-----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, Fs8obtWB+QK2SgXv/Wy934G5PGJNPeyRcePS0k4k1SuK7ArOVtsYGZotA2Ikp3CN mhN9FyJgVJrNnpxn4I6yzw== 0000891092-97-000072.txt : 19970329 0000891092-97-000072.hdr.sgml : 19970329 ACCESSION NUMBER: 0000891092-97-000072 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMCLONE SYSTEMS INC/DE CENTRAL INDEX KEY: 0000765258 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 042834797 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19612 FILM NUMBER: 97567078 BUSINESS ADDRESS: STREET 1: 180 VARICK ST CITY: NEW YORK STATE: NY ZIP: 10014 BUSINESS PHONE: 2126451405 MAIL ADDRESS: STREET 1: 180 VARICK ST CITY: NEW YORK STATE: NY ZIP: 10014 10-K 1 FORM 10-K UNITED STATES 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, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-19612 IMCLONE SYSTEMS INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 04-2834797 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 180 VARICK STREET, NEW YORK, NY 10014 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 645-1405 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $ .001 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 amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant as of March 27, 1997 was $154,961,887. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding as of March 27, 1997 - ------------------------------- -------------------------------- Common Stock, par value $.001 23,693,199 Documents Incorporated by Reference: The registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on June 3, 1997 to be filed with the Commission not later than 120 days after the close of the registrant's fiscal year, has been incorporated by reference, in whole or in part, into Part III, Items 10, 11, 12 and 13 of this Annual Report on Form 10-K. IMCLONE SYSTEMS INCORPORATED 1996 Form 10-K Annual Report TABLE OF CONTENTS Page ---- PART I Item 1. Business 1 Item 2. Properties 14 Item 3. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 15 Item 6. Selected Financial Data 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 8. Financial Statements and Supplementary Data 25 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 25 PART III Item 10. Directors and Executive Officers of the Registrant 25 Item 11. Executive Compensation 25 Item 12. Security Ownership of Certain Beneficial Owners and Management 25 Item 13. Certain Relationships and Related Transactions 25 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 25 ------------------------ Those statements contained herein that do not relate to historical information are forward-looking statements. There can be no assurance that the future results covered by such forward-looking statements will be achieved. Actual results may differ materially due to the risks and uncertainties inherent in the Company's business, including without limitation, the risks and uncertainties associated with completing preclinical and clinical trials of the Company's compounds that demonstrate such compounds' safety and effectiveness; obtaining additional financing to support the Company's operations; obtaining and maintaining regulatory approval for such compounds and complying with other governmental regulations applicable to the Company's business; obtaining the raw materials necessary in the development of such compounds; consummating collaborative arrangements with corporate partners for product development; developing the capacity to manufacture, market and sell the Company's products, either directly or with collaborative partners; developing market demand for and acceptance of such products; competing effectively with other pharmaceutical and biotechnological products; obtaining adequate reimbursement from third party payors; attracting and retaining key personnel; protecting proprietary rights; and those other factors set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview and Risk Factors." (i) Item 1. Business. GENERAL ImClone Systems Incorporated (the "Company" or "ImClone") is a biopharmaceutical company engaged primarily in the research and development of therapeutic products for the treatment of cancer and cancer-related disorders. The Company's product candidates include interventional therapeutics for cancer and cancer vaccines. The Company was incorporated in Delaware in 1984. The Company's principal executive offices and laboratories are located at 180 Varick Street, New York, New York 10014 and the telephone number is (212) 645-1405. DEVELOPMENT PROGRAMS C225 Cancer Therapeutic. The Company's lead interventional therapeutic for cancer is a chimerized (part mouse, part human) antibody that acts to block the Epidermal Growth Factor receptor ("EGFr"). EGFr is expressed in select normal human tissues and has been shown to be over-expressed in the cells of approximately one-third of all solid cancers. Extensive in vivo animal studies with human tumors have shown that C225 in combination with various chemotherapeutic agents (doxorubicin, cisplatin or paclitaxel) demonstrates a pronounced enhancement of the anti-tumor effect of the chemotherapeutic agents, resulting in the complete destruction of human tumors in substantially all the animals in these studies. The studies have demonstrated long-term tumor-free survival of animals. Since December 1994, the Company has initiated several Phase Ib/IIa clinical trials of C225 at Memorial Hospital (the patient care arm of Memorial Sloan-Kettering Cancer Center) ("Sloan-Kettering"), Yale Cancer Center, University of Virginia, MD Anderson Cancer Center and the University of Alabama. The first study, involving a single injection of C225 at escalating doses in 13 patients, was completed in March 1995. Subsequent studies have been initiated with escalating doses of C225 both with and without chemotherapy. A multi-injection study of C225 alone in 17 patients was completed in November 1995. A study of the drug in conjunction with cisplatin in head and neck cancer patients began in May 1995 and was completed in November 1996 with 22 patients. No dose limiting toxicities were demonstrated in these studies. Studies with doxorubicin in advanced prostate cancer patients and with paclitaxel in breast cancer patients were initiated in January 1996 and March 1996, respectively. The Company expects to commence enrollment shortly of patients in studies using C225 alone, with chemotherapy or with radiation in head and neck cancer patients. The Company produces C225 for its clinical trials at its manufacturing facility in Branchburg, New Jersey. 105AD7 Cancer Vaccine. 105AD7 is a human monoclonal antibody which mimics an antigen known as gp72 which is common in cancers of the gastrointestinal tract, including colorectal carcinoma. This human monoclonal antibody has been shown to stimulate cellular immune anti-tumor responses in animal models and has been tested in a Phase I human clinical study in the United Kingdom in 13 patients with advanced colorectal carcinoma. The results of that study indicate that in a majority of patients 105AD7 stimulated a cellular immune response and significantly increased the overall mean survival time compared to patients not immunized, with no discernible toxicity related to the drug. Based on these results, late stage colorectal carcinoma patients have been enrolled in the United Kingdom in a 162-patient Phase II clinical trial. The study has been fully enrolled and patients are being evaluated for survival. 1 BEC-2 Cancer Vaccine. BEC-2 is a monoclonal anti-idiotypic antibody which the Company believes may be useful to prevent or delay the onset of recurrent primary tumors or metastatic disease. The antibody, which mimics the ganglioside GD3, has been tested since 1991 in Phase I clinical trials at Sloan-Kettering against certain forms of cancer, including small-cell lung carcinoma and melanoma. BEC-2 has shown statistically significant prolonged survival of patients with small-cell lung carcinoma in a pilot study at Sloan-Kettering. The Company has granted Merck KGaA, formerly E. Merck ("Merck"), a German-based pharmaceutical company, rights to manufacture and market BEC-2 worldwide, except in North America, in return for research support, potential milestone fees and royalties on future sales, if any. ImClone expects that pivotal studies for BEC-2 for use in treatment of small cell lung carcinoma will commence within the next 12 months. Interleukin-6 Mutein ("IL-6m"). The Company has developed a recombinant molecular variant of Interleukin-6, a naturally occurring hematopoietic growth factor. IL-6m has been shown in animal tests to significantly stimulate the production of platelets and has been shown by others in pre-clinical trials to be a critical factor in liver cell regeneration. A pilot human clinical trial of IL-6m was initiated at Hadassah Hospital in Jerusalem, Israel in early 1994 in pre-chemotherapeutic patients with ovarian or lung cancer which trial was discontinued. In addition, IL-6m is being supplied to outside academic laboratories. RESEARCH PROGRAMS In addition to concentrating on its products in clinical development, the Company performs ongoing research in a number of related areas. Interventional Therapeutics ImClone conducts an interventional cancer therapeutic research program in the development of inhibitors of tyrosine kinase receptors (growth factor receptors) associated with tumor cell regeneration and support. Inhibitors of Angiogenesis The Company is seeking to develop inhibitors of angiogenesis, which is the formulation of new blood vessels necessary for tumor growth. The Company has acquired proprietary rights to the recombinant mouse form of a key tyrosine kinase receptor involved in angiogenesis, FLK-1. The receptor, which was discovered, cloned and expressed by ImClone scientists and collaborators, is stimulated by the growth factor called Vascular Endothelial Cell Growth Factor ("VEGF"). The Company has developed various antibodies with high affinity for the receptor and its human form, which block the activation of the receptor and thereby inhibit angiogenesis. The Company has also initiated a program to develop small molecule inhibitors of angiogenesis and to identify and validate new targets for anti-angiogenic drug intervention. These inhibitors of the FLK-1 receptor may represent a future treatment for inhibiting tumor growth in those cancers that use this molecular pathway to stimulate blood vessel development. FLK-2 FLK-2 is a tyrosine kinase receptor which is expressed on a sub-population of human hematopoietic stem cells, acute myeloblastic leukemia and acute lymphoblastic leukemia, and possibly human neural and neural-like tumors. The goals of the FLK-2 monoclonal antibody 2 program are to develop therapeutic antibodies that can be used to treat FLK-2 expressing tumors. Hematopoiesis The Company is conducting research in hematopoiesis (growth and development of blood cell elements) aimed at discovering factors to support hematopoietic stem cells and to control the proliferation, differentiation and functional deterioration of hematopoietic elements. The Company has obtained an exclusive license from The National Institutes of Health ("NIH") to the delta-like ("DLK") protein and gene for use in stem cell and gene therapy. DLK is a member of a family of proteins which appear to have the ability to maintain cells in an undifferentiated state. The Company also has entered into a non-exclusive license and supply agreement with Immunex Corporation ("Immunex") for use of the FLK-2/FLT-3 ligand for ex vivo cell therapies. Immunex has a license from the Company to the FLK-2 receptor, limited to the use by Immunex in the manufacture of the FLK-2/FLT-3 ligand. Cancer Vaccines ImClone seeks to discover potential cancer vaccines as another route to cancer treatment. Cancer vaccines would activate immune responses to tumors to protect against local spread, distant metastases or recurrence of cancer. Choosing appropriate cancer cell targets and generating effective immune responses are the focus of ImClone's cancer vaccine program. For example, research is being conducted on a possible melanoma vaccine based on the tumor associated antigen known as gp75. LICENSED DIAGNOSTICS AND INFECTIOUS DISEASE VACCINES The Company has licensed its diagnostic and infectious disease vaccine product areas, based on its earlier research, to corporate partners for further development and commercialization. The Company has granted the Wyeth/Lederle division of American Home Products Corporation ("American Home") a worldwide license to manufacture and market its infectious disease vaccines, which are in development. The Company has also entered into a strategic alliance with Abbott Laboratories ("Abbott") pursuant to which the Company has licensed certain of its diagnostic products to Abbott on a worldwide basis. In mid-1995, Abbott launched in Europe its first DNA-based test, using the Company's technology, for the diagnosis of the sexually transmitted disease chlamydia. Abbott has advised the Company that it has added tests for gonorrhea and mycobacteria, and has launched sales in the U.S. as well. The Company is entitled to receive potential milestone payments and royalties in connection with sales of such diagnostic products. In December 1996, the Company and Abbott modified this agreement to provide for an exclusive sublicensing agreement with Chiron Diagnostics ("Chiron") for the Company's patented DNA signal amplification technology, AMPLIPROBE. Under the terms of the agreement all sales of Chiron branched DNA diagnostic probe technology in countries covered by Company patents will be subject to a royalty to Abbott to be passed through to the Company. RESEARCH AND DEVELOPMENT ImClone initiated its in-house research and development in 1986. The Company has assembled a scientific staff with a variety of complementary skills in a broad base of advanced research technologies, including oncology, immunology, cell biology and protein and synthetic chemistry. The Company has also recruited a staff of technical and professional employees to 3 carry out manufacturing of clinical trial materials at its Branchburg, New Jersey manufacturing facility. In addition to its research programs pursued in-house, ImClone collaborates with certain academic institutions to support research in areas of ImClone's product development efforts. The Company has also entered into collaborations with major pharmaceutical companies in order to obtain funding and product development and commercialization assistance for certain of its therapeutic product candidates in exchange for specific product licensing rights. The Company intends to enter into additional agreements of this nature with appropriate pharmaceutical company partners with the resources and experience to assist the Company financially and in successfully bringing its products to market, both in the U.S. and abroad. There can be no assurance, however, that the Company will be successful in consummating any such arrangements. The Company has recorded expenses of approximately $11,482,000, $8,768,000 and $11,816,000 for research and development in the years ended December 31, 1996, 1995 and 1994, respectively. ACADEMIC COLLABORATIONS The Company's primary academic collaborations which are non-clinical in nature are the following. Princeton University. The Company has entered into several agreements with Princeton University pursuant to which ImClone has supported specific research under the direction of certain faculty members. The Company supports the research of Dr. Arnold Levine, Chairman of Princeton's Department of Molecular Biology, in the area of the p53 tumor suppressor gene. The Company has an exclusive license to the results of this research, which license is terminable by the university if the Company does not meet certain milestones in connection with the development of the licensed technology. The Company has also funded research of Dr. Ihor Lemischka of Princeton University on tyrosine kinase receptors, including FLK-2, antibodies and ligands to such receptors, and hematopoietic stem cells. The Company has an exclusive license from Princeton to the results of this research, which license is terminable by the university if the Company does not meet certain developmental milestones. The University of California at San Diego. In April 1993, the Company obtained an exclusive worldwide license from the University of California to a United States patent covering monoclonal antibodies that bind to the EGFr. The Company's C225 product is the chimerized form of one such antibody. The University of North Carolina at Chapel Hill. The Company has supported research at The University of North Carolina at Chapel Hill in a number of areas, including work of Dr. P. Frederick Sparling in connection with vaccine candidates for N. gonorrhea and N. meningitidis, the results of which are exclusively licensed to the Company. Hadassah Medical Organization. ImClone has entered into two supported research agreements with Hadasit Medical Research Services & Development, Ltd., the organization that licenses research programs on behalf of Hadassah Medical Organization. Pursuant to one agreement, the Company has funded research at Hadassah in the development of an inhibitor of cytokines, which funding was discontinued by the Company as of January 1993. ImClone has also funded research at Hadassah in the development of a recombinant form of heparanase, which funding was discontinued by the Company as of March 1994. Under each agreement, the Company has an exclusive license to the proprietary rights of the research. 4 Two additional collaborations which are not academic in nature, but which have resulted in the transfer of intellectual property rights to the Company are the following: National Cancer Institute. In October 1996, the Company obtained an exclusive, worldwide patent license from the NIH for the DLK protein and gene. The agreement provides the Company with an exclusive license to stem cell and gene therapy applications of the DLK protein and gene, as well as related diagnostic uses. Rhone-Poulenc Rorer. In June 1994, the Company obtained an exclusive worldwide license from the pharmaceutical company, Rhone-Poulenc Rorer, Inc. ("Rhone-Poulenc Rorer") to pending patent applications covering the use of EGFr monoclonal antibodies in combination with specific chemotherapeutic regimens. Generally, subject to earlier termination provisions contained in the agreements, the licenses described above terminate upon the expiration of the life of any patent or a related period on unpatented technology. CLINICAL COLLABORATIONS The Company's principal collaborations that are related to its clinical trials are the following: The Cancer Research Campaign Technology, Limited. In April 1994, the Company entered into an exclusive worldwide license with Cancer Research Campaign Technology, Limited ("CRCT") for a human monoclonal anti-idiotypic antibody called 105AD7, and its use as a cancer vaccine. CRCT licenses potential products on behalf of Cancer Research Campaign ("CRC"). CRC is performing a double-blind Phase II clinical study on 105AD7 in the United Kingdom. This study focuses on increased survival time of patients with late-stage colorectal cancer. The license agreement provides that ImClone shall manufacture 105AD7 for CRC to be used in the clinical trials other than the current Phase II trial in the United Kingdom, which is supported wholly by CRC and is being performed with CRC material. As licensee, ImClone has commercial development obligations in connection with the product, based on sound clinical results. ImClone is to pay CRCT licensing fees, milestone fees and royalties on the sale of the commercialized product. The license can be terminated by CRCT if ImClone fails to carry out its obligation to develop and commercialize the product. In July 1996, the Company, CRCT and the University of Nottingham entered into a research agreement pursuant to which the Company agreed to support a one-year renewable research program at the University of Nottingham, the objective of which is to elucidate the mechanism of action of 105AD7 in order to interpret the results of the clinical trial and to guide ImClone's commercial development of 105AD7. Memorial Sloan-Kettering Cancer Center. In March 1990, the Company entered into an agreement with Sloan-Kettering to support research in several areas, including the study of potential cancer vaccine products BEC-2 and gp75. The Company has an exclusive license to the results of the research in the areas covered by the agreement. The BEC-2 antibody has been tested since 1991 in Phase I clinical trials at Sloan-Kettering against certain forms of cancer, including small cell lung carcinoma and melanoma. 5 The Company also has agreements with certain institutions by which such institutions serve as sites for certain of the Company's clinical trials. For example, for its C225 trials, the Company has entered into such agreements with Yale Cancer Center, Sloan-Kettering, and the University of Virginia, MD Anderson Cancer Center and the University of Alabama. CORPORATE COLLABORATIONS To facilitate commercialization of certain of its products, ImClone has entered into agreements with major pharmaceutical companies. Although the terms of each agreement differ, these agreements generally provide for ImClone to receive license fees, research funding and royalties on net sales of any future products during the life of any relevant patent. In some cases, license fees include payments related to the achievement of regulatory or product development milestones. Merck KGaA (Darmstadt, Germany) The Company entered into a research and license agreement with Merck in December 1990, which was extended and modified in May 1996. The original agreement provided Merck the exclusive license to manufacture, sell and distribute in Europe, Australia and New Zealand, if developed, the Company's BEC-2 product, and its recombinant gp75 antigen, for all indications. The modified agreement expands Merck's rights to the world, except for North America. The Company reserves the right in the agreement to sell and distribute such products in North America. The modified agreement also requires the Company to give Merck the opportunity to seek to acquire North American distribution rights for the licensed products if the Company intends to grant such rights to any third party. Each party is responsible for conducting clinical trials and obtaining regulatory approvals in order to market the licensed products in the territory under which such party has marketing rights under the agreement. Merck will also share in the development costs for the United States, Europe, Australia and New Zealand and will pay all development costs in all other territories. The modified agreement requires Merck to make research support and milestone payments to ImClone based on milestones achieved in the licensed products' development, and to make royalty payments to ImClone on all sales of the licensed products, if any, with a portion of the earlier funding received by the Company under the agreement being creditable against the amount of royalties due to the Company. Such research support and milestone payments under the modified agreement may total up to $11.7 million. ImClone will owe no royalties to Merck on any sales by ImClone of the licensed products in North America unless Merck significantly enhances the product, in which case compensation may be negotiated. The modified agreement also provides that it is the intent of ImClone and Merck that ImClone be the manufacturer for the product worldwide. The agreement terminates upon the later of the last to expire of any patents issued and covered by the technology or fifteen years from the date of the first commercial sale, after which such license shall survive without further royalty payment and is irrevocable. The agreement may be terminated earlier by ImClone in the event Merck fails to pursue in a timely fashion regulatory approval or sale of a licensed product in a country in which it has the right to do so. It also may be terminated earlier by Merck if milestones are not achieved. In the year ended December 31, 1996, the Company recorded no revenue under the Merck agreement. 6 Abbott Laboratories The Company entered into a research and license agreement with Abbott in December 1992, which provides Abbott an exclusive worldwide license to manufacture and distribute diagnostic products arising out of certain of ImClone's research in diagnostics, including but not limited to ImClone's Repair Chain Reaction and p53 technologies for cancer detection and prognosis. This agreement requires Abbott to exercise its best reasonable efforts to develop and commercialize products incorporating the Repair Chain Reaction technology, failing which it can lose its exclusive license to this technology. Abbott has the right on 30 days notice to ImClone to terminate a product license in a particular country. In mid-1995, Abbott launched in Europe its first DNA-based test, using the Company's technology, for the diagnosis of the sexually transmitted disease chlamydia. Abbott has advised the Company that it has added tests for gonorrhea and mycobacteria, and has launched sales in the U.S. as well. Under the agreement Abbott has paid ImClone up-front fees and research support, and is obligated in the future to pay milestone fees and royalties on sales. The agreement terminates upon the later of the last to expire of any patents issued covered by the technology or, if no patents are granted, twenty years, subject to certain earlier termination provisions contained in the agreement. In December 1996, the Company and Abbott modified this agreement to provide for an exclusive sublicensing agreement with Chiron for the Company's patented DNA signal amplification technology, AMPLIPROBE. Under the terms of the agreement all sales of Chiron branched DNA diagnostic probe technology in countries covered by Company patents will be subject to a royalty to Abbott to be passed through to the Company. In the year ended December 31, 1996, the Company recorded revenue under the Abbott agreement in the amount of $225,000. American Home Products In December 1987, the Company entered into a vaccine development and licensing agreement with American Cyanamid Company ("Cyanamid") that provided Cyanamid an exclusive worldwide license to manufacture and sell vaccines developed during the research period of the agreement. In connection with the agreement, Cyanamid purchased 410,001 shares of Common Stock of the Company. During the three-year research period of the agreement, which period expired in December 1990, the Company developed two vaccine candidates, the first of which was for N. gonorrhea based on recombinant proteins, and the second of which was for Herpes Simplex Virus based on recombinant glycoproteins B and D. In September 1993, the Company and Cyanamid, through its Lederle-Praxis Biologicals division, entered into a research collaboration agreement which by its terms supersedes the earlier agreement as to N. gonorrhea vaccine candidates, but not as to Herpes Simplex Virus vaccine candidates. The successor to Cyanamid, American Home, has the responsibility under this agreement to pay research support to the Company, as well as milestone fees and royalties on sales of any N. gonorrhea vaccine that might arise from the collaboration. American Home has the responsibility under both agreements for conducting pre-clinical and clinical trials of the vaccine candidates, obtaining regulatory approval, and manufacturing and marketing the vaccines. There are penalties payable by American Home in the event it fails to have filed for the commencement of clinical trials by certain dates yet intends to continue to develop the product, otherwise the product will revert to ImClone. American Home is required to pay royalties to ImClone in connection with sales of the vaccines. 7 In the year ended December 31, 1996, the Company recorded revenues of $300,000 under the American Home agreements. Immunex Corporation In December 1996, the Company entered into technology cross-licensing agreements with Immunex relating to FLK-2/FLT-3 ligand and its receptor. FLT-3 ligand is a hematopoietic growth factor. Under the terms of the agreements, the Company has granted to Immunex an exclusive worldwide license to the receptor for use in the manufacture of the ligand. In return, the Company will receive an initial payment and a royalty based on the sales of the ligand by Immunex and its sub-licensees. In addition, Immunex has granted the Company a non-exclusive license in the United States and Canada to use its patented FLK-2/FLT-3 ligand, manufactured by Immunex, for ex-vivo stem cell expansion together with an exclusive license to distribute the ligand with its own proprietary products for ex-vivo expansion. Immunex has agreed to seek to obtain the consent of its parent company, American Home, to expand the territory of this license to include the world outside North America. Immunex will also supply FLK-2/FLT-3 ligand to ImClone. The Company has been advised that Immunex has begun Phase I studies with FLK-2/FLT-3 ligand for stem cell mobilization in vivo. Subject to earlier termination provisions contained in the agreements, ImClone's license terminates in December 2001, subject to a five year renewal period and Immunex's license terminates thirteen years after the first commercial sale of the product. In the year ended December 31, 1996, the Company recorded $75,000 as license fee revenue from Immunex under this agreement. Cadus Pharmaceutical Corporation In January 1992, the Company participated in the founding of Cadus Pharmaceutical Corporation ("Cadus") with scientists from Princeton University. Prior to founding Cadus, ImClone had funded research at Princeton University in the field of yeast-based drug screening systems. The Company also had identified at Princeton research related to chemical compounds shown to block signal transduction events within cells. The Company determined that these technologies were sufficiently significant and distinct from its own protein-based technologies to merit the founding of a separate company. The Company supported the initial growth and development of Cadus, and until December 1994 owned approximately 28% of Cadus' common and preferred stock. In December 1994, an agreement was reached for the Company to sell 50% of its total Cadus stock to High River Limited Partnership ("High River") for total consideration of $3,000,000. Following this transaction the Company's investment in Cadus was accounted for under the cost method, as the Company's investment in Cadus had fallen below 20%. At December 31, 1994 and December 31, 1993 the Company had approximately a 14% and 28% investment in Cadus, respectively. The gain in 1994 on sale of the Cadus shares is recorded in the Statement of Operations as other income for the year ended December 31, 1994. The cash consideration was received by the Company on January 4, 1995. In April 1995, the Company completed the sale of the remaining one-half of its shares of capital stock of Cadus for $3,000,000 to High River. The Company had a right to repurchase all such remaining shares of Cadus anytime prior to October 27, 1996 for $5.25 per share which it did not exercise. In exchange for such right, the Company granted to High River two options to purchase shares of the Company's common stock, $.001 par value (the "Common Stock"). One option is to purchase 150,000 shares at a price of $2.00 per share, subject to adjustment under certain circumstances, and the other option is to purchase 300,000 shares at a price of $0.69 per 8 share, subject to adjustment under certain circumstances. Both options became exercisable on April 27, 1995 and will expire on April 26, 2000. CLINICAL MANUFACTURING For the Company to support its ongoing research and development it must maintain, supply and staff a facility to support the preparation, analysis and distribution of clinical supplies to various study centers. Toward that end, the Company has operations in Branchburg, New Jersey that include laboratories, storage areas, mechanical systems and qualified staff for the production of and analysis of parenteral materials according to the appropriate Federal, state and local regulations. At this facility the Company is currently producing C225, the EGFr antibody to supply its clinical trials. In addition, ImClone has established relationships with qualified contract vendors to perform specialized testing and manufacturing operations not performed by ImClone. The Company has in the past and expects to continue to establish defined development and manufacturing arrangements with third party qualified contract vendors to perform bulk and final product development and production to support ImClone clinical program needs. The materials that are used to manufacture the Company's products include qualified cell lines developed by the Company and specially qualified raw materials and components which the Company can obtain from a number of sources. ImClone maintains necessary Quality Control and Quality Assurance oversights of all materials used in the manufacture of the Company's clinical supplies. PATENTS AND TRADE SECRETS The Company seeks patent protection for its proprietary technology and products, both in the United States and abroad. Patent applications have been submitted and are pending in the United States, Canada, Europe and Japan as well as other countries. The patent position of biopharmaceutical firms generally is highly uncertain and involves complex legal and factual questions. The Company currently is exclusive licensee or assignee of 42 issued patents world-wide, 24 of which are issued United States patents. The Company has the exclusive right to develop certain anti-EGF receptor antibodies with potential anti-tumor activity under a United States patent owned by the University of California. Nine of the Company's U.S. patents are licensed from Princeton University. Six of the Princeton patents relate to hematopoietic receptor genes and the proteins they encode, such as the tyrosine kinase receptors FLK-1 and FLK-2. The other three Princeton patents relate to a DNA signal amplification system and p53 detection systems. To date, the Company is the assignee or exclusive licensee of approximately 35 families of United States and foreign patent applications. The patent applications relate to a number of technologies including the use of EGFr antibodies with chemotherapeutic agents; anti-idiotypic antibodies for treating cancer, such as BEC-2 and 105AD7; antibodies to receptor tyrosine kinases, such as FLK-1 and FLK-2; methods for amplifying and detecting DNA, such as the Repair Chain Reaction; and hematopoietic factors. With respect to C225, the Company's EGFr cancer inhibiting antibody, the Company is the exclusive licensee of an issued patent from the University of California covering certain monoclonal antibodies that inhibit epidermal cell growth. The Company is also the exclusive licensee from 9 Rhone-Poulenc Rorer of a family of patent applications seeking to cover antibodies to EGFr used in conjunction with certain chemotherapeutic agents. The EGFr antibodies being developed by the Company are "chimerized" monoclonal antibodies. Chimerized monoclonal antibodies are the subject of patent applications and patents held by third parties. ImClone also has pending patent applications covering the chimeric and humanized form of the antibody and fragments thereof, in synergy with anti-neoplastic agents, such as doxorubicin and cysplatin. Additionally, humanized forms of the antibody and antibody fragments, are claimed, as well as methods of inhibiting human tumors with C225 alone. With respect to cancer vaccine candidate 105AD7, the Company is the exclusive licensee from CRCT of a family of patent applications claiming anti-idiotypic monoclonal antibodies, including 105AD7. The Company's proprietary position with respect to its anti-tumor BEC-2 monoclonal anti-idiotypic antibody is based on a patent application filed by Sloan-Kettering and exclusively licensed to the Company. The Company is aware that patents have been issued in the United States and Europe to a third party covering anti-idiotypic antibodies and/or their use in the treatment of tumors. With respect to the Company's research on inhibitors to angiogenesis based on the FLK-1 receptor, the Company is the exclusive licensee of a family of patents and patent applications covering the FLK-1 receptor and antibodies thereto, and is also the assignee from Company scientists of patent applications covering antibodies to the FLK-1 receptor that inhibit angiogenesis. A patent has been granted by the United States Patent and Trademark Office for the Company's IL-6 molecular variant, IL-6m. A U.S. Patent has been received from the U.S. Patent and Trademark Office for a patent application covering the DNA that encodes IL-6m. The patent and patent applications are co-owned by the Company and the University of North Carolina. The Company is the exclusive licensee of the university's rights to such patent and patent application. The Company is aware of patents issued to a third party in the United States and Europe covering cysteine depleted proteins. In addition, the Company is aware of a third-party patent for recombinant IL-6 and methods for its production. The Company is aware of a European Patent for the DNA encoding for human recombinant IL-6 and methods for its production, which has been exclusively licensed. The Company is aware of third-party patents for native recombinant IL-6 and methods for its production. The Company is aware of a European patent for the DNA encoding for human recombinant IL-6 and methods for its production, which has been exclusively licensed on a worldwide basis to a pharmaceutical company. The Company has entered into a Settlement Agreement with the pharmaceutical company whereby the pharmaceutical company has agreed to not enforce its patent against the Company based on the Company's use of its IL-6m patent or patent applications. The Company is also aware of U.S. patents that cover various aspects of IL-6. The U.S. patents are licensed to the same pharmaceutical company as the European patent mentioned above. They may be construed to cover the Company's IL-6m. The Company's diagnostics program has been licensed for commercial development to Abbott. The program includes target amplification and detection methods, such as Repair Chain Reaction, signal amplification methods, such as AMPLIPROBE, and p53 mutation detection for assisting in cancer diagnosis. The Company's proprietary position with respect to its diagnostics program is based on numerous families of patents and patent applications, of which ImClone is either the assignee or exclusive licensee. The Company has been notified of the European Patent Office's intent to issue a patent to the Company's licensor to the Repair Chain Reaction target amplification technology. The Company currently is exclusive licensee of an issued patent 10 assigned to Princeton University related to the underlying technology for its AMPLIPROBE DNA amplification and detection system. The Company is aware that patent applications have been filed by, and that patents have been issued to, third parties in the fields of signal amplification technology and PCR technology for DNA assays. Patent applications have also been filed by third parties for p53 gene mutations. With respect to certain aspects of its technology, such as methods of isolating and purifying antibodies and other proteins, collections of plasmids in viable host systems, and antibodies that are specific for proteins that are of interest to ImClone, the Company currently relies on, and intends to continue to rely on, trade secrets, unpatented proprietary know-how and continuing technological innovation to protect its competitive position. There can be no assurance that others will not independently develop substantially equivalent proprietary information or techniques. Relationships between ImClone and its employees, scientific consultants and collaborators provide these persons with access to ImClone's trade secrets, know-how and technological innovation under confidentiality agreements with the parties involved. Similarly, ImClone employees and consultants have entered into agreements with ImClone which require that they do not disclose confidential information of ImClone and that they assign to ImClone all rights to any inventions made while in ImClone's employ relating to ImClone's activities. GOVERNMENT REGULATION The research and development, manufacture and marketing of human pharmaceutical and diagnostic products are subject to regulation primarily by the Food and Drug Administration ("FDA") in the United States and by comparable authorities in other countries. These national agencies and other federal, state and local entities regulate, among other things, research and development activities and the testing, manufacturing, safety, handling, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of the products that the Company is developing. Noncompliance with applicable requirements can result in refusal to approve product license or other applications, or revocation of approvals previously granted. Noncompliance also can result in fines, criminal prosecution, recall or seizure of products, total or partial suspension of production or refusal to allow the Company to enter into supply contracts. The process of obtaining requisite FDA approval has historically been costly and time consuming. Current FDA requirements before a new human drug, biological product or new diagnostic product (a medical device for which efficacy must be proven) may be marketed in the United States include (i) the successful conclusion of pre-clinical laboratory and animal tests, if appropriate, to gain preliminary information on the product's safety, (ii) filing with the FDA of an IND (Investigational New Drug) application to conduct human clinical trials for drugs or biologics, (iii) the successful completion of adequate and well-controlled human clinical investigations to establish the safety and efficacy of the product for its recommended use, (iv) filing by a company and approval by the FDA of a New Drug Application ("NDA") for a drug product or a Product License Application ("PLA") for a biological product, and (v) filing by a company and approval by the FDA of an Establishment License Application ("ELA") or amendment, if the facility is FDA-licensed, to allow commercial manufacturing of the drug or biologic. An establishment license cannot be issued unless a company's manufacturing procedures and facilities comply with strict FDA standards and a PLA has been filed. The FDA is currently modifying regulations that would consolidate the PLA and the ELA into one application for defined biological products, the Biological License Application ("BLA"). Other modifications that would affect this industry are also under consideration. 11 Pre-clinical tests include laboratory evaluation of product chemistry and animal studies to assess the potential safety and efficacy of the product and its formulation. The results of the pre-clinical tests are submitted to the FDA as part of an IND. Clinical trials involve the administration of the product to patients under the supervision of a qualified principal investigator. Such trials are typically conducted in three sequential phases, although the phases may overlap. In Phase I, the initial introduction of the drug into human subjects, the product is tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. Phase II involves studies in a limited patient population to (i) determine the biological or clinical activity of the product for specific, targeted indications, (ii) determine dosage tolerance and optimal dosage, and (iii) identify possible adverse effects and safety risks. If Phase II evaluations indicate that a product is effective and has an acceptable safety profile, Phase III trials may be undertaken to further evaluate clinical efficacy and to further test for safety within an expanded patient population at multiple clinical study sites. The FDA reviews the results of the clinical trials and may order the temporary or permanent discontinuation of clinical trials at any time if it believes that clinical subjects are being exposed to an unacceptable health risk. Investigational products used in both pre-clinical and clinical tests must be produced in compliance with current Good Manufacturing Practices regulations pursuant to FDA regulations. In October 1988, the FDA issued new procedures designed to speed the availability of new therapies to patients suffering from life-threatening diseases such as AIDS and cancer. These procedures permit early consultation with and commitment from the FDA regarding pre-clinical and clinical studies necessary to gain market approval and to permit NDA's and PLA's to be approved on the basis of expanded Phase II clinical data results. Under current law, each domestic and foreign drug product manufacturing establishment must be registered with, and determined to be adequate by, the FDA before product approval. Domestic manufacturing establishments are subject to inspections by the FDA for compliance with current Good Manufacturing Practices regulations and licensing specifications after an NDA, PLA or PMA has been approved. Domestic and foreign manufacturing facilities are subject to periodic FDA inspections and inspections by the foreign regulatory authorities where applicable. Sales outside the United States of products the Company develops also will be subject to regulatory requirements governing human clinical trials and marketing for drugs and biological products. The requirements vary widely from country to country, but typically the registration and approval process takes several years and requires significant resources. Products that have not been approved by the FDA for sale in the United States may be exported for sale outside of the United States only if they have been approved in any one of the following countries: the European Union, Canada, Australia, New Zealand, Japan, Israel, Switzerland and South Africa. The Company's research and development programs involve the use of biohazardous materials. Accordingly, the Company's business is subject to regulations under federal, state and local laws regarding work force safety, environmental protection and hazardous substance control, and to other present and possible future federal, state and local regulations. The Company believes that its safety procedures for handling hazardous materials comply with the requirements of such laws and regulations. The Company's ability to earn sufficient returns on its products may depend in part on the extent to which reimbursement for the costs of such products and related treatments will be available from government health administration authorities, private health coverage insurers and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved health care products, and there can be no assurance that adequate third-party coverage will be available. 12 COMPETITION Competition in the biopharmaceutical industry is intense and based significantly on scientific and technological factors, the availability of patent and other protection for technology and products, the ability to commercialize technological developments and the ability to obtain governmental approval for testing, manufacturing and marketing. The Company competes with specialized biopharmaceutical firms in the United States, Europe and elsewhere, as well as a growing number of large pharmaceutical companies that are applying biotechnology to their operations. Many biopharmaceutical companies have focused their development efforts in the human therapeutics area, including cancer, and many major pharmaceutical companies have developed or acquired internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies. These companies, as well as academic institutions, governmental agencies and private research organizations, also compete with the Company in recruiting and retaining highly qualified scientific personnel and consultants. The Company's ability to compete successfully with other companies in the pharmaceutical field will also depend to a considerable degree on the continuing availability of capital to the Company. The Company is aware of certain products under development or manufactured by competitors that are used for the prevention, diagnosis or treatment of certain diseases the Company has targeted for product development. Various companies are developing biopharmaceutical products that potentially directly compete with the Company's product candidates, including in areas such as the use of small molecules to EGFr or antibodies to those receptors to treat cancer, the use of anti-idiotypic antibody or recombinant antigen approaches to cancer vaccine therapy, the development of inhibitors to angiogenesis, and the use of hematopoietic growth factors to treat blood system disorders to or for stem cell or gene therapy. Some of these product candidates are in advanced stages of clinical trials. The Company's products under development and in clinical trials are expected to address major markets within the cancer sector. The Company's competition will be determined in part by the potential indications for which the Company's compounds are developed and ultimately approved by regulatory authorities. Additionally, the timing of market introduction of some of the Company's potential products or of competitor's products may be an important competitive factor. Accordingly, the relative speed with which the Company can develop products, complete pre-clinical testing, clinical trials and approval processes and supply commercial quantities to market are expected to be important competitive factors. The Company expects that competition among products approved for sale will be based on various factors, including product efficacy, safety, reliability, availability, price and patent position. HUMAN RESOURCES ImClone initiated its in-house research and development in 1986. The Company has assembled a scientific staff with a variety of complementary skills in a broad base of advanced research technologies, including oncology, immunology, cell biology and protein and synthetic chemistry. The Company has also recruited a staff of technical and professional employees to carry out manufacturing of clinical trial materials at its Branchburg, New Jersey manufacturing facility. Of the Company's 93 full-time personnel on March 14, 1997, 38 were employed in its product development, clinical and manufacturing programs, 29 in research and 26 in administration. The Company's staff includes 15 persons with Ph.D.s and 2 with M.D.s. 13 Item 2. Properties. RESEARCH FACILITY--NEW YORK, NEW YORK The Company currently occupies two contiguous leased floors at 180 Varick Street in New York City, in which it is using approximately 30,000 of a total available 40,000 square feet on the two floors. The Company's leases on these premises extend into 1999. The acquisition, construction and installation of the Company's New York research and development facilities were financed principally through the sale of Industrial Development Revenue Bonds issued by the New York City Industrial Development Agency. These facilities secure the payment of debt service on these outstanding Industrial Development Revenue Bonds. MANUFACTURING FACILITY--BRANCHBURG, NEW JERSEY In June 1992, the Company acquired certain property and a building in Branchburg, New Jersey at a cost to the Company of approximately $4,665,000, including expenses. The Company has retrofitted the building to serve as its clinical-grade manufacturing facility. When purchased, the facility had in place various features, including clean rooms, air handling, electricity and water for injection systems and administrative offices. The cost for completion of facility modifications was approximately $5,400,000. Currently the facility is being operated to develop and manufacture materials for the Company's clinical trials. Under certain circumstances, the Company also intends to use the facility for the manufacturing of commercial products. The timing and any additional costs of adapting the facility for commercial manufacturing depend on several factors, including the progress of products through clinical trials. Item 3. Legal proceedings. There is no material legal proceeding pending against the Company or any of its property, nor was any such proceeding terminated during the fourth quarter of the year ended December 31, 1996. Item 4. Submission of Matters to a Vote of Security Holders. None. 14 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's Common Stock is traded in the over-the-counter market and prices are reported on the NASDAQ National Market tier of The NASDAQ Stock Market under the symbol "IMCL". The following table sets forth, for the periods indicated, the range of high and low sale prices for the Common Stock on the NASDAQ National Market, as reported by The NASDAQ Stock Market. The quotations shown represent inter-dealer prices without adjustment for retail mark-ups, mark downs or commissions and may not necessarily reflect actual transactions. High Low ---- --- Year ended December 31, 1996 First Quarter.................................. $ 9 3/8 $ 6 Second Quarter................................. $ 17 3/8 $ 7 1/4 Third Quarter.................................. $ 9 7/8 $ 5 3/4 Fourth Quarter................................. $ 11 $ 6 7/8 High Low ---- --- Year ended December 31, 1995 First Quarter.................................. $ 1 1/8 $ 5/16 Second Quarter............................. $ 2 3/8 $ 3/8 Third Quarter................................. $ 4 7/16 $ 1 11/16 Fourth Quarter...................................$ 9 1/16 $ 2 15/16 As of the close of business on March 14, 1997, there were 207 holders of record of the Company's Common Stock. The Company estimates that there are approximately 4,700 beneficial owners of its Common Stock. The Company has never declared cash dividends on its Common Stock and has no present intention of declaring such cash dividends in the foreseeable future. 15 Item 6. Selected Financial Data.
Year Ended December 31, ------------------------------------------------------------- (In thousands, except per share data) 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- Statements of Operations Data: Operating revenues ......................... $ 600 $ 800 $ 950 $ 5,403 $ 2,142 Operating expenses: Research and development ................ $ 11,482 $ 8,768 $ 11,816 $ 13,876 $ 9,948 General and administrative .............. $ 3,961 $ 3,739 $ 3,348 $ 4,375 $ 4,659 Interest and other income .................. $ (918) $ (3,120) $ (3,186) $ (573) $ (1,169) Interest and other expense ................. $ 823 $ 1,054 $ 821 $ 587 $ 321 Equity in loss of affiliate ................ $ -- $ -- $ 342 $ 1,140 $ 526 --------- --------- --------- --------- --------- Loss before extraordinary item ............. $ (14,748) $ (9,641) $ (12,191) $ (14,002) $ (12,143) Extraordinary loss on extinguishment of debt $ 1,267 $ -- $ -- $ -- $ -- --------- --------- --------- --------- --------- Net loss ................................... $ (16,015) $ (9,641) $ (12,191) $ (14,002) $ (12,143) ========= ========= ========= ========= ========= Net loss per common share: Loss before extraordinary item ............. $ (0.76) $ (0.72) $ (1.12) $ (1.58) $ (1.58) Extraordinary loss on extinguishment of debt $ 0.07 $ -- $ -- $ -- $ -- --------- --------- --------- --------- --------- Net loss per common share .................. $ (0.83) $ (0.72) $ (1.12) $ (1.58) $ (1.58) ========= ========= ========= ========= ========= Weighted average shares outstanding ........ 19,371 13,311 10,903 8,879 7,700
December 31, -------------------------------------------------------------- (In thousands) 1996 1995 1994 1993 1992 --------- --------- --------- --------- --------- Balance Sheet Data: Cash and securities (1) ..................... $ 13,514 $ 10,207 $ 3,032 $ 7,301 $ 13,331 Working capital ............................. $ 7,695 $ 3,735 $ (1,470) $ 1,215 $ 11,988 Total assets ................................ $ 25,885 $ 22,803 $ 17,467 $ 24,208 $ 24,591 Long-term obligations ....................... $ 2,775 $ 4,235 $ 4,487 $ 3,636 $ 4,601 Accumulated deficit ......................... $(101,973) $ (85,958) $ (76,317) $ (64,126) $ (50,124) Stockholders' equity ........................ $ 16,589 $ 11,823 $ 8,176 $ 14,812 $ 18,646
(1) Includes $532 and $821 as of December 31, 1993 and December 31, 1992, respectively, which was restricted for use only for construction and equipping the Company's New York City facility under the terms of certain industrial development bonds. As of the year ended December 31, 1996 none of the cash of the Company was so restricted. 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis by management is provided to identify certain significant factors which affected the Company's financial position and operating results during the periods included in the accompanying financial statements. Overview and Risk Factors The Company is a biopharmaceutical company engaged primarily in the research and development of therapeutic products for the treatment of selected cancers and cancer-related disorders. The products under development include cancer therapeutics and cancer vaccines. Since its inception in April 1984, the Company has devoted substantially all of its efforts and resources to research and development conducted on its own behalf and through collaborations with corporate partners and academic research and clinical institutions. The Company has generated a cumulative net loss of approximately $101,973,000 for the period from its inception to December 31, 1996. The Company expects to incur significant additional operating losses over each of the next several years. The major sources of the Company's working capital have been the proceeds of its initial public offering in November 1991, a second public offering in May 1993, overseas offerings in 1994, the sale of its Cadus stock holdings in December 1994 and April 1995, the debt and equity transaction with the Oracle Group in August 1995, public offerings completed in November 1995, February 1996 and March 1997, private equity financings, license fees and research and development fees from corporate partners, and income earned on the investment of these funds. See "Liquidity and Capital Resources". Since its inception through December 31, 1996, the Company also has incurred indebtedness of $6,313,000 ($2,000,000 of which was repaid March 31, 1992) under Industrial Development Revenue Bonds, the proceeds of which have been used for the acquisition, construction and installation of the Company's research and development facility in New York City. The Company also has a remaining obligation to Pharmacia at December 31, 1996 in the amount of $1.9 million. See Note 6(a) to the Financial Statements. Substantially all of the Company's products are in the early stages of development, clinical studies or research. Substantially all the Company's revenues were generated from license and research arrangements with corporate sponsors. The Company's revenues under its research and license agreements with corporate sponsors have fluctuated and are expected to fluctuate significantly from period to period. Similarly, the Company's results of operations have fluctuated and are expected to fluctuate significantly from period to period. These variations have been, and are expected to be, based primarily on the timing of entering into supported research and license agreements, the status of the Company's various products, the timing and level of revenues from sales by its partner in diagnostics, Abbott, of products bearing the Company's technology, the addition or termination of research programs or funding support, performance by the Company's corporate collaborators of their funding and marketing obligations, the achievement of specified research or commercialization milestones and variations in the level of expenditures for the Company's proprietary products during any given period. The Company's products will require substantial additional development and clinical testing and investment prior to commercialization. To achieve profitable operations, the Company, alone or with others, must successfully develop, introduce and market its products. No assurance can be given that any of the Company's product development efforts will be successfully completed, that required regulatory approvals can be obtained or that any products, if developed, will be successfully manufactured or marketed or achieve customer acceptance. 17 Results of Operations Years Ended December 31, 1996 and December 31, 1995 Revenues for the years ended December 31, 1996 and December 31, 1995 were $600,000 and $800,000, respectively. Revenues for both years included $300,000 from the Company's corporate partnership with the Wyeth/Lederle Vaccine division of American Home in infectious disease vaccines. In addition, revenues for the years ended December 31, 1996 and December 31, 1995 included royalty fees of $225,000 and contract research fees of $500,000, respectively, from the Company's strategic alliance with Abbott in diagnostics. Finally, the year ended December 31, 1996 included $75,000 in license fees from the Company's cross-licensing agreement with Immunex for novel hematopoietic growth factors. Total operating expenses for the years ended December 31, 1996 and December 31, 1995 were $15,443,000 and $12,507,000, respectively. Research and development expenses for the years ended December 31, 1996 and December 31, 1995 were $11,482,000 and $8,768,000, respectively. Such amounts for the years ended December 31, 1996 and December 31, 1995 represented 74% and 70%, respectively, of total operating expenses. The $2,714,000 increase in research and development expenses is primarily attributable to costs incurred for C225, the Company's lead therapeutic product candidate. This includes additional staffing and expenditures in the functional areas of product development, manufacturing and clinical and regulatory affairs to support the manufacture of C225 for human clinical trials and travel-related expenses to pursue strategic partnerships for C225 (and other product candidates). The remaining increase reflects growth in the area of discovery research for future product candidates. General and administrative expenses include administrative personnel costs, costs incurred in connection with pursuing arrangements with corporate partners and technology licensors, and expenses associated with applying for patent protection for the Company's technology and products. Such expenses for the year ended December 31, 1996 were $3,961,000 compared to $3,739,000 for the year ended December 31, 1995. The $222,000 increase primarily reflects additional staffing to support the expanding research, clinical, development and manufacturing efforts of the Company, particularly with its lead therapeutic product candidate, C225. The Company expects general and administrative expenses to increase in future years to support planned increases in research and development. Interest and other income was $918,000 for the year ended December 31, 1996 as compared to $3,120,000 for the year ended December 31, 1995. Other income for the year ended December 31, 1995 included the sale of the remaining one-half of its shares of capital stock of Cadus for $3,000,000 to High River. See "Liquidity and Capital Resources". The greater interest income earned during the year ended December 31, 1996 reflects the Company's improved cash position from the November 1995 and February 1996 public sales of shares of its Common Stock. See "Liquidity and Capital Resources". Interest and other expense was $823,000 and $1,054,000 for the years ended December 31, 1996 and December 31, 1995, respectively. Such expense for both years primarily includes interest on two outstanding Industrial Development Revenue Bonds with an aggregate principal amount of $4,313,000, interest recorded on the liability to Pharmacia for the reacquisition of the worldwide rights to IL-6m and the contract manufacture of clinical material, and interest accrued and the amortization of the non-cash debt discount recorded in connection with the Company's August 1995 financing with the Oracle Group. See "Liquidity and Capital Resources" and Notes 6(a) and 6(b) to the Financial Statements. 18 The Company had net losses of $16,015,000 or $0.83 per share, and $9,641,000 or $0.72 per share, for the years ended December 31, 1996 and December 31, 1995, respectively. The net loss for the year ended December 31, 1996 included a $1,267,000 or $0.07 per share extraordinary loss on early extinguishment of debt through the May issuance of Common Stock in lieu of cash repayment of a $2,500,000 loan due the Oracle Group and a $180,000 long-term note owed to a Company Director. See "Liquidity and Capital Resources". Years Ended December 31, 1995 and December 31, 1994 Revenues for the years ended December 31, 1995 and December 31, 1994 were $800,000 and $950,000, respectively. Revenues for the years ended December 31, 1995 and December 31, 1994 consisted of $300,000 from the Company's corporate partnership with American Home in vaccines. In addition, revenues for the years ended December 31, 1995 and December 31, 1994 included contract research fees of $500,000 and $400,000, respectively, from the Company's strategic alliance with Abbott in diagnostics. Finally, license fees of $250,000 were recognized from the Abbott alliance during the year ended December 31, 1994. Total operating expenses for the years ended December 31, 1995 and December 31, 1994 were $12,507,000 and $15,164,000, respectively. Research and development expenses for the years ended December 31, 1995 and December 31, 1994 were $8,768,000 and $11,816,000, respectively. Such amounts for the years ended December 31, 1995 and December 31, 1994 represented 70% and 78%, respectively, of total operating expenses. The decrease in research and development expenses is attributable to the reduction in selected personnel, laboratory and third party costs. Also, the Company incurred a one-time charge of $800,000 during the year ended December 31, 1994 for the contract manufacture of IL-6m clinical material from Pharmacia. General and administrative expenses include administrative personnel costs, costs incurred in connection with pursuing arrangements with corporate partners and technology licensors, and expenses associated with applying for patent protection for the Company's technology and products. Such expenses for the year ended December 31, 1995 were $3,739,000 compared to $3,348,000 for the year ended December 31, 1994. The increase is related primarily to fees incurred in connection with the April 1995 Cadus stock sale, a loan agreement and related financing with the Oracle Group completed in August 1995, a contemplated product-related financing of C225 which the Company did not continue to pursue, and transfer of the Company's patent representation to outside counsel. Interest and other income was $3,120,000 for the year ended December 31, 1995 as compared to $3,186,000 for the year ended December 31, 1994. Each year included a gain from the sale of 50% of the Company's common and preferred Cadus stock to an unrelated party for $3,000,000. Interest and other expense was $1,054,000 and $821,000 for the years ended December 31, 1995 and December 31, 1994, respectively. Such expense for both years primarily reflect interest on two outstanding Industrial Development Revenue Bonds with an aggregate principal amount of $4,313,000. In addition, interest and other expense also included interest recorded on the liability to Pharmacia for the reacquisition of the worldwide rights to IL-6m and the contract manufacture of clinical material for the Company's trials of IL-6m. See "Liquidity and Capital Resources" and Note 6(a) to the Financial Statements. Interest for the period ended December 31, 1995 also includes accrued interest and the amortization of discounted interest incurred in connection with the August 1995 financing with the Oracle Group. See Note 6(b) to the Financial Statements. 19 The equity in the loss of affiliate of $342,000 for the year ended December 31, 1994 was attributable to the Company's share in the losses of Cadus, which was accounted for under the equity method during the year. During 1994, the Company owned 28% of the common and preferred stock of Cadus. The terms of its sale of 50% of its holdings in Cadus to High River for $3,000,000 were finalized in December 1994; the cash consideration was received by the Company on January 4, 1995. On April 27, 1995, sale of the Company's remaining Cadus stock was completed for $3,000,000 to High River. See "Liquidity and Capital Resources" and Note 2(e) to the Financial Statements. The Company had net losses of $9,641,000 or $0.72 per share, and $12,191,000 or $1.12 per share, for the years ended December 31, 1995 and December 31, 1994, respectively, due to the factors discussed above. The lower loss per share for the year ended December 31, 1995 was primarily attributable to a lower net loss and an increase in the number of outstanding shares. Liquidity and Capital Resources At December 31, 1996, the Company had a cash and cash equivalents and securities available for sale balance of approximately $13.5 million, virtually all of which represents the remaining balance of the proceeds of public offerings of 3,000,000 shares of Common Stock in November 1995 and 2,200,000 shares of Common Stock in February 1996. Such balances totaled approximately $32.6 million on March 14, 1997 which reflects the proceeds received from the Company's public offering of 3,000,000 shares of Common Stock in March 1997. The Company has financed its operations primarily through the proceeds of an initial public offering in November 1991, which raised approximately $31.7 million, net of expenses, supported research funding and license agreements, interest income, the issuance of industrial development bonds and the following described additional financings. In May 1993, the Company completed a second public Common Stock offering which raised approximately $10.4 million, net of expenses. In 1994, the Company completed several private offerings of its Common Stock, including offerings pursuant to regulations under the Securities Act of 1933, as amended (the "1993 Act"). The 1933 Act places restrictions on the resale in the United States of shares issued in a Regulation S offering. These various private offerings raised an aggregate of approximately $5.7 million. In December 1994 the Company completed the sale of one-half of its shares of capital stock of Cadus to High River for $3.0 million. During April 1995, the Company completed the sale of the remaining one-half of its shares of capital stock of Cadus for $3.0 million, also to High River. In exchange for receiving a now-expired right to repurchase all the outstanding shares of capital stock of Cadus, the Company granted to High River two options to purchase shares of Common Stock. One option is for 150,000 shares at an exercise price per share equal to $2.00, subject to adjustment under certain circumstances, and the other option is for 300,000 shares at an exercise price per share equal to $0.69, subject to adjustment under certain circumstances. Both options will expire on April 26, 2000. In August 1995, the Oracle Group purchased 1,000,000 shares of Common Stock for a purchase price of $1.5 million and made a loan to the Company in the aggregate amount of $2.5 million with a two-year maturity, but subject to mandatory prepayment, in whole or in part, upon the occurrence of certain events, including the raising of certain additional funds. The loan carried an annual interest rate of 8%. The Oracle Group includes Oracle Partners, L.P., Quasar International Partners C.V., Oracle Institutional Partners L.P., Sam Oracle Fund, Inc. and Warren B. Kanders. The Oracle Group also received warrants exercisable at any time until 20 August 10, 2000 entitling the holders thereof to purchase 500,000 shares of Common Stock at a price of $1.50 per share and 500,000 shares of Common Stock at a price of $3.00 per share. As a result of the Company's offerings of shares of its Common Stock in November 1995 and February 1996, the Oracle Group was entitled to require the Company to apply 20 percent of the gross proceeds of the sale of the shares of Common Stock from the offerings to repay the loan. In July 1995, a director loaned the Company $180,000 in exchange for a long-term note due two years from issuance at an annual interest rate of 8%. As part of the transaction, the director was granted 36,000 warrants to purchase Company Common Stock at $1.50 per share and an additional 36,000 warrants to purchase Company Common Stock at $3.00 per share. In May 1996, the Company and the director exchanged the note for 24,000 shares of Common Stock and the Company paid the accrued and unpaid interest on the note in the amount of $10,000 in cash. The Company recorded an extraordinary loss of $39,000 on the extinguishment of the debt. The Company has registered the resale of such shares of Common Stock with the Commission under a registration statement in accordance with the provisions of the 1933 Act. In November 1995, the Company completed a public sale of 3,000,000 shares of Common Stock at a per share price to the public of $3.75. Net proceeds to the Company from this sale totaled approximately $10.6 million after deducting expenses payable by the Company in connection with the offering and the commission paid by the Company. In February 1996, the Company completed a public sale of 2,200,000 shares of Common Stock at a per share price to the public of $6.63. Net proceeds to the Company from this sale totaled approximately $13.6 million after deducting expenses payable by the Company in connection with the offering and the commission paid by the Company. In May 1996, the Company and the Oracle Group exchanged the notes evidencing the 1995 loan in the aggregate outstanding principal amount of $2.5 million for 333,333 shares of Common Stock and the Company paid the accrued and unpaid interest on the notes in the amount of $143,000 in cash. The Company recorded an extraordinary loss of $1,228,000 on the extinguishment of the debt. The Company has registered such shares of Common Stock with the Securities and Exchange Commission (the "Commission") under a registration statement in accordance with the provisions of the 1933 Act. In May 1996, the Company extended its collaboration with Merck for the development of a therapeutic cancer vaccine, BEC-2, for use in small-cell lung carcinoma and in malignant melanoma. The collaboration continues a research and license agreement between the two companies signed in December 1990. Under the terms of the modified agreement, the Company may receive up to $11.7 million in license fees, research and development support and milestone payments in addition to the monies previously received under the original agreement. In return, Merck will receive marketing rights to BEC-2 for all therapeutic indications outside North America. Formerly, the rights of Merck were confined to Europe, Australia and New Zealand. Merck will also share in the development costs for the United States and Europe and will pay all development costs in other territories. The Company will be entitled to royalties based upon product sales outside North America. In June 1996, the Company and the New York City Industrial Development Agency (the "NYIDA") extended the maturity of the Company's $2.1 million repayment obligation to the NYIDA for the 1986 Industrial Revenue Bond, which was due on June 15, 1996, to December 15, 1997. 21 In December 1996, the Company entered into a technology cross-licensing agreement with Immunex relating to FLT-3/FLK-2 ligand and its receptor. FLT-3 ligand is a hematopoietic growth factor. Under the terms of the agreement, the Company has exclusively licensed the receptor to Immunex for use in the manufacture of the ligand. In return, the Company will receive an initial payment of $150,000 and a royalty based on the sales of the ligand by Immunex and its sub-licensees. Of the initial $150,000 payment, $75,000 was recorded as license fee revenue for the year ended December 31, 1996. In addition, Immunex has granted the Company a non-exclusive license in the United States and Canada to use its patented FLT-3/FLK-2 ligand, manufactured by Immunex, for ex-vivo stem cell expansion together with an exclusive license to distribute the ligand with its own proprietary products for ex-vivo expansion. Immunex has agreed to seek to obtain the consent of its parent company, American Home, to expand the territory of this license to include the world outside North America. In December 1996, the Company and Abbott modified their 1992 diagnostic strategic alliance to provide for an exclusive sublicensing agreement with Chiron Diagnostics for the Company's patented DNA signal amplification technology, AMPLIPROBE. Under the terms of the agreement, all sales of Chiron branched DNA diagnostic probe technology in countries covered by Company patents will be subject to a royalty to Abbott to be passed through to the Company. The initial royalty payment of approximately $225,000, which covered AMPLIPROBE sales from January 1992 through September 1996, was included under the revenue caption "research and development funding from third parties and other" for the year ended December 31, 1996. The Company received the initial royalty payment from Abbott in late January 1997. In December 1996, the Company signed an agreement with Finova to finance the lease of laboratory and computer-related equipment and make certain building and leasehold improvements to existing facilities involving payments aggregating approximately $2,500,000. The first of multiple intended leases has been signed at a cost of $421,000. Each lease has a fair market value purchase option at the expiration of a 42-month term. Pursuant to the agreement, the Company issued to Finova a warrant expiring December 31, 1999 to purchase 23,220 shares of Common Stock at an exercise price of $9.69 per share. The Company has registered the resale of such shares of Common Stock underlying the warrant with the Commission under a registration statement in accordance with the provisions of the 1933 Act. See Notes 6(a), 10 and 11 to the Financial Statements. In March 1997, the Company completed a public sale of 3,000,000 shares of Common Stock at a per share price to the public of $7.875. Net proceeds to the Company from the sale totaled approximately $23.2 million after deducting expenses payable by the Company in connection with the offering and the commission paid by the Company. The Company has expended and will continue to expend in the future substantial funds to continue the research and development of its products, conduct pre-clinical and clinical trials, establish clinical-scale and commercial-scale manufacturing in its own facilities or in the facilities of others, and market its products. In addition, $2.1 and $2.2 million, respectively, in Industrial Development Revenue Bonds issued on behalf of the Company in 1986 and 1990 become due in December 1997 and May 2004, respectively. See Note 5 to the Financial Statements. In July 1993, the Company entered into a termination agreement with Erbamont, Inc., now a subsidiary of Pharmacia and UpJohn, Inc. ("Pharmacia"), to acquire the worldwide rights to IL-6m, a blood cell growth factor, which had been licensed to Pharmacia pursuant to a development and licensing agreement. In consideration of the return of rights and the transfer of certain material and information, the Company has paid $1.4 million and has further obligations to Pharmacia. Such obligations, including those to pay for IL-6 mutein material manufactured 22 and supplied by Pharmacia, totaled $2.4 million at March 31, 1996. In addition, the Company is required to pay Pharmacia $2.7 million in royalties on eventual sales of IL-6m, if any. In March, 1996, the Company entered into a Repayment Agreement with Pharmacia (the "Repayment Agreement") pursuant to which it agreed to pay the $2.4 million over 24 months commencing in March 1996, with interest only payable during the first six months. At December 31, 1996 the remaining obligation to Pharmacia totaled $1.9 million. In connection with the Repayment Agreement, the Company signed a Confession of Judgment, which can be filed by Pharmacia with an appropriate court in the case of default by the Company. Pursuant to a Security Agreement entered into with Pharmacia, the Company pledged its interests in patents related to IL-6m and to heparanase to secure its obligations under the Repayment Agreement. The Company's future working capital and capital requirements will depend upon numerous factors, including the progress of the Company's research and development programs, pre-clinical testing and clinical trials, the Company's corporate partners fulfilling their obligations to the Company, the timing and cost of seeking regulatory approvals, the level of resources that the Company devotes to the development of manufacturing, marketing and sales capabilities, technological advances, the status of competitors and the ability of the Company to maintain existing and establish new collaborative arrangements with other companies to provide funding to the Company to support these activities. The Company's budgeted cash expenditures for the twelve month period ending December 31, 1997 total approximately $20.5 million. Included in this budget figure are $1.7 million of the remaining $1.9 million obligation to Pharmacia and the $2.1 million Industrial Revenue Development Bond debt payable to the NYIDA in December 1997. In addition, the budget reflects the expansion of operations to include numerous new outside research agreements, the proposed hire of several new employees during 1997 and related costs to support the expansion of the Company's research and development programs, including the expanded clinical trials. The Company's assumed budget for 1998 (which does not take into account any extraordinary expenditures) is $17.0 million. The Company expects that its capital resources, including the ongoing research support of its corporate partners will be sufficient to fund its operations through approximately December 1998. However, the receipt of certain of such ongoing research support is subject to attaining research and development milestones, certain of which have not yet been achieved. These milestones include the successful completion of a pilot manufacturing run relating to the BEC-2 cancer vaccine and the nonoccurrence of third party opposition filings against a currently allowed patent of the Company in Europe relating to the Abbott strategic alliance. There can be no assurance that the Company will achieve these milestones, if at all. If difficulty is encountered in attaining these milestones, the Company may postpone the budgeted expansion of operations to allow for funding of its operations beyond 1998. Accordingly, in order to fund its capital needs after 1998, the Company will require significant levels of additional capital and intends to raise the necessary capital through additional equity or debt financings, arrangements with corporate partners or from other sources. The Company has entered into preliminary discussions with several major pharmaceutical companies regarding various alternatives concerning the funding of research and development for certain of its products. No assurance can be given that the Company will be successful in pursuing any such alternatives. In addition, the Company may seek to enter into a significant strategic partnership with a pharmaceutical company for the development of its lead product candidate, C225. Such a strategic alliance could include an up-front equity investment and license fees plus milestone fees and revenue sharing. There can be no assurance that the Company will be successful in achieving such an alliance, nor can the Company predict the amount of funds which might be available to it if it entered into such an alliance or the time at which such funds would be made available. 23 The Company has granted a security interest in substantially all facility equipment located in its New York City facility to secure the obligations of the Company to the NYIDA relating to the 1986 Industrial Development Revenue Bond and the 1990 Industrial Development Revenue Bond, which were issued to finance a portion of the cost of this facility. The Company has outfitted and purchased equipment for a certain property to create a clinical-scale production facility that complies with current Good Manufacturing Practices regulations. To be successful, the Company's products must be manufactured in commercial quantities in compliance with regulatory requirements and at acceptable costs. Although the Company has developed products in the laboratory and in some cases has produced sufficient quantities of materials for pre-clinical animal trials and early stage clinical trials, production in late stage clinical or commercial quantities may create technical challenges for the Company. If it commercializes its products, the Company plans to adapt this facility for use as its commercial-scale manufacturing facility. However, the Company has limited experience in clinical-scale manufacturing and no experience in commercial-scale manufacturing, and no assurance can be given that the Company will be able to make the transition to late stage clinical or commercial production. The timing and any additional costs of adapting the facility for commercial manufacturing will depend on several factors, including the progress of products through clinical trials, and are not yet determinable. Total capital expenditures made during the year ended December 31, 1996 were $693,000. Of the total capital expenditures made during the year ended December 31, 1996, $421,000 has been reimbursed in accordance with the terms of the Finova agreement mentioned above which provides for improvements and equipping of the Company's manufacturing facility in New Jersey. The balance of capital additions was for equipment and computer-related purchases for both the New Jersey facility and the corporate office and research laboratories in New York. At December 31, 1996, the Company had net operating loss carryforwards for federal income tax purposes of approximately $97,350,000 which expire at various dates from 2000 through 2011. At December 31, 1996 the Company had research credit carryforwards of approximately $1,883,000 which expire at various dates between the years 2001 and 2011. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, the annual utilization of the Company's net operating loss and research credit carryforwards may be limited if the Company experiences a change in ownership of more than 50% within a three-year period. The Company believes that one or more of such ownership changes may have occurred since 1986. Therefore, the Company may be significantly limited in utilizing its tax net operating loss carryforwards arising before such ownership change(s) to offset future taxable income. Similarly, the Company may be restricted in using its research credit carryforwards arising before such ownership change(s) to offset future federal income tax expense. Recently Issued Accounting Standards In June 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996 and is to be applied prospectively. This Statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on consistent application of a financial-components approach that focuses on control. It distinguishes 24 transfers of financial assets that are sales from transfers that are secured borrowings. Management of the Company does not expect that adoption of SFAS No. 125 will have a near-term material impact on the Company's financial position, results of operations, or liquidity. Item 8. Financial Statements and Supplementary Data. The response to this item is submitted as a separate section of this report commencing on Page F-1. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. Not Applicable. PART III The information required by "Item 10. - Directors and Executive Officers of the Registrant"; "Item 11. Executive Compensation"; "Item 12. - Security Ownership of Certain Beneficial Owners and Management"; and "Item 13. - Certain Relationships and Related Transactions" is incorporated into Part III of this Annual Report on Form 10-K by reference to the Company's Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on June 3, 1997. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a)(1) and (2). The response to this portion of Item 14. is submitted as a separate section of this report commencing on page F-1. (a)(3)and (c). Exhibits (numbered in accordance with Item 601 of Regulation S-K). Exhibit No. Description 3.1A Certificate of Incorporation, and all amendments thereto 3.2A By-Laws of the Company 4.1A Form of Warrant issued to the Company's officers and directors under Warrant Agreements 4.2A Stock Purchase Agreement between Erbamont Inc. and the Company, dated May 1, 1989 4.3A Stock Purchase Agreement between American Cyanamid Company (Cyanamid) and the Company dated December 18, 1987 4.4A Form of Subscription Agreement entered into in connection with September 1991 private placement 4.5A Form of Warrant issued in connection with September 1991 private placement 25 10.1F Company's 1986 Employee Incentive Stock Option Plan, including form of Incentive Stock Option Agreement 10.2F Company's 1986 Non-qualified Stock Option Plan, including form of Non-qualified Stock Option Agreement 10.3F Company's 401(k) Plan 10.4B Research and License Agreement between Merck and the Company dated December 19, 1990 10.5B Research, License and Manufacturing Agreement between Cyanamid and the Company, made and effective as of July 31, 1989 10.6B Hematopoietic Growth Factors License Agreement between Erbamont, N.V. and the Company, dated May 1, 1989, and Supplemental Amendatory Agreement between Erbamont, N.V. and the Company dated September 28, 1990 10.7B Agreement between Cyanamid and the Company dated December 18, 1987 and supplemental letter agreement between Cyanamid and the Company dated September 6, 1991 10.8B Agreement between Hadasit Medical Research Services & Development, Ltd. and the Company 10.9B Agreement between Hadasit Medical Research Services & Development, Ltd. and the Company dated September 21, 1989 10.10 A Supported Research Agreement between Memorial Sloan-Kettering Cancer Center (MSKCC) and the Company dated March 26, 1990 10.11B License Agreement between MSKCC and the Company, dated March 26, 1990 10.12B License Agreement between MSKCC and the Company, dated March 26, 1990 10.13B License Agreement between MSKCC and the Company, dated March 26, 1990 10.14B Research Agreement between the Trustees of Princeton University (Princeton) and the Company dated January 1, 1991 10.15B Research Agreement between Princeton and the Company dated May 1, 1991 10.16B Research Agreement between Princeton and the Company dated May 1, 1991 10.17B License Agreement between Princeton and the Company dated March 20, 1991 10.18B License Agreement between Princeton and the Company dated May 29, 1991 10.19B License Agreement between Princeton and Oncotech, Inc. dated September 3, 1987 10.20B Supported Research Agreement between The University of North Carolina at Chapel Hill (UNC) and the Company effective July 5, 1988 10.21B License Agreement between UNC and the Company dated July 5, 1988 10.22B License Agreement between UNC and the Company dated July 27, 1988 26 10.23B Supported Research Agreement between UNC and the Company effective April 1, 1989 10.24B License Agreement between UNC and the Company dated July 1, 1991 10.25B Agreement between Celltech Limited and the Company dated May 23, 1991 10.26B Research Agreement between New York University Medical Center and the Company dated April 1, 1989 10.27B Consulting Agreement between Thomas E. Shenk and the Company dated July 1, 1986 10.28B Consulting Agreement between Robert Schneider and the Company dated July 1, 1986 and amendatory letter agreements dated May 23, 1989 and May 16, 1990 10.29B Consulting Agreement between Robert Schneider and the Company dated August 15, 1987 10.30A Form of Non-disclosure and Discovery Agreement between employees of the Company and the Company 10.31A Industrial Development Bond Documents: 10.31.1A Industrial Development Revenue Bonds (1985 ImClone Systems Incorporated Project) 10.31.1.1A Lease Agreement, dated as of October 1, 1985, between the New York City Industrial Development Agency (NYCIDA) and the Company, as Lessee 10.31.1.2A Indenture of Trust, dated as of October 1, 1985, between NYCIDA and United States Trust Company of New York (US Trust), as Trustee 10.31.1.3A Company Sublease Agreement, dated as of October 1, 1985, between the Company and NYCIDA 10.31.1.4A Tax Regulatory Agreement, dated October 9, 1985, from NYCIDA and the Company to US Trust, as Trustee 10.31.1.5A Lessee Guaranty Agreement, dated as of October 1, 1985, between the Company and US Trust, as Trustee 10.31.1.6A First Supplemental Indenture of Trust, dated as of November 1, 1985 from the NYCIDA to US Trust 10.31.1.7A Third Supplemental Indenture of Trust, dated as of October 12, 1990 from NYCIDA to US Trust 10.31.2A Industrial Development Revenue Bonds (1986 ImClone Systems Incorporated Project) 10.31.2.1A First Amendment to Company Sublease Agreement, dated as of December 1, 1986, between the Company, as Sublessor, and NYCIDA as Sublessee 10.31.2.2A First Amendment to Lease Agreement, dated as of December 1, 1986, between NYCIDA and the Company, as Lessee 10.31.2.3A Second Supplement Indenture of Trust, dated as of December 1, 1986 between NYCIDA and US Trust, as Trustee 27 10.31.2.4A Tax Regulatory Agreement, dated December 31, 1986, from NYCIDA and the Company to US Trust, as Trustee 10.31.2.5A First Amendment to Lessee Guaranty Agreement, dated as of December 1, 1986, between the Company and US Trust, as Trustee 10.31.2.6A Bond Purchase Agreement, dated as of December 31, 1986, between NYCIDA and New York Muni Fund, Inc., as Purchaser 10.31.2.7A Letter of Representation and Indemnity Agreement, dated as of December 31, 1986, from the Company to NYCIDA and New York Muni Fund, Inc., as Purchaser 10.31.3A Industrial Development Revenue Bonds (1990 ImClone Systems Incorporated Project) 10.31.3.1A Lease Agreement, dated as of August 1, 1990, between NYCIDA and the Company, as lessee 10.31.3.2A Company Sublease Agreement, dated as of August 1, 1990, between the Company, as Sublessor, and NYCIDA 10.31.3.3A Indenture of Trust, dated as of August 1, 1990, between NYCIDA and US Trust, as Trustee 10.31.3.4A Guaranty Agreement, dated as of August 1, 1990, from the Company to US Trust, as Trustee 10.31.3.5A Tax Regulatory Agreement, dated August 1, 1990, from the Company and NYC.IDA to US Trust, as Trustee 10.31.3.6A Agency Security Agreement, dated as of August 1, 1990, from the Company, as Debtor, and the NYCIDA to US Trust, as Trustee 10.31.3.7A Letter of Representation and Indemnity Agreement, dated as of August 14, 1990, from the Company to NYCIDA, New York Mutual Fund, Inc., as the Purchaser and Chase Securities, Inc., as Placement Agent Company to NYCIDA 10.32A Lease Agreement between 180 Varick Street Corporation and the Company, dated October 8, 1985, and Additional Space and Modification Agreement between 180 Varick Street Corporation and the Company, dated June 13, 1989 10.33A License Agreement between The Board of Trustees of the Leland Stanford Junior University and the Company effective May 1, 1991 10.34A License Agreement between Genentech, Inc. and the Company dated December 28, 1989 10.35B License Agreement between David Segev and the Company dated December 28, 1989 10.36B License Agreement between Gesellschaft Biotechnologische Forschung GmbH and the Company dated September 12, 1989 10.37A License Agreement between The Texas A&M University System and the Company dated March 31, 1988 10.38A License Agreement between The University of Iowa Research Foundation and the Company dated March 31, 1988 28 10.39A Letter Agreement dated June 27, 1991 between the Company and Miles Inc. 10.40C Letter of Intent between the Company and Dr. David Segev dated November 18, 1991 10.41C Research Agreement between the Company and the State of Oregon acting by and through the Oregon State Board of Higher Education on Behalf of the Oregon Health Sciences University dated February 26, 1992 10.42C Agreement between the Company and Celltech Limited dated March 11, 1992 10.43C Supported Research Agreement between the Company and The Johns Hopkins University dated March 9, 1992 10.44C Letter Agreement between the Company and Fred Hutchinson Cancer Research Center Foundation dated April 8, 1992 10.45D Agreement of Sale dated June 19, 1992 between the Company and Korsch Tableting Inc. 10.46E Research and License Agreement, having an effective date of December 15, 1992, between the Company and Abbott Laboratories 10.47E Research and License Agreement between the Company and Chugai Pharmaceutical Co., Ltd. dated January 25, 1993 10.48G License Agreement between the Company and the Regents of the University of California dated April 9, 1993 10.49H Contract between the Company and John Brown, a division of Trafalgar House, dated January 19, 1993 10.50G Collaboration and License Agreement between the Company and the Cancer Research Campaign Technology, Ltd., signed April 4, 1994, with an effective date of April 1, 1994. 10.51H Termination Agreement between the Company and Erbamont Inc. dated July 21, 1993 10.52G Research and License Agreement between the Company and Cyanamid dated September 15, 1993 10.53H Clinical Trials Agreement between the Company and the National Cancer Institute dated November 23, 1993 10.54G License Agreement between the Company and UNC dated December 1, 1993 10.55H Notice of Termination for the research collaboration between the Company and Chugai Pharmaceutical Co., Ltd. dated December 17, 1993 10.56I License Agreement between the Company and Rhone-Poulenc Rorer dated June 13, 1994 10.57I Offshore Securities Subscription Agreement between ImClone Systems Incorporated and GFL Ultra Fund Limited dated August 12, 1994 10.58I Offshore Securities Subscription Agreement between ImClone Systems Incorporated and GFL Ultra Fund Limited dated November 4, 1994 10.59I Offshore Securities Subscription Agreement between ImClone Systems Incorporated and Anker Bank Zuerich dated November 10, 1994 29 10.60J Option Agreement, dated as of April 27, 1995, between ImClone Systems Incorporated and High River Limited Partnership relating to capital stock of Cadus Pharmaceutical Corporation 10.61J Option Agreement, dated as of April 27, 1995, between ImClone Systems Incorporated and High River Limited Partnership relating to 300,000 shares of Common Stock of ImClone Systems Incorporated 10.62J Option Agreement, dated as of April 27, 1995, between ImClone Systems Incorporated and High River Limited Partnership relating to 150,000 shares Common Stock of ImClone Systems Incorporated 10.63J Stock Purchase Agreement, dated as of August 10, 1995, by and between ImClone Systems Incorporated and the members of the Oracle Group 10.64J Form of Warrant issued to the members of the Oracle Group 10.65J Loan Agreement, dated as of August 10, 1995, by and between ImClone Systems Incorporated and the members of the Oracle Group 10.66J Security Agreement, dated as of August 10, 1995, by and between ImClone Systems Incorporated and the members of the Oracle Group 10.67J Mortgage, dated August 10, 1995, made by ImClone Systems Incorporated for the benefit of Oracle Partners, L.P., as Agent 10.68K Financial Advisory Agreement entered into between the Company and Genesis Merchant Group Securities dated November 2, 1995 10.69K Repayment Agreement (with Confession of Judgment, and Security Agreement) entered into between the Company and Pharmacia, Inc. on March 6, 1996 10.70K License Amendment entered into between the Company and Abbott Laboratories on August 28, 1995, amending the Research and License Agreement between the parties dated December 15, 1992 10.71K Amendment of September 1993 to the Research and License Agreement between the Company and Merck of April 1, 1990 10.72K Amendment of October 1993 to the Research and License Agreement between the Company and Merck of April 1, 1990 10.73L Employment agreement dated May 17, 1996 between the Company and Carl S. Goldfischer 10.74L Financial Advisory Agreement dated February 26, 1997 between the Company and Hambrecht & Quist LLC 10.75L Exchange Agreement exchanging debt for Common Stock dated as of April 15, 1996 among the Company and members of The Oracle Group. 30 21.1 Subsidiaries - None 23.1L Consent of KPMG Peat Marwick LLP (b) Reports on Form 8-K On February 26, 1997, the Company filed with the Commission a Current Report on Form 8-K dated February 25, 1997 relating to its filing with the Commission of a registration statement to register the public offering of 3,000,000 shares of Common Stock (Item 5). On February 28, 1997, the Company filed with the Commission a Current Report on Form 8-K dated February 25, 1997 containing the Company's audited financial statements for the year ended December 31, 1996. (Item 5). - ---------- A Previously filed with the Commission; incorporated by reference to Registration Statement on Form S-1, Registration No. 33-43064. B Previously filed with the Commission; incorporated by reference to Registration Statement on Form S-1, Registration No. 33-43064. Confidential treatment was granted for a portion of this exhibit. C Previously filed with the Commission; incorporated by reference to the Registration Statement on Form S-1, Registration No. 33-48240. Confidential treatment was granted for a portion of this exhibit. D Previously filed with the Commission; incorporated by reference to the Company's Annual Report on Form 10-K, filed June 26, 1992. E Previously filed with the Commission; incorporated by reference to the Company's Annual Report on Form 10-K, filed March 30, 1993. Confidential treatment was granted for a portion of this Exhibit. F Previously filed with the Commission; incorporated by reference to the Registration Statement on Amendment No. 1 to Form S-1, Registration No. 33-61234. G Previously filed with the Commission; incorporated by reference to the Company's Annual Report on Form 10-K, filed April 15, 1994. Confidential Treatment was granted for a portion of this Exhibit. H Previously filed with the Commission; incorporated by reference to the Company's Annual Report on Form 10-K, filed April 15, 1994. I Previously filed with the Commission; incorporated by reference to the Company's Annual Report on Form 10-K, filed April 14, 1995. J Previously filed with the Commission, incorporated by reference to the Registration Statement on Form S-2, Registration No. 33-98676. k Previously filed with the Commission, incorporated by reference to the Company's Annual Report on Form 10-K, filed March 28, 1997. L Filed herewith. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. IMCLONE SYSTEMS INCORPORATED March 27, 1997 By /s/ SAMUEL D. WAKSAL ------------------------------ Samuel D. Waksal President and Chief Executive Officer 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 dated indicated. Signature Title Date /s/ ROBERT F. GOLDHAMMER Chairman of the Board and March 27, 1997 - --------------------------- Director (Robert F. Goldhammer) March 27, 1997 /s/ SAMUEL D. WAKSAL President, Chief Executive - --------------------------- Officer and Director (Samuel D. Waksal) (Principal Executive Officer) March 27, 1997 /s/ HARLAN W. WAKSAL Executive Vice President, - --------------------------- Chief Operating Officer (Harlan W. Waksal) and Director March 27, 1997 /s/ CARL S. GOLDFISHCER Vice President, Financial - --------------------------- and Strategic Planning (Carl S. Goldfischer) and Chief Financial Officer (Principal Financial Officer) March 27, 1997 /s/ RICHARD BARTH Director - --------------------------- (Richard Barth) March 27, 1997 /s/ JEAN CARVAIS Director - --------------------------- (Jean Carvais) March 27, 1997 /s/ VINCENT T. DEVITA, JR. Director - --------------------------- (Vincent T. DeVita, Jr.) March 27, 1997 /s/ DAVID M. KIES Director - --------------------------- (David M. Kies) March 27, 1997 /s/ PAUL B. KOPPERL Director - --------------------------- (Paul B. Kopperl) /s/ WILLIAM R. MILLER March 27, 1997 - --------------------------- Director (William R. Miller) 32 FINANCIAL STATEMENTS Index to Financial Statements Financial Statements Independent Auditors' Report.................................. ........... F-2 Balance Sheets at December 31, 1996 and 1995.............................. F-3 Statements of Operations for the Years Ended December 31, 1996, 1995, and 1994........................... F-4 Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995, and 1994........................... F-5 Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and 1994........................... F-6 Notes to Financial Statements............................................. F-7 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors ImClone Systems Incorporated: We have audited the financial statements of ImClone Systems Incorporated as listed in the accompanying index. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 financial statements referred to above present fairly, in all material respects, the financial position of ImClone Systems Incorporated as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note 2(h) to the financial statements, the Company has adopted Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, in 1996. /s/ KMPG Peat Marwick LLP KPMG Peat Marwick LLP New York, New York February 18, 1997 F-2 IMCLONE SYSTEMS INCORPORATED Balance Sheets (in thousands, except share data) December 31, December 31, Assets 1996 1995 ------------ ------------- Current assets: Cash and cash equivalents ..................... $ 2,734 $ 10,207 Securities available for sale ................. 10,780 -- Prepaid expenses .............................. 122 115 Amount due from officer and stockholder ....... 101 132 Other current assets .......................... 479 26 --------- --------- Total current assets ..................... 14,216 10,480 --------- --------- Property and equipment: Land ......................................... 340 340 Building and building improvements ........... 8,969 8,969 Leasehold improvements ....................... 4,832 4,832 Machinery and equipment ...................... 5,159 4,796 Furniture and fixtures ....................... 536 526 Construction in progress ..................... 320 -- --------- --------- Total cost ............................... 20,156 19,463 Less accumulated depreciation and amortization ....................... (9,606) (7,984) --------- --------- Property and equipment, net .............. 10,550 11,479 --------- --------- Patent costs, net .............................. 977 707 Deferred financing costs, net .................. 65 74 Other assets ................................... 77 63 --------- --------- $ 25,885 $ 22,803 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Accounts payable .............................. $ 1,059 $ 992 Accrued expenses and other .................... 1,366 826 Interest payable .............................. 238 343 Current portion of long-term liabilities ...... 3,858 4,584 --------- --------- Total current liabilities ................ 6,521 6,745 --------- --------- Long-term debt ................................. 2,200 2,200 Long-term notes payable, net ................... -- 1,928 Other long-term liabilities, less current portion.......................... 575 107 --------- --------- Total liabilities ........................ 9,296 10,980 --------- --------- Commitments and contingencies Stockholders' equity : Preferred stock, $1.00 par value; authorized 4,000,000 shares; none issued and outstanding ................ -- -- Common stock, $.001 par value; authorized 30,000,000 shares; issued 20,248,122 and 16,819,622 at December 31, 1996 and December 31, 1995, respectively; outstanding 20,233,699 and 16,806,919 at December 31, 1996 and December 31, 1995, respectively ............ 20 17 Additional paid-in capital ................... 118,760 97,914 Accumulated deficit .......................... (101,973) (85,958) Treasury stock, at cost; 14,423 and 12,703 shares at December 31, 1996 and December 31, 1995, respectively ........ (169) (150) Unrealized loss on securities available for sale ......................... (49) -- --------- --------- Total stockholders' equity ............... 16,589 11,823 --------- --------- $ 25,885 $ 22,803 ========= ========= See accompanying notes to financial statements. F-3 IMCLONE SYSTEMS INCORPORATED Statements of Operations (in thousands, except per share data)
Year Ended December 31, --------------------------------- 1996 1995 1994 --------- --------- -------- Revenues: License fees from third parties ................ $ 75 $ -- $ 250 Research and development funding from third parties and other ........................... 525 800 700 -------- -------- -------- Total revenues ................... 600 800 950 -------- -------- -------- Operating expenses: Research and development ....................... 11,482 8,768 11,816 General and administrative ..................... 3,961 3,739 3,348 -------- -------- -------- Total operating expenses .......... 15,443 12,507 15,164 -------- -------- -------- Operating loss ...................................... (14,843) (11,707) (14,214) -------- -------- -------- Other (income) expense: Interest and other income ...................... (918) (3,120) (3,186) Interest and other expense ..................... 823 1,054 821 Equity in loss of affiliate .................... -- -- 342 -------- -------- -------- Net interest and other income ...... (95) (2,066) (2,023) -------- -------- -------- Loss before extraordinary item ...................... (14,748) (9,641) (12,191) Extraordinary loss on extinguishment of debt......... 1,267 -- -- -------- -------- -------- Net loss ............................................ $(16,015) $ (9,641) $(12,191) ======== ======== ======== Net loss per common share: Loss before extraordinary item .............. $ (0.76) $ (0.72) $ (1.12) Extraordinary loss on extinguishment of debt. 0.07 -- -- -------- -------- -------- Net loss per common share ................... $ (0.83) $ (0.72) $ (1.12) ======== ======== ======== Weighted average shares outstanding ................. 19,371 13,311 10,903 ======== ======== ========
See accompanying notes to financial statements F-4 IMCLONE SYSTEMS INCORPORATED Statements of Stockholders' Equity Years Ended December 31, 1994, 1995, and 1996 (in thousands, except share data)
Additional Common Stock Paid-in Accumulated Treasury -------------------------- Shares Amount Capital Deficit Stock -------------- --------- -------------- ---------------- ----------- Balance at December 31, 1993 ....... 9,510,183 $ 10 $ 79,497 $ (64,126) $ (150) -------------- --------- -------------- ---------------- ----------- Issuance of common stock ........... 3,067,502 3 5,133 Advances to officer and stockholder .................... Amortization of deferred compensation ................... Net loss ........................... (12,191) -------------- --------- -------------- ---------------- ----------- Balance at December 31, 1994 ....... 12,577,685 $ 13 $ 84,630 $ (76,317) $ (150) -------------- --------- -------------- ---------------- ----------- Issuance of common stock ........... 4,000,000 4 11,998 Options exercised .................. 156,750 162 Warrants exercised ................. 15,300 23 Payment of promissory notes ........ 57,184 36 Proceeds from promissory notes ..... 2 Debt discount ...................... 1,063 Net loss ........................... (9,641) -------------- --------- -------------- ---------------- ----------- Balance at December 31, 1995 ....... 16,806,919 $ 17 $ 97,914 $ (85,958) $ (150) -------------- --------- -------------- ---------------- ----------- Issuance of common stock ........... 2,200,000 2 13,560 Options exercised .................. 266,275 846 Warrants exercised ................. 604,892 1 2,960 Options granted to non-employees.... 95 Extinguishment of debt ............. 357,333 3,260 Debt discount ...................... 125 Treasury shares .................... (1,720) (19) Changes in unrealized loss on securities available for sale ... Net loss ............................ (16,015) -------------- --------- -------------- ---------------- ----------- Balance at December 31, 1996 ........ 20,233,699 $ 20 $ 118,760 $ (101,973) $ (169) ============== ========= ============== ================ =========== Unrealized Amount Loss on Due from Securities Officer and Deferred Available Stockholder Compensation for Sale Total -------------- ----------------- ------------- ---------------- Balance at December 31, 1993 ........ $ (398) $ (21) $ - $ 14,812 -------------- ----------------- ------------- ---------------- Issuance of common stock ............ 5,136 Advances to officer and stockholder ..................... 398 398 Amortization of deferred compensation .................... 21 21 Net loss ............................ (12,191) -------------- ----------------- ------------- ---------------- Balance at December 31, 1994 ........ $ - $ - $ - $ 8,176 -------------- ----------------- ------------- ---------------- Issuance of common stock ............ 12,002 Options exercised ................... 162 Warrants exercised .................. 23 Payment of promissory notes ......... 36 Proceeds from promissory notes ...... 2 Debt discount ....................... 1,063 Net loss ............................ (9,641) -------------- ----------------- ------------- ---------------- Balance at December 31, 1995 ........ $ - $ - $ - $ 11,823 -------------- ----------------- ------------- ---------------- Issuance of common stock ............ 13,562 Options exercised ................... 846 Warrants exercised .................. 2,961 Options granted to non-employees.... 95 Extinguishment of debt .............. 3,260 Debt discount ....................... 125 Treasury shares ..................... (19) Changes in unrealized loss on securities available for sale ... (49) (49) Net loss ............................ (16,015) -------------- ----------------- ------------- ---------------- Balance at December 31, 1996 ........ $ - $ - $ (49) $ 16,589 ============== ================= ============= ================
See accompanying notes to financial statements F-5 IMCLONE SYSTEMS INCORPORATED Statements of Cash Flows (in thousands)
Year Ended December 31, ---------------------------------- 1996 1995 1994 ----------- ---------- ---------- Net loss .............................................. $(16,015) $ (9,641) $(12,191) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization ........................ 1,704 1,789 1,844 Expense associated with issuance of options ....................................... 95 -- 21 Equity in loss of affiliate .......................... -- -- 342 Loss on sale of investments .......................... -- -- 23 Fees associated with commercialization and license agreement rights ...................... -- -- 117 Extraordinary loss on early extinguishment of debt ............................ 1,267 Discounted interest amortization ..................... 156 222 -- Write-off of fixed assets ............................ -- 2 -- Write-off of patent costs ............................ -- 126 29 Changes in: Prepaid expenses .................................... (7) (37) 19 Other current assets ................................ (453) 42 (4) Due from officer .................................... 31 24 (111) Other assets ........................................ (14) 115 (110) Interest payable .................................... (105) 328 (1) Accounts payable .................................... 67 (624) 780 Accrued expenses and other .......................... 540 421 434 -------- -------- -------- Net cash used in operating activities ............. (12,734) (7,233) (8,808) -------- -------- -------- Cash flows from investing activities: Acquisitions of property and equipment ............... (693) (36) (434) Proceeds from sale of equipment ...................... 421 -- -- Purchases of securities available for sale ........... (32,665) -- -- Sales of securities available for sale ............... 21,836 -- 5,350 Additions to patents ................................. (343) (186) (176) Investment in and advances to affiliate .............. -- -- 405 -------- -------- -------- Net cash (used in) provided by investing activities (11,444) (222) 5,145 -------- -------- -------- Cash flows from financing activities: Issuance of common stock ............................. 13,562 12,002 5,534 Proceeds from exercise of stock options and warrants . 3,807 185 -- Purchase of treasury stock ........................... (19) -- -- Proceeds from long-term notes payable ................ -- 2,680 -- Proceeds from short-term notes payable ............... -- 100 220 Repayment of short-term notes payable ................ -- (284) -- Repayment of long-term debt .......................... -- -- (400) Payments of other liabilities ........................ (645) (53) (55) -------- -------- -------- Net cash provided by financing activities ......... 16,705 14,630 5,299 -------- -------- -------- Net (decrease) increase in cash and cash equivalents ... (7,473) 7,175 1,636 Cash and cash equivalents at beginning of period ....... 10,207 3,032 1,396 -------- -------- -------- Cash and cash equivalents at end of period ............. $ 2,734 $ 10,207 $ 3,032 ======== ======== ========
See accompanying notes to financial statements F-6 ImClone Systems Incorporated NOTES TO FINANCIAL STATEMENTS (1) Organization and Basis of Preparation ImClone Systems Incorporated (the "Company") is a biopharmaceutical company engaged primarily in the research and development of therapeutic products for the treatment of cancer and cancer-related disorders. The Company employs accounting policies that are in accordance with generally accepted accounting principles in the United States. The Company expects that its capital resources, including the ongoing research support of its corporate partners, will be sufficient to fund its operations through 1997. If, however, difficulty is encountered in attaining the milestones necessary for continued research support, the Company would postpone the budgeted expansion of operations to allow for funding of its operations beyond 1997. Accordingly, in order to fund its capital needs after that time, the Company will require significant levels of additional capital and intends to raise the necessary capital through additional equity or debt financings, arrangements with corporate partners or from other sources. The Company has entered into preliminary discussions with several major pharmaceutical companies regarding various alternatives concerning the funding of research and development for certain of its products. No assurance can be given that the Company will be successful in pursuing any such alternatives. In addition, the Company may seek to enter into a significant strategic partnership with a pharmaceutical company for the development of its lead product candidate, C225. Such a strategic alliance could include an up-front equity investment and license fees plus milestone fees and revenue sharing. There can be no assurance that the Company will be successful in achieving such an alliance, nor can the Company predict the amount of funds which might be available to it if it entered into such an alliance or the time at which such funds would be made available. The biopharmaceutical industry is subject to rapid and significant technological change. The Company has numerous competitors, including major pharmaceutical and chemical companies, specialized biotechnology firms, universities and other research institutions. These competitors may succeed in developing technologies and products that are more effective than any which are being developed by the Company or which would render the Company's technology and products obsolete and non-competitive. Many of these competitors have substantially greater financial and technical resources and production and marketing capabilities than the Company. In addition, many of the Company's competitors have significantly greater experience than the Company in pre-clinical testing and human clinical trials of new or improved pharmaceutical products and in obtaining Food and Drug Administration ("FDA") and other regulatory approvals on products for use in health care. The Company is aware of various products under development or manufactured by competitors that are used for the prevention, diagnosis or treatment of certain diseases the Company has targeted for product development, some of which use therapeutic approaches that compete directly with certain of the Company's product candidates. The Company has limited experience in conducting and managing pre-clinical testing necessary to enter clinical trials required to obtain government approvals and has limited experience in conducting clinical trials. Accordingly, the Company's competitors may succeed in obtaining FDA approval for products more rapidly than the Company, which could adversely affect the Company's ability to further develop and market its products. If the Company commences significant commercial sales of its products, it will also be competing with respect to manufacturing efficiency and marketing capabilities, areas in which the Company has limited or no experience. F-7 (2) Summary of Significant Accounting Policies (a) Cash Equivalents Cash equivalents consist primarily of U.S. government instruments, commercial paper, master notes and other readily marketable debt instruments. The Company considers all highly liquid debt instruments with original maturities not exceeding three months to be cash equivalents. (b) Investments in Securities The Company classifies its investment in debt and equity securities in one of three categories: trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold the security until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. Realized gains and losses from the sale of available-for-sale securities are determined on a specific identification basis. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. At December 31, 1996, all investments in securities were classified as available-for-sale. (c) Property and Equipment Property and equipment are stated at cost. Depreciation of furniture and equipment is provided by straight-line methods over estimated useful lives of three to twelve years, and leasehold improvements are being amortized over the related lease term (including optional renewal periods (Note 10)) or the service lives of the improvements, whichever is shorter. (d) Patent Costs Patent and patent application costs are amortized on a straight-line basis over their respective expected useful lives, up to a 15-year period. (e) Deferred Financing Costs Costs incurred in obtaining the Industrial Development Revenue Bonds (Note 5) are amortized using the straight-line method over the terms of the related bonds. F-8 (f) Investment in and Advances to Affiliate Cadus Pharmaceutical Corporation ("Cadus") was incorporated in January 1992 to develop novel classes of therapeutics that target signal transduction pathways. The Company held a 50% investment in the capital stock of Cadus through November 1994. In December 1994, an agreement was reached for the Company to sell one-half of its shares of capital stock of Cadus to High River Limited Partnership ("High River") for total consideration of $3.0 million. The gain in 1994 on sale of the Cadus shares was recorded in the Statement of Operations as other income for the year ended December 31, 1994. The cash consideration was received by the Company on January 4, 1995. During April 1995, the Company completed the sale of the remaining one-half of its shares of capital stock of Cadus for $3.0 million, also to High River. In exchange for receiving a now-expired right to repurchase all the outstanding shares of capital stock of Cadus, the Company granted to High River two options to purchase shares of Common Stock. One option is for 150,000 shares at an exercise price per share equal to $2.00, subject to adjustment under certain circumstances, and the other option is for 300,000 shares at an exercise price per share equal to $0.69, subject to adjustment under certain circumstances. Both options will expire on April 26, 2000. (g) Revenue Recognition License fees are recognized if the Company enters into license agreements with third parties that provide for the payment of non-refundable fees when the agreement is signed or when all parties concur that specified goals are achieved. These fees are recognized as license fee revenues in accordance with the terms of the particular agreement. Research and development funding revenue is derived from collaborative agreements with third parties and is recognized in accordance with the terms of the respective contracts. Revenue from certain agreements is recognized using the percentage of completion method based on contract costs incurred to date compared with total estimated contract costs. Revenue recognized in the accompanying statements of operations is not subject to repayment. Revenue received that is related to future performance under such contracts is deferred and recognized as revenue when earned. (h) Stock Option Plan Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. (i) Research and Development Research and development expenditures made pursuant to certain research and development contracts with academic institutions, and other research and development costs, are expensed as incurred. F-9 (j) Income Taxes Effective January 1, 1993 the Company adopted SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires a change from the deferred method of accounting for income taxes to the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. (k) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (l) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Adoption of this Statement did not have a material impact on the Company's financial position, results of operations, or liquidity. (m) Net Loss Per Share Net loss per share is computed based on the weighted average number of shares outstanding. Common stock equivalents are not included in the computation of average shares outstanding because they are anti-dilutive. (n) Reclassification Certain amounts previously reported have been reclassified to conform to current year's presentation. F-10 (3) Securities Available-For-Sale Securities available-for-sale of $10,780,000 at December 31, 1996 consisted of mortgage-backed debt securities. The amortized cost of such securities was $10,829,000 and the net unrealized holding losses were $49,000 at December 31, 1996. These securities available-for-sale have maturities ranging from 1997 to 1999. (4) Accrued Expenses and Other The following items are included in accrued expenses and other: December 31, December 31, 1996 1995 ------------ ------------ Salaries and other payroll related expenses ................. $ 782,000 $206,000 Legal and accounting fees .................. 217,000 145,000 Other ...................................... 367,000 475,000 ---------- -------- $1,366,000 $826,000 ========== ======== (5) Long-term Debt Long-term debt is comprised of the following: December 31, December 31, 1996 1995 ------------ ------------ 10.75% Bond due 1997 ................. $ 2,113,000 $ 2,113,000 11.25% Bond due 2004 ................. 2,200,000 2,200,000 Less current portion ................. (2,113,000) (2,113,000) ----------- ----------- $ 2,200,000 $ 2,200,000 =========== =========== On December 31, 1986, the New York City Industrial Development Agency (the "NYIDA") issued an Industrial Development Revenue Bond (the "1986 Bond") on behalf of the Company in the amount of $2,113,000. During December 1994, the Bond's original maturity date of December 15, 1994 was extended to June 15, 1996. During June 1996, the Company and the NYIDA extended the maturity date an additional eighteen months to December 15, 1997. The proceeds from the sale of this Bond were used by the Company for the acquisition, construction and installation of the Company's research and development facility in New York City. In August 1990, the NYIDA issued another Industrial Development Revenue Bond (the "1990 Bond") in the amount of $2,200,000. The Bond is due May 1, 2004. The proceeds from the sale of the Bond were used by the Company for the acquisition, construction and installation of the Company's research and development facility in New York City. The Company has granted a security interest in substantially all equipment located in its New York City facility to secure the obligations of the Company to the NYIDA relating to the 1986 Bond and the 1990 Bond. F-11 (6) Long-term Liabilities and Notes Payable (a) Other Long-term Liabilities Other long-term liabilities is comprised of the following: December 31, December 31, 1996 1995 ------------ ------------ Liability to reacquire IL-6m rights ............ $ 1,917,000 $ 2,400,000 Liability under capital lease obligations ..... 354,000 125,000 Liability under license agreement .............. 49,000 53,000 Less current portion ........................... (1,745,000) (2,471,000) ----------- ----------- $ 575,000 $ 107,000 =========== =========== In July 1993, the Company entered into an agreement with Erbamont, Inc., now a subsidiary of Pharmacia and Upjohn, Inc. ("Pharmacia"), to acquire the worldwide rights to IL-6m, a blood cell growth factor, which had been licensed to Pharmacia pursuant to a development and licensing agreement. In consideration of the return of rights and the transfer of certain material and information, the Company has paid $1.4 million and has further obligations to Pharmacia. Such obligations, including those to pay for IL-6 mutein material manufactured and supplied by Pharmacia, totaled $2.4 million at March 31, 1996. In addition, the Company is required to pay Pharmacia $2.7 million in royalties on eventual sales of IL-6m, if any. In March, 1996, the Company entered into a Repayment Agreement with Pharmacia (the "Repayment Agreement") pursuant to which it agreed to pay the $2.4 million over 24 months commencing in March 1996, with interest only payable during the first six months. At December 31, 1996 the remaining obligation to Pharmacia totaled $1.9 million. In connection with the Repayment Agreement, the Company signed a Confession of Judgment, which can be filed by Pharmacia with an appropriate court in the case of default by the Company. Pursuant to a Security Agreement entered into with Pharmacia, the Company pledged its interests in patents related to IL-6m and to heparanase to secure its obligations under the Repayment Agreement. During fiscal 1992, the Company entered into a capital lease agreement for laboratory equipment which was recorded as an asset in the amount of $262,000. The lease extends over a five-year period and has a bargain purchase option at the end of the lease term. At December 31, 1996, the accumulated depreciation on this equipment totaled $180,000. See also Note 10. In December 1996, the Company signed an agreement with Finova Technology Finance, Inc. ("Finova") to finance the lease of laboratory and computer-related equipment and make certain building and leasehold improvements to existing facilities involving payments aggregating approximately $2,500,000. The first of multiple intended leases was signed in December 1996 at a cost of $421,000 and related to equipment previously purchased by the Company during 1996. This capital lease has been treated as a sale-leaseback transaction and no gain or loss was recognized on the sale. Each lease has a fair market value purchase option at the expiration of a 42-month term. At December 31, 1996, accumulated depreciation on these assets totaled $6,000. Pursuant to the agreement, the Company issued to Finova a warrant expiring December 31, 1999 to purchase 23,220 shares of Common Stock at an exercise price of $9.69 per share. The Company recorded a non-cash debt discount of approximately $125,000 in connection with this financing, which discount is being amortized over the 42-month term of the first lease. See also Notes 10 and 11. In connection with the Company's production and eventual marketing of certain products, the Company entered into a license agreement which requires minimum annual royalty payments throughout the term of the agreement. The agreement expires in 2004 and calls for minimum annual payments of $10,000, which are creditable against royalties that may be due from sales. To the extent the minimum annual royalties are not expected to be offset by sales, the Company has charged the net present value of these payments to operations. An interest rate of 10% was used to discount the cash flows. F-12 (b) Long-term Notes Payable, net Long-term notes payable is comprised of the following: December 31, December 31, 1996 1995 ------------ ------------ Liability for director promissory note, including interest ........ $ -- $ 186,000 Liability for long-term loan, including interest ......................... -- 2,583,000 Less loan discount ........................... -- (841,000) ---------- ----------- $ -- $ 1,928,000 ========== =========== In July 1995, a director loaned the Company $180,000 in exchange for a long-term note due two years from issuance at an annual interest rate of 8%. As part of the transaction, the director was granted 36,000 warrants to purchase Company common stock at $1.50 per share and an additional 36,000 warrants to purchase Company common stock at $3.00 per share. In May 1996, the Company and the director exchanged the note for 24,000 shares of Common Stock and the Company paid the accrued and unpaid interest on the note in the amount of $10,000 in cash. The Company recorded an extraordinary loss of $39,000 on the extinguishment of the debt. The Company has registered such shares of Common Stock with the Commission under a registration statement in accordance with the provisions of the Securities Act of 1933 (the "1933 Act"). On August 11, 1995, the Oracle Group purchased 1,000,000 shares of Common Stock for a purchase price of $1.5 million and made a loan to the Company in the aggregate amount of $2.5 million with a two-year maturity, but subject to mandatory prepayment, in whole or in part, upon the occurrence of certain events, including the raising of certain additional funds. The loan carried an annual interest rate of 8%. The Oracle Group includes Oracle Partners, L.P., Quasar International Partners C.V., Oracle Institutional Partners L.P., Sam Oracle Fund, Inc. and Warren B. Kanders. The Oracle Group also received warrants exercisable at any time until August 10, 2000 entitling the holders thereof to purchase 500,000 shares of Common Stock at a price of $1.50 per share and 500,000 shares of Common Stock at a price of $3.00 per share. As a result of the Company's offerings of shares of its Common Stock in November 1995 and February 1996, the Oracle Group was entitled to require the Company to apply 20 percent of the gross proceeds of the sale of the shares of Common Stock from the offerings to repay the loan. In May 1996, the Company and the Oracle Group exchanged the notes in the aggregate outstanding principal amount of $2.5 million for 333,333 shares of Common Stock and the Company paid the accrued and unpaid interest on the notes in the amount of $143,000 in cash. The Company recorded an extraordinary loss of $1,228,000 on the extinguishment of the debt. The Company has registered such shares of Common Stock with the Commission under a registration statement in accordance with the provisions of the 1933 Act. F-13 (7) Research Agreements The Company has entered into several research and development agreements with third parties. Generally, the agreements provide for the Company to receive research and development funding, milestone payments, royalties, or license fees or a combination thereof. In return, the Company has granted licenses to these third parties to market or manufacture and market certain of its products in specified fields of use and in specified geographic areas. Revenues for the years ended December 31, 1996, December 31, 1995, and December 31, 1994 were $600,000, $800,000, and $950,000 respectively. Revenues for each year consisted of $300,000 from its corporate partnership with the Wyeth-Lederle Vaccine Division of American Home Products Corporation ("American Home") in infectious disease vaccines. In addition, revenues for the year ended December 31, 1996 included royalty fees of $225,000 from the Company's strategic alliance with Abbott Laboratories ("Abbott") in diagnostics. Revenues for the years ended December 31, 1995, and December 31, 1994 included contract research fees of $500,000 and $400,000, respectively, also from the Abbott alliance. The year ended December 31, 1996 also included $75,000 in license fees from the Company's cross-licensing agreement with Immunex Corporation ("Immunex") for novel hematopoietic growth factors. Finally, license fees of $250,000 were recognized from the Abbott alliance during the year ended December 31, 1994. Revenues for all three years were derived from United States sources. (8) Capital Stock (a) Stock Option Plans: In February 1986, the Company adopted an Incentive Stock Option Plan and a Nonqualified Stock Option Plan (the "86 Plans"). On February 25, 1996, the Company adopted an additional Stock Option Plan and Nonqualified Stock Option Plan (the "96 Plans") which were approved by shareholders at its Annual Meeting held June 3, 1996. Combined, the 86 and 96 Plans provide for the granting of options to purchase up to 3,000,000 shares of Common Stock to key employees and advisors. Incentive stock options may not be granted at a price less than the fair market value of the stock at the date of grant. Options under both the 86 and 96 Plans expire ten years from the date of grant. Certain options granted under these plans vest over three- to five-year periods. At December 31, 1996, options to purchase 2,103,577 shares of Common Stock were outstanding and 525,625 shares were available for grant. A summary of stock option activity follows: Weighted average Number of exercise price shares per share ---------- ---------- Balance at December 31, 1993 ................ 969,321 $8.75 1994 activity Granted ................................ 254,500 3.94 Exercised .............................. -- Canceled ............................... (331,742) 10.21 ---------- Balance at December 31, 1994 ................ 892,079 6.83 1995 activity Granted ................................ 752,000 1.91 Exercised .............................. (156,750) 1.04 Canceled ............................... (120,375) 1.45 ---------- Balance at December 31, 1995 ................ 1,366,954 2.34 1996 activity Granted ................................ 1,077,875 9.85 Exercised .............................. (266,275) 3.18 Canceled ............................... (74,977) 2.58 ---------- Balance at December 31, 1996 ................ 2,103,577 6.08 ---------- F-14 In June 1996, the Company granted options to purchase 116,000 shares of its Common Stock to certain Scientific Advisory Board members in consideration for future services. The fair value of the grant was approximately $756,000 as calculated using the Black-Scholes option pricing model. Compensation expense is being recognized ratably over the four year vesting period of the options. See Note 8(c) for weighted average assumptions used. During the year ended December 31, 1996, the Company recognized approximately $95,000 in compensation expense relating to the above grants. During April 1995, the Company completed the sale of the remaining one-half of its shares of capital stock of Cadus for $3.0 million to High River. In exchange for receiving a now-expired right to repurchase all the outstanding shares of capital stock of Cadus, the Company granted to High River two options to purchase shares of Common Stock. One option is for 150,000 shares at an exercise price per share equal to $2.00, subject to adjustment under certain circumstances, and the other option is for 300,000 shares at an exercise price per share equal to $0.69, subject to adjustment under certain circumstances. Both options will expire on April 26, 2000. The 450,000 options have a weighted average exercise price of $1.13. On February 2, 1995, exercise prices for certain granted and outstanding Incentive and Nonqualified Stock Options with original exercise prices in excess of $1.25 per share were offered to be repriced to $1.25 per share, by vote of a Special Subcommittee of the Compensation Committee of the Board of Directors. Benefit of repricing was confined to individuals who continued to serve the Company as employees or consultants, and 645,000 options were repriced. In connection with the offer of repricing, the vesting schedule of those choosing to accept repriced options was extended to June 30, 1995 for options already vested or to vest prior to June 30, 1995. The closing trading price of the Company's common stock on February 2, 1995 was $0.69. (b) Warrants As of December 31, 1996, a total of 3,275,645 common shares were issuable under outstanding warrants. Such warrants have been issued to certain officers, directors and other employees of the Company, certain Scientific Advisory Board members, certain investors and certain credit providers and investors. A summary of warrant activity follows: Weighted Number of Average Exercise Shares Price Per Share --------- ---------------- Balance at December 31, 1993 ........ 2,983,970 $ 9.47 1994 Activity Granted ........................ 24,600 0.69 Exercised ...................... -- -- Cancelled ...................... (536,003) 6.61 --------- Balance at December 31, 1994 ........ 2,472,567 10.01 1995 Activity Granted ........................ 1,434,300 3.03 Exercised ...................... (15,300) 1.50 Cancelled ...................... -- -- --------- Balance at December 31, 1995 ........ 3,891,567 3.15 1996 Activity Granted ....................... 23,220 9.69 Exercised ..................... (604,892) 4.89 Cancelled ..................... (34,250) 12.92 --------- Balance at December 31, 1996 ....... 3,275,645 2.41 ========= During September 1996, the Company repriced certain warrants held by investors to purchase 80,700 shares of Common Stock in order to promote their exercise prior to pending expiration. The warrants were repriced to an amount which was ten percent less than the average closing price for the Common Stock for the thirty days leading up to and including the day prior to the date of exercise. The fair market value of the warrant was reflected as a cost of capital. During November 1996, the Company repriced certain warrants held by investors to purchase 130,000 shares of Common Stock in order to promote their exercise prior to pending expiration. The warrants were repriced to an amount which was ten percent less than the average closing price for the Common Stock for the thirty days leading up to and including the day prior to the date of exercise. The fair market value of the warrant was reflected as a cost of capital. In December 1995, the Company granted its President a ten-year warrant to purchase 350,000 common shares at an exercise price determined by the $5.50 trading price of the stock on the date of grant. The grant of the warrant was approved by shareholders at its Annual Meeting held June 3, 1996. On February 2, 1995 exercise prices for certain granted and outstanding warrants were offered to be repriced to $1.50 per share. The benefit of the repricing was confined to individuals who continued to serve the Company as employees or consultants, and 2,048,217 warrants were repriced. In consideration for the offer of repricing, those choosing to accept the repriced warrants are to pay the Company the difference in value before and after repricing as calculated by use of the Black-Scholes model, which payment can be made through promissory notes to the Company. The closing trading price of the Company's common stock on February 2, 1995 was $.69. F-15 The outstanding warrants expire and are exercisable for the number of shares of Common Stock as shown below: March 1997.................................................... 728,500 December 1999................................................. 47,820 March 2000.................................................... 12,300 July 2000..................................................... 72,000 August 2000................................................... 925,000 November 2000................................................. 12,720 March 2001.................................................... 2,500 May 2001...................................................... 1,112,805 June 2003..................................................... 12,000 December 2005................................................. 350,000 ---------- Total............................................. 3,275,645 ========== (c) SFAS No. 123: Options and Warrants In 1996, the Company adopted the provisions of SFAS No. 123, "Accounting for Stock Based Compensation". The following table summarizes the weighted average fair value of stock options and warrants granted during years ended December 31, 1996 and 1995:
Option Plans Warrant Plans ----------------------------------- ---------------------------------- 1996 1995 1996 1995 ------------------ -------------- ------------- ----------------- Shares $ Shares $ Shares $ Shares $ ---------- ------ -------- ----- ------ ----- --------- ----- Exercise price equals market value at date of grant ..................................... 1,077,875 $5.56 602,000 $1.07 23,220 $5.39 1,434,300 $0.64 Exercise price exceeds market value at date of grant ........................................ -- $ -- 795,000 $0.32 -- $ -- 2,048,217 $0.29
The above table share amounts for 1995 reflect the impact of the re-pricing as discussed in Notes 8(a) and (b). The fair value of stock options and warrants was estimated using the Black-Scholes option pricing model. The Black-Scholes model considers a number of variables including the exercise price and the expected life of the option, the current price, the expected volatility and the dividend yield of the underlying stock, and the risk-free interest rate during the expected term of the option. The following summarizes the weighted average assumptions used:
Option Plans Warrant Plans --------------------------------- -------------------------------- 1996 1995 1996 1995 --------------- ---------------- -------------- --------------- Expected life (years)............... 3.5 2.5 2.0 (1) 2.0 Interest rate....................... 5.00% 5.00% 5.00% 5.00% Volatility.......................... 85.13% 85.13% 85.13% 85.13%
(1) The weighted average expected life does not include the warrants repriced in 1996 as they were exercised simultaneously. The estimated volatility reflects the performance of the Company's Common Stock over the twelve-month period ended December 31, 1996. The expected life of the options and warrants reflects the anticipated holding period prior to exercise. The estimated risk-free interest rate used is based on risk-free investment products with similar terms. The following table summarizes information concerning stock options outstanding at December 31, 1996:
Weighted Average Weighted Weighted Number Remaining Average Number Average Range of Exercise Outstanding Contractual Exercise Exercisable Exercise Price at 12/31/96 Term Price at 12/31/96 Price ----------------- ----------- ----------- -------- ----------- -------- $ 0.33 - 0.69........ 337,500 3.3 0.66 335,250 $ 0.66 1.03 - 1.91........ 387,800 5.7 1.21 275,825 1.24 2.00............... 150,000 3.3 2.00 150,000 2.00 3.19 - 3.88........ 47,250 8.8 3.80 11,813 3.77 4.00 - 5.69........ 136,750 7.9 5.22 71,688 5.09 6.38 - 7.88........ 107,652 9.4 7.20 3,126 6.38 8.33 - 9.75........ 72,000 9.1 9.10 43,000 9.14 10.88 - 12.88...... 844,625 9.4 10.90 165,250 10.89 13.33 - 16.00...... 20,000 2.9 13.40 19,500 13.33 --------- --------- 2,103,577 7.1 6.08 1,075,452 3.49 ========= =========
F-16 As of December 31, 1996, the outstanding warrants to purchase 3,275,645 common shares were all exercisable. The weighted average remaining contractual term at December 31, 1996 for the 12,300 outstanding warrants exercisable at $.63 per share is 3.2 years, the 24,600 exercisable at $.69 per share is 3.0 years, the 2,285,525 exercisable at $1.50 per share is 3.6 years, the 498,500 exercisable at $3.00 per share is 5.8 years, the 21,500 exercisable at $4.00 per share is 0.2 years, the 350,000 exercisable at $5.50 per share is 9.0 years, the 12,000 exercisable at $7.00 per share is 6.5 years, the 23,220 exercisable at $9.69 per share is 3.0 years, the 6,000 exercisable at $10.00 per share is 3.9 years, and the 42,000 exercisable at $13.33 per share is 4.3 years. Pro forma net loss and loss per share reflect compensation cost of $3.6 million and $2.1 million, respectively, for the years ended December 31, 1996 and 1995. (Thousands of dollars, except per share amounts) 1996 1995 - ------------------------- ---- ---- Net loss As reported $(16,015) $ (9,641) Pro forma $(19,653) $(11,728) Loss per share As reported $ (0.83) $ (0.72) Pro forma $ (1.01) $ (0.88) The amounts disclosed may not be representative of the effects on reported net loss for future years. (9) Income Taxes The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and December 31, 1995 are presented below.
December 31, December 31, 1996 1995 ------------ ------------- Deferred tax assets: Liability to reacquire IL-6m rights and materials............. $863,000 $ 1,147,000 Gain on sale of Cadus shares ................................. -- 1,367,000 Equity in loss of affiliate .................................. -- 917,000 Research and development credit carryforward ................. 1,883,000 1,757,000 Compensation relating to the issuance of stock options and warrants .................................. 2,740,000 3,038,000 Net operating loss carryforwards ............................. 44,374,000 31,870,000 Other ........................................................ 958,000 540,000 ------------ ------------ Total gross deferred tax assets ..................... 50,818,000 40,636,000 Less valuation allowance ............................ (50,818,000) (40,636,000) ------------ ------------ Net deferred tax assets ............................. $ -- $ -- ------------ ------------ Deferred tax liabilities: Property and equipment, principally due to depreciation and amortization............................... $ -- $ -- ------------ ------------ Total gross deferred tax liabilities ................ $ -- $ -- ============ ============ Net deferred tax asset .............................. $ -- $ -- ============ ============
For the years ended December 31, 1996 and December 31, 1995, the Company established an aggregate valuation allowance of $50,818,000 and $40,636,000 respectively, to reflect management's belief that significant uncertainty exists regarding the ultimate realization of its deferred tax assets. At December 31, 1996, the Company had net operating loss carryforwards for federal income tax purposes of approximately $97,350,000 which expire at various dates from 2000 through 2011. At December 31, 1996 the Company had research credit carryforwards of approximately $1,883,000 which expire at various dates between years 2001 and 2011. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, the annual utilization of the Company's net operating loss and research credit carryforwards may be limited if the Company experiences a change in ownership of more than 50% within a three-year period. The Company believes that one or more of such ownership changes may have occurred since 1986. Therefore, the Company may be significantly limited in utilizing its tax net operating loss carryforwards arising before such ownership change(s) to offset future taxable income. Similarly, the Company may be restricted in using its research credit carryforwards arising before such ownership change(s) to offset future federal income tax expense. F-17 (10) Commitments Leases The Company leases premises under an operating lease, a portion of which expired in 1993 and a portion of which expires in 1999. The Company has extended the 1993 expired portion of the lease through 1997 at 85% of each year's fair market rental value and from 1997 to 1999 at 100% of each year's fair market rental value, for a portion of the premises. The rate for the remaining portion of the premises is $264,000 annually through March 31, 1997 and $285,000 annually through March 31, 1999. The estimated future lease payment schedule below is based on the exercise of the renewal options described above, using a fair market rental value of $10.00 per square foot. Rent expense for leased premises was approximately $508,000, $493,000, and $467,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Future minimum lease payments under the capital and operating leases are as follows: Capital Operating Leases Leases ------------ ------------ Years ending December 31, - ------------------------- 1997 ................................... $ 203,000 $ 516,000 1998 ................................... 142,000 513,000 1999 ................................... 141,000 291,000 2000 ................................... 71,000 8,000 2001 ................................... -- 1,000 Thereafter ............................. -- -- ----------- ---------- $ 557,000 $1,329,000 Less interest expense .................. (203,000) -- ----------- ---------- $ 354,000 $1,329,000 =========== ========== Supported Research The Company has entered into various research and license agreements with certain universities to supplement the Company's research activities and to obtain for the Company rights to certain technology. The agreements generally require the Company to fund the research and to pay royalties based upon percentages of revenues, if any, on sales of products developed from technology arising under these agreements. Consulting Agreements The Company has consulting agreements with several of its Scientific Advisory Board members and other consultants. These agreements generally are for a term of one year or are terminable at the Company's option. F-18 (11) Supplemental Cash Flow Information and Non-cash Investing and Financing Activities are as Follows:
(In Thousands) 1996 1995 1994 ---- ---- ---- Supplemental Cash Flow Information Cash paid during the period for: Interest............................................. $ 817.0 $ 504.0 $ 504.0 ------- ------- ------- Supplemental Non-cash Investing and Financing Activities Finova capital asset and lease obligation additions.... 421.0 -- -- Fair value of Finova warrant........................... 125.0 -- -- Extinguishment of Oracle Group debt for stock.......... 2,500.0 -- -- Extinguishment of director debt for stock.............. 180.0 -- -- Unrealized loss on securities available for sale....... 49.0 -- --
(12) Related Party Transactions The outstanding balance of total miscellaneous noninterest-bearing cash advances to the President and CEO of the Company on December 31, 1994 totaled approximately $156,000. The officer has provided the Company with a demand promissory note pursuant to which the officer is obligated to repay the debt over a twenty four month period ending April 30, 1997. During the year ended December 31, 1995, the Company made additional miscellaneous noninterest-bearing cash advances to the officer totaling $7,000. In addition, the officer repaid $31,000 of the demand promissory note during the year ended December 31, 1995. This brought the outstanding balance of total miscellaneous noninterest-bearing cash advances to the officer of $132,000 at December 31, 1995. During the year ended December 31, 1996, the Company made additional miscellaneous noninterest-bearing cash advances to the officer totaling $8,000. In addition, the officer repaid $39,000 of the demand promissory note during the year ended December 31, 1996. This brought the outstanding balance of total miscellaneous non-interest-bearing cash advances to the officer of $101,000 at December 31, 1996. In March 1995, two directors (one of whom is an officer) each loaned the Company $20,000 in exchange for short-term notes due sixty days from issuance. As part of the transaction, the directors were each granted 2,460 five-year warrants to purchase Company common stock at $.625 per share, the stock closing price on the date of the promissory note. Each lender could accept payment of principal and interest at 15% in Company shares in lieu of cash, also at $.625 per share. In May 1995, one director accepted payment of $20,493 which included principal and interest at 15%. The second lender accepted principal and interest totaling $15,493 and 8,000 shares of Company common stock at $.625 per share. F-19 Also in March 1995, a director and a shareholder each loaned the Company $30,000 in exchange for short-term notes due sixty days from issuance. As a part of the transaction, the director and shareholder were each granted 3,690 five-year warrants to purchase Company common stock at $.625 per share, the stock closing price on the date of the promissory note. Each lender could accept payment of principal and interest at 15% in Company shares in lieu of cash, also at $.625 per share. During May 1995, the director accepted payment of 49,184 shares of Company common stock at $.625 per share, while the shareholder accepted $30,740 which included principal and interest at 15%. In May 1995, the Company loaned an officer $20,000 in exchange for a demand promissory note. The officer was obligated to repay the debt over a sixteen month period ended September 17, 1996. The loan was paid in full in December 1995. In January 1996, the Company paid Concord International Investment Group, LP, approximately $163,000 for services rendered by it to the Company in connection with structuring a contemplated product related financing for C225. Mr. Robert F. Goldhammer, Chairman of the Board of Directors, is a limited partner of Concord International Investment Group, LP. In August 1995 and January 1996, the Company paid Delano & Kopperl Financial Advisors, Inc. a total of approximately $69,000 for services rendered by it to the Company in connection with structuring a contemplated product related financing for C225. Paul B. Kopperl, a director of the Company, is President, director, and 25% shareholder of Delano & Kopperl Financial Advisors, Inc. F-20 (13) Fair Value of Financial Instruments For the years ended December 31, 1996 and 1995, the following methods and assumptions were used to estimate the fair value of each class of financial instrument: Cash and cash equivalents, accounts payable, accrued and other current liabilities: The carrying amounts approximate fair value because of the short maturity of those instruments. Long-term debt and notes payable: Discounted cash flow analyses were used to determine the fair value of long-term debt and notes payable because quoted market prices on these instruments were unavailable. The fair value of these instruments approximated the carrying amount. (14) Summary of Quarterly Results of Operations (Unaudited) The following unaudited quarterly financial information includes, in management's opinion, all normal and recurring adjustments necessary to fairly present the Company's results of operations and related information for the periods presented. Net loss per share has been computed using the weighted average shares outstanding during each quarter. Common stock equivalent shares are excluded where the effect of their inclusion would result in decreasing the net loss per share.
Quarter Ended ------------------------------------------------ (In thousands, except per share data) 3/31 6/30 9/30 12/31 --------- --------- -------- -------- Year ended December 31, 1996 Revenues ................................. $ 75 $ 75 $ 75 $ 375 Operating expenses ....................... 3,066 3,438 3,714 5,225 ------- ------- ------- ------- Operating loss ........................... (2,991) (3,363) (3,639) (4,850) Net interest and other expense(income) ... 154 (61) (97) (91) ------- ------- ------- ------- Loss before extraordinary item ........... (3,145) (3,302) (3,542) (4,759) Extraordinary loss on extinguishment of debt................................ -- 1,267 -- -- ------- ------- ------- ------- Net loss ................................. $(3,145) $(4,569) $(3,542) $(4,759) ======= ======= ======= ======= Net loss per common share: Loss before extraordinary item ........... $ (0.18) $ (0.17) $ (0.18) $ (0.25) Extraordinary loss on extinguishment of debt ............................... -- 0.06 -- -- ------- ------- ------- ------- Net loss per common share ................ $ (0.18) $ (0.23) $ (0.18) $ (0.25) ======= ======= ======= ======= Year ended December 31, 1995 Revenues ................................. $ 75 $ 75 $ 575 $ 75 Operating expenses ....................... 2,871 2,745 2,823 4,068 ------- ------- ------- ------- Operating loss ........................... (2,796) (2,670) (2,248) (3,993) Net interest and other expense(income) ... 218 (2,837) 267 286 ------- ------- ------- ------- Net income (loss) ........................ (3,014) 167 (2,515) (4,279) ------- ------- ------- ------- Net income (loss) per share .............. $ (0.24) $ 0.01 $ (0.19) $ (0.29) ======= ======= ======= =======
(15) Events (Unaudited) Subsequent to the Date of the Independent Auditors' Report In March 1997, the Company completed a public sale of 3,000,000 shares of Common Stock at a per share price of $7.875. Net proceeds to the Company from the sale totaled approximately $23.2 million after deducting expenses of the offering. In March 1997, the Company extended for a two year period the term of an officer's warrant to purchase 397,000 shares of the Company's Common Stock at a per share exercise price equal to $1.50. In connection with this transaction, the Company recognized non-cash compensation expense of approximately $2.2 million. F-21 EX-10 2 EXHIBIT 10.73 Exhibit 10.73 IMCLONE SYSTEMS INCORPORATED EMPLOYMENT AGREEMENT with DR. CARL GOLDFISCHER AGREEMENT entered into as of May 17, 1996 between CARL GOLDFISCHER residing at 161 West 61st Street, New York, U.S.A. ("Employee"), and IMCLONE SYSTEMS INCORPORATED ("ImClone" or the "Company"), a company organized under the laws of the State of Delaware. WITNESSETH: WHEREAS, ImClone is in the business of biopharmaceutical research and development (the "Business"); and WHEREAS, ImClone desires to employ Employee as its Chief Financial Officer and Vice-President of Finance and Strategic Planning at ImClone. NOW THEREFORE, in consideration of the premises and mutual agreements hereinafter contained, the parties hereto agree as follows: 1. Employment. With effect from the Effective Date (as defined in Section 3.1), ImClone employs Employee and Employee accepts employment with ImClone upon the terms and conditions set forth herein. 2. Duties. 2.1 ImClone hereby engages Employee to serve as Vice-President of Finance and Strategic Planning and Chief Financial Officer of ImClone responsible for the day to day financial reporting and control and strategic planning of ImClone according to the general direction of the Company's Chief Executive Officer. 2.2 Employee shall devote his full business time and attention to the Business of the Company and shall perform his duties diligently and promptly for the benefit of ImClone. During his engagement hereunder, Employee shall not undertake or accept any other paid or unpaid employment or occupation or engage in or be associated with, directly or indirectly any other businesses, duties or pursuits except for the de minimis non-commercial or non-business activities, without prior written consent of the CEO of the Company. 2.3 Employee shall report regularly to the CEO and Board of Directors of the Company or as otherwise requested by the Board, in accordance with Company policy. 3. Term. 3.1 Employee's employment under this Agreement shall commence on May 20, 1996 (the "Effective Date") and shall end on the earliest of: (i) the death or disability (as defined herein) of Employee; (ii) termination of employment by the Company with cause (as defined herein); (iii) termination of empoyment by the Company without cause (as defined herein); (iv) the termination of Employee's employment by Employee after providing ninety (90) days advance notice or such lesser written notice as Employer shall at the time accept; or (v) two (2) years from the Effective Date of this Agreement ("Initial Term"). Employee, or his heirs, executors, personal representatives or assigns, shall not be entitled to any compensation after expiration of period of notice of termination of employment, including with respect to bonus, other than as specifically set forth in Section 8.1 herein. In the event the Employee's employment under this Agreement continues until the expiration of the Initial Term, the term may be extended by written agreement of the parties ("Extended Term"). 3.2 For the purpose of this Agreement, "disability" shall mean any physical or mental illness or injury as a result of which (1) Employee remains absent from work for a period of two successive months, or an aggregate of two months in any twelve month period or, (2) the Employee is deemed unable to perform the essential functions of his employment, with or without accomodation, as documented by a physician in writing. 3.3 For the purpose of this Agreement, "cause" shall exist if Employee (i) breaches the terms of this Agreement; (ii) engages in willful misconduct or acts in bad faith with respect to ImClone in connection with and related to the employment hereunder; (iii) is subjected to criminal indictment or the filing of information for a felony or is held liable by a court of competent jurisdiction for fraud against ImClone; or (iv) fails to comply with the instructions of the Company's Board of Directors or CEO given in good faith; provided that, with respect to clauses (i) and (iv), if Employee has cured any such condition (that is reasonably susceptible to cure) within 10 business days of the advance notice (as defined herein) then "cause" shall be deemed not to exist. For purposes of this paragraph 3.3, "advance notice" shall constitute a written notice delivered to Employee that sets forth with particularity the facts and circumstances relied on by ImClone as the basis for cause. 3.4 During the period following notice of termination by any party for any reason, the Employee shall, if and to the degree requested by ImClone, cooperate with ImClone and use his best efforts to assist the integration into the ImClone organization of the person or persons who will assume the Employee's responsibilities. 4. Compensation. 4.1 During the Employee's employment under this Agreement and subject to the performance of the services required to be performed hereunder by Employee, ImClone shall pay to Employee for all services rendered by Employee under this Agreement an annual gross salary paid in accordance with ImClone's normal and reasonable payroll practices of $175,000 exclusive of amounts payable by the Company for the benefits set forth in paragraph 4.2 (the "Gross Salary"). 4.2 The Employee shall be eligible to participate in ImClone's contributory comprehensive health plan, including major medical, hospitalization, life, disability and dental insurance currently offered by the Company through the Guardian Life Insurance Company. Employee will also be eligible to participate in the ImClone 401K Employee Savings Plan, to the degree allowable under the Company's plan document and appropriate regulations. 4.3 At the end of his first year of employment, Employee will receive a bonus in the amount of $75,000, and at the end of the second year of employment, and any renewable term thereafter, Employee shall be entitled to receive a bonus, as determined by the Board of Directors, based upon Company practices. 5. Expenses. Employee may incur reasonable expenses in connection with the performance of his duties, including expense for entertainment, travel and similar items. ImClone will reimburse Employee for all business expenses after Employee presents an itemized account of expenditures, together with receipts, vouchers and other supporting material, subject to ImClone's approval. Per diem allowances and petty cash advances shall be in accordance with ImClone's standard policy as agreed to by the CEO and/or the Board of Directors of the Company from time to time. 6. Vacation. Employee shall be entitled to 20 working days of paid vacation during each year that this Agreement is in effect, to be taken at times subject to the reasonable approval of ImClone. Vacation time may not be accumulated and Employee shall forfeit any unused vacation remaining at the end of each year. 7. Participation in Stock Option Plans. Employee shall receive options to purchase 225,000 shares of the Company at an exercise price equal to the average closing trading price of ImClone stock for the sixty days through April 24, 1996. Of these options, 50,000 shall be immediately exercisable, and the remainder shall vest equally over a three year period from the Effective Date, such that one-third shall vest on each of the first, second, and third anniversaries of the Effective Date. In accordance with the terms of ImClone's stock option plans, vested options which have not been exercised upon termination of employment shall not be exercisable and shall revert to the Company. 8. Termination of Employment by Company without Cause 8.1 In the event this Agreement is terminated by the Company without cause under Section 3.1 (iii) hereof during the Initial Term or any Extended Term, as defined in Section 3.1 above, in addition to any right to notice described herein, the Employee shall have the right to receive amounts equal to the Gross Salary and to receive reimbursement for the purchase of benefits equal to those set forth in Section 4.2 for the following periods, which shall be the sole remedy available to the Employee as a result of such termination. Employee's employment shall be deemed terminated upon the expiration of the notice period given with respect to such termination. (i) in the event termination is effective during 1996 - 2 months; (ii) in the event termination is effective during 1997 - 10 months; and (iii) in the event termination is effective after January 1, 1998 - 12 months. 8.2 Employee's rights pursuant to this section 8 shall apply only in the event this Agreement is terminated by the Company without cause under Section 3.1 (iii). For purposes of this section, termination by the Company without cause shall be deemed to include termination of this Agreement by the Employee due to: (1) the disposing of all or substantially all of the Company's property, business or assets; or (2) the consolidation with or merger of the Company into another corporation, resulting in a shift in voting control of more than 75% of the Company's shares. 9. Secrecy and Nondisclosure. The Employee shall treat as secret and confidential all of the processes, methods, formulas, procedures, techniques, software, designs, data, drawings and other information which are not of public knowledge or record pertaining to ImClone's Business (existing, potential and future), including without limitation, all business information relating to customers and suppliers and products of which the Employee becomes aware during and as a result of his employment or association with ImClone, and Employee shall not disclose, use, publish, or in any other manner reveal, directly or indirectly, at any time during or after the term of this Agreement, any such processes, methods, formulas, procedures, techniques, software, designs, data, drawings and other information pertaining to ImClone's existing or future Business or products. The Employee may disclose or use such information, if at all, only with the prior express written consent of ImClone. The Employee also agrees to enter into ImClone's Discovery and Non-Disclosure Agreement, a copy of which is attached hereto. 10. Non-Competition. 10.1 Employee agrees that during the term of this Agreement and any extensions hereof and for a period of one (1) year after he ceases to be employed by ImClone he will not, directly or indirectly, for his own account or as an employee, officer, director, partner, joint venturer, shareholder, investor, consultant or otherwise (except as an investor in a corporation whose stock is publicly traded and in which Employee holds less than 5% of the outstanding shares) interest himself in or engage in any business or enterprise, anywhere in the world, that directly or indirectly competes with the Business of ImClone, that exists now or in the future during the term of this Agreement or is proposed by ImClone prior to the time of termination or is based on similar technology to that of ImClone. 10.2 Employee agrees that during a period of one year from termination of this Agreement or any extension hereof he shall not employ directly or indirectly any individual then employed by the Company. 10.3 Employee acknowledges that the restricted period of time and geographical area specified under paragraph 10.1 hereof are reasonable, in view of the nature of the business in which ImClone is engaged and Employee's knowledge of ImClone's Business and products. 10.4 Notwithstanding anything contained in paragraph 10.3 to the contrary, if the period of time or the geographical area specified under paragraph 10.1 hereof should be determined to be unreasonable in any judicial proceeding, then the period of time and area of the restriction shall be reduced so that this Agreement may be enforced in such area and during such period of time as shall be determined to be reasonable by such judicial proceeding. 11. Development Rights. The Employee agrees and declares that all proprietary information including but not limited to trade secrets and know-how, patents and other rights in connection therewith developed by or with the contribution of Employee's efforts during his employment by ImClone shall be the sole property of ImClone and the Employee shall execute all documents necessary to assign any patents to ImClone and otherwise transfer such proprietary rights to ImClone. 12. Employee Representations. The Employee represents and warrants to ImClone that the execution and delivery of this Agreement and the fulfillment of the terms hereof (i) will not constitute a default under or breach of any agreement or other instrument to which he is a party or by which he is bound, including without limitation, any confidentiality or noncompetition agreement, (ii) do not require the consent of any person or entity, and (iii) shall not utilize during the term of this employment any proprietary information of any third party, including prior employers of the Employee. 13. Benefit. Except as otherwise herein expressly provided, this Agreement shall inure to the benefit of and be binding upon ImClone, its successors and assigns, including, without limitation, any subsidiary or affiliated entity and shall inure to the benefit of, and may not be amended, modified or supplemented in any respect, except by a subsequent writing executed by both parties hereto. 14. Entire Agreement. This Agreement constitutes the entire understanding and agreement between the parties hereto, supersedes any and all prior discussions, agreements and correspondence with regard to the subject matter thereof, and may not be amended, modified or supplemented in any respect, except by a subsequent writing executed by both parties hereto. 15. Notices. All notices, requests and other communications to any party hereunder shall be given or made in writing and telecopies, mailed (by registered or certified mail) or delivered by hand to the respective party at the address set forth in the caption of this Agreement or to such other address (or telecopies number) as such party may hereafter specify for the purpose of notice to the other party hereto. Each such notice, request or other communication shall be effective (i) if given by telecopier, when such telecopy is transmitted to the telecopier number specified herein and the appropriate answerback is received or (ii) if given in writing by any other means, when delivered at the address specified herein. 16. Applicable Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York without giving effect to principles of conflicts of law and the courts of New York, shall have exclusive jurisdiction over the parties hereto and subject matter hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first appearing above. IMCLONE SYSTEMS INCORPORATED EMPLOYEE By: /s/Samuel D. Waksal /s/Carl Goldfischer --------------------- --------------------- President and Chief Executive Officer/title Dr. Carl Goldfischer ImClone Systems Incorporated Discovery and Non-Disclosure Agreement For value received, and for other good and valuable consideration including my employment or other association with ImClone Systems Incorporated (the "Company") and the compensation to be paid to me, I hereby covenant and agree with the Company (which term shall include any parent, subsidiary or successor to the Company) as follows: 1. Disclosure of Discoveries I hereby agree that I shall promptly communicate in writing to the Company, or to such individual as the Company may, from time to time, designate, a full and complete disclosure of any and all research and other information, inventions, discoveries and improvements ("Discoveries") made, developed and/or conceived and/or reduced to practice by me alone or jointly with others, whether or not patentable or copyrightable, (i) while in the employ of, or other association with, the Company, whether during or outside of the usual hours of work, and (ii) during a one (1) year period following the termination of my employment or other association with the Company, and which are reasonably related to the business of the Company during the term of my employment or other association with the Company. All such Discoveries shall be and remain the sole and exclusive property of the Company. 2. Assignment of Discoveries I hereby agree to, and hereby do, assign and transfer to the Company, or to its nominee or designee, without any separate remuneration or compensation to me other than the compensation received or assigned to me from time to time in the course of my aforesaid employment or other association with the Company, all my right, title and interest throughout the world in and to such Discoveries, together with the right to file, and/or own wholly and without restriction, applications for United States and foreign patents on all Discoveries, and to do, execute and deliver any and all acts and instruments that may be necessary and proper to vest in the Company all such Discoveries, patents, copyrights and trademarks; and that I will render to the Company, or to its nominee or designee, all such assistance as it may require in the prosecution of all such patent, copyright and trademark applications, and applications for the reissue of such patents, copyrights and trademarks. I agree that I shall also execute, upon request, documents which secure to the Company the interests here conveyed. I further agree that I shall assist, upon request, in locating writings and other physical evidence of the making of my Discoveries, and provide unrecorded information relating to such Discoveries, and give testimony in any proceeding in which any of my Discoveries, or any application or patent, copyright or trademark directed thereto, may be involved. 3. Copyright; Publishing I hereby agree that I shall promptly disclose to the company any and all publishable an/or copyrightable material which I produce, compose or write, individually or in collaboration with others, which arises out of work delegated to me by the Company, and further agree that such materials shall be considered works made for hire. At the expense of the Company, and to the extent that such material may not be considered works made for hire, I shall assign to the Company all my interest in such copyrightable material, and will sign all papers and do all other acts necessary to assist the Company in obtaining copyrights on such material in any and all countries. 4. Trade Secrets; Confidential Information I hereby agree that I will not, during my employment by, or other association with, the Company, or afterwards, disclose to others or use for my own benefit any trade secrets (as hereinafter defined) or other confidential information acquired by me from the Company, its customers, suppliers, consultants, affiliates, or third parties contracting with the Company, except to the extent that the disclosure of such trade secrets and other confidential information is necessary to perform my duties and fulfill my responsibilities as an employee or other associate of the company. A trade secret is information, not generally known to the trade, which gives the Company an advantage over its competitors. Trade secrets can include, by way of example, research being planned and developed, research methods and processes, sources of supply, materials used in research, marketing plans, and information concerning the filing or pendency of patent applications. Such obligation of confidentiality shall be waived as to information which (i) is in the public domain, (ii) comes into the public domain through no fault of my own, (iii) was known to me prior to its disclosure under this Agreement, or (iv) is disclosed to me by a third party having lawful right to make such disclosure. 5. Company Information I hereby agree that I will not, without first obtaining the written approval of the Company, or of such individual as the Company may, from time to time, designate, divulge or disclose to anyone outside of the Company, whether by private communication or by public address, publication or otherwise, any information not already lawfully available to the public concerning the Company's business and/or products, including, but not limited to, all information about (a) the Company's production, profitability, business and legal plans, finances, internal affairs, competitive position, customers and vendors; (b) its formulae, processes, methods, reports, machines, or inventions; and (c) any such information relating to the business of any corporation, firm or person for whom the Company is conducting, or shall conduct, research services, or is providing, or shall provide, other services, whether supplied by the Company or such corporation, firm or person, or whether made, developed and/or conceived by me or by others in the employ or other association with the Company. 6. Non-Compete I hereby agree that I will not, during my period of employment or other association with the Company, compete with the company or design, manufacture or sell items which relate to products or business planned or under development by the Company; and I further agree that I will not, during the period of my employment or other association with the Company, directly or indirectly enter the employment of, or render any business or technical services (except as requested by the Company) to, any individual, partnership, association or corporation who or which is a competitor of the Company, or who or which is developing, making or selling products which relate to any research or development project of the Company. 7. Company Property; Termination Certificate Upon the termination of my employment or other association with the Company, I hereby agree to turn over to the Company all models, prototypes, notes, memoranda, notebooks, drawings, specifications, records, customer lists, proposals, business plans, and other documents in my possession or under my control, relating to any work done for, or otherwise belonging to, the Company, it being acknowledged and agreed to by me that all such items are the sole property of the Company, and I hereby agree to sign the following "Termination Certificate" upon such termination of my employment or other association with the Company: "This is to certify that I do not have in my possession or custody, nor have I failed to return, any models, prototypes, notes, memoranda, notebooks, drawings, specifications, records, customer lists, proposals business plans, or copies of any of these, and other documents and/or materials, tools, equipment programs, databases or other property belonging to the Company. 8. Governing Law The substantive laws of the State of New York which apply to contracts executed and to be performed in New York shall govern this Agreement. 9. General Provisions (a) The scope and effect of the covenants in this Agreement shall be as broad in time, geography and in all other respects as is permitted by applicable law, and should a court or other body of competent jurisdiction determine that any term or provision of this Agreement is excessive in scope, invalid or otherwise unenforceable, such term or provision shall be adjusted rather than voided, if possible, and all other terms and provisions of this Agreement shall be deemed valid and enforceable to the fullest extent possible. (b) I further agree that this Agreement shall be binding upon me irrespective of the duration of my employment or other association with the Company, the reasons for the cessation of my employment or other association with the Company, or the amount of my compensation and/or salary. (c) This instrument is the whole agreement, and no modification or variation shall be deemed valid unless in writing signed by the Company. (d) This Agreement shall be binding upon my heirs, executors, successors, administrators, and legal representative, and shall inure to the benefit of the successors and assigns or the Company. (e) I represent and warrant to the Company that I am not under any obligations to any person, firm or corporation, and have no other interest which is inconsistent or in conflict with this Agreement, or which would prevent, limit or impair in any way the performance by me of the covenants hereunder or my duties in my said employment or other association with the Company. IN WITNESS WHEREOF, I have hereunto set my hand this 12 day of March, 1997, at New York, New York. WITNESS: Carl Goldfischer -------------------------- Print Name /s/Judith Hansen /s/Carl Goldfischer - ---------------------- -------------------------- Signature EX-10 3 EXHIBIT 10.74 Exhibit 10.74 Hambrecht & Quist LLC February 26, 1996 Confidential The Board of Directors ImClone Systems Incorporated 180 Varick Street New York, NY 10014 Gentlemen: Hambrecht & Quist LLC ("Hambrecht & Quist") would be pleased to act as financial advisor to ImClone Systems Incorporated ("ImClone " or the "Company") in connection with ongoing financial strategies and tactics, included, but not limited to financings. Pursuant to this engagement, Hambrecht & Quist will: (i) review with members of management the Company's financial and strategic plans; and (ii) advise the Company with respect to financings. As compensation for Hambrecht & Quist's services, the Company agrees to pay Hambrecht & Quist a fee of $ 310,000. The Company agrees that Hambrecht & Quist is entitled to rely upon all reports and public filings of the Company (and its affiliates) and information supplied to it by or on behalf of the Company (whether written or oral), and Hambrecht & Quist shall not in any respect be responsible for the accuracy or completeness of any such report, public filing or information or have an obligation to verify the same. Hambrecht & Quist hereby agrees that it will not disclose confidential information received from the Company (or its affiliates) to others (other than our employees, agents, accountants, attorneys, and other advisors) except as contemplated by this engagement or as such disclosure may be required by law. At the conclusion of our engagement hereunder, we will return to you all copies of any documentary confidential information that you have duly marked "confidential" and that are at the time in our possession. For purposes of this agreement, "confidential information" shall mean information provided by you to us that is not otherwise available to us from sources outside of the Company (or its affiliates), and any such information shall cease to be confidential information when it becomes generally available, or comes to our attention, through other sources that do not, to our awareness at the time, involve a violation of this or any similar agreement. The Company agrees to indemnify Hambrecht & Quist in accordance with the Standard Form of Indemnification Agreement, set forth as Exhibit A hereto. This agreement shall have a term of one year from the date hereof, except for the indemnification provisions above, which will continue in full force and effect in accordance with their terms. Any advice, written or oral, rendered by Hambrecht & Quist pursuant to this letter may not be disclosed publicly without its prior written consent except as required by law or regulation or in response to any information request of the Securities and Exchange Commission. The Company agrees that Hambrecht & Quist has the right to place advertisements in financial and other newspapers and journals at its own expense describing its services to the Company hereunder. This agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the State's conflict of laws principles. If the foregoing correctly sets forth the understanding between us, please so indicate on the enclosed copies of this letter and return two original copies to us for our files. Very truly yours, HAMBRECHT & QUIST LLC By: /s/Dennis J. Purcell ------------------------ Agreed to and accepted: IMCLONE SYSTEMS INCORPORATED By: /s/Samuel D. Waksal -------------------------- Title: President and Chief Executive Officer Date: March 7, 1997 Exhibit A HAMBRECHT & QUIST LLC Standard Form of Indemnification Agreement In connection with the services which Hambrecht & Quist has agreed to render to the Company hereunder, the Company shall (A) indemnify Hambrecht & Quist and hold it harmless to the fullest extent permitted by law against any losses, claims, damages or liabilities to which Hambrecht & Quist may become subject in connection with (i) its use of information that is inaccurate in any respect (as a result of misrepresentation, omission, failure to update, or otherwise) that is provided to Hambrecht & Quist by the Company, its representatives, agents or advisers, regardless of whether Hambrecht & Quist should have known of such inaccuracy, or (ii) any other aspect of its rendering such services, unless and to the extent it is finally judicially determined that such losses, claims, damages or liabilities relating thereto arise out of the gross negligence or willful misconduct of Hambrecht & Quist, and (B) reimburse Hambrecht & Quist for any legal or other expenses reasonably incurred by it in connection with investigating, preparing to defend or defending any lawsuits, claims or other proceedings arising in any manner out of or in connection with its performance of its duties hereunder. If for any reason the foregoing indemnity is unavailable to Hambrecht & Quist or insufficient to hold Hambrecht & Quist harmless, then the Company shall contribute to the amount paid or payable by Hambrecht & Quist as a result of such claims, liabilities, losses, damages or expenses in such proportion as is appropriate to reflect not only the relative benefits received by the Company on the one hand and Hambrecht & Quist on the other but also the relative fault of the Company and Hambrecht & Quist, as well as any relevant equitable considerations. Notwithstanding the provisions of this agreement, the aggregate contribution of Hambrecht & Quist to all claims, liabilities, losses, damages and expenses shall not exceed the amount of fees actually received by Hambrecht & Quist pursuant to its engagement by the Company. It is hereby further agreed that the relative benefits to the Company on the one hand and Hambrecht & Quist on the other hand with respect to the transactions contemplated in this engagement letter shall be deemed to be in the same proportion as (i) the total value of the transaction bears to (ii) the fees paid to Hambrecht & Quist with respect to such transactions. The Company agrees that the indemnification and reimbursement commitments set forth in this agreement shall apply whether or not Hambrecht & Quist is a formal party to any such lawsuits or other proceedings, that Hambrecht & Quist is entitled to retain separate counsel of its choice in connection with any of the matters to which such commitments relate, that such commitments shall be in addition to any liability that the Company may have to Hambrecht & Quist at common law or otherwise, and that such commitments shall extend upon the terms set forth in this agreement to any controlling person, director, officer, employee, agent or affiliate of Hambrecht & Quist and shall survive any termination of this agreement. Hambrecht & Quist will not, without the prior written consent of the Company, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder, unless such settlement, compromise or consent includes an unconditional release of the Company from all liability arising out of such claim, action, suit or proceeding. EX-10 4 EXHIBIT 10.75 Exhibit 10.75 EXCHANGE AGREEMENT EXCHANGE AGREEMENT, dated as of April 15, 1996 (this "Agreement"), among the parties listed as Lenders on the signature page hereof (collectively, the "Lenders") and ImClone Systems Incorporated, a Delaware corporation (the "Company"). All capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided such terms in the Loan Documents referred to below. W I T N E S S E T H: WHEREAS, the Lenders and the Company are parties to (i) the Loan Agreement, dated as of August 10, 1995 (the "Loan Agreement"), (ii) the Security Agreement, dated as of August 10, 1995 in favor of the Lenders and (iii) the Mortgage and Assignment of Leases, Rentals and Profits Fixture Filing and Security Agreement, dated August 10, 1995 (the "Mortgage"), made by the Company for the benefit of Oracle Partners, L.P. ("Oracle"), as agent for the Lenders (the agreements set forth in clauses (i) through (iii) above are herein collectively referred to as the "Loan Documents"); and WHEREAS, the Company and the Lenders desire to exchange certain of the Term Notes issued pursuant to the Loan Agreement (the "Term Notes") for shares of the Company's Common Stock, $.001 par value (the "Common Stock"), upon the terms and subject to the conditions of this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Exchange of Term Notes for Common Stock. Upon the terms and subject to the conditions of this Agreement, each Lender agrees to surrender to the Company at the Closing (as herein defined) such Lender's Term Note in exchange for (a) payment of the accrued and unpaid interest on such Term Note and (b) the issuance by the Company to such Lender of the number of shares of Common Stock as provided herein. In exchange for the delivery and surrender by each Lender to the Company of such Lender's Term Note, the Company hereby agrees (a) to pay the accrued and unpaid interest on such Lender's Term Note to but not including the Closing Date (as herein defined) as shall be determined in accordance with Section 1.3 of the Loan Agreement (the "Interest Payment Amount") as set forth on Schedule 1 hereto and (b) to issue and deliver to such Lender the number of shares of Common Stock set forth opposite the name of such Lender on Schedule 1 hereto (collectively, the "Shares"), such number in each case being equal to the quotient obtained by dividing the unpaid principal amount of such Lender's Term Note by $7.50 (rounded to the nearest whole share). -10- 2. Closing; Closing Date. (a) The exchange of Term Notes for Shares and payment of accrued and unpaid interest on the Term Notes will occur at a closing (the "Closing") to be held on the date of execution and delivery of a counterpart of this Agreement by the parties hereto, or such other date as shall be agreed by Oracle and the Company (the "Closing Date"). (b) Promptly after the date the Registration Statement required to be filed by the Company with the Securities and Exchange Commission (the "SEC") pursuant to Section 6(a) of this Agreement (the "Registration Statement") is declared effective by the SEC (the "SEC Effective Date"), the Company shall so notify Oracle. (c) If the SEC Effective Date has not occurred on or before the 120th day after the Closing Date, the Company shall so notify Oracle. If the SEC Effective Date has not occurred on or before the 135th day after the Closing Date, the Company hereby agrees to issue and deliver to each Lender within ten business days thereafter such number of additional shares (collectively, the "Additional Shares") of Common Stock shown on Schedule I attached hereto; provided, however, that the Lender shall have the right, exercisable by notice to the Company given within five business days after the 135th day after the Closing Date, to receive in lieu of the issuance and delivery of Additional Shares to such Lender and upon return by such Lender of such Lender's Shares to the Company, payment in cash in immediately available funds to such Lender not later than the date which is ten business days after the 135th day after the Closing Date, an amount (the "Repayment Amount") equal to the sum of (1) the aggregate principal amount of the Term Note of such Lender as shown on Schedule 1 hereto plus (2) an amount equal to the accrued and unpaid interest on the Term Note of such Lender from and including the Closing Date to but excluding the date of payment to such Lender of the Repayment Amount (the "Repayment Date"). Payment of the Repayment Amount shall be made against delivery by such Lender to the Company of the Shares issued to such Lender duly endorsed in blank, with duly executed stock powers attached and customary signature guaranties. The parties hereto hereby expressly agree that the Company's obligation under Section 6(a) to use its best efforts to obtain effectiveness of the Registration Statement shall continue so long as the Repayment Amount has not been paid or the Registration Statement has been declared effective. 3. Representations, Warranties, Etc. of the Company. (a) The execution, delivery and performance by the Company of this Agreement and the consummation of the transactions contemplated thereby (including, but not limited to, the sale, issuance and delivery of the Shares) have been duly authorized by the Company and no additional corporate action by the Company is required for the approval of this Agreement. When the Shares are delivered to the Lenders at the Closing and paid for in accordance with the terms of this Agreement, the Shares will be duly issued, fully paid and nonassessable. This Agreement constitutes valid and binding agreements and obligations of the Company enforceable against it in accordance with their respective terms, except that such enforceability may be limited by (a) applicable bankruptcy, insolvency, -11- reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) general equitable principles (including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing), regardless of whether enforcement is sought in a proceeding in equity or at law. (b) The authorized capital stock of the Company consists of (i) 30,000,000 shares of Common Stock, par value $.001 per share, of which 19,130,657 shares are issued and outstanding on the date hereof and (ii) 4,000,000 shares of preferred stock, par value $1.00, of which no shares are issued and outstanding. No other shares of capital stock have been authorized or issued. All shares of the Company's outstanding capital stock have been duly authorized, are validly issued and outstanding, and are fully paid and nonassessable. (c) The execution, delivery and performance by the Company of this Agreement, and the consummation by the Company of the transactions contemplated hereby do not and will not (a) contravene or conflict with the Certificate of Incorporation and Bylaws of the Company; (b) contravene or conflict with or constitute a violation of any provision of any law, regulation, judgment, injunction, order or decree binding upon or applicable to the Company; (c) constitute a default under or give rise to a right of termination, cancellation or acceleration or loss of any benefit under any material agreement, contract or other instrument binding upon the Company or under any material license, franchise, permit or other similar authorization held by the Company; or (d) result in the creation or imposition of any Lien (as defined below) on any material asset of the Company, except as provided in this Agreement. For purposes of this Agreement, the term "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. (d) The Company has heretofore made available to the Lenders true and complete copies of all reports, registration statements, definitive proxy statements and other documents (in each case together with all amendments and supplements thereto) filed by the Company with the SEC since January 1, 1995 (such reports, registration statements, definitive proxy statements and other documents, together with any amendments and supplements thereto, being sometimes collectively referred to in this Agreement as the "Company SEC Filings"). A list of all such Company SEC Filings is set forth on Schedule 3(d) hereto. The Company SEC Filings constitute all of the documents (other than preliminary materials) that the Company was required to file with the SEC since such date. As of their respective dates, each of the Company SEC Filings complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended, and the rules and regulations under each such Act, and none of the Company SEC Filings contained as of the respective dates of filing with the SEC any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. When filed with the SEC, the financial statements included in the Company SEC Filings complied as to form in all material respects with the applicable rules and regulations of the SEC and were prepared in accordance with generally accepted accounting -12- principles (as in effect from time to time) applied on a consistent basis (except as may be indicated therein or in the notes or schedules thereto), and such financial statements fairly present in accordance with generally accepted accounting principles in all material respects the financial position of the Company as at the dates thereof and the results of its operations and its cash flows for the periods then ended, subject, in the case of the unaudited interim financial statements, to normal, recurring year-end audit adjustments and the absence of footnotes. Since January 1, 1995, except as disclosed in the Company SEC Filings filed with the SEC prior to the date hereof or in Schedule 3(d) hereto, the Company has not incurred any liability or obligation of any kind, outside of the ordinary course of business which, in any case or in the aggregate, is material to the business, assets, results of operations or financial condition of the Company. (e) Except as set forth on Schedule 3(e), there are no outstanding (a) securities or instruments convertible into or exercisable for any of the capital stock or other equity interests of the Company; (b) options, warrants, subscriptions or other rights to acquire capital stock or other equity interests of the Company; or (c) commitments, agreements or understandings of any kind, including employee benefit arrangements, relating to the issuance or repurchase by the Company of any capital stock or other equity interests of the Company, any such securities or instruments convertible or exercisable for securities or any such options, warrants or rights. (f) To the best knowledge of the Company, no representation or warranty made by the Company in this Agreement, nor in any document, written information, financial statement, certificate, schedule or exhibit prepared and furnished or to be prepared and furnished by the Company or the representatives of the Company pursuant hereto or in connection with the transactions contemplated hereby, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained herein or therein not misleading in light of the circumstances under which they were furnished. Except as disclosed in the Company SEC Filings, there is no event, fact or conditions (other than general business or economic conditions which affect businesses generally) that materially and adversely affects the business of Company, or that reasonably could be expected to do so, that has not been set forth in this Agreement or in the Schedules attached hereto. 4. Each Lender severally and not jointly represents, warrants, covenants and agrees with the Company as follows: (a) Such Lender understands that the Shares to be issued to such Lender have not been registered under the Securities Act or applicable state securities or "blue sky" laws and may not be sold or otherwise transferred by such Lender unless (A) the Shares are subsequently registered thereunder or (B) such Lender shall have delivered to the Company an opinion of counsel, reasonably satisfactory in form, scope and substance to the Company. -13- (b) The certificates for the Shares to be issued to such Lender may bear the following restrictive legend and the Company may place a stop-transfer restriction against such Shares: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, ASSIGNED OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT, IN THE CIRCUMSTANCES REQUIRED, OR EVIDENCE SATISFACTORY TO THE COMPANY THAT THE SHARES HAVE BEEN SOLD IN COMPLIANCE WITH RULE 144 FORMULATED UNDER SAID ACT." After the Shares have been registered under the Securities Act, the Shares may bear a legend stating that the Shares are subject to a prospectus delivery requirement under the Securities Act. (c) Upon the Closing of the exchange of such Lender's Term Note, such Lender hereby releases all of its or his interest in all Collateral, and hereby assigns, transfers and shall deliver to the Borrower such of the Collateral, if any, as is held by such Lender on the Closing Date. 5. Closing Conditions. (a) Closing Conditions of the Lenders. The obligations of the Lenders to complete the exchange of Term Notes for Shares and the Interest Payment Amount at the Closing are conditioned upon the satisfaction of the following conditions on or prior to the Closing Date, unless such conditions shall have been waived by Oracle, for the benefit of the Lenders: (i) Nasdaq Listing. The Shares shall be listed for trading on the Nasdaq National Market. (ii) Opinions. Oracle, for the benefit of the Lenders, shall have received opinions of outside counsel and the General Counsel of the Company substantially in the forms attached hereto as Exhibit A and Exhibit B. (iii) Secretary's Certificate. Oracle, for the benefit of the Lenders, shall have received a certificate of the Secretary of the Company (in form and substance satisfactory to Oracle) certifying (i) that attached thereto are true and complete copies of the resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement and any other documents, instruments and certificates required to be executed by it in connection herewith and approving the consummation of the transactions in the manner contemplated hereby including, but not limited to, the authorization and issuance of the Shares, and (ii) the names and true signatures of the -14- officers of the Company signing this Agreement and all other documents to be delivered in connection with this Agreement. (iv) Performance; Representation and Warranties. The Company shall have performed and complied in all material respects with all agreements and conditions contained in this Agreement which are required to be performed or complied with by the Company prior to or at the Closing. The representations and warranties of the Company contained herein shall be true and correct in all material respects. (v) Good Standings. Oracle, for the benefit of the Lenders, shall have received certificates of good standing with respect to the Company, each issued as of a recent date by the Secretaries of State of Delaware, New Jersey and New York. (b) Closing Conditions of the Company. The obligation of the Company to complete the issuance of the Shares and delivery of the Interest Payment Amount in exchange for the Term Notes at the Closing is conditioned upon the satisfaction of the following conditions on or prior to the Closing Date, unless such conditions shall have been waived by the Company: (i) Forms UCC-3. The Company shall have received proper termination statements (Form UCC-3 or the appropriate equivalent) for filing under the UCC of each jurisdiction where a financing statement (Form UCC-1 or the appropriate equivalent) was filed for the benefit of the Lenders in connection with the security interest created pursuant to the Loan Documents in form and substance reasonably satisfactory to the Company. (ii) Mortgage Termination. The Company shall have received a release and termination of the Mortgage in form and substance reasonably satisfactory to the Company. (iii) Performance; Representation and Warranties. The Lenders shall have performed and complied in all material respects with all agreements and conditions contained in this Agreement which are required to be performed or complied with by the Lenders prior to or at the Closing. The representations and warranties of the Lenders contained herein shall be true and correct in all material respects. 6. Certain Covenants. (a) Registration Rights. As soon as practicable, after the Closing, but in no event later than thirty (30) days from the Closing Date the Company shall file a registration statement with the SEC under the Securities Act to register the Shares and, if applicable, the Additional Shares. The Company shall use its best efforts to obtain effectiveness of the Registration Statement pursuant to the Securities Act ("Registration") as promptly as practicable after the Closing Date. In addition, the Company shall list, simultaneously with the Closing, the Shares on the Nasdaq National Market. The Company shall -15- maintain the Registration Statement for so long as the Lenders own any of the Shares, but in no event longer than three (3) years after the effective date of the Registration Statement relating to the Registration. (b) Terms and Conditions of Registration. In connection with the Registration Statement, the following provisions shall apply: (i) The Lenders will promptly provide the Company with such information as the Company shall reasonably request in order to prepare the Registration Statement. (ii) Subject to Section 8, all expenses in connection with the preparation of the Registration Statement, including, without limitation, all registration, listing and qualifications fees and the reasonable fees of legal counsel for the Company, shall be borne solely by the Lenders. (iii) Following the effective date of the Registration Statement, the Company shall, upon the request of Oracle forthwith supply such number of prospectuses (including preliminary prospectuses and amendments and supplements thereto) meeting the requirements of the Securities Act and such other documents as are incorporated by reference in the prospectus as shall be reasonably requested by Oracle, for the benefit of the Lenders. (iv) The Company shall prepare and file such amendments and supplements to the Registration Statement as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Securities Act pursuant to which the registration statement has been filed with respect to the offer and sale or other disposition of the Shares covered by the Registration Statement. (v) The Company shall register Shares covered by the Registration under such securities or Blue Sky laws in such jurisdictions as the Lenders may reasonably request, except that neither the Company nor the Lenders shall for any such purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction where it is not so qualified. (vi) The Lenders shall cooperate fully with the Company and provide the Company with all information reasonably requested by the Company for inclusion in the Registration Statement or as necessary to comply with the Securities Act and the securities or blue sky laws of the jurisdictions referred to in Section 6(b)(v). (vii) The Company shall notify Oracle, for the benefit of the Lenders, of the happening of any event as a result of which the Prospectus included in the Registration Statement, as then in effect, includes an untrue statement of material fact or -16- omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which such statements are made. (viii) The Company shall furnish, at the request and expense of the Lenders, an opinion of counsel of the Company, dated the effective date of the Registration Statement, as to the due authorization and issuance of the Shares and compliance with federal securities laws by the Company in connection with the authorization and issuance of the Shares and any such other matters required by the SEC. (c) Indemnification. (i) In the event of the registration of any Shares under the Securities Act pursuant to the provisions of Section 6(a) above, the Company agrees to indemnify and hold harmless the Lenders from and against any and all losses, claims, damages or liabilities (or actions in respect thereof), to which the Lenders may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Shares were registered under the Securities Act, any preliminary prospectus or final prospectus relating to such shares, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation under the Securities Act applicable to the Company or relating to any action or inaction required by the Company in connection with any such registration and will reimburse the Lenders for any legal or other expenses reasonably incurred by the Lenders in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made (i) in such registration statement, such preliminary prospectus, such final prospectus or such amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by the Lenders specifically and expressly for use in the preparation thereof or (ii) in a preliminary prospectus and corrected in the prospectus, as then amended or supplemented. (ii) In the event of the registration of any Shares of the Lenders under the Securities Act for sale pursuant to the provisions of this Agreement, the Lenders agree to indemnify and hold harmless the Company from and against any losses, claims, damages or liabilities, to which the Company may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such shares were registered under the Securities Act, any preliminary prospectus or final prospectus relating to such shares, or any amendment or supplement thereto, or arise out of or are based upon omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, which untrue statement or alleged untrue statement or omission or alleged omission was made therein in reliance upon and in conformity with written information furnished to the Company by the Lenders. -17- (iii) A party or parties hereto agreeing to be responsible for or to indemnify against any matter pursuant to this Agreement is referred to herein as the "Indemnifying Party" and the other party or parties claiming indemnity is referred to as the "Indemnified Party." An Indemnified Party under this Agreement shall, with respect to claims asserted against such party by any third party, give written notice to the Indemnifying Party of any liability which might give rise to a claim for indemnity under this Agreement within sixty (60) business days of the receipt of any written claim from any such third party, but not later than twenty (20) days prior to the date any answer or responsive pleading is due, and with respect to other matters for which the Indemnified Party may seek indemnification, give prompt written notice to the Indemnifying Party of any liability which might give rise to a claim for indemnity; provided, however, that any failure to give such notice will not waive any rights of the Indemnified Party except to the extent the rights of the Indemnifying Party are materially prejudiced. The Indemnifying Party shall have the right, at its election, to take over the defense or settlement of such claim by giving written notice to the Indemnified Party at least fifteen (15) days prior to the time when an answer or other responsive pleading or notice with respect thereto is required. If the Indemnifying Party makes such election, it may conduct the defense of such claim through counsel of its choosing (subject to the Indemnified Party's approval of such counsel, which approval shall not be unreasonably withheld), shall be solely responsible for the expenses of such defense and shall be bound by the results of its defense or settlement of the claim. The Indemnifying Party shall not settle any such claim without prior notice to and consultation with the Indemnified Party, and no such settlement involving any equitable relief or which might have an adverse effect on the Indemnified Party may be agreed to without the written consent of the Indemnified Party (which consent shall not be unreasonably withheld). So long as the Indemnifying Party is diligently contesting any such claim in good faith, the Indemnified Party may pay or settle such claim only at its own expense and the Indemnifying Party will not be responsible for the fees of separate legal counsel to the Indemnified Party, unless the named parties to any proceeding include both parties and representation of both parties by the same counsel would be inappropriate. If the Indemnifying Party does not make such election, or having made such election does not, in the reasonable opinion of the Indemnified Party proceed diligently to defend such claim, then the Indemnified Party may (after written notice to the Indemnifying Party), at the expense of the Indemnifying Party, elect to take over the defense of and proceed to handle such claim in its discretion and the Indemnifying Party shall be bound by any defense or settlement that the Indemnified Party may make in good faith with respect to such claim. In connection therewith, the Indemnifying Party will fully cooperate with Indemnified Party should the Indemnified Party elect to take over the defense of any such claim. The parties agree to cooperate in defending such third party claims and the Indemnified Party shall provide such cooperation and such access to its books, records and properties as the Indemnifying Party shall reasonably request with respect to any matter for -18- which indemnification is sought hereunder; and the parties hereto agree to cooperate with each other in order to ensure the proper and adequate defense thereof. With regard to claims of third parties for which indemnification is payable hereunder, such indemnification shall be paid by the Indemnifying Party upon the earlier to occur of: (i) the entry of a judgment against the Indemnified Party and the expiration of any applicable appeal period, or if earlier, five (5) days prior to the date that the judgment creditor has the right to execute the judgment; (ii) the entry of an unappealable judgment or final appellate decision against the Indemnified Party; or (iii) a settlement of the claim. Notwithstanding the foregoing, provided that there is no dispute as to the applicability of indemnification, the reasonable expenses of counsel to the Indemnified Party shall be reimbursed on a current basis by the Indemnifying Party if such expenses are a liability of the Indemnifying Party. With regard to other claims for which indemnification is payable hereunder, such indemnification shall be paid promptly by the Indemnifying Party upon demand by the Indemnified Party. 7. Release of Collateral; Further Assurances. The Lenders agree (x) on or prior to the Closing Date to do such things and execute such further documents as are necessary to effect the release of all Collateral, including the execution of UCC termination statements and termination of the Mortgage, from the security interests, mortgages and other liens and encumbrances of the Loan Documents, and (y) after the Closing Date to deliver such further documents and do such further acts as the Company may reasonably request for the purpose of further evidencing, confirming, recording, registering or otherwise documenting the transactions contemplated by this Agreement and the releases set forth in Section 4(c) hereof. 8. Certain Fees and Expenses. The Lenders shall be responsible for the payment of the Company's reasonable legal fees and expenses relating to the transactions contemplated by this Agreement (including without limitation in connection with the Registration) up to an amount of $30,000. The portion of legal fees accrued to the Closing Date will be payable to the Company by the Lenders at the Closing. 9. Notices. Whenever any party hereto desires or is required to give any notice, demand, or request with respect to this Agreement, each such communication shall be in writing and shall be effective only if it is delivered by personal service or mailed, United States certified mail, postage prepaid (and shall be deemed to have been received three (3) days after deposit into the United States mail), or sent by prepaid overnight courier, facsimile or confirmed telecopier, addressed as follows: If to the Lenders: Oracle Partners, L.P. 712 Fifth Avenue 45th Floor New York, New York 10019 Attention: Larry Feinberg Fax No.: (212) 459-0863 -19- With a copy in each case to: Kane Kessler, P.C. 1350 Avenue of the Americas 26th Floor New York, New York 10019 Attention: Robert L. Lawrence, Esq. Fax No.: (212) 245-3009 If to the Company: ImClone Systems Incorporated 180 Varick Street, 7th Floor New York, New York 10014 Fax No.: (212) 645-2054 Attention: John B. Landes, Esq. With a copy in each case to: Brian W. Pusch, Esq. 29 West 57th Street Penthouse Suite New York, New York 10019 Fax No.: (212) 980-7055 Unless otherwise stated above, such communications shall be effective when they are received by the addressee thereof in conformity with this Section. Any party may change its address for such communications by giving notice thereof to the other parties in conformity with this Section. 10. Indemnity under Loan Agreement. The indemnity set forth in Section 11.3 of the Loan Agreement shall not be affected by the provisions of this Agreement. 11. Miscellaneous. (a) This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts will be lodged with Oracle and the Company. -20- (b) This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the law of the State of New York. (c) The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. (d) If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. (e) This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement. (f) This Agreement constitutes the entire understanding and agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings. (g) This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and permitted assigns, any rights or remedies under or by reason of this Agreement. -21- IN WITNESS WHEREOF, the Company and the Lenders have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. BORROWER: IMCLONE SYSTEMS INCORPORATED By: /s/John B. Landes ------------------------ Name: John B. Landes Title: Vice President, Business Development and General Counsel LENDERS: ORACLE PARTNERS, L.P. By: /s/Larry M. Feinberg -------------------------- Name: Title QUASAR INTERNATIONAL PARTNERS, C.V. By: /s/Larry M. Feinberg -------------------------- Name: Title ORACLE INSTITUTIONAL PARTNERS, L.P. By: /s/Larry M. Feinberg -------------------------- Name: Title SAM ORACLE FUND, INC. -22- By: /s/Larry M. Feinberg -------------------------- Name: Title By:/s/Warren B. Kanders -------------------------- WARREN B. KANDERS By: Oracle Partners, L.P., Authorized Agent By: /s/Larry M. Feinberg -------------------------- Name: Title -23- EX-23 5 EXHIBIT 23.1 Exhibit 23.1 The Board of Directors ImClone Systems Incorporated: We consent to the incorporation by reference in the registration statements (Nos. 33-95860, 333-07339, 333-21417 and 333-22341 on Form S-3 and Nos. 333-10275 and 33-95894 on Form S-8) of ImClone Systems Incorporated of our report dated February 18, 1997, relating to the balance sheets of ImClone Systems Incorporated as of December 31, 1996 and 1995, and the related statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, which report appears in the Annual Report on Form 10-K of ImClone Systems Incorporated. Our report refers to the adoption of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, in 1996. /s/KPMG PEAT MARWICK LLP ------------------------ KPMG PEAT MARWICK LLP New York, New York March 27, 1997 -----END PRIVACY-ENHANCED MESSAGE-----