obligations Long term obligations totaled $764,000 at December 31, 2001 and $796,000 at December 31, 2000. Our current portion of long term obligations totaled $31,000 at December 31, 2001 and 2000. We had no interest-bearing debt in 2001. We had no interest-bearing debt in 2000 or 1999, other than the convertible note held by AHP. The balance sheet carrying value for all of our financial instruments approximates fair value based on their short-term nature. In May 1999, we issued a seven-year, 3% convertible subordinated note to AHP. On October 31, 2000, AHP converted the principal amount of the $450 million note into 15,544,041 shares of our common stock. The note, which was due in 2006, was converted into newly issued shares at a price of $28.95 a share. Interest paid on the note totaled $13,500,000 in 2000 and $6,038,000 in 1999. Note 7. Shareholders' Equity Stock options We may grant stock options, both incentive and non qualified, to any employee, including officers, under the 1993 stock option plan and the 1999 stock option plan. There were a total of 74,703,204 and 36,000,000 shares of common stock authorized for issuance under the 1993 stock option plan and the 1999 stock option plan, respectively. Options are granted to current employees by a committee of our Board of Directors. Under both plans, options are not granted with exercise prices less than the fair market value of our common stock at the date of grant. Each outstanding option has a term of 10 years from the date of grant and becomes exercisable at a rate of 20% per year beginning one year from the date of grant, with the exception of certain grants issued in 2001 which vest 60% beginning three years from the date of grant and vest 20% in the fourth and fifth year from the date of grant. We also have a stock option plan with 1,200,000 shares of common stock reserved for issuance to nonemployee directors that provides each such director an initial grant of an option to purchase 10,000 shares of common stock and an annual grant of 5,000 shares thereafter. The annual grant is subject to proportionate adjustment for any stock split that occurs within 90 days before the annual grant. Each option is granted with an exercise price equal to fair market value of our common stock on the date of grant. Each outstanding option has a term of 10 years from the date of grant and becomes exercisable at a rate of 20% per year beginning one year from the date of grant. 64 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 7. Shareholders' Equity, continued We have elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and have adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Stock options are granted with an exercise price equal to the fair market value of the stock on the date of grant and, accordingly, we do not record compensation expense for stock option grants. The following table summarizes results as if we had recorded compensation expense for the option grants (in thousands, except per share amounts):
2001 2000 1999 -------- -------- ------- Net income--as reported $169,963 $154,352 $44,324 Net income--pro forma 104,476 70,189 7,003 Net income per common share, basic--as reported $ 0.31 $ 0.30 $ 0.09 Net income per common share, basic--pro forma $ 0.19 $ 0.14 $ 0.01 Net income per common share, diluted--as reported reported $ 0.30 $ 0.28 $ 0.08 Net income per common share, diluted--pro forma $ 0.18 $ 0.13 $ 0.01
The estimated fair value of options granted in 2001 was $14.96, compared to $39.39 in 2000 and $8.17 in 1999 which were calculated using the Black-Scholes option pricing model with the following weighted average assumptions:
2001 2000 1999 --------- --------- --------- Expected life in years 6 6 6 Risk-free interest rate 3.8%-5.3% 5.0%-6.8% 5.1%-6.5% Volatility 79% 72% 74% Dividend yield - - -
Information with respect to our stock option plans is as follows:
Shares Subject Exercise Weighted Average to Option Price Range Exercise Price -------------- ------------ ---------------- Options outstanding balance at January 1, 1999 47,823,888 0.98- 6.40 $ 3.04 Granted 17,762,700 11.48-19.52 11.87 Exercised (8,670,207) 0.98- 6.40 2.31 Canceled (1,337,502) 0.98-19.52 5.97 ----------- Options outstanding balance at December 31, 1999 55,578,879 $ 0.98-19.52 $ 5.90 Options exercisable 13,472,337 2.38 Granted 6,828,120 25.88-64.73 62.10 Exercised (10,081,844) 0.98-19.52 3.64 Canceled (739,901) 1.32-64.73 15.62 ----------- Options outstanding balance at December 31, 2000 51,585,254 $ 1.02-64.73 $13.63 Options exercisable 15,032,211 4.14 Granted 6,804,030 13.25-37.31 21.51 Exercised (4,198,840) 1.04-19.52 4.56 Canceled (3,388,418) 1.19-64.73 22.83 ----------- Options outstanding balance at December 31, 2001 50,802,026 $ 1.02-64.73 $14.82 =========== Options exercisable 23,145,236 7.86
65 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 7. Shareholders' Equity, continued Shares available for future grant totaled 33,104,815 at December 31, 2001 and 36,520,427 at December 31, 2000. The following table summarizes information about stock options outstanding at December 31, 2001:
Outstanding Exercisable ------------------------------------------ ------------------------- Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Prices Options Contractual Life Exercise Price Options Exercise Price - --------------- ---------- ---------------- -------------- ---------- -------------- $ 1.02 - 1.46 6,167,378 4 years $ 1.29 6,167,378 $ 1.29 2.02 - 3.48 7,000,263 5 years 2.09 5,085,543 2.11 5.19 - 5.72 10,402,375 6 years 5.26 5,110,855 5.25 6.40 - 13.25 16,178,562 7 years 11.41 5,233,600 10.77 14.14 - 25.88 2,283,855 9 years 16.84 367,015 17.46 26.26 - 64.73 8,769,593 8 years 51.61 1,180,845 62.36 ---------- ---------- $ 1.02 - 64.73 50,802,026 $14.82 23,145,236 $ 7.86 ========== ==========
Employee Stock Purchase Plan In April 1999, we introduced an employee stock purchase plan under which 3,000,000 shares of common stock were reserved for issuance. Eligible employees may purchase a limited number of shares of our common stock at 85% of the market value at plan-defined dates. Employees purchased 239,459 shares for $3,160,000 in 2001 and 165,060 shares for $3,937,000 in 2000 under this plan. Shares reserved for future issuance At December 31, 2001, we have reserved shares of common stock for future issuances as follows: Outstanding stock options 50,802,026 Stock options available for future grant 33,104,815 Employee stock purchase plan 2,529,801 ---------- 86,436,642 ==========
Note 8. Sale of Product Rights On June 30, 2001, we sold our rights to the pharmaceutical products Amicar, methotrexate sodium injectable, leucovorin calcium and Levoprome to Xanodyne. The sale resulted in a gain of $16,000,000, which was included in other income. We also agreed to sell to Xanodyne, at cost, our remaining inventory for these products on hand as of June 30, 2001. As a result, we did not recognize any material revenues or expenses related to these products subsequent to June 30, 2001. 66 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 9. Income Taxes Significant components of the provision for income taxes are as follows (in thousands):
2001 2000 1999 ------- ------ ------- Current taxes Federal $ 3,350 $ - $ - State 587 2,296 449 ------- ------ ------- $ 3,937 $2,296 $ 449 Deferred taxes Federal $38,554 $ - $12,051 ------- ------ ------- $42,491 $2,296 $12,500 ======= ====== =======
During 2001 and 2000, federal tax expense, for financial reporting purposes, was offset by utilizing research and experimentation credits. Also, during 2001 we utilized stock option deductions and NOL carryforwards attributable to stock option deductions to offset $119,617,000 of taxable income, resulting in a tax benefit of $38,554,000 which has been recorded as a deferred tax provision and as an increase to equity. During 2000 and 1999 we utilized all of our NOL carryforwards that had been generated through operations. During 1999, a portion of the benefit from utilizing our NOL carryforwards was used to reduce the recorded value of goodwill and certain intangible product rights by $12,051,000. We paid income taxes totaling $4,317,000 in 2001, $1,681,000 in 2000 and $383,000 in 1999. Reconciliation of the U.S. federal statutory tax rate to our effective tax rate is as follows:
2001 2000 1999 ----- ----- ----- U.S. federal statutory tax rate 35.0% 35.0% 35.0% Utilization of NOL carryforwards - (34.6) (15.1) Utilization of research and experimentation credits (16.5) (0.7) - Non deductible merger related costs 0.9 - - Non deductible amortization of goodwill - - 0.5 State taxes (net of federal tax benefit) 0.2 1.5 0.8 Other 0.4 0.3 0.9 ----- ----- ----- Effective tax rate 20.0% 1.5% 22.1% ===== ===== =====
67 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 9. Income Taxes, continued Significant components of deferred tax assets and liabilities at December 31 are as follows (in thousands):
2001 2000 --------- --------- Deferred tax assets: Net operating loss carryforwards $ 191,697 $ 207,608 Research and experimentation credits - 34,493 In-process research and development 6,299 4,997 Accounts receivable allowances 9,446 9,213 Accrued liabilities 9,624 8,358 Other 8,640 3,300 --------- --------- Total deferred tax assets 225,706 267,969 Valuation allowance for deferred tax assets (214,804) (255,557) --------- --------- Net deferred tax assets 10,902 12,412 Deferred tax liabilities: Tax over book depreciation 1,461 1,294 Other 9,441 11,118 --------- --------- Total deferred tax liabilities 10,902 12,412 --------- --------- $ - $ - ========= =========
Our deferred tax assets consist primarily of the benefit resulting from unused NOL carryforwards. The amount of the NOL carryforwards are approximately $532,491,000 at December 31, 2001. The NOL carryforwards expire from 2002 through 2020. The remaining NOL carryforwards are attributable to stock option deductions and will be recorded as a reduction in federal income tax for tax purposes, but will not be used to reduce federal tax expense for financial reporting purposes. In the future, for financial reporting purposes, the benefit of all remaining NOL carryforwards will be recorded as an increase to equity when realized. Our ability to generate sufficient future taxable income for tax purposes in order to realize the benefits of our net deferred tax assets is uncertain primarily as a result of potential future stock option deductions. Therefore, a reserve of $214,804,000 and $255,557,000 has been recorded for financial reporting purposes at December 31, 2001 and 2000. This represents a decrease in the reserve of approximately $40,753,000 during 2001 and an increase of $115,837,000 during 2000. Note 10. Employee Benefits As a retirement plan, we offer a defined contribution plan covering regularly scheduled full-time, part-time and temporary employees. The plan is a salary deferral arrangement pursuant to Internal Revenue Code section 401(k) and is subject to the provisions of the Employee Retirement Income Security Act of 1974. We match 100% of the first 2% of an employee's deferred salary and 50% of the next 4% of an employee's deferred salary. Employees with five or more years of service receive a match of 100% of the first 2% of deferred salary and 75% of the next 4% of deferred salary. We recorded compensation expense resulting from matching contributions to the plan of $4,224,000 in 2001, $2,970,000 in 2000 and $2,860,000 in 1999. Note 11. Transactions with AHP On June 1, 1993, our predecessor corporation merged with a subsidiary of Cyanamid. In late 1994, all of the outstanding shares of common stock of Cyanamid were acquired by AHP. AHP and certain of its subsidiaries 68 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 11. Transactions with AHP, continued and affiliates have assumed the rights and obligations of Cyanamid under various agreements entered into at the time of the merger. In addition, we have entered into additional agreements with AHP. At December 31, 2001, AHP holds an approximate 41% interest in us. Significant transactions under these agreements are discussed in the paragraphs below. Enbrel promotion agreement In 1997, we entered into an Enbrel promotion agreement with AHP. Under the terms of the Enbrel promotion agreement, Enbrel is being promoted in the United States and Canada by the sales and marketing organization of Wyeth-Ayerst Laboratories, a division of AHP. We distribute a portion of the gross profits to AHP from U.S. and Canadian sales of Enbrel and reimburse AHP for a portion of the selling, marketing, distribution and other costs incurred in the United States and Canada for sales of Enbrel. Under the Enbrel promotion agreement, prior to and for two years following the launch of Enbrel, AHP paid a majority of these expenses. Beginning in November 2000, we and AHP began sharing these costs equally in the United States. Our obligation for such expenses, including AHP's share of gross profits from Enbrel, totaled $281,993,000 in 2001, $222,472,000 in 2000 and $120,276,000 in 1999 and have been recorded as selling, general and administrative expenses. In addition, under the Enbrel promotion agreement, we earned revenues of $736,000 in 2001, $25,000,000 in 2000 and $10,000,000 in 1999 which has been recorded as contract revenue. Enbrel was approved for use in Canada in December 2000 and became commercially available in Canada in March 2001. As part of the Enbrel promotion agreement, AHP acts as a selling agent for us in Canada. Sales of Enbrel to AHP for sale in Canada are recorded as product is shipped to customers and totaled $7,603,000 in 2001. Under subsequent agreements, we provided product and component requirements of Enbrel to AHP for sales outside the United States and Canada. We recorded revenue of $55,000 in 2001, $2,414,000 in 2000 and $3,864,000 in 1999 under these agreements. In addition, we performed activities related to Enbrel and the process of manufacturing Enbrel on behalf of AHP, and AHP agreed to reimburse us for these costs, which totaled $1,834,000 in 2001, $1,594,000 in 2000 and $1,310,000 in 1999. Distribution We have agreed to supply the commercial requirements of our products in Puerto Rico to Wyeth-Ayerst Laboratories Puerto Rico, Inc., a wholly-owned subsidiary of AHP. Net revenue recognized under this agreement totaled $4,458,000 in 2001, $3,608,000 in 2000 and $2,361,000 in 1999. Oncology Product License Agreements AHP and its sublicensees have a royalty-bearing license to sell our existing nonbiological oncology products outside the United States and Canada. We earned royalties under the agreement totaling $1,762,000 in 2001, $2,377,000 in 2000 and $2,504,000 in 1999. TACE Agreements In December 1995, we licensed exclusive worldwide rights to tumor necrosis factor alpha converting enzyme, or TACE, technology to AHP. We recognized revenue under these agreements of $1,600,000 in 1999. No revenue was recognized under these agreements in 2001 or 2000. The TACE agreements also include additional milestone payments and royalties on future product sales. Under the agreements, AHP will be responsible for further developments of TACE. 69 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 11. Transactions with AHP, continued Supply and Manufacturing We and AHP are parties to a supply agreement and a toll manufacturing agreement under which AHP manufactures and supplies the reasonable commercial requirements of oncology products at a price equal to 125% of AHP's or its subsidiaries' manufacturing costs. We and AHP also had a methotrexate distributorship agreement under which AHP agreed to supply methotrexate to us at established prices which are adjusted annually. Our rights under these agreements pertaining to Amicar, methotrexate sodium injectable, leucovorin calcium and Levoprome were transferred to Xanodyne (See Note 8). We purchased inventory totaling $5,177,000 in 2001, $4,370,000 in 2000 and $8,154,000 in 1999 from AHP and its subsidiaries under these agreements. Rhode Island Manufacturing Facility We collaborated with AHP to retrofit a large-scale manufacturing facility in Rhode Island intended for the production of Enbrel. AHP agreed to reimburse us for technical assistance provided by our personnel related to the facility. The amount reimbursable in 2001 totaled $9,446,000 and in 2000 totaled $5,324,000. In November 2001, we entered into an agreement to acquire the facility from AHP effective January 1, 2002. As part of the agreement, in December 2001, we made a deposit towards the purchase price totaling $192,778,000. We assumed ownership of the facility in January 2002 and made an additional payment towards the purchase totaling $279,892,000. A final payment totaling $27,133,000 is due for costs incurred by AHP in December 2001. Research and Development Under a license and development agreement for Enbrel, we and AHP agreed to share equally the development costs of Enbrel in the United States, Canada and Europe. AHP's share of the development costs under this agreement totaled $33,564,000 in 2001, $30,115,000 in 2000 and $23,986,000 in 1999. Under the terms of a product rights agreement, AHP may acquire exclusive worldwide rights to up to four of our future product candidates. If AHP exercises any of these rights, we would be eligible for payments and royalties on future sales of these products. However, we may elect to retain the worldwide rights to up to two of these products. In this case, AHP would be eligible for payments and royalties on future sales of these products. Convertible Subordinated Note In 1999, we issued a seven-year, 3% coupon, $450 million convertible subordinated note to AHP (See Note 6). Interest incurred on the note totaled $11,250,000 in 2000 and $8,288,000 in 1999. On October 31, 2000, AHP converted the principal amount of the $450 million note into 15,544,041 shares of our common stock. Option to Purchase Shares of our Common Stock We and AHP are parties to a 1993 governance agreement under which AHP has the option to purchase from us, on a quarterly basis, additional shares of our common stock to the extent necessary to maintain AHP's percentage ownership interest in us as of the immediately preceding quarter. The per share purchase price of these shares is equal to the fair market value of the shares, as determined in accordance with the governance agreement, on the date of AHP's purchase. AHP did not exercise its option to purchase common stock from us during 2001. AHP exercised the option to purchase 1,042,995 shares for $28,859,000 in 2000 and 3,498,726 shares for $40,777,000 in 1999. In November 2000, AHP sold 60,500,000 shares of our common stock in a public offering. Under Section 16(b) of the Securities Exchange Act of 1934, as amended, AHP was required to remit to us $10,628,000 70 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 11. Transactions with AHP, continued in short-swing profits related to shares of our common stock that were purchased by AHP on the open market in the second quarter of 2000 and subsequently sold at a profit by AHP in connection with the November public offering. Note 12. Commitments and Contingencies We lease office and laboratory facilities under noncancelable operating leases that expire through December 2010. These leases provide us with options to renew the leases at fair market rentals through August 2015. A summary of minimum future rental commitments under noncancelable operating leases at December 31, 2001 follows (in thousands):
Operating Year Ended December 31, Leases ----------------------- --------- 2002 $14,123 2003 13,687 2004 11,379 2005 6,280 2006 1,321 Thereafter 2,714 ------- Total minimum lease payments $49,504 =======
Rental expense on operating leases was $12,802,000 in 2001, $8,156,000 in 2000 and $5,183,000 in 1999. In March 2001, we entered into a seven and one-half year lease to finance the initial phase of our new research and technology center, known as the Helix Project (See Note 5). The lease is classified as an operating lease and provides 30 months to construct the project. Lease payments begin upon completion of the facility and are variable throughout the lease term based on a LIBOR rate. The historical 30 day LIBOR rate over the past 10 years has approximated 5.0% but has decreased to as low as 2.0% during 2001. The following table summarizes the annual lease payment at various 30 day LIBOR rates, assuming an estimated cost to construct the facility of $750,000,000:
Corresponding Annual Lease Payment Average Annual 30 day LIBOR rate (in thousands) -------------------------------- -------------------- 2.0% $17,000 3.0% 24,500 4.0% 32,000 5.0% 39,500 6.0% 47,000 7.0% 54,500
We are utilizing a contract manufacturer for the production of Enbrel. At December 31, 2001, we had made commitments to purchase inventory totaling at least $161,000,000 over the next three years. A portion of this inventory will be purchased by AHP from the contract manufacturer. 71 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 12. Commitments and Contingencies, continued Various license agreements exist that require us to pay royalties based on a percentage of sales of products manufactured using licensed technology or sold under license. These agreements contain minimum annual royalty provisions as follows (in thousands):
Minimum Annual Year Ending December 31 Royalty Payment ----------------------- --------------- 2002 $2,700 2003 200 2004 200 2005 200 2006 200 Per year thereafter 200
According to press reports, approximately 20 pharmaceutical companies are under investigation by the U.S. Department of Justice, U.S. Department of Health and Human Services and/or state agencies related to the pricing of their products. We have received notice from the U.S. Department of Justice requesting us to produce documents in connection with a Civil False Claims Act investigation of the pricing of our current and former products for sale and eventual reimbursement by Medicare or state Medicaid programs. We also have received similar requests from the U.S. Department of Health and Human Services and state agencies. Several of our current and former products are or were regularly sold at substantial discounts from list price. We require in our contracts of sale that the purchasers appropriately disclose to governmental agencies the discounts that we give to them. We do not know what action, if any, the federal government or any state agency will take as a result of their investigations. We do not believe these matters will have a material adverse impact on our future financial position, liquidity and results of operations. On November 27, 2001, the Action Alliance of Senior Citizens of Greater Philadelphia filed suit in the United States District Court for the Western District of Washington against us alleging monopolistic, anticompetitive conduct in an industry-wide scheme to defraud the consumer by manipulating the average wholesale price and selling drugs to physicians at prices below the reimbursement cost charged to Medicare. On December 19, 2001, Citizens for Consumer Justice and others filed suit against us and other pharmaceutical companies in the United States District Court for the District of Massachusetts making similar allegations. These two proposed class action lawsuits allege violations of antitrust laws. Similar proposed class actions have been filed in approximately a dozen courts across the country against most of the major pharmaceutical companies. At this time, we do not know what relief is being sought from us. We do not believe these matters will have a material adverse impact on our future financial position, liquidity and results of operations. There have been three class action suits filed against us related to our pending merger with Amgen (see Note 15). As these cases are in their preliminary stages, the likely outcomes of the cases are unknown. We believe the ultimate resolution of these matters will not have a material adverse impact on our future financial position, liquidity and results of operations. Immunex is party to routine litigation incident to our business. We believe the ultimate resolution of these routine matters will not have a material adverse impact on our future financial position, liquidity and results of operations. Note 13. Concentrations of Risk Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of investments and trade accounts receivable. 72 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 13. Concentrations of Risk, continued We maintain cash, cash equivalents, and investments with various financial institutions. These financial institutions are located throughout the country and our policy is designed to limit exposure to any one institution. Our investments are managed by outside investment advisers who perform periodic evaluations of the relative credit standings of those financial institutions that are considered in our investment strategy. The trade accounts receivable balance represents our most significant concentration of credit risk. We perform ongoing credit evaluations of our customers, if appropriate, and we do not require collateral on accounts receivable. Our sales are primarily to pharmaceutical wholesalers. During 2001, approximately 70% of our product sales were made to three of these wholesalers. Financial insolvency by one or more of these wholesalers would require us to write off all or a portion of the amounts due us. As of December 31, 2001, the amount due us from these wholesalers totaled $82,037,000. We maintained credit insurance coverage during 2001 based on our credit exposure. However, this insurance coverage was limited and may not provide us with adequate coverage against losses. We have elected not to renew our current credit insurance policy, which expired on January 31, 2002. Sales of Enbrel accounted for 79% of total product sales for the year ended December 31, 2001. Currently, all finished dosage forms of Enbrel are manufactured for us by a single contract manufacturer. If this source of supply were disrupted, sales of Enbrel would be adversely affected. Note 14. Net Income per Common Share Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is calculated using the weighted average number of common shares outstanding plus the weighted average dilutive effect of outstanding stock options using the "treasury stock" method. The components for calculating net income per share are set forth in the following table (in thousands, except per share data):
Year ended December 31, -------------------------- 2001 2000 1999 -------- -------- -------- Net income $169,963 $154,352 $ 44,324 ======== ======== ======== Weighted average common shares outstanding, basic 542,900 506,847 489,390 Net effect of dilutive stock options 26,177 42,403 40,584 -------- -------- -------- Weighted average common shares outstanding, diluted 569,077 549,250 529,974 ======== ======== ======== Net income per common share, basic $ 0.31 $ 0.30 $ 0.09 ======== ======== ======== Net income per common share, diluted $ 0.30 $ 0.28 $ 0.08 ======== ======== ========
While the conversion by AHP of its convertible subordinated note was outstanding during 2000 and 1999, the 15,544,041 shares issuable upon the conversion of the note were not included in the calculation of diluted earnings per share because the effect, including the effect on adjusted net income, would have been anti dilutive. Some of our outstanding stock options were not included in the calculation of diluted earnings per share because the effect would have been anti dilutive. These shares totaled 9,608,768 in 2001 and 6,121,456 in 2000. All outstanding stock options were included in the calculation of diluted earnings per share in 1999. 73 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 15. Agreement to Merge with Amgen Inc. On December 17, 2001, we announced that we had entered into an Agreement and Plan of Merger with Amgen Inc. and AMS Acquisition Inc., a wholly-owned subsidiary of Amgen. The merger is contingent upon approval of both our shareholders and Amgen's stockholders and subject to the satisfaction of certain closing conditions, including the review by the FTC and other regulatory authorities. We expect the merger to close in the second half of 2002, however this timing may be affected by review of the transaction by the FTC, the SEC and other regulatory authorities. Under the terms of the agreement, AMS Acquisition Inc. will be merged with and into us, we will become a wholly-owned subsidiary of Amgen and each issued and outstanding share of our common stock will be converted into the right to receive 0.44 of a share of Amgen common stock and $4.50 in cash. In addition, each outstanding stock option of our common stock will be exchanged for a certain number of options of Amgen. During the fourth quarter of 2001, we incurred $5,619,000 in merger costs and will incur significant merger-related costs in 2002 which we expect to be in the range of $40,000,000 to $45,000,000 primarily related to financial advisory, legal and accounting fees. The majority of the 2002 costs are contingent upon the consummation of the merger and, accordingly, are not expected to significantly impact our results of operations unless and until the merger is completed. If the merger is terminated by us, we may be required to pay a termination fee of $475,000,000 to Amgen or reimburse Amgen for up to $15,000,000 of Amgen's expenses. Note 16. Subsequent Event On March 7, 2002, ZymoGenetics, Inc., or ZymoGenetics, filed a patent infringement lawsuit, related to U.S. patents having claims directed to specified fusion proteins comprising immunoglobulin constant region domains and specified processes for making these proteins, against us in the United States District Court for the Western District of Washington. ZymoGenetics seeks a declaration of infringement and available remedies under the patent laws, including monetary damages and injunctive relief. We fully intend to vigorously defend ourselves against the allegations of ZymoGenetics. If ZymoGenetics prevails, our ability to market and sell Enbrel could be adversely affected unless we were able to negotiate a license or similar arrangement. As with any litigation, we are not able to determine the final outcome of the case at this time. However, we believe the allegations are without merit. 74 IMMUNEX CORPORATION Notes to Consolidated Financial Statements Note 17. Quarterly Financial Results (unaudited) Our consolidated operating results for each quarter of 2001 and 2000 are summarized as follows (in thousands):
Three Months Ended ---------------------------------------------- March 31 June 30 September 30 December 31 ---------- ---------- ------------ ----------- Year ended December 31, 2001: Product sales $ 211,846 $ 231,183 $242,832 $273,725 Royalty and contract revenue 5,993 7,106 10,131 3,989 Gross profit/2/ 153,063 166,907 179,137 204,356 Operating income 16,888 20,787 28,430 31,310 Net income $ 39,833 $48,817/1/ $ 39,687 $ 41,626 Net income per common share: Basic $ 0.07 $ 0.09 $ 0.07 $ 0.08 Diluted $ 0.07 $ 0.09 $ 0.07 $ 0.07 Year ended December 31, 2000: Product sales $ 166,698 $ 196,196 $217,158 $248,776 Royalty and contract revenue 12,340/3/ 16,954/4/ 1,815 1,892 Gross profit/2/ 118,895 139,167 151,818 175,804 Operating income 24,235 32,986 20,644 29,725 Net income $ 32,161 $ 41,513 $ 31,522 $ 49,156 Net income per common share: Basic $ 0.06 $ 0.08 $ 0.06 $ 0.09 Diluted $ 0.06 $ 0.08 $ 0.06 $ 0.09
- -------- /1/ Includes $16.0 million gain from the sale of our rights in primarily generic pharmaceutical products Amicar, methotrexate sodium injectable, leucovorin calcium and Levoprome. /2/ Gross profit is calculated by deducting cost of product sales from product sales. /3/ Includes $10.0 million earned under the Enbrel promotion agreement when U.S. sales of Enbrel exceeded $400.0 million for the preceding 12-month period. /4/ Includes $15.0 million earned under the Enbrel promotion agreement when Enbrel was approved by the FDA for reducing signs and symptoms and delaying structural damage in patients with moderately to severely active RA. 75 Report of Ernst & Young LLP, Independent Auditors Shareholders and Board of Directors Immunex Corporation We have audited the accompanying consolidated balance sheets of Immunex Corporation as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 Immunex Corporation as of December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for the each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 2 to the consolidated financial statements, Immunex Corporation adopted Statement of Financial Accounting Standard No. 133, Accounting for Derivative and Hedging Activities, effective January 1, 2001. /s/ Ernst & Young LLP Seattle, Washington January 22, 2002, except for Note 16 as to which the date is March 8, 2002 76 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant The information required by this item is incorporated by reference from the sections labeled "Election of Directors" and "Executive Officers" in our definitive proxy statement for the annual meeting of shareholders to be held on May 16, 2002. We will file the proxy statement within 120 days of December 31, 2001. Item 11. Executive Compensation The information required by this item is incorporated by reference from the section labeled "Executive Compensation" in our definitive proxy statement for the annual meeting of shareholders to be held on May 16, 2002. We will file the proxy statement within 120 days of December 31, 2001. Item 12. Security Ownership of Beneficial Owners and Management The information required by this item is incorporated by reference from the sections labeled "Principal Shareholders" and "Security Ownership of Management" in our definitive proxy statement for the annual meeting of shareholders to be held on May 16, 2002. We will file the proxy statement within 120 days of December 31, 2001. Item 13. Relationships and Related Transactions The information required by this item is incorporated by reference from the section labeled "Relationship with AHP" in our definitive proxy statement for the annual meeting of shareholders to be held on May 16, 2002. We will file the proxy statement within 120 days of December 31, 2001. 77 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K (a) The following documents are filed as part of this Form 10-K: 1. Financial Statements. The following consolidated financial statements are included in Part II, Item 8:
Page in Form 10-K --------- Consolidated Balance Sheets at December 31, 2001, and 2000 54 Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999 55 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001, 2000 and 1999 56 Consolidated Statements of Cash Flows for the years December 31, 2001, 2000 and 1999 57 Notes to Consolidated Financial Statements for the years ended December 31, 2001, 2000 and 1999 58 - 75 Report of Ernst & Young LLP, Independent Auditors 76
2. Financial Statement Schedule. The following schedule supporting the foregoing consolidated financial statements for the years ended December 31, 2001, 2000 and 1999 is filed as part of this Form 10-K:
Page in Form 10-K --------- II - Valuation and Qualifying Accounts 85
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. 78 3. Exhibits
Exhibit Number Description - ------ ----------- 2.1 Amended and Restated Agreement and Plan of Merger, dated as of December 15, 1992, among Immunex, American Cyanamid Company, Lederle Parenterals, Inc. and Lederle Oncology Corporation. (Exhibit 2.1) (B) 2.2 Agreement and Plan of Merger, dated as of December 16, 2001, by and among Amgen Inc., AMS Acquisition Inc. and Immunex. (Exhibit 2.1) (O) 3.1 Restated Articles of Incorporation of Immunex Corporation, as filed with the Secretary of State of Washington on February 22, 2000. (Exhibit 3.1) (H) 3.2 Amended and Restated Bylaws. (Exhibit 3.2) (I) 9.1 Shareholder Voting Agreement, dated as of December 16, 2001, by and among Amgen Inc., American Home Products Corporation, MDP Holdings, Inc. and Lederle Parenterals, Inc. (Exhibit 2.2) (O) 10.1 Real Estate Purchase and Sale Agreement by and between Cornerstone-Columbia Development Company (CCDC) and Immunex, dated November 12, 1986; Master Lease, dated as of August 20, 1981 between OTR, an Ohio General Partnership, and CCDC; Assignment of Master Lease between CCDC and Immunex, dated December 17, 1986; Consent to Assignment of Master Lease from OTR to CCDC, Immunex and Weyerhaeuser Real Estate Company, dated as of December 8, 1986. (Exhibit 10.22) (A) 10.2 Amendment to Master Lease, dated as of May 1, 1994, between Immunex and Watumull Enterprises, LTD. (Exhibit 10.2) (C) 10.3 Amended and Restated Lease Agreement, dated December 21, 1994, between Immunex and the Central Life Assurance Company. (Exhibit 10.3) (C) 10.4 Amended and Restated Governance Agreement, dated as of December 15, 1992, among Immunex, American Cyanamid Company and Lederle Oncology Corporation. (Exhibit 2.2) (B) 10.5 Amendment No. 1 to the Amended and Restated Governance Agreement among Immunex, American Home Products Corporation and American Cyanamid Company, dated as of May 20, 1999. (Exhibit 10.7) (H) 10.6 Amendment No. 2 to the Amended and Restated Governance Agreement among Lederle Oncology Corporation, American Cyanamid Company and Immunex Corporation, dated as of August 9, 2000. (Exhibit 10.1) (K) 10.7 Agreement between Immunex and American Home Products Corporation, dated as of September 23, 1994. (Exhibit 10.24) (C) 10.8 TNFR License and Development Agreement between Immunex and the Wyeth-Ayerst Laboratories division of American Home Products Corporation, dated as of July 1, 1996. (Exhibit 10.2) (D) 10.9* Enbrel Promotion Agreement between Immunex and American Home Products Corporation, dated as of September 25, 1997. (Exhibit 10.1) (E) 10.10* Product Rights Agreement among Immunex, American Home Products Corporation and American Cyanamid Company, dated as of July 1, 1998. (Exhibit 10.1) (F) 10.11 Amendment No. 1 to the Product Rights Agreement among Immunex, American Home Products Corporation and American Cynamid Company, dated May 20, 1999. (Exhibit 10.15) (H) 10.12* Enbrel Supply Agreement among Immunex, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated as of November 5, 1998. (Exhibit 10.18) (G)
79
Exhibit Number Description - ------ ----------- 10.13* Amendment No. 1 to the Enbrel Supply Agreement among Immunex, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated June 27, 2000. (Exhibit 10.1) (J) 10.14++ Immunex Corporation 1993 Stock Option Plan, as Amended and Restated on April 25, 2000. 10.15++ Addendum to the Immunex Corporation 1993 Stock Option Plan. 10.16++ Immunex Corporation Stock Option Plan for Nonemployee Directors, as Amended and Restated on April 18, 2000. 10.17++ Addendum to the Immunex Corporation Stock Option Plan for Nonemployee Directors. 10.18++ Immunex Corporation 1999 Employee Stock Purchase Plan, as Amended and Restated on April 25, 2000. 10.19++ Immunex Corporation 1999 Stock Option Plan, as Amended and Restated on April 25, 2000. 10.20++ Addendum to the Immunex Corporation 1999 Stock Option Plan, as Amended and Restated in April 25, 2000. 10.21 Stock Option Grant Program for Nonemployee Directors under the Immunex Corporation Amended and Restated 1999 Stock Option Plan, dated as of February 8, 2001. (Exhibit 10.20) (I) 10.22 Form of Indemnification Agreement between Immunex and each of its Directors and Executive Officers. (Exhibit 10.2) (J) 10.23 Lease between Immunex and Immunex Real Estate Trust 2001, dated as of March 2, 2001. (Exhibit 10.1) (L) 10.24 Guarantee among Immunex, Immunex Manufacturing Corporation, Immunex Real Estate Trust 2001, Immunex Funding Corporation and various financial institutions, dated as of March 2, 2001. (Exhibit 10.2) (L) 10.25 Agency Agreement between Immunex and Immunex Real Estate Trust 2001, dated as of March 2, 2001. (Exhibit 10.3) (L) 10.26* Supply Transfer Agreement between Immunex Corporation and MedImmune, Inc., dated as of March 21, 2001. (Exhibit 10.1) (M) 10.27* Collaboration and Global Supply Agreement, dated as of November 6, 2001, by and between Immunex Corporation and American Home Products Corporation, acting through its Wyeth-Ayerst Pharmaceuticals division. (Exhibit 10.2) (N) 10.28* Purchase Agreement, dated as of November 6, 2001, by and among American Home Products Corporation, AHP Subsidiary Holding Corporation, and Immunex Corporation. (Exhibit 10.1) (N) 10.29 Amendment No. 1 to Purchase Agreement, dated as of December 21, 2001, by and among American Home Products Corporation, AHP Subsidiary Holding Corporation and Immunex Corporation. (Exhibit 10.2) (P) 10.30++ Severance Agreement between Immunex Corporation and Peggy V. Phillips, dated as of December 16, 2001 10.31++ Severance Agreement between Immunex Corporation and Douglas E. Williams, dated as of December 16, 2001. 10.32++ Severance Agreement between Immunex Corporation and David A. Mann, dated as of December 16, 2001.
80
Exhibit Number Description - ------ ----------- 10.33++ Severance Agreement between Immunex Corporation and Barry G. Pea, dated as of December 16, 2001. 10.34++ Immunex Corporation Retention Plan, dated as of December 16, 2001. 10.35++ Immunex Amended and Restated Leadership Continuity Plan, dated as of October 25, 2001. 21.1++ Subsidiaries of the Registrant. 23.1++ Consent of Ernst & Young LLP, Independent Auditors. 24.1++ Power of Attorney.
- -------- /* Confidential treatment granted as to certain portions. / ++ Filed herewith. (A) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1986. (B) Incorporated by reference to designated exhibit included in the Registration Statement on Form S-4 (SEC File No. 33-60254) filed by Lederle Oncology Corporation March 18, 1993. (C) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (D) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated July 1, 1996. (E) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated September 25, 1997. (F) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated July 1, 1998. (G) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. (H) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. (I) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (J) Incorporated by reference to designated exhibit included with Immunex's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2000. (K) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated August 9, 2000. (L) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated March 5, 2001. (M) Incorporated by reference to designated exhibit included with Immunex's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001. (N) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated November 6, 2001. (O) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated December 17, 2001. (P) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated January 18, 2002. 81 (b) Reports on Form 8-K. We filed two reports on Form 8-K during the quarter ended December 31, 2001. On November 6, 2001, we disclosed that we and AHP had entered into agreements related to both the transfer of ownership of a biopharmaceutical manufacturing facility in West Greenwich, Rhode Island, from AHP to Immunex and the manufacture, supply, inventory, and allocation of supplies of Enbrel throughout the world. On December 17, 2001, we disclosed that we had entered into an Agreement and Plan of Merger with Amgen Inc. and AMS Acquisition Inc., a wholly-owned subsidiary of Amgen. 82 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, hereunto duly authorized. IMMUNEX CORPORATION REGISTRANT By: /S/ DAVID A. MANN March 7, 2002 ----------------------------- David A. Mann Executive Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: /S/ EDWARD V. FRITZKY March 7, 2002 - ----------------------------- Edward V. Fritzky Chief Executive Officer, President, Chairman of the Board and Director (Principal Executive Officer) /S/ PEGGY V. PHILLIPS March 7, 2002 - ----------------------------- Peggy V. Phillips Executive Vice President, Chief Operating Officer and Director /S/ DOUGLAS E. WILLIAMS March 7, 2002 - ----------------------------- Douglas E. Williams Executive Vice President, Chief Technology Officer and Director /S/ DAVID A. MANN March 7, 2002 - ----------------------------- David A. Mann Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) /S/ KIRBY L. CRAMER* March 7, 2002 - ----------------------------- Kirby L. Cramer Director /S/ ROBERT J. HERBOLD* March 7, 2002 - ----------------------------- Robert J. Herbold Director /S/ JOHN E. LYONS* March 7, 2002 - ----------------------------- John E. Lyons Director 83 /S/ JOSEPH M. MAHADY* March 7, 2002 - ---------------------------------- Joseph M. Mahady Director /S/ EDITH W. MARTIN* March 7, 2002 - ---------------------------------- Edith W. Martin Director /S/ LAWRENCE V. STEIN* March 7, 2002 - ---------------------------------- Lawrence V. Stein Director *By: /S/ DAVID A. MANN March 7, 2002 ----------------------------- David A. Mann Attorney-in-Fact 84 SCHEDULE II IMMUNEX CORPORATION VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 2001, 2000 and 1999 (In thousands)
Additions Balance Charged at to Balance Beginning Product at End of of Period Sales Deductions Period --------- --------- ---------- --------- Year ended December 31, 1999: Reserve for discounts, returns and bad debts $11,627 $26,622 $16,425 $21,824 ======= ======= ======= ======= Reserve for chargebacks, Medicaid rebates and administrative fees $12,610 $49,702 $40,342 $21,970 ======= ======= ======= ======= Year ended December 31, 2000: Reserve for discounts, returns and bad debts $21,824 $33,336 $28,837 $26,323 ======= ======= ======= ======= Reserve for chargebacks, Medicaid rebates and administrative fees $21,970 $83,845 $87,759 $18,056 ======= ======= ======= ======= Year ended December 31, 2001: Reserve for discounts, returns and bad debts $26,323 $29,141 $29,935 $25,529 ======= ======= ======= ======= Reserve for chargebacks, Medicaid rebates and administrative fees $18,056 $90,434 $89,889 $18,601 ======= ======= ======= =======
85 EXHIBIT INDEX
Exhibit Number Description - ------ ----------- 2.1 Amended and Restated Agreement and Plan of Merger, dated as of December 15, 1992, among Immunex, American Cyanamid Company, Lederle Parenterals, Inc. and Lederle Oncology Corporation. (Exhibit 2.1) (B) 2.2 Agreement and Plan of Merger, dated as of December 16, 2001, by and among Amgen Inc., AMS Acquisition Inc. and Immunex. (Exhibit 2.1) (O) 3.1 Restated Articles of Incorporation of Immunex Corporation, as filed with the Secretary of State of Washington on February 22, 2000. (Exhibit 3.1) (H) 3.2 Amended and Restated Bylaws. (Exhibit 3.2) (I) 9.1 Shareholder Voting Agreement, dated as of December 16, 2001, by and among Amgen Inc., American Home Products Corporation, MDP Holdings, Inc. and Lederle Parenterals, Inc. (Exhibit 2.2) (O) 10.1 Real Estate Purchase and Sale Agreement by and between Cornerstone-Columbia Development Company (CCDC) and Immunex, dated November 12, 1986; Master Lease, dated as of August 20, 1981 between OTR, an Ohio General Partnership, and CCDC; Assignment of Master Lease between CCDC and Immunex, dated December 17, 1986; Consent to Assignment of Master Lease from OTR to CCDC, Immunex and Weyerhaeuser Real Estate Company, dated as of December 8, 1986. (Exhibit 10.22) (A) 10.2 Amendment to Master Lease, dated as of May 1, 1994, between Immunex and Watumull Enterprises, LTD. (Exhibit 10.2) (C) 10.3 Amended and Restated Lease Agreement, dated December 21, 1994, between Immunex and the Central Life Assurance Company. (Exhibit 10.3) (C) 10.4 Amended and Restated Governance Agreement, dated as of December 15, 1992, among Immunex, American Cyanamid Company and Lederle Oncology Corporation. (Exhibit 2.2) (B) 10.5 Amendment No. 1 to the Amended and Restated Governance Agreement among Immunex, American Home Products Corporation and American Cyanamid Company, dated as of May 20, 1999. (Exhibit 10.7) (H) 10.6 Amendment No. 2 to the Amended and Restated Governance Agreement among Lederle Oncology Corporation, American Cyanamid Company and Immunex Corporation, dated as of August 9, 2000. (Exhibit 10.1) (K) 10.7 Agreement between Immunex and American Home Products Corporation, dated as of September 23, 1994. (Exhibit 10.24) (C) 10.8 TNFR License and Development Agreement between Immunex and the Wyeth-Ayerst Laboratories division of American Home Products Corporation, dated as of July 1, 1996. (Exhibit 10.2) (D) 10.9* Enbrel Promotion Agreement between Immunex and American Home Products Corporation, dated as of September 25, 1997. (Exhibit 10.1) (E) 10.10* Product Rights Agreement among Immunex, American Home Products Corporation and American Cyanamid Company, dated as of July 1, 1998. (Exhibit 10.1) (F) 10.11 Amendment No. 1 to the Product Rights Agreement among Immunex, American Home Products Corporation and American Cynamid Company, dated May 20, 1999. (Exhibit 10.15) (H) 10.12* Enbrel Supply Agreement among Immunex, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated as of November 5, 1998. (Exhibit 10.18) (G)
Exhibit Number Description - ------ ----------- 10.13* Amendment No. 1 to the Enbrel Supply Agreement among Immunex, American Home Products Corporation and Boehringer Ingelheim Pharma KG, dated June 27, 2000. (Exhibit 10.1) (J) 10.14++ Immunex Corporation 1993 Stock Option Plan, as Amended and Restated on April 25, 2000. 10.15++ Addendum to the Immunex Corporation 1993 Stock Option Plan. 10.16++ Immunex Corporation Stock Option Plan for Nonemployee Directors, as Amended and Restated on April 18, 2000. 10.17++ Addendum to the Immunex Corporation Stock Option Plan for Nonemployee Directors. 10.18++ Immunex Corporation 1999 Employee Stock Purchase Plan, as Amended and Restated on April 25, 2000. 10.19++ Immunex Corporation 1999 Stock Option Plan, as Amended and Restated on April 25, 2000. 10.20++ Addendum to the Immunex Corporation 1999 Stock Option Plan, as Amended and Restated in April 25, 2000. 10.21 Stock Option Grant Program for Nonemployee Directors under the Immunex Corporation Amended and Restated 1999 Stock Option Plan, dated as of February 8, 2001. (Exhibit 10.20) (I) 10.22 Form of Indemnification Agreement between Immunex and each of its Directors and Executive Officers. (Exhibit 10.2) (J) 10.23 Lease between Immunex and Immunex Real Estate Trust 2001, dated as of March 2, 2001. (Exhibit 10.1) (L) 10.24 Guarantee among Immunex, Immunex Manufacturing Corporation, Immunex Real Estate Trust 2001, Immunex Funding Corporation and various financial institutions, dated as of March 2, 2001. (Exhibit 10.2) (L) 10.25 Agency Agreement between Immunex and Immunex Real Estate Trust 2001, dated as of March 2, 2001. (Exhibit 10.3) (L) 10.26* Supply Transfer Agreement between Immunex Corporation and MedImmune, Inc., dated as of March 21, 2001. (Exhibit 10.1) (M) 10.27* Collaboration and Global Supply Agreement, dated as of November 6, 2001, by and between Immunex Corporation and American Home Products Corporation, acting through its Wyeth-Ayerst Pharmaceuticals division. (Exhibit 10.2) (N) 10.28* Purchase Agreement, dated as of November 6, 2001, by and among American Home Products Corporation, AHP Subsidiary Holding Corporation, and Immunex Corporation. (Exhibit 10.1) (N) 10.29 Amendment No. 1 to Purchase Agreement, dated as of December 21, 2001, by and among American Home Products Corporation, AHP Subsidiary Holding Corporation and Immunex Corporation. (Exhibit 10.2) (P) 10.30++ Severance Agreement between Immunex Corporation and Peggy V. Phillips, dated as of December 16, 2001 10.31++ Severance Agreement between Immunex Corporation and Douglas E. Williams, dated as of December 16, 2001. 10.32++ Severance Agreement between Immunex Corporation and David A. Mann, dated as of December 16, 2001. 10.33++ Severance Agreement between Immunex Corporation and Barry G. Pea, dated as of December 16, 2001.
Exhibit Number Description - ------ ----------- 10.34++ Immunex Corporation Retention Plan, dated as of December 16, 2001. 10.35++ Immunex Amended and Restated Leadership Continuity Plan, dated as of October 25, 2001. 21.1++ Subsidiaries of the Registrant. 23.1++ Consent of Ernst & Young LLP, Independent Auditors. 24.1++ Power of Attorney.
- -------- /* Confidential treatment granted as to certain portions. / ++ Filed herewith. (A) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1986. (B) Incorporated by reference to designated exhibit included in the Registration Statement on Form S-4 (SEC File No. 33-60254) filed by Lederle Oncology Corporation March 18, 1993. (C) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (D) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated July 1, 1996. (E) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated September 25, 1997. (F) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated July 1, 1998. (G) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. (H) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. (I) Incorporated by reference to designated exhibit included with Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (J) Incorporated by reference to designated exhibit included with Immunex's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2000. (K) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated August 9, 2000. (L) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated March 5, 2001. (M) Incorporated by reference to designated exhibit included with Immunex's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2001. (N) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated November 6, 2001. (O) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated December 17, 2001. (P) Incorporated by reference to designated exhibit included with Immunex's Current Report on Form 8-K, dated January 18, 2002. EX-10.14 3 dex1014.txt AMENDED & RESTATED 1993 STOCK OPTION PLAN Exhibit 10.14 IMMUNEX CORPORATION 1993 STOCK OPTION PLAN As Amended and Restated on April 25, 2000 Section 1. Purpose The purpose of the Amended and Restated 1993 Stock Option Plan (this "Plan") is to provide a means whereby selected employees, directors and officers of Immunex Corporation (the "Company"), or of any parent or subsidiary (as defined in subsection 5.8 and referred to hereinafter as "related corporations") thereof, may be granted incentive stock options and/or nonqualified stock options to purchase the Common Stock (as defined in Section 3) of the Company, in order to attract and retain the services or advice of such employees, directors and officers and to provide added incentive to such persons by encouraging stock ownership in the Company. Section 2. Administration This Plan shall be administered by a Stock Option Plan Administration Committee (the "Committee" or "Plan Administrator") appointed by the Board of Directors of the Company (the "Board") consisting of two or more members of the Board. If and so long as the Common Stock is registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended from time to time (the "Exchange Act"), the Board shall consider in selecting the Plan Administrator and the membership of any committee acting as Plan Administrator of the Plan with respect to any persons subject or likely to become subject to Section 16 under the Exchange Act the provisions regarding (a) "outside directors" as contemplated by Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and (b) "nonemployee directors" as contemplated by Rule 16b-3 under the Exchange Act. The Board may delegate the responsibility for administering the Plan with respect to designated classes of eligible Participants to different committees, subject to such limitations as the Board deems appropriate. Committee members shall serve for such term as the Board may determine, subject to removal by the Board at any time. To the extent consistent with applicable law, the Board may authorize one or more senior executive officers of the Company to grant options to specified eligible persons, within the limits specifically prescribed by the Board. All delegations of authority by the Board pursuant to this Section 2 shall be subject to the procedural requirements of Section 4.03 of the Amended and Restated Governance Agreement among American Cyanamid Company, Lederle Oncology Corporation and Immunex Corporation dated as of December 15, 1992. 2.1 Procedures The Board shall designate one of the members of the Plan Administrator as chairman. The Plan Administrator may hold meetings at such times and places as it shall determine. The acts of a majority of the members of the Plan Administrator present at meetings at which a quorum exists, or acts reduced to or approved in writing by all Plan Administrator members, shall be valid acts of the Plan Administrator. 2.2 Responsibilities Except for the terms and conditions explicitly set forth in this Plan, the Plan Administrator shall have the authority, in its discretion, to determine all matters relating to the options to be granted under this Plan, including selection of the individuals to be granted options, the number of shares to be subject to each option, the exercise price, and all other terms and conditions of the options. Grants under this Plan need not be identical in any respect, even when made simultaneously. The interpretation and construction by the Plan Administrator of any terms or provisions of this Plan or any option issued hereunder, or of any rule or regulation promulgated in connection herewith, shall be conclusive and binding on all interested parties, so long as such interpretation and construction with respect to incentive stock options correspond to the requirements of Section 422 of the Code, the regulations thereunder and any amendments thereto. 2.3 Section 16(b) Compliance and Bifurcation of Plan Notwithstanding anything in this Plan to the contrary, the Board, in its absolute discretion, may bifurcate this Plan so as to restrict, limit or condition the use of any provision of this Plan to participants who are officers and directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning this Plan with respect to other participants. Section 3. Stock Subject to This Plan The stock subject to this Plan shall be the Company's Common Stock, par value $.01.01 per share (the "Common Stock"),presently authorized but unissued. Subject to adjustment as provided in Section 7, the aggregate amount of Common Stock to be delivered upon the exercise of all options granted under this Plan shall not exceed 74,703,204/1/ shares. If any option granted under this Plan shall expire or be surrendered, exchanged for another option, cancelled or terminated for any reason without having been exercised in full, the unpurchased shares subject thereto shall thereupon again be available for purposes of this Plan, including for replacement options which may be granted in exchange for such expired, surrendered, exchanged, cancelled or terminated options. Section 4. Eligibility An incentive stock option may be granted only to an individual who, at the time the option is granted, is an employee of the Company or any related corporation. A nonqualified stock option may be granted to any employee, director or officer of the Company or any related corporation, whether an individual or an entity. Any party to whom an option is granted under this Plan shall be referred to hereinafter as an "Optionee." - --------------------- /1/ The original number of Shares in this Plan was 6,225,267. This number was adjusted to 74,703,204 as a result of a 2-for-1 stock split on March 25, 1999, a 2-for-1 stock split on August 26, 1999 and a 3-for-1 stock split on March 20, 2000. Section 5. Terms and Conditions of Options Options granted under this Plan shall be evidenced by written agreements which shall contain such terms, conditions, limitations and restrictions as the Plan Administrator shall deem advisable and which are not inconsistent with this Plan. Notwithstanding the foregoing, options shall include or incorporate by reference the following terms and conditions: 5.1 Number of Shares and Price The maximum number of shares that may be purchased pursuant to the exercise of each option and the price per share at which such option is exercisable (the "exercise price") shall be as established by the Plan Administrator; provided, however, that the maximum number of shares with respect to which an option or options may be granted to any Optionee in any one fiscal year of the Company shall not exceed 2,400,000/2/ shares (the "Maximum Annual Optionee Grant"); however, the Company may make additional one-time grants of up to 2,400,000/3/ shares to newly hired employees, provided further that the Plan Administrator shall act in good faith to establish the exercise price which shall be not less than the fair market value per share of the Common Stock at the time the option is granted with respect to incentive stock options and not less than the par value per share of the Common Stock at the time the option is granted with respect to nonqualified stock options and also provided that, with respect to incentive stock options granted to greater than 10% shareholders, the exercise price shall be as required by subsection 6.1. 5.2 Term and Maturity Subject to the restrictions contained in Section 6 with respect to granting incentive stock options to greater than 10% shareholders, the term of each incentive stock option shall be as established by the Plan Administrator and, if not so established, shall be 10 years from the date it is granted but in no event shall it exceed 10 years. The term of each nonqualified stock option shall be as established by the Plan Administrator and, if not so established, shall be 10 years. To ensure that the Company or related corporation will achieve the purpose and receive the benefits contemplated in this Plan, any option granted to any Optionee hereunder shall, unless the condition of this sentence is waived or modified in the agreement evidencing the option or by resolution adopted at any time by the Plan Administrator, be exercisable according to the following schedule: - --------------------- /2/ This number was originally 200,000, but was adjusted to 2,400,000 as a result of a 2-for-1 stock split on March 25, 1999, a 2-for-1 stock split on August 26, 1999 and a 3-for-1 stock split on March 20, 2000. /3/ This number was originally 200,000, but was adjusted to 2,400,000 as a result of a 2-for-1 stock split on March 25, 1999, a 2-for-1 stock split on August 26, 1999 and a 3-for-1 stock split on March 20, 2000. Period of Optionee's Continuous Portion of Total Option Relationship With the Company or Which Is Exercisable Related Corporation From the Date -------------------------------- the Option Is Granted - ---------------------------------------- after one year 20% after two years 40% after three years 60% after four years 80% after five years 100% Notwithstanding the foregoing, for any option granted under the Plan, the option shall become 100% vested and exercisable on the date of termination of an Optionee's employment or service relationship with the Company or a related corporation on account of the Optionee's death, provided that the Optionee has been in the continuous employment of or service to the Company or a related corporation for at least two years at the date of such Optionee's death. 5.3 Exercise Subject to the vesting schedule described in subsection 5.2, each option may be exercised in whole or in part at any time and from time to time; provided, however, that no fewer than 20% of the shares purchasable under the option (or the remaining shares then purchasable under the option, if less than 20%) may be purchased upon any exercise of option rights hereunder and that only whole shares will be issued pursuant to the exercise of any option and that the exercise price shall not be less than the par value per share of the Common Stock at the time the option is exercised. During an Optionee's lifetime, any options granted under this Plan are personal to him or her and are exercisable solely by such Optionee. Options shall be exercised by delivery to the Company of notice of the number of shares with respect to which the option is exercised, together with payment of the exercise price. 5.4 Payment of Exercise Price Payment of the option exercise price shall be made in full at the time the notice of exercise of the option is delivered to the Company and shall be in cash, bank certified or cashier's check or personal check (unless at the time of exercise the Plan Administrator in a particular case determines not to accept a personal check) for the Common Stock being purchased. The Plan Administrator can determine at any time before exercise that additional forms of payment will be permitted. To the extent permitted by applicable laws and regulations (including, but not limited to, federal tax and securities laws and regulations and state corporate law), and unless the Plan Administrator determines otherwise, an option also may be exercised, either singly or in combination with one or more of the alternative forms of payment authorized by this Section 5.4 by: (a) tendering (either actually or by attestation) shares of stock of the Company held by an Optionee having a fair market value equal to the exercise price, such fair market value to be determined in good faith by the Plan Administrator; provided, however, that payment in stock held by an Optionee shall not be made unless the stock shall have been owned by the Optionee for a period of at least six months (or any shorter period necessary to avoid a charge to the Company's earnings for financial accounting purposes); or (b) delivery of a properly executed exercise notice, together with irrevocable instructions to a broker, all in accordance with the regulations of the Federal Reserve Board, to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price and any federal, state or local withholding tax obligations that may arise in connection with the exercise. In addition, the exercise price for shares purchased under an option may be paid, either singly or in combination with one or more of the alternative forms of payment authorized by this Section 5.4, by (y) delivery of a full-recourse promissory note executed by the Optionee; provided that (i) such note delivered in connection with an incentive stock option shall, and such note delivered in connection with a nonqualified stock option may, in the sole discretion of the Plan Administrator, bear interest at a rate specified by the Plan Administrator but in no case less than the rate required to avoid imputation of interest (taking into account any exceptions to the imputed interest rules) for federal income tax purposes, (ii) the Plan Administrator in its sole discretion shall specify the term and other provisions of such note at the time an incentive stock option is granted or at any time prior to exercise of a nonqualified stock option, (iii) the Plan Administrator may require that the Optionee pledge to the Company for the purpose of securing the payment of such note the shares of Common Stock to be issued to the Optionee upon exercise of the option and may require that the certificate representing such shares be held in escrow in order to perfect the Company's security interest, and (iv) the Plan Administrator in its sole discretion may at any time restrict or rescind this right upon notification to the Optionee; or (z) such other consideration as the Plan Administrator may permit. 5.5 Withholding Tax Requirement The Company or any related corporation shall have the right to retain and withhold from any payment of cash or Common Stock under this Plan the amount of taxes required by any government to be withheld or otherwise deducted and paid with respect to such payment. At its discretion, the Company may require an Optionee receiving shares of Common Stock to reimburse the Company for any such taxes required to be withheld by the Company and withhold any distribution in whole or in part until the Company is so reimbursed. In lieu thereof, the Company shall have the right to withhold from any other cash amounts due or to become due from the Company to the Optionee an amount equal to such taxes. The Company may also retain and withhold or the Optionee may elect, subject to approval by the Company at its sole discretion, to have the Company retain and withhold a number of shares having a market value not less than the amount of such taxes required to be withheld by the Company to reimburse the Company for any such taxes and cancel (in whole or in part) any such shares so withheld. 5.6 Holding Periods 5.6.1 Securities Exchange Act Section 16 If an individual subject to Section 16 of the Exchange Act sells shares of Common Stock obtained upon the exercise of a stock option within six months after the date the option was granted, such sale may result in short-swing profit recovery under Section 16(b) of the Exchange Act. 5.6.2 Taxation of Stock Options The Plan Administrator may require an Optionee to give the Company prompt notice of any disposition of shares of Common Stock acquired by the exercise of an incentive stock option prior to the expiration of two years after the date of grant of the option and one year from the date of exercise. 5.7 Nontransferability of Options Options granted under this Plan and the rights and privileges conferred hereby may not be transferred, assigned, pledged or hypothecated in any manner (whether by operation of law or otherwise, other than by will or by the applicable laws of descent and distribution and shall not be subject to execution, attachment or similar process. Any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of any option under this Plan or of any right or privilege conferred hereby, contrary to the Code or to the provisions of this Plan, or the sale or levy or any attachment or similar process upon the rights and privileges conferred hereby shall be null and void. Notwithstanding the foregoing, if the Company permits, an Optionee may, during the Optionee's lifetime, designate a person who may exercise the option after the Optionee's death by giving written notice of such designation to the Plan Administrator. Such designation may be changed from time to time by the Optionee by giving written notice to the Plan Administrator revoking any earlier designation and making a new designation. 5.8 Termination of Relationship If the Optionee's relationship with the Company or any related corporation ceases for any reason other than termination for cause, death or total disability, and unless by its terms the option sooner terminates or expires, then the portion of the option which is not exercisable at the time of such cessation shall terminate immediately upon such cessation, unless the Plan Administrator determines otherwise, and the Optionee may exercise, for a three-month period, that portion of the option which is exercisable at the time of such cessation, and shall terminate at the end of such period following such cessation as to all shares for which it has not theretofore been exercised, unless the Plan Administrator determines otherwise. The Plan Administrator shall have sole discretion in a particular circumstance to extend the exercise period following such cessation to any date up to the termination or expiration of the option. If, however, in the case of an incentive stock option, the Optionee does not exercise the Optionee's option within three months after cessation of employment, the option will no longer qualify as an incentive stock option under the Code. If an Optionee is terminated for cause, any option granted hereunder shall automatically terminate as of the first discovery by the Company of any reason for termination for cause, and such Optionee shall thereupon have no right to purchase any shares pursuant to such option. "Termination for cause" shall mean dismissal for dishonesty, conviction or confession of a crime punishable by law (except minor violations), fraud, misconduct or disclosure of confidential information. If an Optionee's relationship with the Company or any related corporation is suspended pending an investigation of whether or not the Optionee shall be terminated for cause, all the Optionee's rights under any option granted hereunder likewise shall be suspended during the period of investigation. If an Optionee's relationship with the Company or any related corporation ceases because of a total disability, the portion of the Optionee's option that is exercisable at the time of such cessation shall not terminate or, in the case of an incentive stock option, cease to be treated as an incentive stock option until the end of the 12-month period following such cessation (unless by its terms it sooner terminates and expires). As used in this Plan, the term "total disability" refers to a mental or physical impairment of the Optionee which is expected to result in death or which has lasted or is expected to last for a continuous period of 12 months or more and which causes the Optionee to be unable, in the opinion of the Company and two independent physicians, to perform his or her duties for the Company and to be engaged in any substantial gainful activity. Total disability shall be deemed to have occurred on the first day after the Company and the two independent physicians have furnished their opinion of total disability to the Plan Administrator. Options granted under this Plan shall not be affected by any change of relationship with the Company so long as the Optionee continues to be an employee, director, officer, agent, consultant, advisor or independent contractor of the Company or of a related corporation. The Plan Administrator, in its absolute discretion, may determine all questions of whether particular leaves of absence constitute a termination of services; provided, however, that with respect to incentive stock options, such determination shall be subject to any requirements contained in the Code. The foregoing notwithstanding, with respect to incentive stock options, employment shall not be deemed to continue beyond the first 90 days of such leave, unless the Optionee's reemployment rights are guaranteed by statute or by contract. As used herein, the term "related corporation," when referring to a subsidiary corporation, shall mean any corporation (other than the Company) in, at the time of the granting of the option, an unbroken chain of corporations ending with the Company, if stock possessing 50% or more of the total combined voting power of all classes of stock of each of the corporations other than the Company is owned by one of the other corporations in such chain. When referring to a parent corporation, the term "related corporation" shall mean any corporation in an unbroken chain of corporations ending with the Company if, at the time of the granting of the option, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 5.9 Death of Optionee If an Optionee dies while he or she has a relationship with the Company or any related corporation or within the three-month period (or 12-month period in the case of totally disabled Optionees) following cessation of such relationship, any option held by such Optionee to the extent that the Optionee would have been entitled to exercise such option, may be exercised within one year after his or her death by the personal representative of his or her estate or by the person or persons to whom the Optionee's rights under the option shall pass by will or by the applicable laws of descent and distribution. 5.10 No Status As Shareholder Neither the Optionee nor any party to which the Optionee's rights and privileges under the option may pass shall be, or have any of the rights or privileges of, a shareholder of the Company with respect to any of the shares issuable upon the exercise of any option granted under this Plan unless and until such option has been exercised. 5.11 Continuation of Relationship Nothing in this Plan or in any option granted pursuant to this Plan shall confer upon any Optionee any right to continue in the employ or other relationship of the Company or of a related corporation, or to interfere in any way with the right of the Company or of any such related corporation to terminate his or her employment or other relationship with the Company at any time. 5.12 Modification and Amendment of Option Subject to the requirements of Section 422 of the Code with respect to incentive stock options and to the terms and conditions and within the limitations of this Plan, the Plan Administrator may modify or amend outstanding options granted under this Plan. The modification or amendment of an outstanding option shall not, without the consent of the Optionee, impair or diminish any of his or her rights or any of the obligations of the Company under such option. Except as otherwise provided in this Plan, no outstanding option shall be terminated without the consent of the Optionee. Unless the Optionee agrees otherwise, any changes or adjustments made to outstanding incentive stock options granted under this Plan shall be made in such a manner so as not to constitute a "modification" as defined in Section 424(h) of the Code and so as not to cause any incentive stock option issued hereunder to fail to continue to qualify as an incentive stock option as defined in Section 422(b) of the Code. 5.13 Limitation on Value for Incentive Stock Options As to all incentive stock options granted under the terms of this Plan, to the extent that the aggregate fair market value of the stock (determined at the time the incentive stock option is granted) with respect to which incentive stock options are exercisable for the first time by the Optionee during any calendar year (under this Plan and all other incentive stock option plans of the Company, a related corporation or a predecessor corporation) exceeds $100,000, such options shall be treated as nonqualified stock options. The previous sentence shall not apply if the Internal Revenue Service issues a statutory change, public rule, issues a private ruling to the Company, any Optionee or any legatee, personal representative or distributee of an Optionee or issues regulations changing or eliminating such annual limit. Section 6. Greater Than 10% Shareholders 6.1 Exercise Price and Term of Incentive Stock Options If incentive stock options are granted under this Plan to employees who own more than 10% of the total combined voting power of all classes of stock of the Company or any related corporation, the term of such incentive stock options shall not exceed five years and the exercise price shall be not less than 110% of the fair market value of the Common Stock at the time the incentive stock option is granted. This provision shall control notwithstanding any contrary terms contained in an option agreement or any other document. 6.2 Attribution Rule For purposes of subsection 6.1, in determining stock ownership, an employee shall be deemed to own the stock owned, directly or indirectly, by or for his or her brothers, sisters, spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be deemed to be owned proportionately by or for its shareholders, partners or beneficiaries. If an employee or a person related to the employee owns an unexercised option or warrant to purchase stock of the Company, the stock subject to that portion of the option or warrant which is unexercised shall not be counted in determining stock ownership. For purposes of this Section 6, stock owned by an employee shall include all stock actually issued and outstanding immediately before the grant of the incentive stock option to the employee. Section 7. Adjustments Upon Changes in Capitalization The aggregate number and class of shares for which options may be granted under this Plan, the number and class of shares covered by each outstanding option and the exercise price per share thereof (but not the total price), shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a split-up or consolidation of shares or any like capital adjustment, or the payment of any stock dividend. 7.1 Effect of Liquidation or Reorganization 7.1.1 Cash, Stock or Other Property for Stock Except as provided in subsection 7.1.2, upon a merger (other than a merger of the Company in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock in the surviving corporation immediately after the merger), consolidation, acquisition of property or stock, separation, reorganization (other than a mere reincorporation or the creation of a holding company) or liquidation of the Company, as a result of which the shareholders of the Company receive cash, stock or other property in exchange for or in connection with their shares of Common Stock, any option granted hereunder shall terminate, but the Optionee shall have the right immediately prior to any such merger, consolidation, acquisition of property or stock, liquidation or reorganization to exercise such Optionee's option in whole or in part whether or not the vesting requirements set forth in the option agreement have been satisfied. 7.1.2 Conversion of Options on Stock for Stock Exchange If the shareholders of the Company receive capital stock of another corporation ("Exchange Stock") in exchange for their shares of Common Stock in any transaction involving a merger (other than a merger of the Company in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock in the surviving corporation immediately after the merger), consolidation, acquisition of property or stock, liquidation or reorganization (other than a mere reincorporation or the creation of a holding company), the Company and the corporation issuing the Exchange Stock, in their sole discretion, may determine that all options granted hereunder shall be converted into options to purchase shares of Exchange Stock instead of terminating in accordance with the provisions of subsection 7.1.1. The amount and price of converted options shall be determined by adjusting the amount and price of the options granted hereunder in the same proportion as used for determining the number of shares of Exchange Stock the holders of the Common Stock receive in such merger, consolidation, acquisition of property or stock, liquidation or reorganization. Unless accelerated by the Board, the vesting schedule set forth in the option agreement shall continue to apply to the options granted for the Exchange Stock. 7.2 Fractional Shares In the event of any adjustment in the number of shares covered by any option, any fractional shares resulting from such adjustment shall be disregarded and each such option shall cover only the number of full shares resulting from such adjustment. 7.3 Determination of Board to Be Final All Section 7 adjustments shall be made by the Plan Administrator, and its determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. Unless an Optionee agrees otherwise, any change or adjustment to an incentive stock option shall be made in such a manner so as not to constitute a "modification" as defined in Section 424(h) of the Code and so as not to cause his or her incentive stock option issued hereunder to fail to continue to qualify as an incentive stock option as defined in Section 422(b) of the Code. Section 8. Securities Regulation Shares shall not be issued with respect to an option granted under this Plan unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, any applicable state securities laws, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance, including the availability, if applicable of an exemption from registration for the issuance and sale of any shares hereunder. Section 9. Amendment and Termination 9.1 Board Action The Board may at any time suspend, amend or terminate this Plan, provided that except as set forth in Section 7, and to the extent required for compliance with Section 422 of the Code or Section 162(m) of the Code or by any applicable law or requirement, the Company's shareholders must approve within 12 months of the adoption by the Board any amendment which will: (a) increase the total number of shares that may be issued under this Plan; (b) modify the class of participants eligible for participation in this Plan; or (c) otherwise require stockholder approval under any applicable law or regulation. Any amendment made to this Plan since its original adoption which would constitute a "modification" to incentive stock options outstanding on the date of such amendment, shall not be applicable to such outstanding incentive stock options, but shall have prospective effect only, unless the Optionee agrees otherwise. 9.2 Automatic Termination Unless sooner terminated by the Board, this Plan shall terminate ten years from the earlier of (a) the date on which this Plan is adopted by the Board or (b) the date on which this Plan is approved by the shareholders of the Company. No option may be granted after such termination or during any suspension of this Plan. The amendment or termination of this Plan shall not, without the consent of the Optionee, impair or diminish any rights or obligations under any option theretofore granted under this Plan. Section 10. Effectiveness of This Plan This This Plan shall become effective upon adoption by the Board so long as it is approved by a majority of stock represented by shareholders voting either in person or by proxy at a duly held shareholders' meeting any time within 12 months before or after the adoption of this Plan. Plan adopted by the Board of Directors on March 11, 1993 and approved by the sole stockholder on March 11, 1993. Ratified by Board of Directors on June 1, 1993. Amended on July 14, 1993. Amendment and Restatement to increase number of shares issuable approved by the Board of Directors on February 2, 1995 and by stockholders on April 26, 1995. Amended and Restated by Board of Directors on February 13, 1997. Amended and Restated by Board of Directors on April 25, 2000. EX-10.15 4 dex1015.txt ADDENDUM TO THE 1993 STOCK OPTION PLAN Exhibit 10.15 ADDENDUM TO THE IMMUNEX CORPORATION 1993 STOCK OPTION PLAN (As Amended and Restated on April 25, 2000) WHEREAS, Immunex Corporation (hereinafter referred to as the "Company") maintains the Immunex Corporation 1993 Stock Option Plan (hereinafter referred to as the "Plan"); and WHEREAS, the Company desires to adjoin an addendum (this "Addendum") to the Plan to address the effects of the transactions contemplated by the Agreement and Plan of Merger by and between Amgen Inc., AMS Acquisition Inc. and the Company dated as of December 16, 2001 (the "Merger Agreement"); NOW, THEREFORE, notwithstanding anything in the Plan to the contrary, this Addendum is hereby adopted, effective as of the Effective Time (as defined in the Merger Agreement): Section 1. At the Effective Time, each option granted pursuant the Plan shall be treated in accordance with the applicable terms of the Merger Agreement. Section 2. In the event that an optionee's employment with the Company or Amgen Inc. is terminated by the optionee for Good Reason or by the Company or Amgen Inc. without Cause during the fifteen (15) months following the Effective Time, each option held by such optionee for common stock of Amgen Inc. that was granted pursuant to the Merger Agreement with respect to (a) a Cancelled Company Option (as defined in the Merger Agreement) or (b) an option for common stock of the Company that was granted after December 16, 2001, shall immediately vest in full and shall remain exercisable until the earlier of (x) the first anniversary of the optionee's termination of employment or (y) the end of the term of such option. Section 3. For purposes of this Addendum only, "Good Reason" shall mean the occurrence on or after the Effective Date and without the optionee's consent of, (a) a reduction in the optionee's annual base salary or wages, other than as part of a general reduction applicable to substantially all employees of the Company employed in the United States or (ii) the relocation of the optionee's principal place of employment to a location more than fifty (50) miles from the optionee's principal place of employment prior to the Effective Date. Section 4. For purposes of this Addendum only, "Cause" shall mean (a) the willful and continued failure by the optionee to substantially perform the optionee's duties with the Company (other than such failure resulting form the optionee's incapacity due to physical or mental illness) or (b) the willful engaging by the optionee in conduct which is demonstratably and materially injurious to the Company, monetarily or otherwise. For purposes of this definition, no act, or failure to act, on the optionee's part shall be deemed willful unless done, or omitted to be done, by the optionee not in good faith or without reasonable belief that the optionee's act, or failure to act, was in the best interest of the Company. Section 5. This Addendum shall be effective only upon the Effective Time. In the event that the Merger Agreement terminates according to its terms, this Addendum shall be of no force or effect. EX-10.16 5 dex1016.txt AMENDED STOCK OPTION PLAN, NONEMPLOYEE DIRECTORS Exhibit 10.16 PLAN SUMMARY ------------ IMMUNEX CORPORATION STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS As Amended and Restated on April 18, 2000 __________________________________________________________ This Plan Summary is part of a Prospectus that relates to 1,200,000/4/ shares of Common Stock of Immunex Corporation that have been reserved for issuance upon the exercise of stock options under Immunex's Stock Option Plan for Nonemployee Directors, as amended and restated on April 18, 2000. The Plan and the agreements between you and Immunex govern the terms and conditions of the offer and sale of Immunex's Common Stock, including the prices of the shares. The Immunex Stock is traded on the Nasdaq National Market under the symbol "IMNX." The Plan Summary is not an offer by Immunex to sell or a solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful for Immunex to make such offer or solicitation. This Plan Summary supersedes the Plan Summary for the Immunex Stock Option Plan for Nonemployee Directors dated September 1, 1999. __________________________________________________________ THIS PLAN SUMMARY IS PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. __________________ /4/ When the Stock Option Plan For Nonemployee Directors was setup, it originally covered 100,000 shares. The number of shares grew to 1,200,000 as a result of a 2-for-1 stock split on March 25, 1999, a 2-for-1 stock split on August 26, 1999 and a 3-for-1 stock split on March 20, 2000. CONTENTS BACKGROUND .................................................................... 1 DESCRIPTION OF THE PLAN ....................................................... 1 What Is the Purpose of the Plan? ........................................... 1 Who Administers the Plan? .................................................. 1 Who Is Eligible to Participate in the Plan? ................................ 1 What Options Are Granted Under the Plan? ................................... 1 How Is the Option Exercise Price Determined? ............................... 1 When Do My Options Vest? ................................................... 1 How Do I Exercise My Vested Options? ....................................... 2 How Do I Pay the Option Exercise Price? .................................... 2 How Long Do I Have to Exercise My Options? ................................. 2 Can I Transfer My Options? ................................................. 2 What Happens if There Is a Stock Split or Other Change in Capitalization?... 2 What Happens if There Is a Change of Control? .............................. 3 Can the Plan Be Amended or Terminated? ..................................... 3 FEDERAL INCOME TAX CONSEQUENCES ............................................... 3 OTHER MATTERS ................................................................. 4 Shares Authorized for Issuance ............................................. 4 Limitation of Rights ....................................................... 4 Inapplicability of Certain Statutes; Unfunded Plan ......................... 4 Securities Registration .................................................... 4 Restrictions on Resale of Shares ........................................... 4 Where You Can Find More Information ........................................ 5
BACKGROUND This Plan Summary is only a summary of the Plan and is subject to and qualified by reference to the Plan. A separate option letter agreement between you and Immunex governs each stock option granted under the Plan. You should carefully read your option letter agreement to fully understand the key terms of your grant. You should not rely solely on this Plan Summary. You can inspect or request a copy of the Plan during normal business hours at the office of the Corporate Secretary of Immunex Corporation, at 51 University Street, Seattle, Washington, 98101. Telephone requests may be directed to (206) 587-0430. DESCRIPTION OF THE PLAN What Is the Purpose of the Plan? The Plan authorizes the automatic grant of stock options to nonemployee directors of Immunex. The purposes of the Plan are to attract and retain the services of experienced and knowledgeable nonemployee directors and to provide an incentive for such directors by providing an opportunity for stock ownership in Immunex. Who Administers the Plan? The Plan is administered by the Immunex Board of Directors (the "Board"). Subject to the terms of the Plan, the Board has the power to construe the provisions of the Plan, determine all questions arising under the Plan, and adopt and amend such rules and regulations for administering the Plan as the Board deems desirable. Who Is Eligible to Participate in the Plan? Each director of Immunex who is not otherwise an employee of Immunex, any parent or subsidiary of Immunex, or a director appointed by American Cyanamid Company or American Home Products Corporation pursuant to the Amended and Restated Governance Agreement dated as of December 15, 1992 (an "eligible director"), is eligible to participate in the Plan. What Options Are Granted Under the Plan? The Plan provides that (a) each eligible director who is elected or appointed for the first time after the date of adoption of the Plan shall automatically receive the grant of an option to purchase 10,000 shares of Immunex Stock on the day such eligible director is initially elected or appointed, and (b) each eligible director continuing service as an eligible director immediately following an Annual Meeting of Shareholders will automatically receive an option to purchase 5,000 shares of Immunex Stock immediately following such meeting as an annual grant, except that an eligible director who has received an initial grant of an option to purchase 10,000 shares of Immunex Stock on such date will not receive an annual grant until the next Annual Meeting. How Is the Option Exercise Price Determined? The exercise price per share for each option is the closing price, or if there is no closing price, the mean between the high and low sale prices of the shares covered by the option as reported on the Nasdaq National Market on the day the option is granted or, if no Immunex Stock was traded on such date, on the immediately preceding date on which Immunex Stock was so traded (the "fair market value"). When Do My Options Vest? Your options will vest and become exercisable 20% after each year from the date of grant so that your options are fully vested five years after the date of grant. Notwithstanding the foregoing, your options become 100% vested and exercisable if your service as a member of the Board ends on account of your death, provided that when you die you have served as a member of the Board for at least two years. How Do I Exercise My Vested Options? You may exercise part or all of your vested options at any time during the option period by giving written notice, signed by you, to Immunex stating the number of shares of Immunex Stock with respect to which the option is being exercised, accompanied by payment in full of the option exercise price for the number of shares to be purchased. You may not purchase fewer than 100 shares (or the remaining shares then purchasable under the option, if less than 100 shares) upon any exercise. No option may at any time be exercised with respect to a fractional share. How Do I Pay the Option Exercise Price? You may pay the option exercise price (a) in cash or by check, (b) in shares of Immunex Stock you already own (generally you must have owned the stock for at least six months) and having an aggregate fair market value on the date of exercise equal to the option exercise price, or (c) by delivery of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to Immunex the amount of sale or loan proceeds to pay the exercise price, all in accordance with the regulations of the Federal Reserve Board. How Long Do I Have to Exercise My Options? If your service as a director of Immunex terminates before the end of the option term for any reason, the unvested portion of your option will terminate automatically without any further notice to you. Only your unvested options terminate, thus, if your service as a director of Immunex ends as a result of your death and your unvested options immediately vest, those vested options do not terminate upon your death. You must exercise the vested portion of your option no later than the earliest of the following dates after termination of -------- your service as a director: (a) Ten years from the date of grant; (b) Three months after termination, if termination was for any reason other than death; and (c) Twelve months after termination, if termination was due to death. Can I Transfer My Options? During your lifetime, an option may be exercised only by you. Your right to exercise an option is not assignable or transferable other than by will or by the applicable laws of descent and distribution, except that you may designate in writing during your lifetime a beneficiary to receive and exercise the options in the event of your death. What Happens if There Is a Stock Split or Other Change in Capitalization? The aggregate number and class of shares with respect to which options may be granted under the Plan, the number and class of shares subject to each outstanding option and the price per share specified in such options (but not the total price) will all be proportionately adjusted for any stock dividends, stock splits, recapitalizations, combinations or exchanges of shares, split-ups, split-offs, spin-offs or other similar changes in capitalization. However, if an initial or annual grant occurs within 90 days following any such change in capitalization, the number and class of shares subject to the grant will be proportionately adjusted to be the same number and class of shares that would be subject to the grant had it been outstanding immediately prior to the date of the change in capitalization. In the event of any adjustment in the number of shares of Immunex Stock covered by any option, any fractional shares resulting from such adjustment will be disregarded and each such option will cover only the number of full shares resulting from such adjustment. What Happens if There Is a Change of Control? Upon the effective date of a dissolution or liquidation of Immunex, or of a reorganization, merger or consolidation of Immunex with one or more corporations that results in more than 70% of the outstanding voting shares of Immunex being owned by one or more affiliated corporations or other affiliated entities, or of a transfer of all or substantially all the assets or more than 70% of the then outstanding shares of Immunex to another corporation or other entity, the Plan and all options granted under it will terminate. In the event of such dissolution, liquidation, reorganization, merger, consolidation, transfer of assets or transfer of stock, each optionee will be entitled, for a period of 20 days prior to the effective date of the transaction, to purchase the full number of shares under his or her option which he or she otherwise would have been entitled to purchase during the remaining term of the option. Can the Plan Be Amended or Terminated? The Board may amend, terminate or suspend the Plan at any time, in its sole and absolute discretion, except that if required to qualify the Plan as a formula plan for purposes of Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act of 1934, no amendment may be made more than once every six months that would change the amount, price, timing or vesting of the options, other than to comply with changes in the Internal Revenue Code of 1986, as amended (the "Code"), or the rules and regulations promulgated thereunder. Also, no amendment that would increase the number of shares that may be issued under the Plan or otherwise require shareholder approval under any applicable law or regulation may be made without the approval of Immunex's shareholders. The Plan will continue in effect until December 13, 2003, unless it is sooner terminated by action of the Board or Immunex's shareholders. FEDERAL INCOME TAX CONSEQUENCES The federal income tax consequences to Immunex and you of the grant and exercise of options under existing applicable provisions of the Code and the regulations thereunder are substantially as follows: All options granted under the Plan will be nonstatutory options not intended to qualify as "incentive stock options" under Section 422 of the Code. You will not be deemed to receive any income at the time an option is granted nor will Immunex be entitled to a deduction at that time. When any part of an option is exercised, you will recognize ordinary income at the time of exercise in an amount equal to the difference between the option exercise price and the then fair market value of the shares acquired. Generally, upon a subsequent disposition of the shares, your basis for determining taxable gain or loss will be the amount paid for such shares plus the amount that was includible in your income at the time of exercise. Any gain recognized on such disposition would generally be taxed as long-term or short-term capital gain, depending on the length of time you are deemed to have held the shares. Subject to the applicable provisions of the Code, Immunex will be entitled to a deduction for federal income tax purposes in the year in which and in an amount for which you recognize ordinary income taxable as compensation in respect of an option. The foregoing is only a brief summary of the applicable federal income tax laws and regulations. It does not address the federal estate and gift tax consequences or the state, local or foreign tax consequences of the options, nor does it discuss the federal income tax consequences to an optionee who is a foreign resident. Furthermore, it does not address all possible tax aspects of transactions that may arise under the Plan, such as restrictions that Immunex may place on Immunex Stock or the use of previously acquired Immunex Stock to exercise options. The tax laws and regulations are complex and are subject to change. FOR THE FOREGOING REASONS, IT IS IMPORTANT THAT YOU, BEFORE EXERCISING AN OPTION AND BEFORE DISPOSING OF THE SHARES ACQUIRED PURSUANT TO SUCH EXERCISE, CONSULT A TAX ADVISOR AS TO THE INCOME TAX CONSEQUENCES OF SUCH AN EXERCISE OR DISPOSITION. OTHER MATTERS Shares Authorized for Issuance Immunex has authorized a total of up to 1,200,000/5/ shares of Immunex Stock for issuance under the Plan, subject to adjustment from time to time as provided in the Plan. The shares will be presently authorized but unissued shares. If any option granted under the Plan expires or terminates for any reason without having been exercised in full, the unpurchased or forfeited shares will again be available for purposes of the Plan. Limitation of Rights Nothing in the Plan or in any options granted under the Plan constitutes evidence of your right to a continued service relationship with Immunex. Neither you nor your successors in interest will have any rights as a shareholder of Immunex until we have issued shares of Immunex Stock to you. Inapplicability of Certain Statutes; Unfunded Plan We believe that the Plan is not subject to (a) the participation, vesting or minimum funding provisions of the Employee Retirement Income Security Act of 1974 (ERISA) or (b) the provisions governing a pension, profit-sharing or stock bonus plan qualified under Section 401(a) of the Code. The Plan will be unfunded and will not create a trust or a separate fund or funds. The Plan does not create any fiduciary relationship between you and Immunex. Your rights under any options will not exceed the rights of general unsecured creditors of Immunex. The cash proceeds received by Immunex from the issuance of shares under the Plan are general funds of Immunex. Securities Registration We have filed an effective registration statement with the Securities and Exchange Commission (the "SEC") with respect to the shares that will be issued under the Plan. We intend to maintain this registration but have no obligation to do so. If the registration ceases to be effective, you will not be able to exercise the options without an exemption from registration under federal and state securities laws. Exemptions from registration are very limited and might be unavailable. Restrictions on Resale of Shares You and your spouse, certain other relatives and any trust, estate, corporation or other organization controlled by any of the foregoing persons may be deemed to be an affiliate of Immunex. An "affiliate" is __________________ /5/ This number has been adjusted for the 2-for-1 stock split on March 25, 1999, the 2-for-1 stock split on August 26, 1999 and the 3-for-1 stock split on March 20, 2000. defined as a person who directly or indirectly controls, is controlled by or is under common control with Immunex. Affiliates of Immunex will be obligated as a precondition to any prospective sale of shares acquired upon the exercise of options granted under the Plan to comply with Rule 144 of the Securities Act of 1933 and the rules and regulations promulgated thereunder. Rule 144 limits not only the manner of sale but also the amount of Immunex Stock that may be sold in specified time periods. You should consult legal counsel as to whether you, your family members or your donees would be subject to any of the foregoing restrictions on resale. Under certain circumstances, you may, pursuant to Section 16(b) of the Securities Exchange Act of 1934, be subject to liability for certain short-swing profits from the sale of shares you acquire upon exercise of options. Where You Can Find More Information We file annual, quarterly and special reports, and other information with the SEC. You may view Immunex's SEC filings on the SEC's web site at http://www.sec.gov. You may also read and copy any document Immunex files at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. The SEC allows Immunex to "incorporate by reference" into this Plan Summary the information we file with it, which means that Immunex can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this Plan Summary, and later information filed with the SEC will update and supersede this information. Immunex incorporates by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 until this offering is completed: (a) Immunex's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, filed on March 7, 2000. This document contains the most recent certified annual financial statements that we have filed; (b) All other reports filed by Immunex under Section 13(a) or 15(d) of the Exchange Act since the end of the fiscal year covered by the Annual Report on Form 10-K referred to in (a) above; and (c) The description of the Immunex Stock contained in Immunex's Registration Statement on Form 8-A filed on May 12, 1983, under Section 12(g) of the Exchange Act, including any amendments or reports filed for the purpose of updating such description. Upon written or oral request, Immunex will provide you, without charge, additional information about the Plan and a copy of any or all documents referred to above other than exhibits to such documents. Please direct your requests to the Corporate Secretary of Immunex at its headquarters, at 51 University Street, Seattle, Washington 98101. You may direct telephone requests to (206) 587-0430. If you previously received a copy of any of the documents described above, you may obtain an additional copy, without charge, upon written request directed to the Corporate Secretary. You should rely only on the information incorporated by reference or provided in this Plan Summary or any supplements. We have not authorized anyone to give you different information. You should not assume that the information incorporated by reference or provided in this Plan Summary or any supplements is accurate as of any date other than the date on the front of the document. EX-10.17 6 dex1017.txt ADDENDUM TO STOCK OPT. FOR NONEMPLOYEE DIRECTORS Exhibit 10.17 ADDENDUM TO THE IMMUNEX CORPORATION STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS WHEREAS, Immunex Corporation (the "Company") maintains the Stock Option Plan for Nonemployee Directors (the "Plan"); and WHEREAS, the Company desires to adjoin an addendum (this "Addendum") to the Plan to address the effects of the transactions contemplated by the Agreement and Plan of Merger by and between Amgen Inc., AMS Acquisition Inc. and the Company dated as of December 16, 2001 (the "Merger Agreement"); NOW, THEREFORE, notwithstanding anything in the Plan to the contrary, this Addendum is hereby adopted, effective as of the Effective Time (as defined in the Merger Agreement): Section 1. At the Effective Time, each option granted pursuant the Plan shall be treated in accordance with the applicable terms of the Merger Agreement. Section 2. In the event that an optionee ceases to be a director of the Company or Amgen Inc. for any reason immediately prior to, at, or during the fifteen (15) months following the Effective Time, each option held by such optionee for common stock of Amgen Inc. shall immediately vest in full and shall remain exercisable until the earlier of (x) the first anniversary of the date such optionee ceases to be a director of the Company or Amgen Inc. or (y) the end of the term of such option. Section 3. This Addendum shall be effective only upon the Effective Time. In the event that the Merger Agreement terminates according to its terms, this Addendum shall be of no force or effect. EX-10.18 7 dex1018.txt AMENDED & RESTATED 1999 EMPLOYEE STOCK PURCH. PLAN Exhibit 10.18 IMMUNEX CORPORATION 1999 EMPLOYEE STOCK PURCHASE PLAN As Amended and Restated on April 25, 2000 SECTION 1. PURPOSE The purposes of the Immunex Corporation 1999 Employee Stock Purchase Plan (the "Plan") are (a) to assist employees of Immunex Corporation, a Washington corporation (the "Company"), and its designated subsidiaries in acquiring a stock ownership interest in the Company pursuant to a plan that is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended, and (b) to encourage employees to remain in the employ of the Company and its subsidiaries. SECTION 2. DEFINITIONS For purposes of the Plan, the following terms shall be defined as set forth below. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the Company's Compensation Committee. "Common Stock" means the common stock, par value $0.01 per share, of the Company. "Company" means Immunex Corporation, a Washington corporation. "Designated Subsidiary" has the meaning set forth under the definition of "Eligible Employee" in this Section 2. "Eligible Compensation" means all salary and wages including overtime. Regular cash compensation does not include cash bonuses, commissions, severance pay, hiring and relocation bonuses, pay in lieu of vacations, sick leave, gain from stock option exercises or any other special payments. "Eligible Employee" means any employee of the Company or any domestic Subsidiary Corporation or any other Subsidiary Corporation designated by the Board or the Committee (each a "Designated Subsidiary"), who is in the employ of the Company (or any Designated Subsidiary) on one or more Offering Dates and who meets the following criteria: (a) the employee does not, immediately after the option is granted, own stock (as defined by the Code) possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of a Parent Corporation or Subsidiary Corporation of the Company; (b) the employee's customary employment is for 20 hours or more per week; provided, however, that the Plan Administrator may increase or decrease this minimum requirement for any future Offering so long as the maximum number of hours does not exceed 20 hours; (c) if specified by the Plan Administrator for future Offerings, minimum requirements for customary employment of a maximum of five months per year; (d) the employee has been employed for at least three months as of the Offering Date; provided, however, if specified by the Plan Administrator for any future Offering, a minimum employment period that does not exceed two years; and (e) the employee is not a highly compensated employee. For purposes of the Plan, a "highly compensated employee" is any employee of the Company or a Designated Subsidiary who has a base salary in excess of $175,000 per year; provided, however, that the Plan Administrator may increase or decrease this amount for any future Offering within the limitations imposed by Code Section 423. If the Company permits any employee of a Designated Subsidiary to participate in the Plan, then all employees of that Designated Subsidiary who meet the requirements of this paragraph shall also be considered Eligible Employees. "Enrollment Period" has the meaning set forth in Section 7.1. "ESPP Broker" has the meaning set forth in Section 10. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Offering" has the meaning set forth in Section 5.1. "Offering Date" means the first day of an Offering. "Option" means an option granted under the Plan to an Eligible Employee to purchase shares of Common Stock. "Parent Corporation" means any corporation, other than the Company, in an unbroken chain of corporations ending with the Company, if, at the time of the granting of the Option, each of the corporations, other than the Company, owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Participant" means any Eligible Employee who has elected to participate in an Offering in accordance with the procedures set forth in Section 7.1 and who has not withdrawn from the Plan or whose participation in the Plan is not terminated. "Plan" means the Immunex Corporation 1999 Employee Stock Purchase Plan. "Purchase Date" means the last day of each Purchase Period. "Purchase Period" has the meaning set forth in Section 5.2. "Purchase Price" has the meaning set forth in Section 6. "Subscription" has the meaning set forth in Section 7.1. "Subsidiary Corporation" means any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company, if, at the time of the granting of the Option, each of the corporations, other than the last corporation in the unbroken chain, owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. SECTION 3. ADMINISTRATION 3.1 Plan Administrator The Plan shall be administered by the Board or the Committee or, if and to the extent the Board or the Committee designates an executive officer of the Company to administer the Plan, by such executive officer (each, the "Plan Administrator"). Any decisions made by the Plan Administrator shall be applicable equally to all Eligible Employees. 3.2 Administration and Interpretation by the Plan Administrator Subject to the provisions of the Plan, the Plan Administrator shall have the authority, in its sole discretion, to determine all matters relating to Options granted under the Plan, including all terms, conditions, restrictions and limitations of Options; provided, however, that all Participants granted Options pursuant to the Plan shall have the same rights and privileges within the meaning of Code Section 423. The Plan Administrator shall also have exclusive authority to interpret the Plan and may from time to time adopt, and change, rules and regulations of general application for the Plan's administration. The Plan Administrator's interpretation of the Plan and its rules and regulations, and all actions taken and determinations made by the Plan Administrator pursuant to the Plan, unless reserved to the Board or the Committee, shall be conclusive and binding on all parties involved or affected. The Plan Administrator may delegate administrative duties to such of the Company's other officers or employees as the Plan Administrator so determines. SECTION 4. STOCK SUBJECT TO PLAN Subject to adjustment from time to time as provided in Section 20, the maximum number of shares of Common Stock which shall be available for issuance under the Plan shall be 3,000,000/6/ shares. Shares issued under the Plan shall be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company. SECTION 5. OFFERING DATES 5.1 Offerings (a) Except as otherwise set forth below, the Plan shall be implemented by a series of Offerings (each, an "Offering"). Offerings shall commence on May 1 and November 1 of each year and end on the next October 31 and April 30, respectively, occurring thereafter (each, an "Offering"); provided, however, that the first Offering shall begin on July 1, 1999 and shall end on October 31, 1999. (b) Notwithstanding the foregoing, the Plan Administrator may establish (i) a different term for one or more Offerings and (ii) different commencing and ending dates for such Offerings; provided, however, that an Offering may not exceed five years; and provided, further, that if the Purchase Price may be less than 85% of the fair market value of the Common Stock on the Purchase Date, the Offering may not exceed one year. (c) In the event the first or the last day of an Offering is not a regular business day, then the first day of the Offering shall be deemed to be the next regular business day and the last day of the Offering shall be deemed to be the last preceding regular business day. - ------------------ /6/ The original number of shares of Common Stock in the Plan was 500,00. This was adjusted to 3,000,000as a resulted of a 2-for-1 stock split on August 26, 1999 and a split March 20 2000 5.2 Purchase Periods (a) Each Offering shall consist of one or more consecutive purchase periods (each, a "Purchase Period"). The last day of each Purchase Period shall be the Purchase Date for such Purchase Period. Except as otherwise set forth below, each Purchase Period shall commence on May 1 and November 1 of each year and end on the next October 31 and April 30, respectively, occurring thereafter; provided, however, that the Purchase Period for the first Offering shall begin on July 1, 1999 and shall end on October 31, 1999. (b) Notwithstanding the foregoing, the Board may establish (i) a different term for one or more Purchase Periods and (ii) different commencing and ending dates for any such Purchase Period. (c) In the event the first or last day of a Purchase Period is not a regular business day, then the first day of the Purchase Period shall be deemed to be the next regular business day and the last day of the Purchase Period shall be deemed to be the last preceding regular business day. 5.3 Governmental Approval; Shareholder Approval Notwithstanding any other provision of the Plan to the contrary, an Option granted pursuant to the Plan shall be subject to (a) obtaining all necessary governmental approvals and qualifications of the Plan and of the issuance of Options and sale of Common Stock pursuant to the Plan and (b) obtaining shareholder approval of the Plan. SECTION 6. PURCHASE PRICE The purchase price (the "Purchase Price") at which Common Stock may be acquired in an Offering pursuant to the exercise of all or any portion of an Option granted under the Plan (the "Offering Exercise Price") shall be 85% of the lesser of (a) the fair market value of the Common Stock on the Offering Date of such Offering and (b) the fair market value of the Common Stock on the Purchase Date. The fair market value of the Common Stock on the Offering Date or on the Purchase Date shall be the closing price for the Common Stock as reported for such day by the Nasdaq Stock Market, the New York Stock Exchange or other trading market on which the Company's Common Stock may then be traded (the "Exchange"). If no sales of the Common Stock were made on the Exchange on such day, fair market value shall mean the closing price for the Common Stock as reported for the next preceding day on which sales of the Stock were made on the Exchange. If the Common Stock is not listed on an Exchange, the Board shall designate an alternative method of determining the fair market value of the Common Stock. SECTION 7. PARTICIPATION IN THE PLAN 7.1 Initial Participation An Eligible Employee shall become a Participant on the first Offering Date after satisfying the eligibility requirements and delivering to the Plan Administrator during the enrollment period established by the Plan Administrator (the "Enrollment Period") a subscription (the "Subscription"): (a) indicating the Eligible Employee's election to participate in the Plan; (b) authorizing payroll deductions and stating the amount to be deducted regularly from the Participant's pay; and (c) authorizing the purchase of Common Stock for the Participant in each Purchase Period. An Eligible Employee who does not deliver a Subscription as provided above during the Enrollment Period shall not participate in the Plan for that Offering or for any subsequent Offering unless such Eligible Employee subsequently enrolls in the Plan by filing a Subscription with the Company during the Enrollment Period for such subsequent Offering. The Company may, from time to time, change the Enrollment Period for any future Offering as deemed advisable by the Plan Administrator, in its sole discretion, for the proper administration of the Plan. Except as provided in Section 7.2, an employee who becomes eligible to participate in the Plan after an Offering has commenced shall not be eligible to participate in such Offering but may participate in any subsequent Offering, provided that such employee is still an Eligible Employee as of the commencement of any such subsequent Offering. Eligible Employees may not participate in more than one Offering at a time. 7.2 Alternative Initial Participation Notwithstanding any other provisions of the Plan, the Board or the Committee may provide for any future Offering that any employee of the Company or any Designated Subsidiary who first meets the requirements of subparagraphs (a) through (c) of the paragraph "Eligible Employee" in Section 2 during the course of an Offering shall, on a date or dates specified in the Offering which coincides with the day on which such person first meets such requirements or occurs on a specified date thereafter, receive an Option under that Offering which Option shall thereafter be deemed to be a part of that Offering. Such Option shall have the same characteristics as any Options originally granted under that Offering, except that: (i) the date on which such Option is granted shall be the "Offering Date" of such Option for all purposes, including determining the Purchase Price of such Option; provided, however, that if the fair market value of the Common Stock on the date on which such Option is granted is less than the fair market value of Common Stock on the first day of the Offering, then, solely for the purpose of determining the Purchase Price of such Option, the first day of the Offering shall be the "Offering Date" for such Option; (ii) the Purchase Period(s) for such Option shall begin on its Offering Date and end coincident with the remaining Purchase Date(s) for such Offering; and (iii) the Board or the Committee may provide that if such person first meets such requirements within a specified period of time before the end of a Purchase Period for such Offering, he or she will not receive any Option for that Purchase Period. 7.3 Continued Participation A Participant shall automatically participate in the next Offering until such time as such Participant withdraws from the Plan pursuant to Section 11.1 or 11.2 or terminates employment as provided in Section 12. SECTION 8. LIMITATIONS ON RIGHT TO PURCHASE SHARES 8.1 Number of Shares Purchased The maximum number of shares of stock that may be offered to a Participant on any Offering Date shall be equal to $15,000 divided by the fair market value of one share of Common Stock of the Company on the applicable Offering Date. Further, no Participant shall be entitled to purchase Common Stock under the Plan (or any other employee stock purchase plan that is intended to meet the requirements of Code Section 423 sponsored by the Company, a Parent Corporation or a Subsidiary Corporation) with a fair market value exceeding $15,000, determined as of the Offering Date for each Offering (or such other limit as may be imposed by the Code), in any calendar year in which a Participant participates in the Plan (or other employee stock purchase plan described in this Section 8.1). For any future Offering, the Board or the Committee may specify a maximum number of shares which may be purchased by any Participant as well as a maximum aggregate number of shares which may be purchased by all Participants pursuant to such Offering. In addition, for any future Offering with more than one Purchase Date, the Board or the Committee may specify a maximum aggregate number of shares which may be purchased by all Participants on any given Purchase Date under the Offering. 8.2 Pro Rata Allocation In the event the number of shares of Common Stock that might be purchased by all Participants in the Plan exceeds the number of shares of Common Stock available in the Plan, the Plan Administrator shall make a pro rata allocation of the remaining shares of Common Stock in as uniform a manner as shall be practicable and as the Plan Administrator shall determine to be equitable. Fractional shares may not be issued under the Plan unless the Plan Administrator determines otherwise for any future Offering. SECTION 9. PAYMENT OF PURCHASE PRICE 9.1 General Rules Subject to Section 9.12, Common Stock that is acquired pursuant to the exercise of all or any portion of an Option may be paid for only by means of payroll deductions from the Participant's Eligible Compensation. Except as set forth in this Section 9, the amount of compensation to be withheld from a Participant's Eligible Compensation during each pay period shall be determined by the Participant's Subscription. 9.2 Changes in Withholding Unless otherwise determined by the Plan Administrator for any future Offering, a Participant may not elect to increase or decrease the amount to be withheld from his or her Eligible Compensation for an Offering; provided, however, that if such elections are permitted for any future Offering, notice of such elections must be delivered to the Plan Administrator in such form and in accordance with such terms as the Plan Administrator may establish for the Offering. 9.3 Percent Withheld The amount of payroll withholding for each Participant for purchases pursuant to the Plan during any pay period shall be at least 1% but shall not exceed 15% of the Participant's Eligible Compensation for such pay period, but in no event shall exceed $15,000 per calendar year. Amounts shall be withheld in whole percentages only. 9.4 Payroll Deductions Payroll deductions shall commence on the first payday following the Offering Date and shall continue through the last payday of the Offering unless sooner altered or terminated as provided in the Plan. 9.5 Memorandum Accounts Individual accounts shall be maintained for each Participant for memorandum purposes only. All payroll deductions from a Participant's compensation shall be credited to such account but shall be deposited with the general funds of the Company. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose. 9.6 No Interest No interest shall be paid on payroll deductions received or held by the Company. 9.7 Acquisition of Common Stock On each Purchase Date of an Offering, each Participant shall automatically acquire, pursuant to the exercise of the Participant's Option, the number of shares of Common Stock arrived at by dividing the total amount of the Participant's accumulated payroll deductions for the Purchase Period by the Purchase Price; provided, however, that the number of shares of Common Stock purchased by the Participant shall not exceed the number of whole shares of Common Stock so determined, unless the Plan Administrator has determined for any future Offering that fractional shares may be issued under the Plan; and provided, further, that the number of shares of Common Stock purchased by the Participant shall not exceed the number of shares for which Options have been granted to the Participant pursuant to Section 8.1. 9.8 Refund of Excess Amounts Any cash balance remaining in the Participant's account at the termination of each Purchase Period shall be refunded to the Participant as soon as practical after the Purchase Date without the payment of any interest; provided, however, that if the Participant participates in the next Purchase Period, any cash balance remaining in the Participant's account shall be applied to the purchase of Common Stock in the new Purchase Period, provided such purchase complies with Section 8.1. 9.9 Withholding Obligations At the time the Option is exercised, in whole or in part, or at the time some or all of the Common Stock is disposed of, the Participant shall make adequate provision for federal and state withholding obligations of the Company, if any, that arise upon exercise of the Option or upon disposition of the Common Stock. The Company may withhold from the Participant's compensation the amount necessary to meet such withholding obligations. 9.10 Termination of Participation No Common Stock shall be purchased on behalf of a Participant on a Purchase Date if his or her participation in the Offering or the Plan has terminated on or before such Purchase Date. 9.11 Procedural Matters The Company may, from time to time, establish (a) limitations on the frequency and/or number of any permitted changes in the amount withheld during an Offering, as set forth in Section 9.2, (b) an exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, (c) payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections and (d) such other limitations or procedures as deemed advisable by the Company in the Company's sole discretion that are consistent with the Plan and in accordance with the requirements of Code Section 423. 9.12 Leaves of Absence During leaves of absence approved by the Company and meeting the requirements of the applicable Treasury Regulations promulgated under the Code, a Participant may elect to continue participation in the Plan by delivering cash payments to the Plan Administrator on the Participant's normal paydays equal to the amount of his or her payroll deduction under the Plan had the Participant not taken a leave of absence. Currently, the Treasury Regulations provide that a Participant may continue participation in the Plan only during the first 90 days of a leave of absence unless the Participant's reemployment rights are guaranteed by statute or contract. SECTION 10. COMMON STOCK PURCHASED UNDER THE PLAN 10.1 ESPP Broker If the Plan Administrator designates or approves a stock brokerage or other financial services firm (the "ESPP Broker") to hold shares purchased under the Plan for the accounts of Participants, the following procedures shall apply. Promptly following each Purchase Date, the number of shares of Common Stock purchased by each Participant shall be deposited into an account established in the Participant's name with the ESPP Broker. Each Participant shall be the beneficial owner of the Common Stock purchased under the Plan and shall have all rights of beneficial ownership in such Common Stock. A Participant shall be free to undertake a disposition of the shares of Common Stock in his or her account at any time, but, in the absence of such a disposition, the shares of Common Stock must remain in the Participant's account at the ESPP Broker until the holding period set forth in Code Section 423 has been satisfied. With respect to shares of Common Stock for which the holding period set forth above has been satisfied, the Participant may move those shares of Common Stock to another brokerage account of the Participant's choosing or request that a stock certificate be issued and delivered to him or her. Dividends paid in the form of shares of Common Stock with respect to Common Stock in a Participant's account shall be credited to such account. A Participant who is not subject to payment of U.S. income taxes may move his or her shares of Common Stock to another brokerage account of his or her choosing or request that a stock certificate be delivered to him or her at any time, without regard to the Code Section 423 holding period. 10.2 Notice of Disposition By entering the Plan, each Participant agrees to promptly give the Company notice of any Common Stock disposed of within the later of one year from the Purchase Date and two years from the Offering Date for such Common Stock, showing the number of such shares disposed of and the Purchase Date and Offering Date for such Common Stock. This notice shall not be required if and so long as the Company has a designated ESPP Broker. SECTION 11. VOLUNTARY WITHDRAWAL 11.1 Withdrawal From an Offering A Participant may withdraw from an Offering by signing and delivering to the Company's Plan Administrator a written notice of withdrawal on a form provided by the Company for such purpose. Such withdrawal must be elected at least 10 days prior to the end of the Purchase Period for which such withdrawal is to be effective or by any other date specified by the Plan Administrator for any future Offering. If a Participant withdraws after the Purchase Date for a Purchase Period of an Offering, the withdrawal shall not affect Common Stock acquired by the Participant in any earlier Purchase Periods. Unless otherwise indicated, withdrawal from an Offering shall not result in a withdrawal from the Plan or any succeeding Offering therein. A Participant is prohibited from again participating in the same Offering at any time upon withdrawal from such Offering. The Company may, from time to time, impose a requirement that the notice of withdrawal be on file with the Plan Administrator for a reasonable period prior to the effectiveness of the Participant's withdrawal. 11.2 Withdrawal From the Plan A Participant may withdraw from the Plan by signing a written notice of withdrawal on a form provided by the Company for such purpose and delivering such notice to the Plan Administrator. Such notice must be delivered at least 10 days prior to the end of the Purchase Period for which such withdrawal is to be effective or by any other date specified by the Plan Administrator for any future Offering. In the event a Participant voluntarily elects to withdraw from the Plan, the Participant may not resume participation in the Plan during the same Offering, but may participate in any subsequent Offering under the Plan by again satisfying the definition of Eligible Employee. The Company may impose, from time to time, a requirement that the notice of withdrawal be on file with the Plan Administrator for a reasonable period prior to the effectiveness of the Participant's withdrawal. 11.3 Return of Payroll Deductions Upon withdrawal from an Offering pursuant to Section 11.1 or from the Plan pursuant to Section 11.2, the withdrawing Participant's accumulated payroll deductions that have not been applied to the purchase of Common Stock shall be returned as soon as practical after the withdrawal, without the payment of any interest, to the Participant and the Participant's interest in the Offering shall terminate. Such accumulated payroll deductions may not be applied to any other Offering under the Plan. SECTION 12. TERMINATION OF EMPLOYMENT Termination of a Participant's employment with the Company or a Designated Subsidiary for any reason, including retirement, death or any other failure of a Participant to remain an employee of the Company or a Designated Subsidiary, shall immediately terminate the Participant's participation in the Plan. The payroll deductions credited to the Participant's account since the last Purchase Date shall, as soon as practical, be returned to the Participant or, in the case of a Participant's death, to the Participant's legal representative or designated beneficiary as provided in Section 13.2, and all of the Participant's rights under the Plan shall terminate. Interest shall not be paid on sums returned to a Participant pursuant to this Section 12. SECTION 13. RESTRICTIONS ON ASSIGNMENT 13.1 Transferability An Option granted under the Plan shall not be transferable and such Option shall be exercisable during the Participant's lifetime only by the Participant. The Company will not recognize, and shall be under no duty to recognize, any assignment or purported assignment by a Participant of the Participant's interest in the Plan, of his or her Option or of any rights under his or her Option. 13.2 Beneficiary Designation The Plan Administrator may permit a Participant to designate a beneficiary who is to receive any shares and cash, if any, from the Participant's account under the Plan in the event the Participant dies after the Purchase Date for an Offering but prior to delivery to such Participant of such shares and cash. In addition, the Plan Administrator may permit a Participant to designate a beneficiary who is to receive any cash from the Participant's account under the Plan in the event that the Participant dies before the Purchase Date for an Offering. Such designation may be changed by the Participant at any time by written notice to the Plan Administrator. SECTION 14. NO RIGHTS AS SHAREHOLDER UNTIL SHARES ISSUED With respect to shares of Common Stock subject to an Option, a Participant shall not be deemed to be a shareholder of the Company, and he or she shall not have any of the rights or privileges of a shareholder. A Participant shall have the rights and privileges of a shareholder of the Company when, but not until, a certificate or its equivalent has been issued to the Participant for the shares following exercise of the Participant's Option. SECTION 15. LIMITATIONS ON SALE OF COMMON STOCK PURCHASED UNDER THE PLAN The Plan is intended to provide Common Stock for investment and not for resale. The Company does not, however, intend to restrict or influence any Participant in the conduct of his or her own affairs. A Participant, therefore, may sell Common Stock purchased under the Plan at any time he or she chooses, subject to compliance with any applicable federal and state securities laws. A Participant assumes the risk of any market fluctuations in the price of the Common Stock. SECTION 16. AMENDMENT OF THE PLAN The Board may amend the Plan in such respects as it shall deem advisable; provided, however, that, to the extent required for compliance with Code Section 423 or any applicable law or regulation, shareholder approval will be required for any amendment that will (a) increase the total number of shares as to which Options may be granted under the Plan, (b) modify the class of employees eligible to receive Options, or (c) otherwise require shareholder approval under any applicable law or regulation. SECTION 17. TERMINATION OF THE PLAN The Plan shall have no fixed termination date. Notwithstanding the foregoing, the Board may suspend or terminate the Plan at any time. During any period of suspension or upon termination of the Plan, no Options shall be granted; provided, however, that suspension or termination of the Plan shall have no effect on Options granted prior thereto. SECTION 18. NO RIGHTS AS AN EMPLOYEE Nothing in the Plan shall be construed to give any person (including any Eligible Employee or Participant) the right to remain in the employ of the Company or a Parent or Subsidiary Corporation or to affect the right of the Company or a Parent or Subsidiary Corporation to terminate the employment of any person (including any Eligible Employee or Participant) at any time with or without cause. SECTION 19. EFFECT UPON OTHER PLANS The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company or any Parent or Subsidiary Corporation. Nothing in this Plan shall be construed to limit the right of the Company, any Parent Corporation or Subsidiary Corporation to (a) establish any other forms of incentives or compensation for employees of the Company, a Parent Corporation or Subsidiary Corporation or (b) grant or assume options otherwise than under this Plan in connection with any proper corporate purpose, including, but not by way of limitation, the grant or assumption of options in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, firm or association. SECTION 20. ADJUSTMENTS 20.1 Adjustment of Shares In the event that, at any time or from time to time, a stock dividend, stock split (but not including the stock dividend approved by the Board on February 23, 1999), spin-off, combination or exchange of shares, recapitalization, merger, consolidation, distribution to shareholders other than a normal cash dividend, or other change in the Company's corporate or capital structure results in (a) the outstanding shares, or any securities exchanged therefor or received in their place, being exchanged for a different number or kind of securities of the Company or of any other corporation or (b) new, different or additional securities of the Company or of any other corporation being received by the holders of shares of Common Stock, then (subject to any required action by the Company's shareholders), the Board or the Committee, in its sole discretion, shall make such equitable adjustments as it shall deem appropriate in the circumstances in (i) the maximum number and kind of shares of Common Stock subject to the Plan as set forth in Section 4 and (ii) the number and kind of securities that are subject to any outstanding Option and the per share price of such securities. The determination by the Board or the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding. Notwithstanding the foregoing, a dissolution, liquidation, merger or asset sale of the Company shall not be governed by this Section 20.1 but shall be governed by Sections 20.2 and 20.3, respectively. 20.2 Merger or Asset Sale of the Company In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding Option shall be assumed or an equivalent option substituted by the successor corporation or a parent or subsidiary corporation of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option, the Offering then in progress shall be shortened by setting a new Purchase Date. The new Purchase Date shall be a specified date before the date of the Company's proposed sale or merger. The Board shall notify each Participant in writing, at least 10 business days prior to the new Purchase Date, that the Purchase Date for the Participant's Option has been changed to the new Purchase Date and that the Participant's Option shall be exercised automatically on the new Purchase Date, unless prior to such date the Participant has withdrawn from the Offering or the Plan as provided in Section 11 hereof. 20.3 Dissolution or Liquidation of the Company In the event of the proposed dissolution or liquidation of the Company, the Offering then in progress shall be shortened by setting a new Purchase Date and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Board. The new Purchase Date shall be a specified date before the date of the Company's proposed dissolution or liquidation. The Board shall notify each Participant in writing, at least 10 business days prior to the new Purchase Date, that the Purchase Date for the Participant's Option has been changed to the new Purchase Date and that the Participant's Option shall be exercised automatically on the new Purchase Date, unless prior to such date the Participant has withdrawn from the Offering or the Plan as provided in Section 11 hereof. 20.4 Limitations The grant of Options will in no way affect the Company's right to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. SECTION 21. REGISTRATION; CERTIFICATES FOR SHARES The Company shall be under no obligation to any Participant to register for offering or resale under the Securities Act of 1933, as amended, or register or qualify under state securities laws, any shares of Common Stock. The Company may issue certificates for shares with such legends and subject to such restrictions on transfer and stop-transfer instructions as counsel for the Company deems necessary or desirable for compliance by the Company with federal and state securities laws. SECTION 22. EFFECTIVE DATE The Plan's effective date is the date on which it is approved by the Company's shareholders, which was April 29, 1999. The Plan was amended and restated by the Board on April 25, 2000. EX-10.19 8 dex1019.txt AMENDED & RESTATED 1999 STOCK OPTION PLAN Exhibit 10.19 IMMUNEX CORPORATION 1999 STOCK OPTION PLAN As Amended and Restated on April 25, 2000 SECTION 1. PURPOSE The purpose of the Immunex Corporation 1999 Stock Option Plan (the "Plan") is to enhance the long-term shareholder value of Immunex Corporation, a Washington corporation (the "Company"), by offering opportunities to selected employees, officers and directors to participate in the Company's growth and success, and to encourage them to remain in the service of the Company and its Related Corporations (as defined in Section 2) and to acquire and maintain stock ownership in the Company. SECTION 2. DEFINITIONS For purposes of the Plan, the following terms shall be defined as set forth below: "Board" means the Board of Directors of the Company. "Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure of confidential information or trade secrets, or conviction or confession of a crime punishable by law (except minor violations), in each case as determined by the Plan Administrator, and its determination shall be conclusive and binding. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Common Stock" means the common stock, par value $.01 per share, of the Company. "Disability," unless otherwise defined by the Plan Administrator, means a mental or physical impairment of the Optionee that is expected to result in death or that has lasted or is expected to last for a continuous period of 12 months or more and that causes the Optionee to be unable, in the opinion of the Company and one independent physician selected by the Company, to perform his or her duties for the Company or a Related Corporation and to be engaged in any substantial gainful activity. "Effective Date" means the date on which the Plan is adopted by the Board, so long as it is approved by the Company's shareholders at any time within 12 months of such adoption. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Stock" has the meaning set forth in Section 11.3. "Fair Market Value" shall be as established in good faith by the Plan Administrator or (a) if the Common Stock is listed on the Nasdaq National Market, the closing per share sales prices for the Common Stock as reported by the Nasdaq National Market for a single trading day or (b) if the Common Stock is listed on the New York Stock Exchange or the American Stock Exchange, the closing per share sales prices for the Common Stock as such price is officially quoted in the composite tape of transactions on such exchange for a single trading day. If there is no such reported price for the Common Stock for the date in question, then such price on the last preceding date for which such price exists shall be determinative of Fair Market Value. "Governance Agreement" means the Amended and Restated Governance Agreement among American Cyanamid Company, Lederle Oncology Corporation and Immunex Corporation dated as of December 15, 1992. "Grant Date" means the date on which the Plan Administrator completes the corporate action relating to the grant of an Option and all conditions precedent to the grant have been satisfied, provided that conditions to the exercisability or vesting of Options shall not defer the Grant Date. "Incentive Stock Option" means an Option to purchase Common Stock granted under Section 7 with the intention that it qualify as an "incentive stock option" as that term is defined in Section 422 of the Code. "Nonqualified Stock Option" means an Option to purchase Common Stock granted under Section 7 other than an Incentive Stock Option. "Option" means the right to purchase Common Stock granted under Section 7. "Optionee" means (a) the person to whom an Option is granted; (b) for an Optionee who has died, the personal representative of the Optionee's estate, the person(s) to whom the Optionee's rights under the Option have passed by will or by the applicable laws of descent and distribution, or the beneficiary designated in accordance with Section 10; or (c) the person(s) to whom an Option has been transferred in accordance with Section 10. "Option Term" has the meaning set forth in Section 7.3. "Parent," except as provided in Section 8.3 in connection with Incentive Stock Options, means any entity, whether now or hereafter existing, that directly or indirectly controls the Company. "Plan Administrator" means the Board or any committee or committees designated by the Board or any person to whom the Board has delegated authority to administer the Plan under Section 3.1. "Related Corporation" means any Parent or Subsidiary of the Company. "Retirement" means retirement as of the individual's normal retirement date under the Company's 401(k) Plan or other similar successor plan applicable to salaried employees, unless otherwise defined by the Plan Administrator from time to time for purposes of the Plan. "Securities Act" means the Securities Act of 1933, as amended. "Subsidiary," except as provided in Section 8.3 in connection with Incentive Stock Options, means any entity that is directly or indirectly controlled by the Company. "Termination Date" has the meaning set forth in Section 7.6. SECTION 3. ADMINISTRATION 3.1 Plan Administrator The Plan shall be administered by the Board and/or the Stock Option Plan Administration Committee or a committee or committees (which term includes subcommittees) appointed by, and consisting of two or more members of, the Board (a "Plan Administrator"). If and so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in selecting the members of any committee acting as Plan Administrator, with respect to any persons subject or likely to become subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee directors" as contemplated by Rule 16b-3 under the Exchange Act. The Board may delegate the responsibility for administering the Plan with respect to designated classes of eligible persons to different committees consisting of two or more members of the Board, subject to such limitations as the Board deems appropriate. Committee members shall serve for such term as the Board may determine, subject to removal by the Board at any time. To the extent consistent with applicable law, the Board may authorize one or more senior executive officers of the Company to grant Options to specified eligible persons, within the limits specifically prescribed by the Board. All delegations of authority by the Board pursuant to this Section 3.1 shall be subject to the procedural requirements of Section 4.03 of the Governance Agreement. 3.2 Administration and Interpretation by Plan Administrator Except for the terms and conditions explicitly set forth in the Plan, the Plan Administrator shall have exclusive authority, in its discretion, to determine all matters relating to Options under the Plan, including the selection of individuals to be granted Options, the type of Options, the number of shares of Common Stock subject to an Option, all terms, conditions, restrictions and limitations, if any, of an Option and the terms of any instrument that evidences the Option. The Plan Administrator shall also have exclusive authority to interpret the Plan and may from time to time adopt, and change, rules and regulations of general application for the Plan's administration. The Plan Administrator's interpretation of the Plan and its rules and regulations, and all actions taken and determinations made by the Plan Administrator pursuant to the Plan, shall be conclusive and binding on all parties involved or affected. The Plan Administrator may delegate administrative duties to such of the Company's officers as it so determines. SECTION 4. STOCK SUBJECT TO THE PLAN 4.1 Authorized Number of Shares Subject to adjustment from time to time as provided in Section 11.1, a maximum of 36,000,000 shares of Common Stock shall be available for issuance under the Plan. Shares issued under the Plan shall be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company. 4.2 Limitations Subject to adjustment from time to time as provided in Section 11.1, not more than 1,200,000 shares of Common Stock may be made subject to Options under the Plan to any individual in the aggregate in any one fiscal year of the Company, except that the Company may make additional one-time grants of up to 1,200,000 shares to newly hired individuals, such limitation to be applied in a manner consistent with the requirements of, and only to the extent required for compliance with, the exclusion from the limitation on deductibility of compensation under Section 162(m) of the Code. 4.3 Reuse of Shares Any shares of Common Stock that have been made subject to an Option that cease to be subject to the Option (other than by reason of exercise of the Option to the extent it is exercised for shares) shall again be available for issuance in connection with future grants of Options under the Plan; provided, however, that for purposes of Section 4.2, any such shares shall be counted in accordance with the requirements of Section 162(m) of the Code. SECTION 5. ELIGIBILITY Options may be granted under the Plan to those officers, directors and employees of the Company and its Related Corporations as the Plan Administrator from time to time selects. SECTION 6. ACQUIRED COMPANY OPTIONS Notwithstanding anything in the Plan to the contrary, the Plan Administrator may grant Options under the Plan in substitution for awards issued under other plans, or assume under the Plan awards issued under other plans, if the other plans are or were plans of other acquired entities ("Acquired Entities") (or the parent of the Acquired Entity) and the new Option is substituted, or the old option is assumed, by reason of a merger, consolidation, acquisition of property or of stock, reorganization or liquidation (the "Acquisition Transaction"). In the event that a written agreement pursuant to which the Acquisition Transaction is completed is approved by the Board and said agreement sets forth the terms and conditions of the substitution for or assumption of outstanding options of the Acquired Entity, said terms and conditions shall be deemed to be the action of the Plan Administrator without any further action by the Plan Administrator, except as may be required for compliance with Rule 16b-3 under the Exchange Act, and the persons holding such awards shall be deemed to be Optionees. SECTION 7. TERMS AND CONDITIONS OF OPTIONS 7.1 Grant of Options The Plan Administrator is authorized under the Plan, in its sole discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock Options, which shall be appropriately designated. 7.2 Option Exercise Price The exercise price for shares purchased under an Option shall be as determined by the Plan Administrator, but shall not be less than 100% of the Fair Market Value of the Common Stock on the Grant Date with respect to Incentive Stock Options and not less than 85% of the Fair Market Value of the Common Stock on the Grant Date with respect to Nonqualified Stock Options. For Incentive Stock Options granted to a more than 10% shareholder, the Option exercise price shall be as specified in Section 8.2. 7.3 Term of Options The term of each Option (the "Option Term") shall be as established by the Plan Administrator or, if not so established, shall be 10 years from the Grant Date. For Incentive Stock Options, the maximum Option Term shall be as specified in Sections 8.2 and 8.4. 7.4 Exercise of Options The Plan Administrator shall establish and set forth in each instrument that evidences an Option the time at which, or the installments in which, the Option shall vest and become exercisable, which provisions may be waived or modified by the Plan Administrator at any time. If not so established in the instrument evidencing the Option, the Option shall vest and become exercisable according to the following schedule, which may be waived or modified by the Plan Administrator at any time: Period of Optionee's Continuous Employment or Service With the Company or Its Related Percent of Total Option Corporations From the Option Grant Date That Is Vested and Exercisable - ------------------------------------------ ------------------------------ After one year 20% After two years 40% After three years 60% After four years 80% After five years 100% Notwithstanding the foregoing, the Option shall become 100% vested and exercisable on the date of termination of an Optionee's employment or service relationship with the Company or a Related Corporation on account of the Optionee's death, provided that the Optionee has been in the continuous employment of or service to the Company or a Related Corporation for at least two years at the date of such Optionee's death. The Plan Administrator may adjust the vesting schedule of an Option held by an Optionee who works less than "full-time" as that term is defined by the Plan Administrator. To the extent that the right to purchase shares has accrued thereunder, an Option may be exercised from time to time by delivery to the Company of a stock option exercise agreement or notice, in a form and in accordance with procedures established by the Plan Administrator, setting forth the number of shares with respect to which the Option is being exercised, the restrictions imposed on the shares purchased under such exercise agreement, if any, and such representations and agreements as may be required by the Company, accompanied by payment in full as described in Section 7.5. An Option may not be exercised as to less than a reasonable number of shares at any one time, as determined by the Plan Administrator. 7.5 Payment of Exercise Price The exercise price for shares purchased under an Option shall be paid in full to the Company by delivery of consideration equal to the product of the Option exercise price and the number of shares purchased. Such consideration must be paid in cash or by check or, unless the Plan Administrator in its sole discretion determines otherwise, either at the time the Option is granted or at any time before it is exercised, in any combination of (a) cash or check; (b) tendering (either actually or, if and so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, by attestation) shares of Common Stock already owned by the Optionee for at least six months (or any shorter period necessary to avoid a charge to the Company's earnings for financial reporting purposes) having a Fair Market Value on the day prior to the exercise date equal to the aggregate Option exercise price; (c) if and so long as the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act, delivery of an exercise notice, together with irrevocable instructions, to a brokerage firm designated by the Company to deliver promptly to the Company the aggregate amount of sale or loan proceeds to pay the Option exercise price and any withholding tax obligations that may arise in connection with the exercise and the Company to deliver the certificates for such purchased shares directly to such brokerage firm, all in accordance with the regulations of the Federal Reserve Board; or (d) such other consideration as the Plan Administrator may permit. In addition, to assist an Optionee (including an Optionee who is an officer or a director of the Company) in acquiring shares of Common Stock pursuant to an Option granted under the Plan, the Plan Administrator, in its sole discretion, may authorize, either at the Grant Date or at any time before the acquisition of Common Stock pursuant to the Option, (i) the payment by the Optionee of a full-recourse promissory note, (ii) the payment by the Optionee of the purchase price, if any, of the Common Stock in installments, or (iii) the guarantee by the Company of a loan obtained by the Optionee from a third party. Subject to the foregoing, the Plan Administrator shall in its sole discretion specify the terms of any loans, installment payments or loan guarantees, including the interest rate and terms of and security for repayment. 7.6 Post-Termination Exercises The Plan Administrator shall establish and set forth in each instrument that evidences an Option whether the Option shall continue to be exercisable, and the terms and conditions of such exercise, if an Optionee ceases to be employed by, or to provide services to, the Company or its Related Corporations, which provisions may be waived or modified by the Plan Administrator at any time. If not so established in the instrument evidencing the Option, the Option shall be exercisable according to the following terms and conditions, which may be waived or modified by the Plan Administrator at any time: (a) Any portion of an Option that is not vested and exercisable on the date of termination of the Optionee's employment or service relationship (the "Termination Date") shall expire on such date, unless the Plan Administrator determines otherwise. (b) Any portion of an Option that is vested and exercisable on the Termination Date shall expire upon the earliest to occur of: (i) the last day of the Option Term; (ii) if the Optionee's Termination Date occurs for reasons other than Cause, Disability, death or Retirement, the three-month anniversary of such Termination Date; and (iii) if the Optionee's Termination Date occurs by reason of Disability, death or Retirement, the one-year anniversary of such Termination Date. Notwithstanding the foregoing, if the Optionee dies after the Termination Date while the Option is otherwise exercisable, the Option shall expire upon the earlier to occur of (y) the last day of the Option Term and (z) the first anniversary of the date of death. Also notwithstanding the foregoing, in case of termination of the Optionee's employment or service relationship for Cause, the Option shall automatically expire upon first notification to the Optionee of such termination, unless the Plan Administrator determines otherwise. If an Optionee's employment or service relationship with the Company is suspended pending an investigation of whether the Optionee shall be terminated for Cause, all the Optionee's rights under any Option likewise shall be suspended during the period of investigation. An Optionee's transfer of employment or service relationship between or among the Company and its Related Corporations, or a change in status from an employee to a consultant that is evidenced by a written agreement between an Optionee and the Company or a Related Corporation, shall not be considered a termination of employment or service relationship for purposes of this Section 7. Employment or service relationship shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the Company or a Related Corporation in writing and if continued crediting of service for purposes of this Section 7 is expressly required by the terms of such leave or by applicable law (as determined by the Company). The effect of a Company-approved leave of absence on the terms and conditions of an Option shall be determined by the Plan Administrator, in its sole discretion. SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS To the extent required by Section 422 of the Code, Incentive Stock Options shall be subject to the following additional terms and conditions: 8.1 Dollar Limitation To the extent the aggregate Fair Market Value (determined as of the Grant Date) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time during any calendar year (under the Plan and all other stock option plans of the Company) exceeds $100,000, such portion in excess of $100,000 shall be treated as a Nonqualified Stock Option. In the event the Optionee holds two or more such Options that become exercisable for the first time in the same calendar year, such limitation shall be applied on the basis of the order in which such Options are granted. 8.2 More Than 10% Shareholders If an individual owns more than 10% of the total voting power of all classes of the Company's stock, then the exercise price per share of an Incentive Stock Option shall not be less than 110% of the Fair Market Value of the Common Stock on the Grant Date and the Option Term shall not exceed five years. The determination of more than 10% ownership shall be made in accordance with Section 422 of the Code. 8.3 Eligible Employees Individuals who are not employees of the Company or one of its parent corporations or subsidiary corporations may not be granted Incentive Stock Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary corporation" shall have the meanings attributed to those terms for purposes of Section 422 of the Code. 8.4 Term Except as provided in Section 8.2, the Option Term shall not exceed 10 years. 8.5 Exercisability An Option designated as an Incentive Stock Option shall cease to qualify for favorable tax treatment as an Incentive Stock Option to the extent it is exercised (if permitted by the terms of the Option) (a) more than three months after the Termination Date for reasons other than death or Disability, (b) more than one year after the Termination Date by reason of Disability, or (c) after the Optionee has been on leave of absence for more than 90 days, unless the Optionee's reemployment rights are guaranteed by statute or contract. For purposes of this Section 8.5, Disability shall mean "disability" as that term is defined for purposes of Section 422 of the Code. 8.6 Taxation of Incentive Stock Options In order to obtain certain tax benefits afforded to Incentive Stock Options under Section 422 of the Code, the Optionee must hold the shares issued upon the exercise of an Incentive Stock Option for two years after the Grant Date and one year from the date of exercise. An Optionee may be subject to the alternative minimum tax at the time of exercise of an Incentive Stock Option. The Optionee shall give the Company prompt notice of any disposition of shares acquired by the exercise of an Incentive Stock Option prior to the expiration of such holding periods. 8.7 Promissory Notes The amount of any promissory note delivered pursuant to Section 7.5 in connection with an Incentive Stock Option shall bear interest at a rate specified by the Plan Administrator, but in no case less than the rate required to avoid imputation of interest (taking into account any exceptions to the imputed interest rules) for federal income tax purposes. SECTION 9. WITHHOLDING The Company may require the Optionee to pay to the Company the amount of any withholding taxes that the Company is required to withhold with respect to the grant, vesting or exercise of any Option. Subject to the Plan and applicable law, the Plan Administrator may, in its sole discretion, permit the Optionee to satisfy withholding obligations, in whole or in part, by paying cash, by electing to have the Company withhold shares of Common Stock or by transferring shares of Common Stock to the Company, in such amounts as are equivalent to the Fair Market Value of the withholding obligation. The Company shall have the right to withhold from any Option or any shares of Common Stock issuable pursuant to an Option or from any cash amounts otherwise due or to become due from the Company to the Optionee an amount equal to such taxes. The Company may also deduct from any Option any other amounts due from the Optionee to the Company or a Related Corporation. SECTION 10. ASSIGNABILITY Options granted under the Plan and any interest therein may not be assigned, pledged or transferred by the Optionee and may not be made subject to attachment or similar proceedings otherwise than by will or by the applicable laws of descent and distribution, and, during the Optionee's lifetime, such Options may be exercised only by the Optionee. Notwithstanding the foregoing, and to the extent permitted by Section 422 of the Code, the Plan Administrator, in its sole discretion, may permit such assignment, transfer and exercisability and may permit an Optionee to designate a beneficiary who may exercise the Option or receive compensation under the Option after the Optionee's death; provided, however, that any Option so assigned or transferred shall be subject to all the same terms and conditions contained in the instrument evidencing the Option. SECTION 11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION 11.1 Adjustment of Shares The aggregate number and class of shares for which Options may be granted under the Plan, the number and class of shares covered by each outstanding Option and the exercise price per share thereof (but not the total price), shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a split-up or consolidation of shares or any like capital adjustment, or the payment of any stock dividend (not including the stock dividend approved by the Board on February 23, 1999). 11.2 Cash, Stock or Other Property for Stock Except as provided in Section 11.3, upon a merger (other than a merger of the Company in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock in the surviving corporation immediately after the merger), consolidation, acquisition of property or stock, separation, reorganization (other than a mere reincorporation or the creation of a holding company) or liquidation of the Company, as a result of which the shareholders of the Company receive cash, stock or other property in exchange for or in connection with their shares of Common Stock, any Option granted hereunder shall terminate, but the Optionee shall have the right immediately prior to any such merger, consolidation, acquisition of property or stock, liquidation or reorganization to exercise such Option in whole or in part whether or not the vesting requirements set forth in the Option agreement have been satisfied. 11.3 Conversion of Options on Stock for Stock Exchange If the shareholders of the Company receive capital stock of another corporation ("Exchange Stock") in exchange for their shares of Common Stock in any transaction involving a merger (other than a merger of the Company in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock in the surviving corporation immediately after the merger), consolidation, acquisition of property or stock, liquidation or reorganization (other than a mere reincorporation or the creation of a holding company), the Company and the corporation issuing the Exchange Stock, in their sole discretion, may determine that all Options granted hereunder shall be converted into options to purchase shares of Exchange Stock instead of terminating in accordance with the provisions of Section 11.2. The amount and price of converted options shall be determined by adjusting the amount and price of the Options granted hereunder in the same proportion as used for determining the number of shares of Exchange Stock the holders of the Common Stock receive in such merger, consolidation, acquisition of property or stock, liquidation or reorganization. Unless accelerated by the Board, the vesting schedule set forth in the Option agreement shall continue to apply to the options granted for the Exchange Stock. 11.4 Fractional Shares In the event of any adjustment in the number of shares covered by any Option, any fractional shares resulting from such adjustment shall be disregarded and each such Option shall cover only the number of full shares resulting from such adjustment. 11.5 Determination of Board to Be Final All Section 11 adjustments shall be made by the Plan Administrator, and its determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. Unless an Optionee agrees otherwise, any change or adjustment to an Incentive Stock Option shall be made in such a manner so as not to constitute a "modification" as defined in Section 424(h) of the Code and so as not to cause his or her Incentive Stock Option issued hereunder to fail to continue to qualify as an "incentive stock option" as defined in Section 422(b) of the Code. 11.6 Limitations The grant of Options shall in no way affect the Company's right to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. SECTION 12. AMENDMENT AND TERMINATION OF PLAN 12.1 Amendment of Plan The Plan may be amended only by the Board in such respects as it shall deem advisable; provided, however, that to the extent required for compliance with Section 422 of the Code or any applicable law or regulation, shareholder approval shall be required for any amendment that would (a) increase the total number of shares available for issuance under the Plan, (b) modify the class of persons eligible to receive Options, or (c) otherwise require shareholder approval under any applicable law or regulation. Any amendment made to the Plan that would constitute a "modification" to Incentive Stock Options outstanding on the date of such amendment shall not, without the consent of the Optionee, be applicable to such outstanding Incentive Stock Options but shall have prospective effect only. 12.2 Termination of Plan The Board may suspend or terminate the Plan at any time. The Plan shall have no fixed expiration date; provided, however, that no Incentive Stock Options may be granted more than 10 years after the later of (a) the Plan's adoption by the Board and (b) the adoption by the Board of any amendment to the Plan that constitutes the adoption of a new plan for purposes of Section 422 of the Code. 12.3 Consent of Optionee The amendment or termination of the Plan or the amendment of an outstanding Option shall not, without the Optionee's consent, impair or diminish any rights or obligations under any Option theretofore granted to the Optionee under the Plan. Except as otherwise provided in the Plan, no outstanding Option shall be terminated without the consent of the Optionee. Any change or adjustment to an outstanding Incentive Stock Option shall not, without the consent of the Optionee, be made in a manner so as to constitute a "modification" that would cause such Incentive Stock Option to fail to continue to qualify as an Incentive Stock Option. SECTION 13. GENERAL 13.1 Evidence of Options Options granted under the Plan shall be evidenced by a written instrument that shall contain such terms, conditions, limitations and restrictions as the Plan Administrator shall deem advisable and that are not inconsistent with the Plan. 13.2 No Individual Rights Nothing in the Plan or any Option granted under the Plan shall be deemed to constitute an employment contract or confer or be deemed to confer on any Optionee any right to continue in the employ of, or to continue any other relationship with, the Company or any Related Corporation or limit in any way the right of the Company or any Related Corporation of the Company to terminate an Optionee's employment or other relationship at any time, with or without Cause. 13.3 Registration Notwithstanding any other provision of the Plan, the Company shall have no obligation to issue or deliver any shares of Common Stock under the Plan or make any other distribution of benefits under the Plan unless such issuance, delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act), and the applicable requirements of any securities exchange or similar entity. The Company shall be under no obligation to any Optionee to register for offering or resale or to qualify for exemption under the Securities Act, or to register or qualify under state securities laws, any shares of Common Stock, security or interest in a security paid or issued under, or created by, the Plan, or to continue in effect any such registrations or qualifications if made. The Company may issue certificates for shares with such legends and subject to such restrictions on transfer and stop-transfer instructions as counsel for the Company deems necessary or desirable for compliance by the Company with federal and state securities laws. To the extent that the Plan or any instrument evidencing an Option provides for issuance of stock certificates to reflect the issuance of shares of Common Stock, the issuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange. 13.4 No Rights as a Shareholder No Option shall entitle the Optionee to any cash dividend, voting or other right of a shareholder unless and until the date of issuance under the Plan of the shares that are the subject of such Option. 13.5 Compliance With Laws and Regulations Notwithstanding anything in the Plan to the contrary, the Plan Administrator, in its sole discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to Optionees who are officers or directors subject to Section 16 of the Exchange Act without so restricting, limiting or conditioning the Plan with respect to other Optionees. Additionally, in interpreting and applying the provisions of the Plan, any Option granted as an Incentive Stock Option pursuant to the Plan shall, to the extent permitted by law, be construed as an "incentive stock option" within the meaning of Section 422 of the Code. 13.6 Optionees in Foreign Countries The Plan Administrator shall have the authority to adopt such modifications, procedures and subplans as may be necessary or desirable to comply with provisions of the laws of foreign countries in which the Company or its Related Corporations may operate to assure the viability of the benefits from Options granted to Optionees employed in such countries and to meet the objectives of the Plan. 13.7 No Trust or Fund The Plan is intended to constitute an "unfunded" plan. Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Common Stock, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Optionee, and no Optionee shall have any rights that are greater than those of a general unsecured creditor of the Company. 13.8 Severability If any provision of the Plan or any Option is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Option under any law deemed applicable by the Plan Administrator, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Plan Administrator's determination, materially altering the intent of the Plan or the Option, such provision shall be stricken as to such jurisdiction, person or Option, and the remainder of the Plan and any such Option shall remain in full force and effect. 13.9 Choice of Law The Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Washington without giving effect to principles of conflicts of laws. SECTION 14. EFFECTIVE DATE The Effective Date is the date on which the Plan is adopted by the Board, so long as it is approved by the Company's shareholders at any time within 12 months of such adoption. Adopted by the Board on February 23, 1999 and approved by the Company's shareholders on April 29, 1999. PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS SUMMARY PAGE
Section/Effect of Amendment Date of Shareholder Date of Board Action Action Approval February 23, 1999 Initial Plan Adoption April 29, 1999 July 27, 1999 Plan Amendment Section 9: Revised to Not required prevent excess stock tax withholding April 25, 2000 Plan Amendment Section 3.1: Revised Board's Not required delegation authority to permit more than one executive officer to grant stock options; Sections 4.1 and 4.2: Adjusted original authorized number of shares (6,000,000) and Section 162(m) limitations (200,000 per year) to reflect a 2-for-1 stock split on August 26, 1999 and a 3-for-1 stock split on March 20, 2000; Section 7.4: Revised to provide accelerated vesting of stock options when an optionee dies and has been employed for at least two years
EX-10.20 9 dex1020.txt ADDENDUM TO THE 1999 STOCK OPTION PLAN Exhibit 10.20 ADDENDUM TO THE IMMUNEX CORPORATION 1999 STOCK OPTION PLAN (As Amended and Restated on April 25, 2000) WHEREAS, Immunex Corporation (hereinafter referred to as the "Company") maintains the Immunex Corporation 1999 Stock Option Plan (hereinafter referred to as the "Plan") and the Stock Option Grant Program for Nonemployee Directors under the Plan (the "Program"); and WHEREAS, the Company desires to adjoin an addendum (this "Addendum") to the Plan to address the effects of the transactions contemplated by the Agreement and Plan of Merger by and between Amgen Inc., AMS Acquisition Inc. and the Company dated as of December 16, 2001 (the "Merger Agreement"); NOW, THEREFORE, notwithstanding anything in the Plan and the Program to the contrary, this Addendum is hereby adopted, effective as of the Effective Time (as defined in the Merger Agreement): Section 1. At the Effective Time, each option granted pursuant the Plan shall be treated in accordance with the applicable terms of the Merger Agreement. Section 2. In the event that an optionee's employment with the Company or Amgen Inc. is terminated by the optionee for Good Reason or by the Company or Amgen Inc. without Cause during the fifteen (15) months following the Effective Time, each option held by such optionee for common stock of Amgen Inc. that granted pursuant to the Merger Agreement with respect to (a) a Cancelled Company Option (as defined in the Merger Agreement) or (b) an option for common stock of the Company that was granted after December 16, 2001, shall immediately vest in full and shall remain exercisable until the earlier of (x) the first anniversary of the optionee's termination of employment or (y) the end of the term of such option. Section 3. In the event that an optionee who is a nonemployee director of the Company immediately prior to the Effective Time ceases to be a director of the Company or Amgen Inc. for any reason immediately prior to, at, or during the fifteen (15) months following the Effective Time, each option held by such optionee for common stock of Amgen Inc. shall immediately vest in full and shall remain exercisable until the earlier of (x) the first anniversary of the date such optionee ceases to be a director of the Company or Amgen Inc. or (y) the end of the term of such option. Section 4. For purposes of this Addendum only, "Good Reason" shall mean the occurrence on or after the Effective Date and without the optionee's consent of, (a) a reduction in the optionee's annual base salary or wages, other than as part of a general reduction applicable to substantially all employees of the Company employed in the United States or (ii) the relocation of the optionee's principal place of employment to a location more than fifty (50) miles from the optionee's principal place of employment prior to the Effective Date. Section 5. For purposes of this Addendum only, "Cause" shall mean (a) the willful and continued failure by the optionee to substantially perform the optionee's duties with the Company (other than such failure resulting form the optionee's incapacity due to physical or mental illness) or (b) the willful engaging by the optionee in conduct which is demonstratably and materially injurious to the Company, monetarily or otherwise. For purposes of this definition, no act, or failure to act, on the optionee's part shall be deemed willful unless done, or omitted to be done, by the optionee not in good faith or without reasonable belief that the optionee's act, or failure to act, was in the best interest of the Company. Section 6. This Addendum shall be effective only upon the Effective Time. In the event that the Merger Agreement terminates according to its terms, this Addendum shall be of no force or effect. EX-10.30 10 dex1030.txt SEVERANCE AGREEMENT WITH PEGGY V. PHILLIPS Exhibit 10.30 SEVERANCE AGREEMENT ------------------- THIS AGREEMENT, dated as of December 16, 2001, is made by and between Immunex Corporation, a Washington corporation (the "Company"), and Peggy V. Phillips (the "Executive"). WHEREAS, the Company considers it essential to the best interests of its shareholders to foster the continued employment of key management personnel; and WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. Defined Terms. The definitions of capitalized terms used ------------- in this Agreement are provided in the last Section hereof. 2. Term of Agreement. The Term of this Agreement shall ----------------- commence on the date hereof and shall continue in effect through December 31, 2004; provided, however, that commencing on January 1, 2002 and each January 1 -------- ------- thereafter, the Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided, ------- -------- however, that if a Change in Control shall have occurred during the Term, the - ------- Term shall expire on the date which is twenty-four (24) months immediately following the date on which such Change in Control occurred. 3. Company's Covenants Summarized. In order to induce the ------------------------------ Executive to remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been a termination of the Executive's employment with the Company under the circumstances described herein within the two year period immediately following a Change in Control that occurs during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 4. The Executive's Covenants. The Executive agrees that, ------------------------- subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. ------------------------------------------ 5.1 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the Change in Control, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the Change in Control. 5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the Change in Control. 6. Severance Payments. ------------------ 6.1 If the Executive's employment is terminated within the two year period immediately following a Change in Control that occurs during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then, subject to Section 6.5, the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 ("Severance Payments") and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. (A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive including amounts payable pursuant to the Immunex Corporation Leadership Continuity Plan (but not in lieu of amounts payable pursuant to the Immunex Corporation Retention Plan, except as expressly provided in such plan), the Company shall pay to the Executive a lump sum severance payment, in cash, equal to three times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, (ii) the target annual incentive compensation in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of event or circumstance constituting Good Reason, and (iii) the value of the contributions or the allocations made, as applicable, on behalf of the Executive to any DC Pension Plan in respect of the fiscal year ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason. (B) For the thirty-six (36) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents (a) life, death, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater cost after tax to the Executive than the after tax cost to the Executive immediately prior to such date or occurrence; and (b) other perquisites, including, without limitation, financial counseling and tax planning services by AYCO or a company providing comparable equivalent services, to the same extent as if the Executive had continued to be employed by the Company during such period. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B)(a) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided, however, -------- ------- that the Company shall reimburse the Executive for the excess, if any, of the cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason. (C) The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of one year commencing on the date the Executive first uses such outplacement services. 6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, and after taking into account the phase out of itemized deductions and personal exemptions attributable to the Gross-Up Payment, shall be equal to the Total Payments. (B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive), to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 6.3 The payments provided in subsection (A) of Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day following the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of Section 6.2 hereof); provided, however, that if the amounts of such payments cannot be -------- ------- finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). Within fifteen (15) days prior to the time that payments are made under this Agreement, Tax Counsel shall provide the Company and the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations. 6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive (i) in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement, provided that the Executive prevails in any material dispute, or (ii) in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6.5 Notwithstanding anything contained herein, the Executive shall not be entitled to receive the Severance Payments or any other payment or benefit hereunder unless he or she first executes a written release in the form attached hereto as Exhibit A and such release has become effective. 7. Termination Procedures and Compensation During Dispute. ------------------------------------------------------ 7.1 Notice of Termination. After a Change in Control and --------------------- during the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Committee at a meeting of the Committee which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Committee) finding that, in the good faith opinion of the Committee, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination," with respect ------------------- to any purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for Disability, fifteen (15) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such fifteen (15) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than fifteen (15) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than thirty (30) days, respectively, from the date such Notice of Termination is given). 8. No Mitigation. The Company agrees that, if the ------------- Executive's employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof. Further, except as specifically provided in this Section 8 and Section 6.1(B) hereof, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. Notwithstanding anything herein to the contrary, if the Executive's employment is terminated by the Executive with Good Reason during the sixty (60) day period following the first anniversary of a Change in Control as described in the last sentence of the first paragraph of Section 15(Q) hereof for reasons which would not otherwise constitute Good Reason, payments provided in subsection (A) of Section 6.1 hereof and in Section 6.2 hereof shall be reduced by any Retention Payment previously paid under the Immunex Corporation Retention Plan. 9. Successors; Binding Agreement. ----------------------------- 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Failure of the Company to obtain such assumption and agreement upon or prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to terminate his employment with the Company and receive compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 10. Notices. For the purpose of this Agreement, notices and ------- all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To the Company: Immunex Corporation 51 University Street Seattle, Washington 98101-2936 Attention: General Counsel 11. Miscellaneous. No provision of this Agreement may be ------------- modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and any authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Except for the Immunex Corporation Retention Plan (which remains in full force and effect), this Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party including the Immunex Corporation Leadership Continuing Policy. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Washington. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration. 12. Validity. The invalidity or unenforceability of any -------- provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. Settlement of Disputes. All claims by the Executive for ---------------------- benefits under this Agreement shall be directed to and determined by the Committee and shall be in writing. Any denial by the Committee of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Committee shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Committee a decision of the Committee within sixty (60) days after notification by the Committee that the Executive's claim has been denied. Notwithstanding the above, in the event of any dispute, any decision by the Committee hereunder shall be subject to a de novo review by a court or, if the Executive is a party to an arbitration agreement with the Company, by an arbitrator. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 15. Definitions. For purposes of this Agreement, the ----------- following terms shall have the meanings indicated below: (A) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. (B) "Auditor" shall have the meaning set forth in Section 6.2 hereof. (C) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code. (D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. (E) "Board" shall mean the Board of Directors of the Company. (F) "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been cured within 30 days after a written demand for substantial performance is delivered to the Executive by the Committee, which demand specifically identifies the manner in which the Committee believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Committee by clear and convincing evidence that Cause exists. (G) A "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (I) any Person, other than American Home Products Corporation, a Delaware corporation, or any of its Affiliates, is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (III) below; or (II) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, as of the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) (i) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended or (ii) who is an Investor Director (as defined in the Amended and Restated Governance Agreement, dated as ofDecember 15, 1992, among Lederle Oncology Corporation, American Cyanamid Company and the Company) nominated by American Home Products Corporation or any of its Affiliates pursuant to the terms of the Governance Agreement; or (III) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other Person, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereto) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person (other than American Home Products Corporation and its Affiliates) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 35% or more of the combined voting power of the Company's then outstanding securities; or (IV) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other thana sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale; or (V) American Home Products Corporation (together with its Affiliates) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing 70% or more of the combined voting power of the Company's then outstanding securities. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. (H) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (I) "Committee" shall mean the Compensation Committee of the Board. (J) "Company" shall mean Immunex Corporation and, except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. (K) "DC Pension Plan" shall mean any tax-qualified, supplemental or excess defined contribution plan maintained by the Company and any other defined contribution plan or agreement entered into between the Executive and the Company. (L) "Date of Termination" shall have the meaning set forth in Section 7.2 hereof. (M) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. (N) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (O) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. (P) "Executive" shall mean the individual named in the first paragraph of this Agreement. (Q) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence, on or after the date of a Change in Control and without the affected Executive's express written consent which specifically references this Agreement, of (i) the assignment to the Executive of duties in the aggregate that are inconsistent with the Executive's level of responsibility immediately prior to the date of the Change in Control or any diminution in the nature or status of the Executive's responsibilities from those in effect immediately prior to the date of the Change in Control (including, without limitation, the Executive ceasing to be an executive officer of a public company); (ii) a reduction by the Company in the Executive's annual base salary, annual incentive compensation opportunity, or long term incentive compensation opportunity (including an adverse change in performance criteria or a decrease in the target amount of annual or long term incentive compensation) from that in effect immediately prior to the Change in Control; or (iii) the relocation of the Executive's principal place of employment or principal place of performance of Executive's duties to a location more than fifty (50) miles from the Executive's principal place of employment immediately prior to the date of the Change in Control. Notwithstanding the preceding sentence, any termination of employment by the Executive, whether voluntary or involuntary, for any reason or no reason, after the first anniversary of a Change in Control but within sixty (60) days following such anniversary shall be deemed to constitute a termination for Good Reason hereunder, provided that, for purposes of this sentence only, in determining whether a Change in Control has occurred pursuant to Section 15(G), any securities acquired by any Person directly from the Company shall not be included in the securities beneficially owned by such Person. For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Committee by clear and convincing evidence that Good Reason does not exist. (R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2 hereof. (S) "Notice of Termination" shall have the meaning set forth in Section 7.1 hereof. (T) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (a) the Company or any of its Affiliates (other than American Home Products Corporation or any of its Affiliates), (b) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (c) an underwriter temporarily holding securities pursuant to an offering of such securities or (d) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (U) "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (III) any Person, other than American Home Products Corporation or any of its Affiliates, becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities; or (IV) the Board adopts a resolution to the effect that a Potential Change in Control has occurred. (V) "Retention Payment" shall have the meaning set forth in the Immunex Corporation Retention Plan. (W) "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees. (X) "Severance Payments" shall have the meaning set forth in Section 6.1 hereof. (Y) "Tax Counsel" shall have the meaning set forth in Section 6.2 hereof. (Z) "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein). (AA) "Total Payments" shall mean those payments so described in Section 6.2 hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. IMMUNEX CORPORATION By:________________________________ Name: Title: ___________________________________ Executive Address: ___________________________________ ___________________________________ ___________________________________ (Please print carefully) EXHIBIT A WAIVER AND RELEASE OF CLAIMS AGREEMENT -------------------------------------- YOU HAVE BEEN ADVISED TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT. YOU HAVE [FORTY-FIVE] [TWENTY-ONE] DAYS AFTER RECEIVING THIS AGREEMENT TO CONSIDER WHETHER TO SIGN IT. AFTER SIGNING THIS AGREEMENT, YOU HAVE ANOTHER SEVEN DAYS IN WHICH TO REVOKE IT, AND IT DOES NOT TAKE EFFECT UNTIL THOSE SEVEN DAYS HAVE ENDED. In consideration of, and subject to, the payments to be made to me by Immunex Corporation ("Immunex") or any of its subsidiaries, pursuant to the Severance Agreement between me and Immunex Corporation dated as of December 16, 2001 (the "Agreement"), which I acknowledge that I would not otherwise be entitled to receive, I hereby waive any claims I may have for employment or re-employment by Immunex or any subsidiary or parent of Immunex after the date hereof, and I further agree to and do release and forever discharge Immunex or any subsidiary or parent of Immunex and their respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with Immunex or any subsidiary or parent of Immunex or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Acts, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment or otherwise. Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims Agreement shall adversely affect (i) my rights under the Agreement and under the Immunex Corporation Retention Plan; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of Immunex or any subsidiary or parent of Immunex; or (iii) my rights to indemnification under any indemnification agreement, applicable law and the certificates of incorporation and bylaws of Immunex and any subsidiary or parent of Immunex, and my rights under any director's and officer's liability insurance policy covering me. I acknowledge that I have signed this Waiver and Release of Claims Agreement voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations, written or oral, have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and Immunex's acknowledgment of my rights reserved under the second paragraph above. I understand that this release will be deemed to be an application for benefits under the Agreement, and that my entitlement thereto shall be governed by the terms and conditions of the Agreement, and I expressly hereby consent to such terms and conditions. I acknowledge that I have been given not less than [forty-five (45)] [twenty-one (21)] days to review and consider this Waiver and Release of Claims Agreement, and that I have had the opportunity to consult with an attorney or other advisor of my choice and have been advised by Immunex to do so if I choose. I may revoke this Waiver and Release of Claims Agreement seven days or less after its execution by providing written notice to Immunex. Finally, I acknowledge that I have carefully read this Waiver and Release of Claims Agreement and understand all of its terms. This is the entire agreement between the parties and is legally binding and enforceable. This Waiver and Release of Claims Agreement shall be governed and interpreted under federal law and the laws of Washington. I knowingly and voluntarily sign this Waiver and Release of Claims Agreement. Executive: IMMUNEX CORPORATION By: ______________________ Title: ______________________ EX-10.31 11 dex1031.txt SEVERANCE AGREEMENT WITH DOUGLAS E. WILLIAMS Exhibit 10.31 SEVERANCE AGREEMENT ------------------- THIS AGREEMENT, dated as of December 16, 2001, is made by and between Immunex Corporation, a Washington corporation (the "Company"), and Douglas E. Williams (the "Executive"). WHEREAS, the Company considers it essential to the best interests of its shareholders to foster the continued employment of key management personnel; and WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. Defined Terms. The definitions of capitalized terms used in this ------------- Agreement are provided in the last Section hereof. 2. Term of Agreement. The Term of this Agreement shall commence on the ----------------- date hereof and shall continue in effect through December 31, 2004; provided, -------- however, that commencing on January 1, 2002 and each January 1 thereafter, the - ------- Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided, however, that if a ------- -------- ------- Change in Control shall have occurred during the Term, the Term shall expire on the date which is twenty-four (24) months immediately following the date on which such Change in Control occurred. 3. Company's Covenants Summarized. In order to induce the Executive to ------------------------------ remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been a termination of the Executive's employment with the Company under the circumstances described herein within the two year period immediately following a Change in Control that occurs during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 4. The Executive's Covenants. The Executive agrees that, subject to ------------------------- the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. ------------------------------------------ 5.1 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the Change in Control, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the Change in Control. 5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the Change in Control. 6. Severance Payments. ------------------ 6.1 If the Executive's employment is terminated within the two year period immediately following a Change in Control that occurs during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then, subject to Section 6.5, the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 ("Severance Payments") and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. (A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive including amounts payable pursuant to the Immunex Corporation Leadership Continuity Plan (but not in lieu of amounts payable pursuant to the Immunex Corporation Retention Plan, except as expressly provided in such plan), the Company shall pay to the Executive a lump sum severance payment, in cash, equal to three times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, (ii) the target annual incentive compensation in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of event or circumstance constituting Good Reason, and (iii) the value of the contributions or the allocations made, as applicable, on behalf of the Executive to any DC Pension Plan in respect of the fiscal year ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason. (B) For the thirty-six (36) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents (a) life, death, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater cost after tax to the Executive than the after tax cost to the Executive immediately prior to such date or occurrence; and (b) other perquisites, including, without limitation, financial counseling and tax planning services by AYCO or a company providing comparable equivalent services, to the same extent as if the Executive had continued to be employed by the Company during such period. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B)(a) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided, however, that the -------- ------- Company shall reimburse the Executive for the excess, if any, of the cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason. (C) The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of one year commencing on the date the Executive first uses such outplacement services. 6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, and after taking into account the phase out of itemized deductions and personal exemptions attributable to the Gross-Up Payment, shall be equal to the Total Payments. (B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive), to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 6.3 The payments provided in subsection (A) of Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day following the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of Section 6.2 hereof); provided, however, that if the amounts of such payments cannot be finally - -------- ------- determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). Within fifteen (15) days prior to the time that payments are made under this Agreement, Tax Counsel shall provide the Company and the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations. 6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive (i) in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement, provided that the Executive prevails in any material dispute, or (ii) in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6.5 Notwithstanding anything contained herein, the Executive shall not be entitled to receive the Severance Payments or any other payment or benefit hereunder unless he or she first executes a written release in the form attached hereto as Exhibit A and such release has become effective. 7. Termination Procedures and Compensation During Dispute. ------------------------------------------------------ 7.1 Notice of Termination. After a Change in Control and during the --------------------- Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Committee at a meeting of the Committee which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Committee) finding that, in the good faith opinion of the Committee, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination," with respect to any ------------------- purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for Disability, fifteen (15) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such fifteen (15) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than fifteen (15) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than thirty (30) days, respectively, from the date such Notice of Termination is given). 8. No Mitigation. The Company agrees that, if the Executive's ------------- employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof. Further, except as specifically provided in this Section 8 and Section 6.1(B) hereof, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. Notwithstanding anything herein to the contrary, if the Executive's employment is terminated by the Executive with Good Reason during the sixty (60) day period following the first anniversary of a Change in Control as described in the last sentence of the first paragraph of Section 15(Q) hereof for reasons which would not otherwise constitute Good Reason, payments provided in subsection (A) of Section 6.1 hereof and in Section 6.2 hereof shall be reduced by any Retention Payment previously paid under the Immunex Corporation Retention Plan. 9. Successors; Binding Agreement. ----------------------------- 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Failure of the Company to obtain such assumption and agreement upon or prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to terminate his employment with the Company and receive compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 10. Notices. For the purpose of this Agreement, notices and all other ------- communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To the Company: Immunex Corporation 51 University Street Seattle, Washington 98101-2936 Attention: General Counsel 11. Miscellaneous. No provision of this Agreement may be modified, ------------- waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and any authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Except for the Immunex Corporation Retention Plan (which remains in full force and effect), this Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party including the Immunex Corporation Leadership Continuing Policy. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Washington. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration. 12. Validity. The invalidity or unenforceability of any provision of -------- this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. Settlement of Disputes. All claims by the Executive for benefits ---------------------- under this Agreement shall be directed to and determined by the Committee and shall be in writing. Any denial by the Committee of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Committee shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Committee a decision of the Committee within sixty (60) days after notification by the Committee that the Executive's claim has been denied. Notwithstanding the above, in the event of any dispute, any decision by the Committee hereunder shall be subject to a de novo review by a court or, if the Executive is a party to an arbitration agreement with the Company, by an arbitrator. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 15. Definitions. For purposes of this Agreement, the following terms ----------- shall have the meanings indicated below: (A) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. (B) "Auditor" shall have the meaning set forth in Section 6.2 hereof. (C) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code. (D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. (E) "Board" shall mean the Board of Directors of the Company. (F) "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been cured within 30 days after a written demand for substantial performance is delivered to the Executive by the Committee, which demand specifically identifies the manner in which the Committee believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Committee by clear and convincing evidence that Cause exists. (G) A "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (I) any Person, other than American Home Products Corporation, a Delaware corporation, or any of its Affiliates, is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (III) below; or (II) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, as of the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) (i) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended or (ii) who is an Investor Director (as defined in the Amended and Restated Governance Agreement, dated as ofDecember 15, 1992, among Lederle Oncology Corporation, American Cyanamid Company and the Company) nominated by American Home Products Corporation or any of its Affiliates pursuant to the terms of the Governance Agreement; (III) or there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other Person, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereto) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person (other than American Home Products Corporation and its Affiliates) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 35% or more of the combined voting power of the Company's then outstanding securities; or (IV) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale; or (V) American Home Products Corporation (together with its Affiliates) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing 70% or more of the combined voting power of the Company's then outstanding securities. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. (H) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (I) "Committee" shall mean the Compensation Committee of the Board. (J) "Company" shall mean Immunex Corporation and, except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. (K) "DC Pension Plan" shall mean any tax-qualified, supplemental or excess defined contribution plan maintained by the Company and any other defined contribution plan or agreement entered into between the Executive and the Company. (L) "Date of Termination" shall have the meaning set forth in Section 7.2 hereof. (M) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. (N) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (O) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. (P) "Executive" shall mean the individual named in the first paragraph of this Agreement. (Q) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence, on or after the date of a Change in Control and without the affected Executive's express written consent which specifically references this Agreement, of (i) the assignment to the Executive of duties in the aggregate that are inconsistent with the Executive's level of responsibility immediately prior to the date of the Change in Control or any diminution in the nature or status of the Executive's responsibilities from those in effect immediately prior to the date of the Change in Control (including, without limitation, the Executive ceasing to be an executive officer of a public company); (ii) a reduction by the Company in the Executive's annual base salary, annual incentive compensation opportunity, or long term incentive compensation opportunity (including an adverse change in performance criteria or a decrease in the target amount of annual or long term incentive compensation) from that in effect immediately prior to the Change in Control; or (iii) the relocation of the Executive's principal place of employment or principal place of performance of Executive's duties to a location more than fifty (50) miles from the Executive's principal place of employment immediately prior to the date of the Change in Control. Notwithstanding the preceding sentence, any termination of employment by the Executive, whether voluntary or involuntary, for any reason or no reason, after the first anniversary of a Change in Control but within sixty (60) days following such anniversary shall be deemed to constitute a termination for Good Reason hereunder, provided that, for purposes of this sentence only, in determining whether a Change in Control has occurred pursuant to Section 15(G), any securities acquired by any Person directly from the Company shall not be included in the securities beneficially owned by such Person. For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Committee by clear and convincing evidence that Good Reason does not exist. (R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2 hereof. (S) "Notice of Termination" shall have the meaning set forth in Section 7.1 hereof. (T) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (a) the Company or any of its Affiliates (other than American Home Products Corporation or any of its Affiliates), (b) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (c) an underwriter temporarily holding securities pursuant to an offering of such securities or (d) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (U) "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (III) any Person, other than American Home Products Corporation or any of its Affiliates, becomes the Beneficial Owner, directly or indirectly,of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities; or (IV) the Board adopts a resolution to the effect that a Potential Change in Control has occurred. (V) "Retention Payment" shall have the meaning set forth in the Immunex Corporation Retention Plan. (W) "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees. (X) "Severance Payments" shall have the meaning set forth in Section 6.1 hereof. (Y) "Tax Counsel" shall have the meaning set forth in Section 6.2 hereof. (Z) "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein). (AA) "Total Payments" shall mean those payments so described in Section 6.2 hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. IMMUNEX CORPORATION By:__________________________________ Name: Title: _____________________________________ Executive Address: _____________________________________ _____________________________________ _____________________________________ (Please print carefully) EXHIBIT A WAIVER AND RELEASE OF CLAIMS AGREEMENT -------------------------------------- YOU HAVE BEEN ADVISED TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT. YOU HAVE [FORTY-FIVE] [TWENTY-ONE] DAYS AFTER RECEIVING THIS AGREEMENT TO CONSIDER WHETHER TO SIGN IT. AFTER SIGNING THIS AGREEMENT, YOU HAVE ANOTHER SEVEN DAYS IN WHICH TO REVOKE IT, AND IT DOES NOT TAKE EFFECT UNTIL THOSE SEVEN DAYS HAVE ENDED. In consideration of, and subject to, the payments to be made to me by Immunex Corporation ("Immunex") or any of its subsidiaries, pursuant to the Severance Agreement between me and Immunex Corporation dated as of December 16, 2001 (the "Agreement"), which I acknowledge that I would not otherwise be entitled to receive, I hereby waive any claims I may have for employment or re-employment by Immunex or any subsidiary or parent of Immunex after the date hereof, and I further agree to and do release and forever discharge Immunex or any subsidiary or parent of Immunex and their respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with Immunex or any subsidiary or parent of Immunex or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Acts, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment or otherwise. Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims Agreement shall adversely affect (i) my rights under the Agreement and under the Immunex Corporation Retention Plan; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of Immunex or any subsidiary or parent of Immunex; or (iii) my rights to indemnification under any indemnification agreement, applicable law and the certificates of incorporation and bylaws of Immunex and any subsidiary or parent of Immunex, and my rights under any director's and officer's liability insurance policy covering me. I acknowledge that I have signed this Waiver and Release of Claims Agreement voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations, written or oral, have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and Immunex's acknowledgment of my rights reserved under the second paragraph above. I understand that this release will be deemed to be an application for benefits under the Agreement, and that my entitlement thereto shall be governed by the terms and conditions of the Agreement, and I expressly hereby consent to such terms and conditions. I acknowledge that I have been given not less than [forty-five (45)] [twenty-one (21)] days to review and consider this Waiver and Release of Claims Agreement, and that I have had the opportunity to consult with an attorney or other advisor of my choice and have been advised by Immunex to do so if I choose. I may revoke this Waiver and Release of Claims Agreement seven days or less after its execution by providing written notice to Immunex. Finally, I acknowledge that I have carefully read this Waiver and Release of Claims Agreement and understand all of its terms. This is the entire agreement between the parties and is legally binding and enforceable. This Waiver and Release of Claims Agreement shall be governed and interpreted under federal law and the laws of Washington. I knowingly and voluntarily sign this Waiver and Release of Claims Agreement. Executive: IMMUNEX CORPORATION By: _______________________ Title: ____________________ EX-10.32 12 dex1032.txt SEVERANCE AGREEMENT WITH DAVID A. MANN Exhibit 10.32 SEVERANCE AGREEMENT ------------------- THIS AGREEMENT, dated as of December 16, 2001, is made by and between Immunex Corporation, a Washington corporation (the "Company"), and David A. Mann (the "Executive"). WHEREAS, the Company considers it essential to the best interests of its shareholders to foster the continued employment of key management personnel; and WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. Defined Terms. The definitions of capitalized terms used in this ------------- Agreement are provided in the last Section hereof. 2. Term of Agreement. The Term of this Agreement shall commence on the ----------------- date hereof and shall continue in effect through December 31, 2004; provided, -------- however, that commencing on January 1, 2002 and each January 1 thereafter, the - ------- Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided, however, that if a ------- -------- ------- Change in Control shall have occurred during the Term, the Term shall expire on the date which is twenty-four (24) months immediately following the date on which such Change in Control occurred. 3. Company's Covenants Summarized. In order to induce the Executive to ------------------------------ remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been a termination of the Executive's employment with the Company under the circumstances described herein within the two year period immediately following a Change in Control that occurs during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 4. The Executive's Covenants. The Executive agrees that, subject to the ------------------------- terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. ------------------------------------------- 5.1 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the Change in Control, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the Change in Control. 5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the Change in Control. 6. Severance Payments. ------------------ 6.1 If the Executive's employment is terminated within the two year period immediately following a Change in Control that occurs during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then, subject to Section 6.5, the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 ("Severance Payments") and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. (A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive including amounts payable pursuant to the Immunex Corporation Leadership Continuity Plan (but not in lieu of amounts payable pursuant to the Immunex Corporation Retention Plan, except as expressly provided in such plan), the Company shall pay to the Executive a lump sum severance payment, in cash, equal to three times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, (ii) the target annual incentive compensation in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of event or circumstance constituting Good Reason, and (iii) the value of the contributions or the allocations made, as applicable, on behalf of the Executive to any DC Pension Plan in respect of the fiscal year ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason. (B) For the thirty-six (36) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents (a) life, death, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater cost after tax to the Executive than the after tax cost to the Executive immediately prior to such date or occurrence; and (b) other perquisites, including, without limitation, financial counseling and tax planning services by AYCO or a company providing comparable equivalent services, to the same extent as if the Executive had continued to be employed by the Company during such period. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B)(a) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided, however, that the Company -------- ------- shall reimburse the Executive for the excess, if any, of the cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason. (C) The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of one year commencing on the date the Executive first uses such outplacement services. 6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, and after taking into account the phase out of itemized deductions and personal exemptions attributable to the Gross-Up Payment, shall be equal to the Total Payments. (B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive), to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 6.3 The payments provided in subsection (A) of Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day following the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of Section 6.2 hereof); provided, however, that if the amounts of such payments cannot be -------- ------- finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). Within fifteen (15) days prior to the time that payments are made under this Agreement, Tax Counsel shall provide the Company and the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations. 6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive (i) in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement, provided that the Executive prevails in any material dispute, or (ii) in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6.5 Notwithstanding anything contained herein, the Executive shall not be entitled to receive the Severance Payments or any other payment or benefit hereunder unless he or she first executes a written release in the form attached hereto as Exhibit A and such release has become effective. 7. Termination Procedures and Compensation During Dispute. ------------------------------------------------------ 7.1 Notice of Termination. After a Change in Control and --------------------- during the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Committee at a meeting of the Committee which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Committee) finding that, in the good faith opinion of the Committee, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination," with respect ------------------- to any purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for Disability, fifteen (15) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such fifteen (15) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than fifteen (15) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than thirty (30) days, respectively, from the date such Notice of Termination is given). 8. No Mitigation. The Company agrees that, if the Executive's ------------- employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof. Further, except as specifically provided in this Section 8 and Section 6.1(B) hereof, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. Notwithstanding anything herein to the contrary, if the Executive's employment is terminated by the Executive with Good Reason during the sixty (60) day period following the first anniversary of a Change in Control as described in the last sentence of the first paragraph of Section 15(Q) hereof for reasons which would not otherwise constitute Good Reason, payments provided in subsection (A) of Section 6.1 hereof and in Section 6.2 hereof shall be reduced by any Retention Payment previously paid under the Immunex Corporation Retention Plan. 9. Successors; Binding Agreement. ----------------------------- 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Failure of the Company to obtain such assumption and agreement upon or prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to terminate his employment with the Company and receive compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 10. Notices. For the purpose of this Agreement, notices and ------- all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: To the Company: Immunex Corporation 51 University Street Seattle, Washington 98101-2936 Attention: General Counsel 11. Miscellaneous. No provision of this Agreement may be ------------- modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and any authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Except for the Immunex Corporation Retention Plan (which remains in full force and effect), this Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party including the Immunex Corporation Leadership Continuing Policy. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Washington. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration. 12. Validity. The invalidity or unenforceability of any -------- provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. Settlement of Disputes. All claims by the Executive for benefits ---------------------- under this Agreement shall be directed to and determined by the Committee and shall be in writing. Any denial by the Committee of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Committee shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Committee a decision of the Committee within sixty (60) days after notification by the Committee that the Executive's claim has been denied. Notwithstanding the above, in the event of any dispute, any decision by the Committee hereunder shall be subject to a de novo review by a court or, if the Executive is a party to an arbitration agreement with the Company, by an arbitrator. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 15. Definitions. For purposes of this Agreement, the following terms ----------- shall have the meanings indicated below: (A) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. (B) "Auditor" shall have the meaning set forth in Section 6.2 hereof. (C) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code. (D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. (E) "Board" shall mean the Board of Directors of the Company. (F) "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been cured within 30 days after a written demand for substantial performance is delivered to the Executive by the Committee, which demand specifically identifies the manner in which the Committee believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Committee by clear and convincing evidence that Cause exists. (G) A "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (I) any Person, other than American Home Products Corporation, a Delaware corporation, or any of its Affiliates, is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (III) below; or (II) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, as of the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) (i) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended or (ii) who is an Investor Director (as defined in the Amended and Restated Governance Agreement, dated as of December 15, 1992, among Lederle Oncology Corporation, American Cyanamid Company and the Company) nominated by American Home Products Corporation or any of its Affiliates pursuant to the terms of the Governance Agreement; or (III) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other Person, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereto) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person (other than American Home Products Corporation and its Affiliates) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 35% or more of the combined voting power of the Company's then outstanding securities; or (IV) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale; or (V) American Home Products Corporation (together with its Affiliates) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing 70% or more of the combined voting power of the Company's then outstanding securities. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. (H) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (I) "Committee" shall mean the Compensation Committee of the Board. (J) "Company" shall mean Immunex Corporation and, except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. (K) "DC Pension Plan" shall mean any tax-qualified, supplemental or excess defined contribution plan maintained by the Company and any other defined contribution plan or agreement entered into between the Executive and the Company. (L) "Date of Termination" shall have the meaning set forth in Section 7.2 hereof. (M) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. (N) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (O) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. (P) "Executive" shall mean the individual named in the first paragraph of this Agreement. (Q) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence, on or after the date of a Change in Control and without the affected Executive's express written consent which specifically references this Agreement, of (i) the assignment to the Executive of duties in the aggregate that are inconsistent with the Executive's level of responsibility immediately prior to the date of the Change in Control or any diminution in the nature or status of the Executive's responsibilities from those in effect immediately prior to the date of the Change in Control (including, without limitation, the Executive ceasing to be an executive officer of a public company); (ii) a reduction by the Company in the Executive's annual base salary, annual incentive compensation opportunity, or long term incentive compensation opportunity (including an adverse change in performance criteria or a decrease in the target amount of annual or long term incentive compensation) from that in effect immediately prior to the Change in Control; or (iii) the relocation of the Executive's principal place of employment or principal place of performance of Executive's duties to a location more than fifty (50) miles from the Executive's principal place of employment immediately prior to the date of the Change in Control. Notwithstanding the preceding sentence, any termination of employment by the Executive, whether voluntary or involuntary, for any reason or no reason, after the first anniversary of a Change in Control but within sixty (60) days following such anniversary shall be deemed to constitute a termination for Good Reason hereunder, provided that, for purposes of this sentence only, in determining whether a Change in Control has occurred pursuant to Section 15(G), any securities acquired by any Person directly from the Company shall not be included in the securities beneficially owned by such Person. For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Committee by clear and convincing evidence that Good Reason does not exist. (R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2 hereof. (S) "Notice of Termination" shall have the meaning set forth in Section 7.1 hereof. (T) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (a) the Company or any of its Affiliates (other than American Home Products Corporation or any of its Affiliates), (b) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (c) an underwriter temporarily holding securities pursuant to an offering of such securities or (d) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (U) "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (III) any Person, other than American Home Products Corporation or any of its Affiliates, becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities; or (IV) the Board adopts a resolution to the effect that a Potential Change in Control has occurred. (V) "Retention Payment" shall have the meaning set forth in the Immunex Corporation Retention Plan. (W) "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees. (X) "Severance Payments" shall have the meaning set forth in Section 6.1 hereof. (Y) "Tax Counsel" shall have the meaning set forth in Section 6.2 hereof. (Z) "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein). (AA) "Total Payments" shall mean those payments so described in Section 6.2 hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. IMMUNEX CORPORATION By:____________________________________________ Name: Title: _______________________________________________ Executive Address: _______________________________________________ _______________________________________________ _______________________________________________ (Please print carefully) EXHIBIT A WAIVER AND RELEASE OF CLAIMS AGREEMENT -------------------------------------- YOU HAVE BEEN ADVISED TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT. YOU HAVE [FORTY-FIVE] [TWENTY-ONE] DAYS AFTER RECEIVING THIS AGREEMENT TO CONSIDER WHETHER TO SIGN IT. AFTER SIGNING THIS AGREEMENT, YOU HAVE ANOTHER SEVEN DAYS IN WHICH TO REVOKE IT, AND IT DOES NOT TAKE EFFECT UNTIL THOSE SEVEN DAYS HAVE ENDED. In consideration of, and subject to, the payments to be made to me by Immunex Corporation ("Immunex") or any of its subsidiaries, pursuant to the Severance Agreement between me and Immunex Corporation dated as of December 16, 2001 (the "Agreement"), which I acknowledge that I would not otherwise be entitled to receive, I hereby waive any claims I may have for employment or re-employment by Immunex or any subsidiary or parent of Immunex after the date hereof, and I further agree to and do release and forever discharge Immunex or any subsidiary or parent of Immunex and their respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with Immunex or any subsidiary or parent of Immunex or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Acts, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment or otherwise. Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims Agreement shall adversely affect (i) my rights under the Agreement and under the Immunex Corporation Retention Plan; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of Immunex or any subsidiary or parent of Immunex; or (iii) my rights to indemnification under any indemnification agreement, applicable law and the certificates of incorporation and bylaws of Immunex and any subsidiary or parent of Immunex, and my rights under any director's and officer's liability insurance policy covering me. I acknowledge that I have signed this Waiver and Release of Claims Agreement voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations, written or oral, have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and Immunex's acknowledgment of my rights reserved under the second paragraph above. I understand that this release will be deemed to be an application for benefits under the Agreement, and that my entitlement thereto shall be governed by the terms and conditions of the Agreement, and I expressly hereby consent to such terms and conditions. I acknowledge that I have been given not less than [forty-five (45)] [twenty-one (21)] days to review and consider this Waiver and Release of Claims Agreement, and that I have had the opportunity to consult with an attorney or other advisor of my choice and have been advised by Immunex to do so if I choose. I may revoke this Waiver and Release of Claims Agreement seven days or less after its execution by providing written notice to Immunex. Finally, I acknowledge that I have carefully read this Waiver and Release of Claims Agreement and understand all of its terms. This is the entire agreement between the parties and is legally binding and enforceable. This Waiver and Release of Claims Agreement shall be governed and interpreted under federal law and the laws of Washington. I knowingly and voluntarily sign this Waiver and Release of Claims Agreement. Executive: IMMUNEX CORPORATION ________________________ By: _________________________ Title: ______________________ EX-10.33 13 dex1033.txt SEVERANCE AGREEMENT WITH BARRY G. PEA Exhibit 10.33 SEVERANCE AGREEMENT ------------------- THIS AGREEMENT, dated as of December 16, 2001, is made by and between Immunex Corporation, a Washington corporation (the "Company"), and Barry G. Pea (the "Executive"). WHEREAS, the Company considers it essential to the best interests of its shareholders to foster the continued employment of key management personnel; and WHEREAS, the Board recognizes that, as is the case with many publicly held corporations, the possibility of a Change in Control exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Executive, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a Change in Control; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows: 1. Defined Terms. The definitions of capitalized terms used in this ------------- Agreement are provided in the last Section hereof. 2. Term of Agreement. The Term of this Agreement shall commence on the ----------------- date hereof and shall continue in effect through December 31, 2004; provided, -------- however, that commencing on January 1, 2002 and each January 1 thereafter, the - ------- Term shall automatically be extended for one additional year unless, not later than September 30 of the preceding year, the Company or the Executive shall have given notice not to extend the Term; and further provided, however, that if a ------- -------- ------- Change in Control shall have occurred during the Term, the Term shall expire on the date which is twenty-four (24) months immediately following the date on which such Change in Control occurred. 3. Company's Covenants Summarized. In order to induce the Executive to ------------------------------ remain in the employ of the Company and in consideration of the Executive's covenants set forth in Section 4 hereof, the Company agrees, under the conditions described herein, to pay the Executive the Severance Payments and the other payments and benefits described herein. Except as provided in Section 9.1 hereof, no Severance Payments shall be payable under this Agreement unless there shall have been a termination of the Executive's employment with the Company under the circumstances described herein within the two year period immediately following a Change in Control that occurs during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company. 4. The Executive's Covenants. The Executive agrees that, subject to the ------------------------- terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive's employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive's employment for any reason. 5. Compensation Other Than Severance Payments. ------------------------------------------ 5.1 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive's full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the Change in Control, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company's compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the Change in Control. 5.2 If the Executive's employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive's normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company's retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the Change in Control. 6. Severance Payments. ------------------ 6.1 If the Executive's employment is terminated within the two year period immediately following a Change in Control that occurs during the Term, other than (A) by the Company for Cause, (B) by reason of death or Disability, or (C) by the Executive without Good Reason, then, subject to Section 6.5, the Company shall pay the Executive the amounts, and provide the Executive the benefits, described in this Section 6.1 ("Severance Payments") and Section 6.2, in addition to any payments and benefits to which the Executive is entitled under Section 5 hereof. (A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive including amounts payable pursuant to the Immunex Corporation Leadership Continuity Plan (but not in lieu of amounts payable pursuant to the Immunex Corporation Retention Plan, except as expressly provided in such plan), the Company shall pay to the Executive a lump sum severance payment, in cash, equal to three times the sum of (i) the Executive's base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, (ii) the target annual incentive compensation in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of event or circumstance constituting Good Reason, and (iii) the value of the contributions or the allocations made, as applicable, on behalf of the Executive to any DC Pension Plan in respect of the fiscal year ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason. (B) For the thirty-six (36) month period immediately following the Date of Termination, the Company shall arrange to provide the Executive and his dependents (a) life, death, accident and health insurance benefits substantially similar to those provided to the Executive and his dependents immediately prior to the Date of Termination or, if more favorable to the Executive, those provided to the Executive and his dependents immediately prior to the first occurrence of an event or circumstance constituting Good Reason, at no greater cost after tax to the Executive than the after tax cost to the Executive immediately prior to such date or occurrence; and (b) other perquisites, including, without limitation, financial counseling and tax planning services by AYCO or a company providing comparable equivalent services, to the same extent as if the Executive had continued to be employed by the Company during such period. Benefits otherwise receivable by the Executive pursuant to this Section 6.1(B)(a) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the thirty-six (36) month period following the Executive's termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided, however, that the Company shall reimburse the -------- ------- Executive for the excess, if any, of the cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason. (C) The Company shall provide the Executive with outplacement services suitable to the Executive's position for a period of one year commencing on the date the Executive first uses such outplacement services. 6.2 (A) Whether or not the Executive becomes entitled to the Severance Payments, if any of the payments or benefits received or to be received by the Executive in connection with a Change in Control or the Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (all such payments and benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Total Payments") will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the "Gross-Up Payment") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, and after taking into account the phase out of itemized deductions and personal exemptions attributable to the Gross-Up Payment, shall be equal to the Total Payments. (B) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to the Executive and selected by the accounting firm which was, immediately prior to the Change in Control, the Company's independent auditor (the "Auditor"), such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of section 280G(b)(4)(A) of the Code, (ii) all "excess parachute payments" within the meaning of section 280G(b)(l) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive's residence on the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 6.2), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (C) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, the Executive shall repay to the Company, within five (5) business days following the time that the amount of such reduction in the Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive), to the extent that such repayment results in a reduction in the Excise Tax and a dollar-for-dollar reduction in the Executive's taxable income and wages for purposes of federal, state and local income and employment taxes, plus interest on the amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 6.3 The payments provided in subsection (A) of Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth day following the Date of Termination (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of Section 6.2 hereof); provided, however, that if the amounts of such payments cannot be finally - -------- ------- determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). Within fifteen (15) days prior to the time that payments are made under this Agreement, Tax Counsel shall provide the Company and the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations. 6.4 The Company also shall pay to the Executive all legal fees and expenses incurred by the Executive (i) in disputing in good faith any issue hereunder relating to the termination of the Executive's employment, in seeking in good faith to obtain or enforce any benefit or right provided by this Agreement, provided that the Executive prevails in any material dispute, or (ii) in connection with any tax audit or proceeding to the extent attributable to the application of section 4999 of the Code to any payment or benefit provided hereunder. Such payments shall be made within five (5) business days after delivery of the Executive's written requests for payment accompanied with such evidence of fees and expenses incurred as the Company reasonably may require. 6.5 Notwithstanding anything contained herein, the Executive shall not be entitled to receive the Severance Payments or any other payment or benefit hereunder unless he or she first executes a written release in the form attached hereto as Exhibit A and such release has become effective. 7. Termination Procedures and Compensation During Dispute. ------------------------------------------------------ 7.1 Notice of Termination. After a Change in Control and during --------------------- the Term, any purported termination of the Executive's employment (other than by reason of death) shall be communicated by written Notice of Termination from one party hereto to the other party hereto in accordance with Section 10 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Further, a Notice of Termination for Cause is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Committee at a meeting of the Committee which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive's counsel, to be heard before the Committee) finding that, in the good faith opinion of the Committee, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail. 7.2 Date of Termination. "Date of Termination," with respect to any ------------------- purported termination of the Executive's employment after a Change in Control and during the Term, shall mean (i) if the Executive's employment is terminated for Disability, fifteen (15) days after Notice of Termination is given (provided that the Executive shall not have returned to the full-time performance of the Executive's duties during such fifteen (15) day period), and (ii) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by the Company, shall not be less than fifteen (15) days (except in the case of a termination for Cause) and, in the case of a termination by the Executive, shall not be less than fifteen (15) days nor more than thirty (30) days, respectively, from the date such Notice of Termination is given). 8. No Mitigation. The Company agrees that, if the Executive's ------------- employment with the Company terminates during the Term, the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to Section 6 hereof. Further, except as specifically provided in this Section 8 and Section 6.1(B) hereof, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to the Company, or otherwise. Notwithstanding anything herein to the contrary, if the Executive's employment is terminated by the Executive with Good Reason during the sixty (60) day period following the first anniversary of a Change in Control as described in the last sentence of the first paragraph of Section 15(Q) hereof for reasons which would not otherwise constitute Good Reason, payments provided in subsection (A) of Section 6.1 hereof and in Section 6.2 hereof shall be reduced by any Retention Payment previously paid under the Immunex Corporation Retention Plan. 9. Successors; Binding Agreement. ----------------------------- 9.1 In addition to any obligations imposed by law upon any successor to the Company, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Failure of the Company to obtain such assumption and agreement upon or prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to terminate his employment with the Company and receive compensation from the Company in the same amount and on the same terms as the Executive would be entitled to hereunder if the Executive were to terminate the Executive's employment for Good Reason after a Change in Control, except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 9.2 This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amount would still be payable to the Executive hereunder (other than amounts which, by their terms, terminate upon the death of the Executive) if the Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the executors, personal representatives or administrators of the Executive's estate. 10. Notices. For the purpose of this Agreement, notices and all other ------- communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the address inserted below the Executive's signature on the final page hereof and, if to the Company, to the address set forth below, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon actual receipt: 11. To the Company: Immunex Corporation 51 University Street Seattle, Washington 98101-2936 Attention: General Counsel 12. Miscellaneous. No provision of this Agreement may be modified, ------------- waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and any authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of any lack of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Except for the Immunex Corporation Retention Plan (which remains in full force and effect), this Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party including the Immunex Corporation Leadership Continuing Policy. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Washington. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law and any additional withholding to which the Executive has agreed. The obligations of the Company and the Executive under this Agreement which by their nature may require either partial or total performance after the expiration of the Term (including, without limitation, those under Sections 6 and 7 hereof) shall survive such expiration. 13. Validity. The invalidity or unenforceability of any provision of -------- this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 14. Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 15. Settlement of Disputes. All claims by the Executive for benefits ---------------------- under this Agreement shall be directed to and determined by the Committee and shall be in writing. Any denial by the Committee of a claim for benefits under this Agreement shall be delivered to the Executive in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The Committee shall afford a reasonable opportunity to the Executive for a review of the decision denying a claim and shall further allow the Executive to appeal to the Committee a decision of the Committee within sixty (60) days after notification by the Committee that the Executive's claim has been denied. Notwithstanding the above, in the event of any dispute, any decision by the Committee hereunder shall be subject to a de novo review by a court or, if the Executive is a party to an arbitration agreement with the Company, by an arbitrator. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive's right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 16. Definitions. For purposes of this Agreement, the following ----------- terms shall have the meanings indicated below: (A) "Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act. (B) "Auditor" shall have the meaning set forth in Section 6.2 hereof. (C) "Base Amount" shall have the meaning set forth in section 280G(b)(3) of the Code. (D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act. (E) "Board" shall mean the Board of Directors of the Company. (F) "Cause" for termination by the Company of the Executive's employment shall mean (i) the willful and continued failure by the Executive to substantially perform the Executive's duties with the Company (other than any such failure resulting from the Executive's incapacity due to physical or mental illness or any such actual or anticipated failure after the issuance of a Notice of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been cured within 30 days after a written demand for substantial performance is delivered to the Executive by the Committee, which demand specifically identifies the manner in which the Committee believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in conduct which is demonstrably and materially injurious to the Company or its subsidiaries, monetarily or otherwise. For purposes of clauses (i) and (ii) of this definition, (x) no act, or failure to act, on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the Executive's act, or failure to act, was in the best interest of the Company and (y) in the event of a dispute concerning the application of this provision, no claim by the Company that Cause exists shall be given effect unless the Company establishes to the Committee by clear and convincing evidence that Cause exists. (G) A "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (I) any Person, other than American Home Products Corporation, a Delaware corporation, or any of its Affiliates, is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (III) below; or (II) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, as of the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) (i) whose appointment or election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two- thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended or (ii) who is an Investor Director (as defined in the Amended and Restated Governance Agreement, dated as of December 15, 1992, among Lederle Oncology Corporation, American Cyanamid Company and the Company) nominated by American Home Products Corporation or any of its Affiliates pursuant to the terms of the Governance Agreement; or (III) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other Person, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereto) at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person (other than American Home Products Corporation and its Affiliates) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 35% or more of the combined voting power of the Company's then outstanding securities; or (IV) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale; or (V) American Home Products Corporation (together with its Affiliates) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing 70% or more of the combined voting power of the Company's then outstanding securities. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. (H) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (I) "Committee" shall mean the Compensation Committee of the Board. (J) "Company" shall mean Immunex Corporation and, except in determining under Section 15(G) hereof whether or not any Change in Control of the Company has occurred, shall include any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. (K) "DC Pension Plan" shall mean any tax-qualified, supplemental or excess defined contribution plan maintained by the Company and any other defined contribution plan or agreement entered into between the Executive and the Company. (L) "Date of Termination" shall have the meaning set forth in Section 7.2 hereof. (M) "Disability" shall be deemed the reason for the termination by the Company of the Executive's employment, if, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive's duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive's duties. (N) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (O) "Excise Tax" shall mean any excise tax imposed under section 4999 of the Code. (P) "Executive" shall mean the individual named in the first paragraph of this Agreement. (Q) "Good Reason" for termination by the Executive of the Executive's employment shall mean the occurrence, on or after the date of a Change in Control and without the affected Executive's express written consent which specifically references this Agreement, of (i) the assignment to the Executive of duties in the aggregate that are inconsistent with the Executive's level of responsibility immediately prior to the date of the Change in Control or any diminution in the nature or status of the Executive's responsibilities from those in effect immediately prior to the date of the Change in Control (including, without limitation, the Executive ceasing to be an executive officer of a public company); (ii) a reduction by the Company in the Executive's annual base salary, annual incentive compensation opportunity, or long term incentive compensation opportunity (including an adverse change in performance criteria or a decrease in the target amount of annual or long term incentive compensation) from that in effect immediately prior to the Change in Control; or (iii) the relocation of the Executive's principal place of employment or principal place of performance of Executive's duties to a location more than fifty (50) miles from the Executive's principal place of employment immediately prior to the date of the Change in Control. Notwithstanding the preceding sentence, any termination of employment by the Executive, whether voluntary or involuntary, for any reason or no reason, after the first anniversary of a Change in Control but within sixty (60) days following such anniversary shall be deemed to constitute a termination for Good Reason hereunder, provided that, for purposes of this sentence only, in determining whether a Change in Control has occurred pursuant to Section 15(G), any securities acquired by any Person directly from the Company shall not be included in the securities beneficially owned by such Person. For purposes of any determination regarding the existence of Good Reason, any claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company establishes to the Committee by clear and convincing evidence that Good Reason does not exist. (R) "Gross-Up Payment" shall have the meaning set forth in Section 6.2 hereof. (S) "Notice of Termination" shall have the meaning set forth in Section 7.1 hereof. (T) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (a) the Company or any of its Affiliates (other than American Home Products Corporation or any of its Affiliates), (b) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (c) an underwriter temporarily holding securities pursuant to an offering of such securities or (d) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (U) "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (III) any Person, other than American Home Products Corporation or any of its Affiliates, becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities; or (IV) the Board adopts a resolution to the effect that a Potential Change in Control has occurred. (V) "Retention Payment" shall have the meaning set forth in the Immunex Corporation Retention Plan. (W) "Retirement" shall be deemed the reason for the termination by the Executive of the Executive's employment if such employment is terminated in accordance with the Company's retirement policy, including early retirement, generally applicable to its salaried employees. (X) "Severance Payments" shall have the meaning set forth in Section 6.1 hereof. (Y) "Tax Counsel" shall have the meaning set forth in Section 6.2 hereof. (Z) "Term" shall mean the period of time described in Section 2 hereof (including any extension, continuation or termination described therein). (AA) "Total Payments" shall mean those payments so described in Section 6.2 hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. IMMUNEX CORPORATION By: _______________________________ Name: Title: ___________________________________ Executive Address: ___________________________________ ___________________________________ ___________________________________ (Please print carefully) EXHIBIT A WAIVER AND RELEASE OF CLAIMS AGREEMENT -------------------------------------- YOU HAVE BEEN ADVISED TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT. YOU HAVE [FORTY-FIVE] [TWENTY-ONE] DAYS AFTER RECEIVING THIS AGREEMENT TO CONSIDER WHETHER TO SIGN IT. AFTER SIGNING THIS AGREEMENT, YOU HAVE ANOTHER SEVEN DAYS IN WHICH TO REVOKE IT, AND IT DOES NOT TAKE EFFECT UNTIL THOSE SEVEN DAYS HAVE ENDED. In consideration of, and subject to, the payments to be made to me by Immunex Corporation ("Immunex") or any of its subsidiaries, pursuant to the Severance Agreement between me and Immunex Corporation dated as of December 16, 2001 (the "Agreement"), which I acknowledge that I would not otherwise be entitled to receive, I hereby waive any claims I may have for employment or re-employment by Immunex or any subsidiary or parent of Immunex after the date hereof, and I further agree to and do release and forever discharge Immunex or any subsidiary or parent of Immunex and their respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with Immunex or any subsidiary or parent of Immunex or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Acts, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment or otherwise. Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims Agreement shall adversely affect (i) my rights under the Agreement and under the Immunex Corporation Retention Plan; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of Immunex or any subsidiary or parent of Immunex; or (iii) my rights to indemnification under any indemnification agreement, applicable law and the certificates of incorporation and bylaws of Immunex and any subsidiary or parent of Immunex, and my rights under any director's and officer's liability insurance policy covering me. I acknowledge that I have signed this Waiver and Release of Claims Agreement voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations, written or oral, have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and Immunex's acknowledgment of my rights reserved under the second paragraph above. I understand that this release will be deemed to be an application for benefits under the Agreement, and that my entitlement thereto shall be governed by the terms and conditions of the Agreement, and I expressly hereby consent to such terms and conditions. I acknowledge that I have been given not less than [forty-five (45)] [twenty-one (21)] days to review and consider this Waiver and Release of Claims Agreement, and that I have had the opportunity to consult with an attorney or other advisor of my choice and have been advised by Immunex to do so if I choose. I may revoke this Waiver and Release of Claims Agreement seven days or less after its execution by providing written notice to Immunex. Finally, I acknowledge that I have carefully read this Waiver and Release of Claims Agreement and understand all of its terms. This is the entire agreement between the parties and is legally binding and enforceable. This Waiver and Release of Claims Agreement shall be governed and interpreted under federal law and the laws of Washington. I knowingly and voluntarily sign this Waiver and Release of Claims Agreement. Executive: IMMUNEX CORPORATION ________________________ By: __________________________ Title: _______________________ EX-10.34 14 dex1034.txt IMMUNEX CORPORATION RETENTION PLAN Exhibit 10.34 IMMUNEX CORPORATION RETENTION PLAN 1. Purpose. The Plan has been established by the Company for the purpose of ------- compensating executives and employees of the Company for their continued services and loyalty to the Company and to encourage them to remain in the employ of the Company and to use their best efforts to ensure the increased performance results of the Company. 2. Definitions. For purposes of the Plan: ----------- (a) "Board" shall mean the Board of Directors of the Company. (b) "Cause" shall mean (i) the willful and continued failure by the Participant to substantially perform the Participant's duties with the Company (other than any such failure resulting from the Participant's incapacity due to physical or mental illness) or (ii) the willful engaging by the Participant in conduct which is demonstrably injurious to the Company, monetarily or otherwise. For purposes of this definition, no act, or failure to act, on the Participant's part shall be deemed "willful" unless done, or omitted to be done, by the Participant not in good faith or without reasonable belief that the Participant's act, or failure to act, was in the best interest of the Company. (c) "Closing Date" shall have the meaning as set forth in the Merger Agreement. (d) "Closing Payment" shall mean, with respect to each Participant, a lump sum cash payment in an amount equal to (i) the number of months of the Participant's base salary or wages which is set forth as the Closing Multiplier (the "Closing Multiplier") opposite the applicable Level in Exhibit B hereto plus (ii) the Participant's target annual bonus, if any, multiplied by a fraction, the numerator of which is the Closing Multiplier and the denominator of which is twelve (12). For purposes of this definition, "base salary or wages" shall be the Participant's base salary or wages (excluding overtime pay, bonuses, commissions, premium pay, shift differentials and similar compensation) immediately prior to the Closing Date and "target annual bonus" shall be the Participant's target bonus, if any, with respect to the year in which the Closing Date occurs. (e) "Company" shall mean Immunex Corporation (collectively with its subsidiaries) or any successor thereto. (f) "First Retention Payment" shall mean, with respect to each Participant other than a Level 7 Employee or Level 8 Employee, a lump sum cash payment equal to (i) the number of months of the Participant's base salary or wages which is set forth as the First Retention Multiplier ("First Retention Multiplier") opposite the applicable Level in Exhibit B hereto plus (ii) the Participant's target annual bonus, if any, multiplied by a fraction (which may be higher than 1), the numerator of which is the First Retention Multiplier and the denominator of which is twelve (12). For purposes of this definition, "base salary or wages" shall be the Participant's base salary or wages (excluding overtime pay, bonuses, commissions, premium pay, shift differentials and similar compensation) immediately prior to the date upon which the First Retention Payment becomes payable (without regard to any reduction therein which constitutes Good Reason) and "target annual bonus" shall be the Participant's target bonus, if any, with respect to the year in which the First Retention Payment becomes payable. (g) "First Retention Payment Date" shall mean (i) with respect to each Level 1 Employee, Level 2 Employee, Level 3 Employee, Level 4 Employee, and Level 6 Employee, the first anniversary of the Closing Date and (ii) with respect to each Level 5 Employee, the date that is nine (9) months following the Closing Date. (h) "Good Reason" shall mean, with respect to each Participant other than a LCP Eligible Employee, the occurrence, on or after the Closing Date and without the affected Participant's written consent, of (i) a reduction in the Participant's annual base salary or wages, other than as part of a general reduction applicable to substantially all employees of the Company employed in the United States or (ii) the relocation of the Participant's principal place of employment to a location more than fifty (50) miles from the Participant's principal place of employment immediately prior to the Closing Date. With respect to each LCP Eligible Employee, Good Reason shall have the same meaning as set forth in the LCP, or in such LCP Eligible Employee's Change in Control Severance Agreement, as applicable; provided, however, that prior to the first anniversary of the Closing Date, no Good Reason shall be deemed to exist under the Plan merely by reason of the Participant ceasing to be an executive officer of a public company or by reason of the Company becoming a subsidiary to another company. (i) "LCP" means the Immunex Corporation Leadership Continuity Plan. (j) "LCP Eligible Employee" shall mean any Level 1 Employee, Level 2 Employee or Level 3 Employee. (k) "Level 1 Employee", "Level 2 Employee", "Level 3 Employee", "Level 4 Employee", "Level 5 Employee", "Level 6 Employee", "Level 7 Employee" and "Level 8 Employee" shall have the meanings set forth in Exhibit A hereto. (l) "Merger Agreement" shall mean the Agreement and Plan of Merger dated as of December 16, 2001, by and between Amgen Inc., AMS Acquisition Inc. and Immunex Corporation. (m) "Participant" shall mean any regular full-time (or part-time, provided such individual regularly works at least twenty (20) hours per week) Level 1 Employee, Level 2 Employee, Level 3 Employee, Level 4 Employee, Level 5 Employee, Level 6 Employee, Level 7 Employee or Level 8 Employee. (n) "Plan" shall mean the Immunex Corporation Retention Plan, as set forth herein. (o) "Plan Administrator" shall mean the person or persons appointed from time to time by the Board which appointment may be revoked at any time by the Board. (p) "Second Retention Payment" shall mean, with respect to each Participant, other than a Level 1 Employee, Level 7 Employee or Level 8 Employee, a lump sum cash payment equal to (i) the number of months of the Participant's base salary or wages which is set forth as the Second Retention Multiplier (the "Second Retention Multiplier") opposite the applicable Level in Exhibit B hereto plus (ii) the Participant's target annual bonus, if any, multiplied by a fraction, the numerator of which is the Second Retention Multiplier and the denominator of which is twelve (12). For purposes of this definition, "base salary or wages" shall be the Participant's base salary or wages (excluding overtime pay, bonuses, commissions, premium pay, shift differentials and similar compensation) immediately prior to the date upon which the Second Retention Payment becomes payable (without regard to any reduction therein which constitutes Good Reason) and "target annual bonus" shall be the Participant's target bonus, if any, with respect to the year in which the Second Retention Payment becomes payable. (q) "Second Retention Payment Date" shall mean (i) with respect to each Level 2 Employee, Level 3 Employee, Level 4 Employee and Level 6 Employee, the second anniversary of the Closing Date and (ii) with respect to each Level 5 Employee, the date that is eighteen (18) months following the Closing Date. (r) "Special Payment" shall mean, with respect to each Participant, a lump sum cash payment in an amount equal to the Participant's target annual bonus, if any. For purposes of this definition, "target annual bonus" shall be the Participant's target bonus, if any, with respect to the year in which the Special Payment Date occurs. (s) "Special Payment Date" shall mean the date that is three (3) months following the date upon which the Merger Agreement terminates pursuant to its terms. 3. Administration. The Plan shall be interpreted, administered and operated by -------------- the Plan Administrator, who shall have authority, subject to the express provisions of the Plan (including Section 6 of the Plan), to interpret the Plan, and to make other determinations necessary for the administration of the Plan. 4. Payments. -------- (a) Each Participant shall be paid the Closing Payment as soon as practicable following the Closing Date. The Closing Payment shall not be paid to any Participant who is not employed by the Company on the Closing Date. No Participant shall be entitled to receive the Closing Payment if the Closing Date does not occur. (b) Each Participant (except a Level 1 Employee) shall be paid the Special Payment as soon as practicable following the Special Payment Date. The Special Payment shall not be paid to any Participant who is not employed by the Company on the Special Payment Date. No Participant shall be entitled to receive the Special Payment if the Merger Agreement does not terminate pursuant to its terms. (c) Each Participant (except a Level 7 Employee or Level 8 Employee) shall be paid the First Retention Payment as soon as practicable following the First Retention Payment Date. No Participant shall be entitled to receive the First Retention Payment if the Closing Date does not occur. The First Retention Payment shall not be paid to any Participant who is not employed by the Company on the First Retention Payment Date, provided, however, that any -------- ------- Participant whose employment is terminated on or after the date that is one (1) month following the Closing Date and prior to the First Retention Payment Date by the Company without Cause or by the Participant with Good Reason shall be paid an amount equal to the product of (x) the First Retention Payment multiplied by (y) a fraction, the numerator of which is the number of days between the Closing Date and the date on which the Participant's employment is terminated, and the denominator of which is the number of days between the Closing Date and the First Retention Payment Date. Such payment shall be made as soon as practicable following the date of the Participant's termination. Notwithstanding anything contained herein to the contrary, amounts payable under the applicable Change in Control Severance Agreement to any LCP Eligible Employee who voluntarily terminates his or her employment during the sixty (60) day period following the first anniversary of a Change in Control (as defined in the LCP or in the applicable Change in Control Severance Agreement) for reasons which would not otherwise constitute Good Reason, shall be offset by the amount of the First Retention Payment paid to such LCP Eligible Employee. (d) Each Participant (except a Level 1 Employee, Level 7 Employee or Level 8 Employee) shall be paid the Second Retention Payment as soon as practicable following the Second Rentention Payment Date. No Participant shall be entitled to receive the Second Retention Payment if the Closing Date does not occur. The Second Retention Payment shall not be paid to any Participant who is not employed by the Company on the Second Retention Payment Date, provided, however, that any Participant -------- ------- whose employment is terminated following the First Retention Payment Date and prior to the Second Retention Payment Date, by the Company without Cause or by the Participant with Good Reason shall be paid an amount equal to the product of (x) the Second Retention Payment, multiplied by a fraction, the numerator of which is the number of days between the First Retention Payment Date and the date on which the Participant's employment is terminated, and the denominator of which is the number of days between the First Retention Payment Date and the Second Retention Payment Date. Such payment shall be made as soon as practicable following the date of the Participant's termination. (e) For any Participant who is a part-time employee, any payment made to such employee shall equal the payment that would have been payable to the Participant if he or she were a full-time employee multiplied by a fraction the numerator of which is the number of hours such Participant is regularly scheduled to work per week and the denominator of which is forty (40). 5. Withholding. The Company shall be entitled to withhold from amounts to be ----------- paid to any Participant hereunder any federal, state or local withholding or other taxes or charges which it is from time to time required to withhold. 6. Amendment and Termination. The Plan may be amended or terminated by the ------------------------- Board at any time; provided, however, that except as required by law or as provided in Section 13, the Plan may not be amended or terminated following the Closing Date in a manner that would adversely affect the rights of Participants under the Plan without the express written consent of each Participant so affected. 7. Assignment or Transfer. Except as otherwise provided herein or by law, no ---------------------- right or interest of any Participant under the Plan shall be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including without limitation by execution, levy, garnishment, attachment, pledge or in any manner; no attempted assignment or transfer thereof shall be effective; and no right or interest of any Participant under the Plan shall be liable for, or subject to, any obligation or liability of such Participant. When a payment is due under the Plan to a Participant who is unable to care for his or her affairs, payment may be made directly to his or her legal guardian or personal representative. 8. No Right of Employment. Neither the establishment of the Plan, nor any ---------------------- modification thereof, nor the creation of any fund, trust or account, nor the payment of any benefits shall be construed as giving any Participant, or any person whomsoever, the right to be retained in the service of the Company or as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Participant and the Company, the Participant shall not have any right to be retained in the employ of the Company. 9. Severability. If any provision of the Plan shall be held invalid or ------------ unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provision had not been included. 10. Other Plans. The Plan is intended to supplement, and not replace, all other ----------- existing key executive incentive or severance plans of the Company. 11. Successors. The Plan shall be binding upon the heirs, executors, ---------- administrators, successors and assigns of the parties, including each Participant, present and future, and any successor to the Company. 12. Funding Status. The Plan shall be unfunded. No Participant shall have a -------------- right to, or any interest in, any assets of the Company which may be applied by the Company to the payment of benefits or other rights under the Plan. 13. Termination Date. The Plan shall be effective commencing on the date hereof ---------------- and shall terminate when all payments have been received by Participants entitled to receive payments under the Plan, unless the Board shall extend the Plan to a later date. 14. Headings. The headings and captions herein are provided for reference and -------- convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan. 15. Governing Law. The Plan shall be construed and enforced according to the ------------- laws of the State of Washington, to the extent not preempted by federal law, which shall otherwise control. 16. Arbitration. Notwithstanding anything herein to the contrary, no ----------- Participant shall be entitled to any payment hereunder unless he or she first executes a written Agreement to Arbitrate Claims in the form attached as Exhibit D hereto with such modifications as may be required by law. EX-10.35 15 dex1035.txt AMENDED & RESTATED LEADERSHIP CONTINUITY PLAN Exhibit 10.35 IMMUNEX CORPORATION AMENDED AND RESTATED LEADERSHIP CONTINUITY POLICY AS OF OCTOBER 25, 2001 The Company hereby adopts the Immunex Corporation Amended and Restated Leadership Continuity Policy for the benefit of certain employees of the Company and its Affiliates, on the terms and conditions hereinafter stated. All capitalized terms used herein are defined in Section 1 hereof. 17. DEFINITIONS. As hereinafter used: ----------- 17.1 "Affiliate" shall have the meaning set forth in Rule --------- 12b-2 under Section 12 of the Exchange Act. 17.2 "Beneficial Owner" shall have the meaning set forth in ---------------- Rule 13d-3 under the Exchange Act. 17.3 "Board" means the Board of Directors of the Company. ----- 17.4 "Cause" means (i) the willful and continued failure by ----- the Eligible Employee to substantially perform the Eligible Employee's duties with the Company (other than any such failure resulting from the Eligible Employee's incapacity due to physical or mental illness), or (ii) the willful engaging by the Eligible Employee in conduct which is demonstrably injurious to the Company, monetarily or otherwise. For purposes of this definition, no act, or failure to act, on the Eligible Employee's part shall be deemed "willful" unless done, or omitted to be done, by the Eligible Employee not in good faith or without reasonable belief that the Eligible Employee's act, or failure to act, was in the best interest of the Company. 17.5 "Change in Control" shall be deemed to have occurred if ----------------- the event set forth in any one of the following paragraphs shall have occurred: (I) any Person, other than American Home Products Corporation or any of its Affiliates, is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (3) below; or (II) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, as of the date hereof, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) (i) whos appointment or election by the Board or nomination for election by the Company's shareholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended or (ii) who is an Investor Director nominated by American Home Products Corporation or any of its Affiliates; or (III) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereto), at least 60% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person (other than American Home Products Corporation and its Affiliates) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company or its Affiliates) representing 35% or more of the combined voting power of the Company's then outstanding securities; or (IV) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 60% of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale; or (V) American Home Products Corporation (together with its Affiliates), is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates) representing 70% or more of the combined voting power of the Company's then outstanding securities. Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the common stock of the Company immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions. 17.6 "Code" means the Internal Revenue Code of 1986, as it ---- may be amended from time to time. 17.7 "Company" means Immunex Corporation (collectively ------- with its subsidiaries), or any successors thereto. 17.8 "Eligible Employee" means any employee of the Company ----------------- who is a Tier 1, Tier 2 or Tier 3 Employee. An Eligible Employee becomes a "Severed Employee" once he or she incurs a Severance. ---------------- 17.9 "Exchange Act" shall mean the Securities Exchange Act of ------------ 1934, as amended from time to time. 17.10 "Excise Tax" shall mean any excise tax imposed under ---------- section 4999 of the Code. 17.11 "Good Reason" in respect of an Eligible Employee means, ----------- the occurrence, on or after the date of a Change in Control and without the affected Eligible Employee's written consent, of (i) the assignment to the Eligible Employee of duties in the aggregate that are inconsistent with the Eligible Employee's level of responsibility immediately prior to the date of the Change in Control or any diminution in the nature or status of the Eligible Employee's responsibilities from those in effect immediately prior to the date of the Change in Control (including, without limitation, in the case of a Tier 1 Employee who was, immediately prior to the Change in Control, an executive officer of the Company, such employee ceasing to be an executive officer of a public company); (ii) a reduction by the Company in the Eligible Employee's annual base salary, annual incentive compensation opportunity, or long term incentive compensation opportunity (including an adverse change in performance criteria or a decrease in the target amount of annual or long term incentive compensation) from that in effect immediately prior to the Change in Control; or (iii) the relocation of the Eligible Employee's principal place of employment to a location more than fifty (50) miles from the Eligible Employee's principal place of employment immediately prior to the date of the Change in Control. Notwithstanding the preceding sentence, any termination of employment by a Tier 1 Employee, whether voluntary or involuntary, for any reason or no reason, after the first anniversary of a Change in Control but within sixty (60) days following such anniversary shall be deemed to constitute a termination for Good Reason hereunder, provided that, for purposes of this sentence only, in determining whether a Change in Control has occurred pursuant to Section 1.5(1), any securities acquired by any Person directly from the Company shall not be included in the securities beneficially owned by such Person. 17.12 "Gross-Up Payment" shall have the meaning set forth in ---------------- Section 2.4 hereof. 17.13 "Person" shall have the meaning given in Section 3(a)(9) ------ of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. 17.14 "Plan" means the Immunex Corporation Amended and ---- Restated Leadership Continuity Policy, as set forth herein, as it may be amended from time to time. 17.15 "Plan Administrator" means the person or persons appointed from time to time by the Board which appointment may be revoked at any time by the Board. 17.16 A "Potential Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (I) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (II) the Company or any Person publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (III) any Person, other than American Home Products Corporation or any of its Affiliates, becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 15% or more of either the then outstanding shares of common stock of the Company or the combined voting power of the Company's then outstanding securities; or (IV) the Board adopts a resolution to the effect that a Potential Change in Control has occurred. 17.17 "Savings Plan" means the Immunex Corporation Profit ------------ Sharing 401(k) Plan and Trust, as it may be amended and restated from time to time, or any successor thereto. 17.18 "Severance" means the termination of an Eligible --------- Employee's employment with the Company on or within two (2) years following the date of the Change in Control, (i) by the Company other than for Cause, or (ii) by the Eligible Employee for Good Reason. An Eligible Employee will not be considered to have incurred a Severance if his or her employment is discontinued by reason of the Eligible Employee's death or a physical or mental condition causing such Eligible Employee's inability to substantially perform his or her duties with the Company, including, without limitation, such condition entitling him or her to benefits under any sick pay or disability income policy or program of the Company. 17.19 "Severance Date" means the date on or after the date of -------------- the Change in Control on which an Eligible Employee incurs a Severance. 17.20 "Severance Pay" means the payment determined pursuant ------------- to Section 2.1, 2.2 and 2.3 hereof, as applicable. 17.21 "Tier 1 Employee" means any executive officer of the --------------- Company. 17.22 "Tier 2 Employee" means any senior vice president or --------------- vice president of the Company who is not a Tier 1 Employee. 17.23 "Tier 3 Employee" means any employee who is a senior --------------- director or director of the Company or any employee of the Company whose pay grade level is equivalent to that of a senior director or director, who is not a Tier 1 or Tier 2 Employee. 18. BENEFITS. -------- 18.1 Each Tier 1 Employee who incurs a Severance shall be entitled, subject to Section 2.10, to receive Severance Pay equal to (i) the sum of his or her annual base salary, his or her target annual incentive compensation with respect to the year in which the Change in Control occurs, and the value of the contributions or allocations made, as applicable, on his or her behalf to the Savings Plan with respect to the calendar year immediately preceding the calendar year of the Change in Control, (ii) multiplied by three (3). For purposes of this Section, annual base salary shall be determined immediately prior to the Severance (without regard to any reductions therein which constitute Good Reason). The Severance Pay due to a Tier 1 Employee in accordance with this Section shall be paid to such employee no later than fifteen (15) days immediately following the expiration of the revocation period if any, applicable to such Severed Employee's release described in Section 2.10. 18.2 Each Tier 2 Employee who incurs a Severance shall be entitled, subject to Section 2.10, to receive Severance Pay equal to (i) the sum of his or her annual base salary, his or her highest target incentive compensation with respect to the year in which the Change in Control occurs, and the value of the contributions or allocations made, as applicable, on his or her behalf to the Savings Plan with respect to the calendar year immediately preceding the calendar year of the Change in Control, (ii) multiplied by two (2). For purposes of this Section, annual base salary shall be determined immediately prior to the Severance (without regard to any reductions therein which constitute Good Reason). The Severance Pay due to a Tier 2 Employee in accordance with this Section shall be paid to such employee no later than fifteen (15) days immediately following the expiration of the revocation period, if any, applicable to such Severed Employee's release described in Section 2.10. 18.3 Each Tier 3 Employee who incurs a Severance shall be entitled, subject to Section 2.10, to receive Severance Pay equal to the sum of his or her annual base salary, his or her highest target incentive compensation with respect to the year in which the Change in Control occurs, and the value of the contributions or allocations made, as applicable, on his or her behalf to th calendar year of the Change in Control. For purposes of this Section, annual base salary shall be determined immediately prior to the Severance (without regard to any reductions therein which constitute Good Reason). The Severance Pay due to a Tier 3 Employee in accordance with this Section shall be paid to such employee no later than fifteen (15) days immediately following the expiration of the revocation period, if any, applicable to such Severed Employee's release described in Section 2.10. 18.4 If any of the payments or benefits received or to be received by a Tier 1 Employee in connection with the Change in Control or his or her termination of employment (whether pursuant to the terms of this Plan or any other plan, arrangement or agreement) (such payments or benefits, excluding the Gross-Up Payment, being hereinafter referred to as the "Tier 1 Total Payments") will be subject to the Excise Tax, the Company shall pay to the Tier 1 Employee an additional amount (the "Gross-Up Payment") such that the net amount retained by the Eligible Employee, after deduction of any Excise Tax on the Tier 1 Total Payments, any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment and after taking into account the phase out of itemized deductions and personal exemptions attributable to the Gross-Up Payment, shall be equal to the Tier 1 Total Payments. The amount of the Gross-Up Payment, if any, shall be determined by the Plan Administrator or any person or entity designated by the Plan Administrator. The Gross-Up Payment, if any, shall be paid in a cash lump sum, as soon as practicable following the Severance Date, but, in any event, not later than twenty (20) business days immediately following the expiration of the revocation period, if any, applicable to such Severed Employee's release, described in Section 2.10. 18.5 If any of the payments or benefits received or to be received by a Tier 2 or Tier 3 Employee in connection with the Change in Control or his or her termination of employment (whether pursuant to the terms of this Plan or any other plan, arrangement or agreement) (such payments or benefits being hereinafter referred to as the "Tier 2/3 Total Payments") would be subject (in whole or part), to the Excise Tax, then, after taking into account any reduction in the Tier 2/3 Total Payments provided by reason of section 280G of the Code in such other plan, arrangement or agreement, the Severance Pay shall be reduced to the extent necessary so that no portion of the Tier 2/3 Total Payments is subject to the Excise Tax but only if (A) the net amount of such Tier 2/3 Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Tier 2 Total Payments) is greater than or equal to (B) the net amount of such Tier 2/3 Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Tier 2/3 Total Payments and the amount of Excise Tax to which the Tier 2 or Tier 3 Employee would be subject in respect of such unreduced Tier 2/3 Total Payments). 18.6 The Company shall provide each Severed Employee with individual outplacement services, in a manner consistent with such Severed Employee's position prior to the Change in Control, for a period of up to twelve (12) months, commencing on the date such Severed Employee first uses the outplacement services. 18.7 Commencing on the day immediately following a Severed Employee's Severance Date, until (i) the third anniversary of the Severance Date for Tier 1 Employees, (ii) the second anniversary of the Severance Date for Tier 2 Employees or (iii) the first anniversary of the Severance Date for Tier 3 Employees, as applicable, the Company shall provide such Severed Employee and anyone entitled to claim under or through such Severed Employee all (a) benefits under any group hospitalization, health care plan, dental care plan, life or other insurance or death benefit plan, or other present or future similar group employee benefit plan or program of the Company (excluding any benefits provided under any Company disability program or plan), and (b) other perquisites, including, without limitation, financial counseling and tax planning services by AYCO or a company providing comparable equivalent services, to the same extent as if such Severed Employee had continued to be an employee during such period. If, during the period in which a Severed Employee is entitled to extended benefit coverage pursuant to this Section, a Severed Employee obtains employment which provides substantially similar benefits to any of the benefits described in (a), coverage under the applicable plans and programs of the Company shall become secondary to the coverage provided through such employment. The coverage period for purposes of the group health continuation requirements of section 4980B of the Code shall commence immediately following the end of the period in which a Severed Employee is entitled to extended benefit coverage pursuant to this Section. 18.8 The Company shall pay to each Eligible Employee all reasonable legal fees and expenses incurred by such Eligible Employee in pursuing any claim under the Plan in which such Eligible Employee prevails in any material respect. 18.9 In the event of a claim by an Eligible Employee as to the amount or timing of any distribution, such Eligible Employee shall present the reason for his or her claim in writing to the Plan Administrator. The Plan Administrator shall, within sixty (60) days after receipt of such written claim, send a written notification to the Eligible Employee as to its disposition. In the event the claim is wholly or partially denied, such written notification shall (i) state the specific reason or reasons for the denial, (ii) make specific reference to pertinent Plan provisions on which the denial is based, (iii) provide a description of any additional material or information necessary for the Eligible Employee to perfect the claim and an explanation of why such material or information is necessary, and (iv) set forth the procedure by which the Eligible Employee may appeal the denial of his or her claim. In the event an Eligible Employee wishes to appeal the denial of his or her claim, he or she may request a review of such denial by making application in writing to the Plan Administrator within sixty (60) days after receipt of such denial. Such Eligible Employee (or his or her duly authorized legal representative) may, upon written request to the Plan Administrator, review any documents pertinent to his or her claim, and submit in writing, issues and comments in support of his or her position. Within sixty (60) days after receipt of a written appeal (unless special circumstances, such as the need to hold a hearing, require an extension of time, but in no event more than one hundred twenty (120) days after such receipt), the Plan Administrator shall notify the Eligible Employee of the final decision. The final decision shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and specific references to the pertinent Plan provisions on which the decision is based. 18.10 No Severed Employee shall be eligible to receive Severance Pay or other benefits under the Plan unless he or she first executes a written release substantially in the form attached hereto as Schedule A, (or, if the Severed Employee is not a United States employee, a similar release which is in accordance with the applicable laws of the relevant jurisdiction). 18.11 The Company shall be entitled to withhold from amounts to be paid to the Severed Employee hereunder any federal, state or local withholding or other taxes or charges (or foreign equivalents of such taxes or charges) which it is from time to time required to withhold. 19. PLAN ADMINISTRATION. ------------------- 19.1 The Plan Administrator shall administer the Plan and may interpret the Plan, prescribe, amend and rescind rules and regulations under the Plan and make all other determinations necessary or advisable for the administration of the Plan, subject to all of the provisions of the Plan, including, without limitation, Section 2.9 thereof. 19.2 The Plan Administrator may delegate any of its duties hereunder to such person or persons from time to time as it may designate. 19.3 The Plan Administrator is empowered, on behalf of the Plan, to engage accountants, legal counsel and such other personnel as it deems necessary or advisable to assist it in the performance of its duties under the Plan. The functions of any such persons engaged by the Plan Administrator shall be limited to the specified services and duties for which they are engaged, and such persons shall have no other duties, obligations or responsibilities under the Plan. Such persons shall exercise no discretionary authority or discretionary control respecting the management of the Plan. All reasonable expenses thereof shall be borne by the Company. 20. PLAN MODIFICATION OR TERMINATION. -------------------------------- The Plan may be amended or terminated by the Board at any time; provided, however, that the Plan may not be terminated or amended during the pendency of, or within six (6) months following, a Potential Change in Control or within two (2) years following a Change in Control. 21. GENERAL PROVISIONS. ------------------ 21.1 Except as otherwise provided herein or by law, no right or interest of any Eligible Employee under the Plan shall be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including without limitation by execution, levy, garnishment, attachment, pledge or in any manner; no attempted assignment or transfer thereof shall be effective; and no right or interest of any Eligible Employee under the Plan shall be liable for, or subject to, any obligation or liability of such Eligible Employee. When a payment is due under this Plan to a Severed Employee who is unable to care for his or her affairs, payment may be made directly to his or her legal guardian or personal representative. 21.2 If the Company is obligated by law or by contract to pay severance pay, a termination indemnity, notice pay, or the like, or if the Company is obligated by law to provide advance notice of separation ("Notice Period"), then any Severance Pay hereunder shall be reduced by the amount of any such severance pay, termination indemnity, notice pay or the like, as applicable, and by the amount of any compensation received during any Notice Period. 21.3 Neither the establishment of the Plan, nor any modification thereof, nor the creation of any fund, trust or account, nor the payment of any benefits shall be construed as giving any Eligible Employee, or any person whomsoever, the right to be retained in the service of the Company, and all Eligible Employees shall remain subject to discharge to the same extent as if the Plan had never been adopted. 21.4 If any provision of this Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included. 21.5 This Plan shall inure to the benefit of and be binding upon the heirs, executors, administrators, successors and assigns of the parties, including each Eligible Employee, present and future, and any successor to the Company. If a Severed Employee shall die while any amount would still be payable to such Severed Employee hereunder if the Severed Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to the executor, personal representative or administrators of the Severed Employee's estate. 21.6 The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan. 21.7 The Plan shall not be funded. No Eligible Employee shall have any right to, or interest in, any assets of the Company which may be applied by the Company to the payment of benefits or other rights under this Plan. 21.8 Any notice or other communication required or permitted pursuant to the terms hereof shall have been duly given when delivered or mailed by United States Mail, first class, postage prepaid, addressed to the intended recipient at his, her or its last known address. 21.9 This Plan shall be construed and enforced according to the laws of the State of New York to the extent not preempted by federal law, which shall otherwise control. SCHEDULE A WAIVER AND RELEASE OF CLAIMS AGREEMENT -------------------------------------- YOU HAVE BEEN ADVISED TO CONSULT AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT. YOU HAVE [FORTY-FIVE (45)] [TWENTY-ONE (21)] DAYS AFTER RECEIVING THIS AGREEMENT TO CONSIDER WHETHER TO SIGN IT. AFTER SIGNING THIS AGREEMENT, YOU HAVE ANOTHER SEVEN (7) DAYS IN WHICH TO REVOKE IT, AND IT DOES NOT TAKE EFFECT UNTIL THOSE SEVEN (7) DAYS HAVE ENDED. In consideration of, and subject to, the payments to be made to me by Immunex Corporation ("Immunex") or any of its subsidiaries, pursuant to the Immunex Corporation Amended and Restated Leadership Continuity Policy (the "Plan"), which I acknowledge that I would not otherwise be entitled to receive, I hereby waive any claims I may have for employment or re-employment by Immunex or any subsidiary or parent of Immunex after the date hereof, and I further agree to and do release and forever discharge Immunex or any subsidiary or parent of Immunex and their respective past and present officers, directors, shareholders, employees and agents from any and all claims and causes of action, known or unknown, arising out of or relating to my employment with Immunex or any subsidiary or parent of Immunex or the termination thereof, including, but not limited to, wrongful discharge, breach of contract, tort, fraud, the Civil Rights Acts, Age Discrimination in Employment Act, Employee Retirement Income Security Act, Americans with Disabilities Act, or any other federal, state or local legislation or common law relating to employment or discrimination in employment or otherwise. Notwithstanding the foregoing or any other provision hereof, nothing in this Waiver and Release of Claims Agreement shall adversely affect (i) my rights under the Plan; (ii) my rights to benefits other than severance benefits under plans, programs and arrangements of Immunex or any subsidiary or parent of Immunex; or (iii) my rights to indemnification under any indemnification agreement, applicable law and the certificates of incorporation and bylaws of Immunex and any subsidiary or parent of Immunex, and my rights under any director's and officer's liability insurance policy covering me. I acknowledge that I have signed this Waiver and Release of Claims Agreement voluntarily, knowingly, of my own free will and without reservation or duress, and that no promises or representations, written or oral, have been made to me by any person to induce me to do so other than the promise of payment set forth in the first paragraph above and Immunex's acknowledgment of my rights reserved under the second paragraph above. I understand that this release will be deemed to be an application for benefits under the Plan, and that my entitlement thereto shall be governed by the terms and conditions of the Plan, and I expressly hereby consent to such terms and conditions. I acknowledge that I have been given not less than [forty-five (45)] [twenty-one (21)] days to review and consider this Waiver and Release of Claims Agreement, and that I have had the opportunity to consult with an attorney or other advisor of my choice and have been advised by Immunex to do so if I choose. I may revoke this Waiver and Release of Claims Agreement seven (7) days or less after its execution by providing written notice to Immunex. Finally, I acknowledge that I have carefully read this Waiver and Release of Claims Agreement and understand all of its terms. This is the entire Agreement between the parties and is legally binding and enforceable. This Waiver and Release of Claims Agreement shall be governed and interpreted under federal law and the laws of New York. I knowingly and voluntarily sign this Waiver and Release of Claims Agreement. Date Delivered to Employee: Immunex Corporation ___________________________ Date Signed by Employee: By: _______________________ ________________________ Title: ______________________ Seven-Day Revocation Period Ends: ____________________________ Signed: _________________ Date: ______________________ ____________________________ (Print Employee's Name) EX-21.1 16 dex211.txt SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 Subsidiaries of the Registrant ------------------------------ Subsidiaries: Immunex Manufacturing Corporation Incorporated in the State of Washington 51 University Street Seattle, WA 98101 Immunex Rhode Island Corporation 40 Technology Way West Greenwich, RI 02817 EX-23.1 17 dex231.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23.1 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-59061, 333-04563 and 333-77341) pertaining to the Immunex Corporation 1993 Stock Option Plan as Amended and Restated on February 13, 1997, the Immunex Corporation Profit Sharing 401(k) Plan and Trust, the Immunex Corporation 1999 Stock Option Plan and the Immunex Corporation 1999 Employee Stock Purchase Plan and to the incorporation by reference in the Registration Statement (Form S-4 No. 333-81832) and related Joint Proxy Statement/Prospectus of Amgen Inc. and Immunex Corporation of our report dated January 22, 2002 (except for Note 16 as to which the date is March 8, 2002), with respect to the consolidated financial statements and schedule of Immunex included in this Annual Report (Form 10-K) for the year ended December 31, 2001. /s/ Ernst & Young LLP Seattle, Washington March 8, 2002 EX-24.1 18 dex241.txt POWER OF ATTORNEY Exhibit 24.1 POWER OF ATTORNEY ----------------- KNOW ALL BY THESE PRESENT that the individuals whose signatures appear below, in their capacities as officers and directors of Immunex Corporation, hereby constitute and appoint David A. Mann their true and lawful attorney-in-fact, with full power of substitution, to sign on behalf of the undersigned Immunex's Annual Report on Form 10-K for the 2001 fiscal year pursuant to Section 13 of the Securities and Exchange Act of 1934 and to file the same, with exhibits thereto and any other documents in connection therewith, with the Securities and Exchange Commission. Each of the undersigned does hereby ratify and confirm all that such attorney-in-fact may do or cause to be done by virtue hereof. Signature Title Date --------- ----- ---- /s/ Kirby L. Cramer ------------------------- Director March 7, 2002 (Kirby L. Cramer) /s/ Robert J. Herbold ------------------------- Director March 7, 2002 (Robert J. Herbold) /s/ John E. Lyons -------------------------- Director March 7, 2002 (John E. Lyons) /s/ Joseph M. Mahady -------------------------- Director March 7, 2002 (Joseph M. Mahady) /s/ Edith W. Martin -------------------------- Director March 7, 2002 (Edith W. Martin) /s/ Lawrence V. Stein -------------------------- Director March 7, 2002 (Lawrence V. Stein) -----END PRIVACY-ENHANCED MESSAGE-----