-----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, MD1u49vju7MrTZrzU7H7qECqnSdsptd5h4kFbovlyVKO5fLa4aBuvfktMAxcdCk6 DMPxRx1S3IHsQH4i+Jg6fg== 0000950123-02-003290.txt : 20020415 0000950123-02-003290.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950123-02-003290 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020401 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: 02597909 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 y58958e10-k.txt IMCLONE SYSTEMS INCORPORATED - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 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 IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 180 VARICK STREET, NEW YORK, NY 10014 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(212) 645-1405 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 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 AND THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS. 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 and non-voting common equity held by non-affiliates of the registrant as of March 28, 2002 was $1,379,355,343 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 28, 2002 ----- -------------------------------- COMMON STOCK, PAR VALUE $.001 73,333,889
Documents Incorporated by Reference: The registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 23, 2002 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 2001 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 30 Item 3. Legal Proceedings........................................... 32 Item 4. Submission of Matters to a Vote of Security Holders......... 33 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters......................................... 34 Item 6. Selected Financial Data..................................... 35 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 36 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 51 Item 8. Financial Statements and Supplementary Data................. 52 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 52 PART III Item 10. Directors and Executive Officers of the Registrant.......... 53 Item 11. Executive Compensation...................................... 53 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 53 Item 13. Certain Relationships and Related Transactions.............. 53 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................................... 53
i As used in this Form 10-K, "ImClone Systems," "company," "we," "ours," and "us" refer to ImClone Systems Incorporated, except where the context otherwise requires or as otherwise indicated. PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR CAUTIONARY STATEMENT This Form 10-K contains "forward-looking" statements, as defined in the Private Securities Litigation Reform Act of 1995, that are based on current expectations, estimates and projections. Statements that are not historical facts, including statements about our and our subsidiary's beliefs and expectations, are forward-looking statements. These statements involve potential risks and uncertainties; therefore, actual results may differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they were made. We do not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that may affect these expectations include, but are not limited to: the risks and uncertainties associated with completing pre-clinical and clinical trials of our compounds that demonstrate such compounds' safety and effectiveness; obtaining additional financing to support our operations; obtaining and maintaining regulatory approval for such compounds and complying with other governmental regulations applicable to our business; obtaining the raw materials necessary in the development of such compounds; consummating and maintaining collaborative arrangements with corporate partners for product development; achieving milestones under collaborative arrangements with corporate partners; developing the capacity to manufacture, market and sell our 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 payers; attracting and retaining key personnel; obtaining patent protection for discoveries and risks associated with commercial limitations imposed by patents owned or controlled by third parties; and those other factors set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Overview and Risk Factors" and those other factors set forth in "Risk Factors" in the Company's most recent Registration Statement. ii PART I ITEM 1. BUSINESS OVERVIEW We are a biopharmaceutical company whose mission is to advance oncology care by developing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. We focus on what we believe are three promising strategies for treating cancer: - growth factor blockers - cancer vaccines and - angiogenesis inhibitors We were incorporated under the laws of the State of Delaware on April 26, 1984. Our corporate headquarters and research facility are located at 180 Varick Street, New York, New York 10014 and the telephone number is (212) 645-1405. Our lead product candidate, ERBITUX(TM) (cetuximab), formerly known as IMC-C225, is a therapeutic monoclonal antibody that inhibits stimulation of Epidermal Growth Factor ("EGF") receptor upon which certain solid tumors depend in order to grow. ERBITUX has been shown in several early stage clinical trials to have an acceptable safety profile, to be well tolerated and, when administered with either radiation therapy or chemotherapy, to cause tumor reduction in certain cases. ERBITUX has also been shown in early stage monotherapy clinical trials to have an acceptable safety profile, to be well tolerated and to cause tumor reduction in certain cases. We have completed potential registration studies evaluating ERBITUX for the treatment of colorectal and head and neck cancers. The United States Food and Drug Administration ("FDA") has designated as Fast Track our development program for ERBITUX for the treatment of irinotecan-refractory (patients previously failed regimen containing irinotecan) colorectal cancer. Subject to the receipt of regulatory approval, we intend to market ERBITUX in the United States and Canada together with our development, promotion and distribution partner Bristol-Myers Squibb Company ("BMS") through its wholly-owned subsidiary E.R. Squibb & Sons, L.L.C. ("E.R. Squibb"). We have granted our development and marketing partner, Merck KGaA, rights to market ERBITUX outside the United States and Canada. In Japan, ImClone Systems and E.R. Squibb will share the development and marketing of ERBITUX with Merck KGaA. We are manufacturing ERBITUX for clinical trials and eventual commercial sales worldwide. On December 28, 2001, the FDA issued a refusal to file letter with respect to our rolling Biologics License Application ("BLA") for ERBITUX. The BLA was submitted for marketing approval to treat irinotecan-refractory colorectal cancer. On February 26, 2002, we, along with representatives from our strategic partners BMS and Merck KGaA, met with the FDA to discuss the FDA's letter refusing to file our BLA for ERBITUX and to seek guidance on how to proceed. We believe the February 26, 2002 meeting with the FDA provided us with direction on an approach and process for resubmitting the ERBITUX BLA. Based on concerns raised by the FDA regarding our BLA, we discussed providing the FDA with data from a European clinical trial in irinotecan-refractory colorectal cancer currently being enrolled by Merck KGaA in conjunction with reanalyzed clinical data from our U.S. phase II clinical trials. We believe that ERBITUX will, if approved, be an important drug in the oncology field and we will continue to focus our efforts on gaining approval for this product. Our next most advanced product candidate, BEC2, is a cancer vaccine. In partnership with Merck KGaA, we are testing BEC2 for preventing recurrence or progression of limited disease small-cell lung cancer in a phase III pivotal trial. Subject to the receipt of regulatory approval, we intend to co-promote BEC2 with Merck KGaA in North America. Merck KGaA will be responsible for developing and marketing BEC2 outside North America and will be obligated to pay us royalties on all such sales. In addition, we intend to be the worldwide manufacturer of BEC2. 1 We are also developing inhibitors of angiogenesis, which could be used to treat various kinds of cancer and other diseases. We have identified potential monoclonal antibody-based inhibitors, collectively known as IMC-KDR antibodies. The IMC-KDR antibodies bind selectively and with high affinity to the kinase insert domain-containing receptor ("KDR"), a principal Vascular Endothelial Growth Factor ("VEGF") receptor, thereby, we believe, inhibiting angiogenesis. A phase I clinical trial completed in 2001 demonstrated that an IMC-KDR antibody, known as IMC-1C11 can be given safely to patients with refractory colorectal cancer. In addition to the development of our lead product candidates, we continue to conduct research, both independently and in collaboration with academic and corporate partners, in a number of areas related to our core focus of growth factor blockers, cancer vaccines and angiogenesis inhibitors. We have also developed diagnostic products and vaccines for certain infectious diseases, and we have licensed the rights to these products and vaccines to corporate partners. DEVELOPMENT PROGRAMS ERBITUX(TM) CANCER THERAPEUTIC The activation of the EGF receptor is believed to play a critical role in the growth and survival of certain types of tumor cells and select normal cells. Certain cancer types are characterized by the expression of the EGF receptor. For example, according to the American Cancer Society, there are approximately 130,000 cases of colorectal cancer diagnosed in the United States each year. According to the literature in this area, in roughly half of these cases, the tumor cells express the EGF receptor. Recent studies conducted by us have indicated that in advanced stage refractory patients this percentage may be as high as 73%. Also, according to the American Cancer Society, more than 30,000 cases of head and neck cancer are diagnosed in the United States each year. Similarly, according to the literature in this area, more than 90% of head and neck cancer cases have been shown to express the EGF receptor on the surface of the tumor cells. Other types of cancer are also characterized, in certain patients, by expression of the EGF receptor, including lung, renal, and pancreatic cancers. By preventing the binding of critical growth factors to the EGF receptor, we believe it is possible to inhibit the growth of these tumors. EARLY ERBITUX(TM) CLINICAL TRIALS ERBITUX is a chimerized (part human, part mouse) monoclonal antibody that selectively binds to the EGF receptor and thereby inhibits growth of cells dependent upon activation of the EGF receptor for replication. We have tested ERBITUX in numerous clinical trials. In these studies, we have given ERBITUX intravenously at escalating doses, both alone and in combination with radiation therapy or chemotherapy. We have tested ERBITUX in approximately 1,000 patients with various solid cancers, such as colorectal, head and neck, lung, renal, breast, and prostate cancers. We believe results from phase I/II trials of ERBITUX completed in 1999 established an appropriate dosing regimen and provided preliminary evidence of the efficacy of ERBITUX used in combination with chemotherapy and radiation therapy. However, we still need to establish that this dosing regimen is appropriate to the satisfaction of the FDA. While the data from these early trials were encouraging, the results were not sufficient to establish that ERBITUX is safe or effective in treating cancer. RECENT ERBITUX(TM) CLINICAL TRIALS In order to establish whether ERBITUX is safe and effective in treating cancer in larger patient populations and to continue to determine the types of tumors on which ERBITUX is most effective, we determined to conduct the phase II and phase III clinical trials in the indications discussed below. 2 COLORECTAL CANCER --
NUMBER OF PATIENTS ENROLLED AS OF TRIAL TREATMENT 3/14/02 IN STUDY COMMENTS - ----- --------- ---------------- -------- Phase II -- ERBITUX+irinotecan 139 Open-label, stratified study Irinotecan-refractory established the activity and colorectal cancer safety of ERBITUX and irinotecan in Trial CP02-9923 irinotecan-refractory colorectal cancer. Enrollment and patient treatment were completed. Phase II -- ERBITUX+irinotecan, 30 Pilot study has provided the Stage IV leucovorin and fluorouracil safety data to support a colorectal cancer randomized phase III study of standard 3 drug chemotherapy Trial CPO2-0038 with ERBITUX in patients with newly-diagnosed, metastatic colorectal cancer. Enrollment was completed. Patient treatment is ongoing. Phase II -- ERBITUX 61 Open-label study provided Irinotecan-refractory monotherapy initial activity and safety stage IV data for ERBITUX monotherapy colorectal cancer in colorectal cancer. Enrollment was completed. Trial CPO2-0141 Patient treatment is ongoing.
At the May 2001 American Society of Clinical Oncologists ("ASCO") meeting, we presented findings from our phase II clinical study of ERBITUX and irinotecan in patients with irinotecan-refractory colorectal cancer (Trial CPO2-9923). The findings demonstrated that of the 120 patients who, in the opinion of the investigators, had EGF receptor-positive, irinotecan-refractory colorectal cancer, 22.5% achieved a partial response (greater than 50% tumor regression) according to the independent response assessment committee ("IRAC"). An additional nine patients (7.5%) achieved stabilization of disease according to IRAC. The median duration of response was 186 days. On December 28, 2001, the FDA issued a refusal to file letter with respect to our BLA, in particular the data relating to the findings referred to above. On February 26, 2002, we, along with representatives from our strategic partners BMS and Merck KGaA, met with the FDA to discuss the refusal to file and to seek guidance on how to proceed. We believe the February 26, 2002 meeting with the FDA provided us with direction on an approach and a process for resubmitting the ERBITUX BLA. Based on concerns raised by the FDA regarding our BLA, we discussed an approach to provide the FDA with (i) data from a European clinical trial in irinotecan-refractory colorectal cancer that is currently being enrolled by Merck KGaA, in conjunction with (ii) reanalyzed clinical data from our U.S. phase II clinical trials. At the May 2002 ASCO meeting, we expect to present the findings from two of our phase II trials in colorectal cancer: a first-line therapy trial in combination with chemotherapy (Trial CPO2-0038) in metastatic colorectal cancer and a single-agent trial in refractory-colorectal cancer patients (Trial CPO2-0141). In the coming year, in conjunction with our U.S. partner BMS, we expect to open additional studies in colorectal cancer, including a larger monotherapy study, and randomized studies in first line metastatic colorectal cancer. 3 HEAD AND NECK CANCER --
NUMBER OF PATIENTS ENROLLED AS OF TRIAL TREATMENT 3/14/02 IN STUDY COMMENTS - ----- --------- ---------------- -------- Phase II -- ERBITUX+cisplatin 188 Trial to establish the safety Refractory head and neck and activity of ERBITUX in cancer refractory head and neck cancer. Enrollment and patient Trial CP02-9816 treatment were completed. Phase II -- ERBITUX+cisplatin 8 Trial to establish the safety Refractory head and neck and activity of ERBITUX in cancer refractory head and neck cancer. Enrollment is ongoing. Trial CP02-9816c Current patient treatment was completed. Phase III -- ERBITUX+ cisplatin 123 Blinded, randomized study to Metastatic head and neck vs. cisplatin alone compare cisplatin alone with cancer cisplatin plus ERBITUX in patients with metastatic or Trial ECOG-5397 refractory head and neck cancer. This study is being conducted by the Eastern Cooperative Oncology Group. Enrollment was completed. Patient treatment is ongoing. Phase III -- ERBITUX+ radiation 424 Randomized study to compare Locally advanced head and vs. radiation alone ERBITUX plus radiation with neck cancer radiation alone in patients with locally advanced head and Trial CP02-9815 neck cancer. Enrollment was completed. Patient treatment is ongoing.
At the May 2001 ASCO meeting, we presented interim findings from an ongoing phase II study (Trial CPO2-9816) suggesting that the combination of ERBITUX and cisplatin, a standard chemotherapy, can produce major responses in patients with cisplatin-refractory head and neck cancer. We are scheduled to present our final data relating to such phase II study at the 2002 ASCO meeting. At the same meeting, the Eastern Cooperative Oncology Group is scheduled to present their findings from a randomized phase III trial of ERBITUX and cisplatin versus cisplatin alone in metastatic head and neck cancer (Trial ECOG-5397). We understand that our strategic partner Merck KGaA also plans to present at the 2002 ASCO meeting their findings from a phase II trial of ERBITUX and platinum-based chemotherapy in patients with platinum-refractory head and neck cancer. We expect that results will be available from our phase III locally advanced head and neck cancer study (Trial CPO2-9815) in 2003. In conjunction with Merck KGaA, this study was expanded to include Israel, Australia, South Africa and New Zealand and countries in Europe. We meet regularly with Merck KGaA to review and coordinate clinical research efforts. PANCREATIC CANCER --
NUMBER OF PATIENTS ENROLLED AS OF TRIAL TREATMENT 3/14/02 IN STUDY COMMENTS - ----- --------- ---------------- -------- Phase II -- ERBITUX+gemcitabine 41 Single arm study of ERBITUX Chemotherapy-naive plus gemcitabine for patients pancreatic cancer with chemotherapy-naive pancreatic cancer. Enrollment Trial CP02-9814 and patient treatment were completed.
At the May 2001 ASCO meeting, we presented findings from our phase II clinical study (Trial CP02-9814) evaluating the use of ERBITUX and gemcitabine, a standard chemotherapy, in patients with pancreatic cancer. The phase II findings demonstrated that the combination therapy produced a one-year overall survival rate of 32.5%. All of the patients enrolled in the study had EGF receptor-positive pancreatic tumors. The findings from this 41-patient study demonstrated that five patients (12%) achieved a partial 4 response (greater than 50% tumor regression), and an additional 21 patients (52%) achieved stabilization of disease. The median time to disease progression was approximately 3.5 months. These results will be further explored by the Southwest Oncology Group, which plans to conduct a randomized phase III study of ERBITUX and gemcitabine versus gemcitabine alone in patients with chemotherapy-naive pancreatic cancer. LUNG CANCER --
NUMBER OF PATIENTS ENROLLED AS OF TRIAL TREATMENT 3/14/02 IN STUDY COMMENTS - ----- --------- ------------------ -------- Phase II -- ERBITUX+carboplatin 9 Single-arm study to provide Untreated metastatic non-small and paclitaxel preliminary activity and safety cell lung cancer data on the use of ERBITUX and standard chemotherapy in Trial CP02-9932 newly-diagnosed non-small cell lung cancer. Enrollment and patient treatment are ongoing. We currently expect to enroll a total of 33 patients in this study. Phase II -- ERBITUX+carboplatin 35 Single-arm study to provide Untreated metastatic non-small and gemcitabine preliminary activity and safety cell lung cancer data on the use of ERBITUX and standard chemotherapy in Trial CP02-9925 newly-diagnosed non-small cell lung cancer. Enrollment was completed. Patient treatment is ongoing. Phase II -- ERBITUX+docetaxel 52 Single-arm study to provide Metastatic non-small cell lung preliminary activity and safety cancer following failure of one data on the use of ERBITUX and prior platinum-containing standard chemotherapy in regimen previously treated non-small cell lung cancer. Enrollment was Trial CP02-0036 completed. Patient treatment is ongoing.
We commenced these studies in patients with metastatic non-small cell lung cancer. Two studies include patients who have not received prior chemotherapy and one study includes patients who have received one prior regimen for metastatic disease. Preliminary results from our phase II clinical study (Trial CP02-0036) in metastatic non-small cell lung cancer are scheduled to be presented at the May 2002 ASCO meeting. These studies will provide data that will help in planning future studies in non-small cell lung cancer. FUTURE STUDIES -- We intend to explore additional studies in solid tumors. GENERAL -- The primary side effect observed in trials to date has been a skin rash, similar in appearance to acne, that has varied in severity depending on the patient. The rash subsides following completion of therapy. Additionally, a review of the data from ongoing and completed trials has shown that approximately 4% of patients have experienced severe hypersensitivity reactions to the drug. As described above, we are testing ERBITUX in several different types of cancer. Whereas in certain cancer types, like head and neck cancer, the EGF receptor is expressed in nearly every patient with such cancer, in other cancer types, many patients will not be positive for the EGF receptor. For the purpose of testing of patients in the colorectal cancer trials, a diagnostic assay must be used to determine which patients are positive for the EGF receptor. Patients must be positive for the EGF receptor to be included in these trials. Currently, such diagnostic tests are being performed in a laboratory setting, since there are no commercialized assays available for this purpose. If ERBITUX is approved for treating particular cancer types, standard diagnostic kits will need to be available commercially. We have an agreement with the DAKO Corporation for the development of an EGF receptor screening kit. Under the terms of the agreement, DAKO will develop the kit, which will be used to screen tumors for expression of the EGF receptor to identify patients that may be receptive to treatment with ERBITUX. We selected DAKO to develop the screening kit because of its 5 reputation for quality and its experience in the development of diagnostics for other oncology-related monoclonal antibody therapeutics. In parallel with us, DAKO will be applying to the FDA for approval of the EGF receptor screening kit. COLLABORATIONS -- On September 19, 2001, we entered into a development, promotion, distribution and supply agreement with BMS and E.R. Squibb (the "Commercial Agreement"), subsequently amended on March 5, 2002, pursuant to which, among other things, BMS and E.R. Squibb will (a) co-develop and co-promote ERBITUX in the United States and Canada with us, and (b) co-develop and co-promote ERBITUX in Japan with us and Merck KGaA. In accordance with the terms of the Commercial Agreement, responsibilities associated with clinical and other ongoing studies will be apportioned between the parties. The Commercial Agreement provides for the establishment of clinical development plans setting forth the activities to be undertaken by the parties for the purpose of obtaining marketing approvals, providing market support and developing new indications and formulations of ERBITUX. Except as otherwise agreed upon by the parties, we will own all registrations for the product and will be primarily responsible for the regulatory activities leading to the registration in each country. E.R. Squibb will be primarily responsible for the regulatory activities in each country after the product has been registered in that country. In December 1998, we entered into an ERBITUX development and marketing agreement, as subsequently amended, with Merck KGaA. Under this agreement, we have retained the right to develop and market ERBITUX within the United States and Canada, and we have granted Merck KGaA the exclusive right, except in Japan (where ImClone Systems and BMS will co-develop and co-market ERBITUX with Merck KGaA) to develop and market ERBITUX outside of the United States and Canada. BEC2 CANCER VACCINE A cancer vaccine works by the administration of an antigen or the mimic of an antigen that is found on the surface of certain types of cancer cells. Such treatment is intended to activate immune responses and in turn to protect against metastasis or recurrence of the tumor. A cancer vaccine will generally be given after the tumor has responded to initial treatment. Often, an antigen mimic can produce a stronger immune response than that produced by the original antigen that it resembles. BEC2 is a monoclonal antibody that we are developing as a cancer vaccine. BEC2 mimics GD3, a molecule expressed on the surface of several types of cancer cells. By mimicking GD3, BEC2 stimulates an immune response against cells expressing GD3. We have tested BEC2 in phase I clinical trials at Memorial Sloan-Kettering Cancer Center against certain forms of cancer, including both limited disease and extensive disease small-cell lung carcinoma and melanoma (skin cancer). Limited disease small-cell lung carcinoma is limited to the lungs. Extensive disease small-cell lung carcinoma means that the disease has migrated to other parts of the body. In one such trial, 15 patients with small-cell lung carcinoma who had previously received chemotherapy and radiation therapy and achieved a partial or complete response were treated with BEC2. At the time the results were analyzed, approximately 27% of the patients had survived nearly five years following diagnosis. These survival rates were longer than historical survival rates for similar patients receiving conventional therapy, and so formed the basis for going forward with phase III studies. However, this trial alone was not sufficient to establish that BEC2 is safe or effective in treating cancer. Therefore, in conjunction with Merck KGaA, we have initiated a 570-patient multinational pivotal phase III trial for BEC2 in the treatment of limited disease small-cell lung cancer. The trial will examine patient survival two years after a course of therapy. We expect to complete enrollment in the trial in approximately 2003. In 1992, we entered into a BEC2 development and marketing agreement with Merck KGaA. We have retained the right to co-promote BEC2 with Merck KGaA within North America, and we have granted 6 Merck KGaA exclusive rights to develop and market BEC2 outside of North America. Under the agreement, Merck KGaA is also funding a portion of the phase III pivotal trial. In addition, we intend to be the worldwide manufacturer of BEC2. MONOCLONAL ANTIBODY INHIBITORS OF ANGIOGENESIS Our general experience with growth factors, particularly the use of ERBITUX to block the EGF receptor, is mirrored in our pursuit of another promising approach for the treatment of cancer, the inhibition of angiogenesis. Angiogenesis is the natural process of new blood vessel growth. VEGF is one of a group of molecules that helps regulate angiogenesis. Tumor cells, as well as normal cells, produce VEGF. Once produced by the tumor cells, VEGF stimulates the production of new blood vessels and ensures an adequate blood supply to the tumor, enabling the tumor to grow. KDR is a growth factor receptor found almost exclusively on the surface of human endothelial cells, which are the cells that line all blood vessels. VEGF must recognize and bind to this KDR receptor in order to stimulate the endothelial cells to grow and cause new blood vessels to form. We believe that interference with the binding of VEGF to the KDR receptor inhibits angiogenesis and can potentially be used to slow or halt tumor growth. We have identified potential inhibitors collectively known by us as IMC-KDR antibodies. In 2001, we concluded a phase I clinical trial with an IMC-KDR known as IMC-1C11 and demonstrated that it can be given safely in patients with refractory colorectal cancer. We expect to file an Investigational New Drug Application ("INDA") for a fully human monoclonal IMC-KDR antibody candidate for angiogenesis inhibition in the second quarter of 2002 and to start clinical trials of this candidate in the second half of 2002. We believe that such inhibitors could be effective in treating many solid and liquid tumors and may also be useful in treating other diseases, such as diabetic retinopathy, age-related macular degeneration, and rheumatoid arthritis that, like cancer, depend on the growth of new blood vessels. IMCLONE SYSTEMS' RESEARCH PROGRAMS GENERAL In addition to concentrating on our products in development, we perform ongoing research, including research in each of the areas of our ongoing clinical programs of growth factor blockers, cancer vaccines and angiogenesis inhibitors. We have assembled a scientific staff with expertise in a variety of disciplines, including oncology, immunology, molecular and cellular biology, antibody engineering, protein and medicinal chemistry and high-throughput screening. In addition to pursuing research programs in-house, we collaborate with academic institutions and corporations to support our research and development efforts. RESEARCH ON GROWTH FACTOR BLOCKERS We are conducting a research program to develop blockers of the cell-signal transduction pathways of a class of enzymes referred to as tyrosine kinases. Like those based on KDR and EGF receptors, these pathways have been shown to be involved in the rapid proliferation of tumor cells. We are developing monoclonal antibodies to block the binding of growth factors to a number of cellular receptors that trigger these pathways, thereby potentially inhibiting cell division and tumor growth. We are also developing small molecule inhibitors to tyrosine kinase pathways. Our small molecule program is discussed below. RESEARCH ON CANCER VACCINES We are conducting research to discover possible cancer vaccines as another route to cancer treatment. Cancer vaccines would activate immune responses to tumors to protect against metastasis or recurrence of cancer, after initial remission or treatment. We are focusing our cancer vaccine research efforts on developing melanoma vaccines. In addition to the development of BEC2, we are conducting research on a possible melanoma vaccine based on the melanoma antigen gp75. Melanoma is a tumor or cancerous growth of the skin. Animal studies have shown that a gp75 cancer vaccine is effective in creating an immune response in the body against 7 melanoma cells, and may prevent or inhibit growth of experimental melanoma tumors in mice. Additionally, we are investigating the use of other melanoma antigens to be used in conjunction with gp75 for the development of an effective vaccine. We are also investigating various modes of enhancing the capacity of the vaccine to elicit an immune response. We have retained North American marketing and manufacturing rights for IMC-GP75 and have licensed to Merck KGaA the rights to manufacture and market IMC-GP75 outside North America. We commenced human clinical trials of IMC-GP75 in March of 2002. We are collaborating with Memorial Sloan-Kettering Cancer Center on BEC2 and IMC-GP75 in both the clinical and research areas. We are also seeking to develop a multimeric vaccine consisting of human melanoma-associated antigens. The vaccine, referred to as IMC-TRPx3, has demonstrated the ability to produce antibody and cellular immune responses in mice. Additionally, preclinical findings have shown that mice vaccinated with IMC-TRPx3 and challenged with melanoma have a significantly reduced number of lung metastases as compared with a control group. RESEARCH ON ANGIOGENESIS INHIBITORS We are continuing to work with an experimental antibody known as DC101 in animal models. DC101 neutralizes the flk-1 receptor, which is the mouse receptor to VEGF that corresponds to KDR in humans. Such models have shown that DC101 inhibits tumor growth, and we are now focusing on establishing protocols for combination therapies of DC101 with radiation therapy or chemotherapy. Preliminary studies have shown that such combination results in better efficacy in animals than with the DC101 antibody alone. In another approach to angiogenesis inhibition, we are exploring the therapeutic potential of antibodies against vascular-specific cadherin ("VE-cadherin"). Cadherins are a family of cell surface molecules that help organize tissue structures. Researchers believe that VE-cadherin plays an important role in angiogenesis by organizing endothelial cells into vascular tubes, which is a necessary step in the formation of new blood vessels. As we stated above, advanced tumor growth is dependent on the formation of a capillary blood vessel network in the tumor to ensure an adequate blood supply to the tumor. Therefore, antibodies that inhibit VE-cadherin may inhibit such capillary formation in tumors, and help fight cancer by cutting off adequate blood supply to the tumor. Preclinical studies using monoclonal antibodies against VE-cadherin have been shown to inhibit angiogenesis, tumor growth and metastasis by blocking the ability of VE-cadherin to form tubular structures. We are evaluating antibodies that are efficacious in inhibiting angiogenesis and tumor growth without negatively affecting existing vessels. In connection with our VE-cadherin research program, we have been assigned the exclusive rights to VE-cadherin-2, antibodies that may inhibit angiogenesis and tumor growth. We also have an exclusive license to the patent rights pertaining to VE-cadherin for the treatment of cancer in humans. SMALL MOLECULE DRUG DISCOVERY We have established a chemistry department, which we plan to expand and relocate in the second quarter of 2002 to a new Brooklyn, New York laboratory facility, with capabilities in medicinal, combinatorial and computational chemistry. We are also establishing our own chemical compound library for screening, and we are increasing our capacity to perform high throughput screening. This department, working together with our other research groups will focus on the discovery of small molecule inhibitors of tyrosine kinases involved in intracellular pathways (signal transduction, cell cycle, cell survival) activated by cancer-promoting growth factors or angiogenesis-promoting growth factors. MISCELLANEOUS RESEARCH AREAS We are investigating the activities of antibodies that block the function of flt-1, another receptor to which VEGF binds. This receptor is also believed to be involved in blood vessel formation, but recent data suggest that it may function in novel ways unrelated to angiogenesis. We have discovered that antibodies against this receptor may block inflammatory processes in such diseases as atherosclerosis and arthritis. In 8 addition, we have found that flt-1 antibodies can block the growth of certain breast cancers. We are evaluating the therapeutic potential of flt-1 antibodies in these indications. We are conducting additional research outside of our principal areas of clinical focus. These include: (1) a means to induce apoptosis (programmed cell-death) in order to enhance tumor cell killing, including looking for antibodies and for small molecules that enhance the apoptotic process; (2) efforts to identify new genes from hematopoietic stem and stromal cell populations, as well as from tumor endothelial cells, that are potential oncology targets and (3) development of a panel of genes potentially useful for the maintenance and stimulation of stem cells. We are collaborating with various academic institutions including Princeton University and The University of Pennsylvania on the latter two projects. CORPORATE COLLABORATIONS In addition to our collaborations in the research and clinical areas with academic institutions, we have a number of collaborations with other corporations, the most significant of which are discussed below. COLLABORATIONS WITH BRISTOL-MYERS SQUIBB COMPANY On September 19, 2001, we entered into an acquisition agreement (the "Acquisition Agreement") with BMS and Bristol-Myers Squibb Biologics Company, a Delaware corporation ("BMS Biologics") which is a wholly-owned subsidiary of BMS, providing for the tender offer by BMS Biologics to purchase up to 14,392,003 shares of our common stock for $70.00 per share, net to the seller in cash. The tender offer by BMS Biologics, available to all shareholders, allowed for our present or former employees and directors who held exercisable options to purchase shares of our common stock having exercise prices less than $70.00 per share to conditionally exercise any or all of those options and tender the underlying shares in the tender offer. In connection with the Acquisition Agreement, we entered into a stockholder agreement with BMS and BMS Biologics, dated as of September 19, 2001 (the "Stockholder Agreement"), pursuant to which we agreed with BMS and BMS Biologics to various arrangements regarding each of our respective rights and obligations with respect to, among other things, the ownership of shares of our common stock by BMS and BMS Biologics. Concurrently with the execution of the Acquisition Agreement and the Stockholder Agreement, we entered into the Commercial Agreement with BMS and E.R. Squibb, pursuant to which, among other things, BMS and E.R. Squibb are (a) co-developing and co-promoting the biologic pharmaceutical product ERBITUX in the United States and Canada with us, and (b) co-developing and co-promoting ERBITUX in Japan with us and Merck KGaA. On March 5, 2002, we amended the Commercial Agreement with E.R. Squibb and BMS. The amendment changed certain economics of the Commercial Agreement and has expanded the clinical and strategic role of BMS in the ERBITUX development program. One of the principal economic changes to the Commercial Agreement is that we received $140,000,000 on March 7, 2002 and an additional payment of $60,000,000 is payable on March 5, 2003. Such payments are in lieu of the $300,000,000 payment we would have received on acceptance by the FDA of the ERBITUX BLA under the original terms of the Commercial Agreement. In addition, we agreed to resume construction of our second commercial manufacturing facility as soon as reasonably practicable after the execution of the amendment. The terms of the Commercial Agreement, as amended on March 5, 2002, are set forth in more detail below. ACQUISITION AGREEMENT On October 29, 2001 BMS Biologics accepted for payment pursuant to the tender offer, 14,392,003 shares of our common stock on a pro rata basis from all tendering shareholders and those conditionally exercising stock options. STOCKHOLDER AGREEMENT Pursuant to the Stockholder Agreement, our Board of Directors (the "Board") was increased from ten to twelve members. BMS received the right to nominate two directors to our Board of Directors (each a "BMS director") so long as its ownership interest in ImClone Systems is 12.5% or greater. If BMS' ownership 9 interest is 5% or greater but less than 12.5%, BMS will have the right to nominate one BMS director, and if BMS' ownership interest is less than 5%, BMS will have no right to nominate a BMS director. Based on the number of shares of common stock acquired pursuant to the tender offer, BMS has the right to nominate two directors. Currently BMS has designated Peter S. Ringrose, M.A., Ph.D., BMS's Chief Scientific Officer, and Andrew G. Bodnar, M.D., J.D., BMS's Senior Vice President, Medical and External Affairs, as the initial BMS directors. The nominations of such individuals were approved by the Board on November 15, 2001. If the size of our Board is increased to a number greater than twelve, the number of BMS directors would be increased, subject to rounding, such that the number of BMS directors is proportionate to the lesser of BMS' then-current ownership interest and 19.9%. BMS has agreed to waive this right until our next annual meeting of stockholders to the extent we choose to increase the Board to 13 members. Notwithstanding the foregoing, BMS will have no right to nominate any BMS directors if (i) we have terminated the Commercial Agreement due to a material breach by BMS or (ii) BMS' ownership interest were to remain below 5% for 45 consecutive days. Voting of Shares. During the period in which BMS has the right to nominate at least one BMS director, BMS and its affiliates are required to vote all of their shares in the same proportion as the votes cast by all of our other stockholders with respect to the election or removal of non-BMS directors. Committees of the Board of Directors. During the period in which BMS has the right to nominate at least one BMS director, BMS also has the right, subject to certain exceptions and limitations to have one member of each committee of the Board be a BMS director. Approval Required for Certain Actions. We may not take any action that constitutes a prohibited action under the Stockholder Agreement without the consent of the BMS directors, until September 19, 2006 or, if earlier, the occurrence of any of (i) a reduction in BMS's ownership interest to below 5% for 45 consecutive days, (ii) a transfer or other disposition of shares of our common stock by BMS or any of its affiliates such that BMS and its affiliates own or have control over less than 75% of the maximum number of shares of our common stock owned by BMS and its affiliates at any time after September 19, 2001, (iii) an acquisition by a third party of more than 35% of the outstanding shares of our common stock, (iv) a termination of the Commercial Agreement by BMS due to significant regulatory or safety concerns regarding ERBITUX, or (v) a termination of the Commercial Agreement due to a material breach by BMS. Such prohibited actions include (i) issuing additional shares or securities convertible into shares in excess of 21,473,002 shares of our common stock in the aggregate, subject to certain exceptions; (ii) incurring additional indebtedness if the total of (A) the principal amount of indebtedness incurred since September 19, 2001 and then-outstanding, and (B) the net proceeds from the issuance of any redeemable preferred stock then-outstanding, would exceed our amount of indebtedness for borrowed money outstanding as of September 19, 2001 by more than $500 million; (iii) acquiring any business if the aggregate consideration for such acquisition, when taken together with the aggregate consideration for all other acquisitions consummated during the previous twelve months, is in excess of 25% of our aggregate value at the time the binding agreement relating to such acquisition was entered into; (iv) disposing of all or any substantial portion of our non-cash assets; (v) entering into non-competition agreements that would be binding on BMS, its affiliates or any BMS director; (vi) taking certain actions that would have a discriminatory effect on BMS or any of its affiliates as a stockholder; and (vii) issuing capital stock with more than one vote per share. Limitation on Additional Purchases of Shares and Other Actions. Subject to the exceptions set forth below, until September 19, 2006 or, if earlier, the occurrence of any of (i) an acquisition by a third party of more than 35% of our outstanding shares, (ii) the first anniversary of a reduction in BMS's ownership interest in us to below 5% for 45 consecutive days, or (iii) our taking a prohibited action under the Stockholder Agreement without the consent of the BMS directors, neither BMS nor any of its affiliates will acquire beneficial ownership of any shares of our common stock or take any of the following actions: (i) encourage any proposal for a business combination with us or an acquisition of our shares; (ii) participate in the solicitation of proxies from holders of shares of our common stock; (iii) form or participate in any 10 "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to shares of our common stock; (iv) enter into any voting arrangement with respect to shares of our common stock; or (v) seek any amendment to or waiver of these restrictions. The following are exceptions to the standstill restrictions described above: (i) BMS Biologics may acquire beneficial ownership of shares of our common stock either in the open market or from us pursuant to the option described below, so long as, after giving effect to any such acquisition of shares, BMS's ownership interest would not exceed 19.9%; (ii) BMS may make, subject to certain conditions, a proposal to the Board to acquire shares of our common stock if we provide material non-public information to a third party in connection with, or begin active negotiation of, an acquisition by a third party of more than 35% of the outstanding shares; (iii) BMS may acquire shares of our common stock if such acquisition has been approved by a majority of the non-BMS directors; and (iv) BMS may make, subject to certain conditions, including that an acquisition of shares be at a premium of at least 25% to the prevailing market price, non-public requests to the Board to amend or waive any of the standstill restrictions described above. Certain of the exceptions to the standstill provisions described above will terminate upon the occurrence of: (i) a reduction in BMS's ownership interest in us to below 5% for 45 consecutive days, (ii) a transfer or other disposition of shares of our common stock by BMS or any of its affiliates such that BMS and its affiliates own or have control over less than 75% of the maximum number of shares owned by BMS and its affiliates at any time after September 19, 2001, (iii) a termination of the Commercial Agreement by BMS due to significant regulatory or safety concerns regarding ERBITUX, or (iv) a termination of the Commercial Agreement by us due to a material breach by BMS. Option to Purchase Shares in the Event of Dilution. BMS Biologics has the right under certain circumstances to purchase additional shares of common stock from us at market prices, pursuant to an option granted to BMS by us, in the event that BMS's ownership interest is diluted (other than by any transfer or other disposition by BMS or any of its affiliates). BMS can exercise this right (i) once per year, (ii) if we issue shares of common stock in excess of 10% of the then-outstanding shares in one day, and (iii) if BMS's ownership interest is reduced to below 5% or 12.5%. BMS Biologics's right to purchase additional shares of common stock from us pursuant to this option will terminate on September 19, 2006 or, if earlier, upon the occurrence of (i) an acquisition by a third party of more than 35% of the outstanding shares, or (ii) the first anniversary of a reduction in BMS's ownership interest in us to below 5% for 45 consecutive days. Transfers of Shares. Until September 19, 2004, neither BMS nor any of its affiliates may transfer any shares of our common stock or enter into any arrangement that transfers any of the economic consequences associated with the ownership of shares. After September 19, 2004, neither BMS nor any of its affiliates may transfer any shares or enter into any arrangement that transfers any of the economic consequences associated with the ownership of shares, except (i) pursuant to registration rights granted to BMS with respect to the shares, (ii) pursuant to Rule 144 under the Securities Act of 1933, as amended or (iii) for certain hedging transactions. Any such transfer is subject to the following limitations: (i) the transferee may not acquire beneficial ownership of more than 5% of the then-outstanding shares of common stock; (ii) no more than 10% of the total outstanding shares of common stock may be sold in any one registered underwritten public offering; and (iii) neither BMS nor any of its affiliates may transfer shares of common stock (except for registered firm commitment underwritten public offerings pursuant to the registration rights described below) or enter into hedging transactions in any twelve-month period that would, individually or in the aggregate, have the effect of reducing the economic exposure of BMS and its affiliates by the equivalent of more than 10% of the maximum number of shares of common stock owned by BMS and its affiliates at any time after September 19, 2001. Notwithstanding the foregoing, BMS Biologics may transfer all, but not less than all, of the shares of common stock owned by it to BMS or to E.R. Squibb or another wholly-owned subsidiary of BMS. Registration Rights. We granted BMS customary registration rights with respect to shares of common stock owned by BMS or any of its affiliates. 11 COMMERCIAL AGREEMENT Rights Granted to E.R. Squibb. Pursuant to the Commercial Agreement, as amended on March 5, 2002, we granted to E.R. Squibb (i) the exclusive right to distribute, and the co-exclusive right to develop and promote (together with us) any prescription pharmaceutical product using the compound ERBITUX (the "product") in the United States and Canada, (ii) the co-exclusive right to develop, distribute and promote (together with us and Merck KGaA and its affiliates) the product in Japan, and (iii) the non-exclusive right to use our registered trademarks for the product in the United States, Canada and Japan (collectively, the "territory") in connection with the foregoing. In addition, we agreed not to grant any right or license to any third party, or otherwise permit any third party, to develop ERBITUX for animal health or any other application outside the human health field without the prior consent of E.R. Squibb (which consent may not be unreasonably withheld). Rights Granted to the Company. Pursuant to the Commercial Agreement, E.R. Squibb has granted to us and our affiliates a license, without the right to grant sublicenses (other than to Merck KGaA and its affiliates for use in Japan and to any third party for use outside the territory), to use solely for the purpose of developing, using, manufacturing, promoting, distributing and selling ERBITUX or the product, any process, know-how or other invention developed solely by E.R. Squibb or BMS that has general utility in connection with other products or compounds in addition to ERBITUX or the product ("E.R. Squibb Inventions"). Up-Front and Milestone Payments. The Commercial Agreement provides for up-front and milestone payments by E.R. Squibb to us of $900,000,000 in the aggregate, of which $200,000,000 was paid on September 19, 2001, $140,000,000 was paid on March 7, 2002, $60,000,000 is payable on March 5, 2003, $250,000,000 is payable upon receipt of marketing approval from the FDA with respect to an initial indication for ERBITUX and $250,000,000 is payable upon receipt of marketing approval from the FDA with respect to a second indication for ERBITUX. All such payments are non-refundable and non-creditable. Distribution Fees. The Commercial Agreement provides that E.R. Squibb shall pay us distribution fees based on a percentage of "annual net sales" of the product (as defined in the Commercial Agreement) by E.R. Squibb in the United States and Canada. The distribution fee is 39% of net sales in the United States and Canada. The Commercial Agreement also provides that the distribution fees for the sale of the product in Japan by E.R. Squibb or ImClone Systems shall be equal to 50% of operating profit or loss with respect to such sales for any calendar month. In the event of an operating profit, E.R. Squibb shall pay us the amount of such distribution fee, and in the event of an operating loss, we shall credit E.R. Squibb the amount of such distribution fee. Development of the Product. Responsibilities associated with clinical and other ongoing studies will be apportioned between the parties as determined by the product development committee described below. The Commercial Agreement provides for the establishment of clinical development plans setting forth the activities to be undertaken by the parties for the purpose of obtaining marketing approvals, providing market support and developing new indications and formulations of the product. After transition of responsibilities for certain clinical and other studies, each party will be primarily responsible for performing the studies designated to it in the clinical development plans. In the United States and Canada, E.R. Squibb will be responsible for 100% of the cost of all clinical studies other than those studies undertaken post-launch which are not pursuant to an INDA (e.g. phase IV studies), the cost of which will be shared equally between E.R. Squibb and ImClone Systems. As between E.R. Squibb and ImClone Systems, each will be responsible for 50% of the costs of all studies in Japan. Except as otherwise agreed upon by the parties, we will own all registrations for the product and will be primarily responsible for the regulatory activities leading to registration in each country. E.R. Squibb will be primarily responsible for the regulatory activities in each country after the product has been registered in that country. Pursuant to the terms of the Commercial Agreement, as amended, Andrew G. Bodnar, M.D., J.D., Senior Vice President of Medical and External Affairs of BMS, and a member of our Board of Directors, will oversee the implementation of the clinical and regulatory plan for ERBITUX. 12 Distribution and Promotion of the Product. Pursuant to the Commercial Agreement, E.R. Squibb has agreed to use all commercially reasonable efforts to launch, promote and sell the product in the territory with the objective of maximizing the sales potential of the product and promoting the therapeutic profile and benefits of the product in the most commercially beneficial manner. In connection with its responsibilities for distribution, marketing and sales of the product in the territory, E.R. Squibb will perform all relevant functions, including but not limited to the provision of all sales force personnel, marketing (including all advertising and promotional expenditures), warehousing and physical distribution of the product. However, we have the right, at our election and sole expense, to co-promote with E.R. Squibb the product in the territory. Pursuant to this co-promotion option, which we have exercised, we will be entitled on and after April 11, 2002 (at our sole expense) to have our sales force and medical liaison personnel participate in the promotion of the product consistent with the marketing plan agreed upon by the parties, provided that E.R. Squibb will retain the exclusive rights to sell and distribute the product. Except for our expenses incurred pursuant to the co-promotion option, E.R. Squibb will be responsible for 100% of the distribution, sales and marketing costs in the United States and Canada, and as between E.R. Squibb and ImClone Systems, each will be responsible for 50% of the distribution, sales, marketing costs and other related costs and expenses in Japan. Manufacture and Supply. The Commercial Agreement provides that we will be responsible for the manufacture and supply of all requirements of ERBITUX in bulk form ("API") for clinical and commercial use in the territory, and that E.R. Squibb will purchase all of its requirements of API for commercial use from us. We will supply API for clinical use at our fully burdened manufacturing cost, and will supply API for commercial use at our fully burdened manufacturing cost plus a mark-up of 10%. The parties intend to negotiate our use of process development at one of BMS's facilities for the support of a non-commercial supply of API. Upon the expiration, termination or assignment of any existing agreements between ImClone Systems and third party manufacturers, E.R. Squibb will be responsible for processing API into the finished form of the product. Management. The parties have formed the following committees for purposes of managing their relationship and their respective rights and obligations under the Commercial Agreement: - a joint executive committee (the "JEC"), which consists of certain senior officers of each party. The JEC is co-chaired by a representative of each of BMS and us. The JEC is responsible for, among other things, managing and overseeing the development and commercialization of ERBITUX pursuant to the terms of the Commercial Agreement, approving the annual budgets and multi-year expense forecasts, and resolving disputes, disagreements and deadlocks arising in the other committees; - a product development committee (the "PDC"), which consists of members of senior management of each party with expertise in pharmaceutical drug development and/or marketing. The PDC is chaired by our representative. The PDC is responsible for, among other things, managing and overseeing the development and implementation of the clinical development plans, comparing actual versus budgeted clinical development and regulatory expenses, and reviewing the progress of the registrational studies; - a joint commercialization committee (the "JCC"), which consists of members of senior management of each party with clinical experience and expertise in marketing and sales. The JCC is chaired by a representative of BMS. The JCC is responsible for, among other things, overseeing the preparation and implementation of the marketing plans, coordinating the sales efforts of E.R. Squibb and us, and reviewing and approving the marketing and promotional plans for the product in the territory; and - a joint manufacturing committee (the "JMC"), which consists of members of senior management of each party with expertise in manufacturing. The JMC is chaired by our representative (unless a determination is made that a long-term inability to supply API exists, in which case the JMC will be co-chaired by representatives of E.R. Squibb and us). The JMC is responsible for, among other things, overseeing and coordinating the manufacturing and supply of API and the product, and formulating and directing the manufacturing strategy for the product. 13 Any matter which is the subject of a deadlock (i.e., no consensus decision) in the PDC, the JCC or the JMC will be referred to the JEC for resolution. Subject to certain exceptions, deadlocks in the JEC will be resolved as follows: (i) if the matter was also the subject of a deadlock in the PDC, by the co-chairperson of the JEC designated by us, (ii) if the matter was also the subject of a deadlock in the JCC, by the co-chairperson of the JEC designated by BMS, or (iii) if the matter was also the subject of a deadlock in the JMC, by the co-chairperson of the JEC designated by us. All other deadlocks in the JEC will be resolved by arbitration. Right of First Offer. E.R. Squibb has a right of first offer with respect to our IMC-KDR antibodies should we decide to enter into a partnering arrangement with a third party with respect to IMC-KDR antibodies at any time prior to the earlier to occur of September 19, 2006 and the first anniversary of the date which is 45 days after any date on which BMS's ownership interest in ImClone Systems is less than 5%. If we decide to enter into a partnering arrangement during such period, we must notify E.R. Squibb. If E.R. Squibb notifies us that it is interested in such an arrangement, we will provide our proposed terms to E.R. Squibb and the parties will negotiate in good faith for 90 days to attempt to agree on the terms and conditions of such an arrangement. If the parties do not reach agreement during this period, E.R. Squibb must propose the terms of an arrangement which it is willing to enter into, and if we reject such terms we may enter into an agreement with a third party with respect to such a partnering arrangement (provided that the terms of any such agreement may not be more favorable to the third party than the terms proposed by E.R. Squibb). Right of First Negotiation. If, at any time during the restricted period (as defined below), we are interested in establishing a partnering relationship with a third party involving certain compounds or products not related to ERBITUX, the product or IMC-KDR antibodies, we must notify E.R. Squibb and E.R. Squibb will have 90 days to enter into a non-binding heads of agreement with us with respect to such a partnering relationship. In the event that E.R. Squibb and ImClone Systems do not enter into a non-binding heads of agreement, we are free to negotiate with third parties without further obligation to E.R. Squibb. The "restricted period" means the period from September 19, 2001 until the earliest to occur of (i) September 19, 2006, (ii) a reduction in BMS's ownership interest in ImClone Systems to below 5% for 45 consecutive days, (iii) a transfer or other disposition of shares of our common stock by BMS or any of its affiliates such that BMS and its affiliates own or have control over less than 75% of the maximum number of shares of our common stock owned by BMS and its affiliates at any time after September 19, 2001, (iv) an acquisition by a third party of more than 35% of the outstanding Shares, (v) a termination of the Commercial Agreement by BMS due to significant regulatory or safety concerns regarding ERBITUX, or (vi) our termination of the Commercial Agreement due to a material breach by BMS. Restriction on Competing Products. During the period from the date of the Commercial Agreement until September 19, 2008, the parties have agreed not to, directly or indirectly, develop or commercialize a competing product (defined as a product that has as its only mechanism of action an antagonism of the EGF receptor) in any country in the territory. In the event that any party proposes to commercialize a competing product or purchases or otherwise takes control of a third party which has developed or commercialized a competing product, then such party must either divest the competing product within 12 months or offer the other party the right to participate in the commercialization and development of the competing product on a 50/50 basis (provided that if the parties cannot reach agreement with respect to such an agreement, the competing product must be divested within 12 months). Ownership. The Commercial Agreement provides that we will own all data and information concerning ERBITUX and the product and (except for the E.R. Squibb Inventions) all processes, know-how and other inventions relating to the product and developed by either party or jointly by the parties. E.R. Squibb will, however, have the right to use all such data and information, and all such processes, know-how or other inventions, in order to fulfill its obligations under the Commercial Agreement. Product Recalls. If E.R. Squibb is required by any regulatory authority to recall the product in any country in the territory (or if the JCC determines such a recall to be appropriate), then E.R. Squibb and ImClone Systems shall bear the costs and expenses associated with such a recall (i) in the United States and Canada, in the proportion of 39% for ImClone Systems and 61% for E.R. Squibb and (ii) in Japan, in the 14 proportion for which each party is entitled to receive operating profit or loss (unless, in the territory, the predominant cause for such a recall is the fault of either party, in which case all such costs and expenses shall be borne by such party). Mandatory Transfer. Each of BMS and E.R. Squibb has agreed under the Commercial Agreement that in the event it sells or otherwise transfers all or substantially all of its pharmaceutical business or pharmaceutical oncology business, it must also transfer to the transferee its rights and obligations under the Commercial Agreement. Indemnification. Pursuant to the Commercial Agreement, each party has agreed to indemnify the other for (i) its negligence, recklessness or wrongful intentional acts or omissions, (ii) its failure to perform certain of its obligations under the agreement, and (iii) any breach of its representations and warranties under the agreement. Termination. Unless earlier terminated pursuant to the termination rights discussed below, the Commercial Agreement expires with regard to the product in each country in the territory on the later of September 19, 2018 and the date on which the sale of the product ceases to be covered by a validly issued or pending patent in such country. The Commercial Agreement may also be terminated prior to such expiration as follows: - by either party, in the event that the other party materially breaches any of its material obligations under the Commercial Agreement and has not cured such breach within 60 days after notice; - by E.R. Squibb, if the JEC determines that there exists a significant concern regarding a regulatory or patient safety issue that would seriously impact the long-term viability of all products; or - by either party, in the event that the JEC does not approve additional clinical studies that are required by the FDA in connection with the submission of the initial regulatory filing with the FDA within 90 days of receiving the formal recommendation of the PDC concerning such additional clinical studies. We incurred approximately $16,055,000 in advisor fees associated with consummating the Acquisition Agreement, the Stockholder Agreement and the Commercial Agreement with BMS and its affiliates through December 31, 2001. These costs have been expensed during the year ended December 31, 2001 and included as a separate line item in operating expenses in the consolidated statement of operations. COLLABORATIONS WITH MERCK KGAA ERBITUX License and Development Agreement. In December 1998, we entered into an agreement with Merck KGaA relating to the development and commercialization of ERBITUX. Under this agreement: - we retained the rights to market ERBITUX within the United States and Canada; - we granted Merck KGaA exclusive rights, except in Japan, to market ERBITUX outside of the United States and Canada; - we agreed to seek to supply Merck KGaA, and Merck KGaA agreed to purchase from us, ERBITUX for conducting clinical trials and the commercialization of the product outside of the United States and Canada (which we are now currently supplying to Merck KGaA, and Merck KGaA is currently purchasing from us); - we (along with E.R. Squibb pursuant to the terms of the Commercial Agreement) will co-develop and co-market ERBITUX in Japan with Merck KGaA; - we granted Merck KGaA an exclusive license outside of the United States and Canada, without the right to sublicense, to apply certain of our patents to a humanized EGF receptor antibody on which Merck KGaA has performed preclinical studies. 15 In return, Merck KGaA: - has paid to us $30,000,000 in up-front fees and early cash-based milestone payments based upon achievement of certain milestones set forth in the agreement, all of which had been received as of June 2001; - will pay to us an additional $30,000,000 assuming achievement of further milestones for which Merck KGaA will receive equity (the "milestone shares") in our company, which will be at prices at varying premiums to the then market price of the common stock depending upon the timing of the achievement of the respective milestones, of which $5,000,000 had been received and 63,027 shares of common stock issued as of March 28, 2002; - will fund clinical development of ERBITUX outside of the United States and Canada; - is required to pay us royalties on its future sales of ERBITUX outside of the United States and Canada, if any. To the extent the milestone shares are issued, then such issuance will be shares of our common stock (or a non-voting security convertible into our common stock). The number of shares issued to Merck KGaA will be determined by dividing the particular milestone payment due by the purchase price of the common stock when the milestone is achieved. The purchase price will relate to the then market price of our common stock, plus a premium which varies, depending upon whether the milestone is achieved early, on-time or late. In August 2001, we received our first equity-based milestone payment totaling $5,000,000 and, accordingly, issued to Merck KGaA 63,027 shares of our common stock. The number of shares issued for this milestone payment was determined using a price of $79.33 per share. During the year ended December 31, 2001, the Company recognized revenue of approximately $1,760,000 representing the excess of the amount paid by Merck KGaA for these shares over the fair value of the Company's common stock. In August 2001, ImClone Systems and Merck KGaA amended this agreement to provide, among other things, that Merck KGaA may manufacture ERBITUX for supply in its territory and may utilize a third party to do so upon ImClone Systems' reasonable acceptance. The amendment further released Merck KGaA from its obligations under the agreement relating to providing a guaranty under a $30,000,000 credit facility relating to the build-out of the product launch manufacturing facility. In addition, the amendment provides that the companies have co-exclusive rights to ERBITUX in Japan, including the right to sublicense and Merck KGaA waived its right of first offer in the case of a proposed sublicense by ImClone Systems of ERBITUX in ImClone Systems' territory. In consideration for the amendment, we agreed to a reduction in royalties payable by Merck KGaA on sales of ERBITUX in Merck KGaA's territory. If issuing shares of common stock to Merck KGaA would result in Merck KGaA owning greater than 19.9% of our common stock, the milestone shares will be a non-voting preferred stock, or other non-voting stock convertible into our common stock. These convertible securities will not have voting rights. They will be convertible at a price determined in the same manner as the purchase price for shares of our common stock if shares of common stock were to be issued. They will not be convertible into common stock if, as a result of the conversion, Merck KGaA would own greater than 19.9% of our common stock. This 19.9% limitation is in place through December 2002. After this date, Merck KGaA must sell shares it receives as a result of conversion to the extent such shares result in Merck KGaA's owning in excess of 19.9% of our common stock. We have granted Merck KGaA certain registration rights regarding the shares of common stock that it may acquire upon conversion of the milestone shares. This agreement may be terminated by Merck KGaA in various instances, including (1) at its discretion on any date on which a milestone is achieved (in which case no milestone payment will be made), or (2) for a one-year period after first commercial sale of ERBITUX in Merck KGaA's territory, upon Merck KGaA's reasonable determination that the product is economically unfeasible (in which case Merck KGaA is entitled to receive back 50% of the cash-based up-front fees and milestone payments then paid to date, but only out of revenues received, if any, based upon a royalty rate applied to the gross profit from ERBITUX sales or a percentage of ERBITUX fees and royalties from a sublicensee on account of the sale of ERBITUX in the United States and Canada). 16 Through December 31, 2001, ImClone Systems has received the $30,000,000 in up-front fees and cash-based milestone payments as well as, $5,000,000 of the equity-based milestone payments. Of the cash-based milestone payments received through December 31, 2001, $2,000,000 was received and recognized as revenue in the year ended December 31, 2001. A total of $28,000,000 was received prior to January 1, 2001 and originally recorded as fees potentially refundable to corporate partner and not as revenue due to the fact that they were refundable to Merck KGaA in the event a condition relating to obtaining certain collateral license agreements was not satisfied by us. In March 2001, this condition was satisfied and $24,000,000 in milestone payments was recognized as revenue by us during the three months ended March 31, 2001. The remaining $4,000,000 represents the up-front payment associated with the agreement and has been recorded as deferred revenue. BEC2 Research and License Agreement. Effective April 1990, we entered into an agreement with Merck KGaA relating to the development and commercialization of BEC2 and the recombinant gp75 antigen. Under this agreement: - we granted Merck KGaA a license, with the right to sublicense, to make, have made, use, sell, or have sold BEC2 and gp75 outside North America; - we granted Merck KGaA a license, without the right to sublicense, to use, sell, or have sold, but not to make BEC2 within North America in conjunction with ImClone Systems; - we retained the rights, (1) without the right to sublicense, to make, have made, use, sell, or have sold BEC2 in North America in conjunction with Merck KGaA and (2) with the right to sublicense, to make, have made, use, sell, or have sold gp75 in North America; - we are required to give Merck KGaA the opportunity to negotiate a license in North America to gp75 before granting such a license to any third party. In return, Merck KGaA: - has made research support payments to us totaling $4,700,000; - is required to make milestone payments to us of up to $22,500,000, of which $4,000,000 has been received through December 31, 2001, based on milestones achieved in the product development of BEC2; - is required to make royalty payments to us on all sales of the licensed products outside North America, if any, with a portion of the earlier funding received under the agreement being creditable against the amount of royalties due. Merck KGaA is responsible for conducting the clinical trials and regulatory submissions outside North America, and we are responsible for conducting those within North America. Costs worldwide to conduct a multi-site, multinational phase III clinical trial to obtain approval for the indication of the treatment of limited disease small-cell lung carcinoma for BEC2 are the responsibility of Merck KGaA. These include our out-of-pocket costs (but do not include costs of establishing a manufacturing facility) for manufacturing materials for clinical trials, conduct of clinical trials and regulatory submissions (other than drug approval fees, which are the responsibility of Merck KGaA or ImClone Systems in our respective territories). If these expenses, including such expenses of Merck KGaA, exceed DM17,000,000, such excess expenses will be shared 60% by Merck KGaA and 40% by us. This expense level was reached during the fourth quarter of 2000 and all expenses from that point forward are being shared 60% by Merck KGaA and 40% by us. We will negotiate with Merck KGaA the allocation of costs for the conduct of additional clinical trials for other indications. We are responsible for providing the supply of the active agent outside of North America at the expense of Merck KGaA, and the parties intend that the cost of goods sold in North America be paid out of gross sales of any licensed product in North America in accordance with a co-promotion agreement to be negotiated. The agreement terminates upon the later of (1) the last to expire of any patents issued and covered by the technology or (2) fifteen years from the date of the first commercial sale. After termination, the license 17 will survive without further royalty payment and is irrevocable. The agreement may be terminated earlier by us in the event Merck KGaA 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 KGaA if milestones are not achieved. In connection with the December 1997 amendment to the agreement with Merck KGaA for BEC2, Merck KGaA purchased from us 400,000 shares of our series A convertible preferred stock (the "series A preferred stock") for a total price of approximately $40,000,000. Of its 400,000 shares of series A preferred stock, Merck KGaA converted 100,000 shares in 1999 and 100,000 shares in 2000 into a total of 2,099,220 shares of common stock. In December 2000, we redeemed the remaining 200,000 outstanding shares of series A preferred stock for a total redemption price of $24,000,000 plus accrued and unpaid dividends of approximately $1,200,000. We also paid Merck KGaA a dividend of approximately $574,000 in connection with the 100,000 shares of series A preferred stock converted in December 2000. OTHER CORPORATE COLLABORATIONS ABBOTT LABORATORIES We have licensed some of our diagnostic products and techniques to Abbott Laboratories ("Abbott") on a worldwide basis. In mid-1995, Abbott launched its first DNA-based diagnostic test in Europe, using our Repair Chain Reaction ("RCR") DNA probe technology. Abbott's test is used to diagnose the sexually transmitted diseases chlamydia and gonorrhea, as well as mycobacteria. The RCR DNA probe technology uses DNA amplification techniques to detect the presence of DNA or RNA in biological samples thereby indicating the presence of disease. In December 1996, we amended our agreement with Abbott to allow Abbott to exclusively license our patented DNA signal amplification technology, Ampliprobe, to Chiron Diagnostics. DNA signal amplification technology such as Ampliprobe also uses DNA signal amplification techniques in detecting the presence of DNA or RNA in biological samples, thereby indicating the presence of disease. Abbott receives a royalty payment from Chiron on all sales of Chiron branched DNA diagnostic probe technology in countries covered by our patents. Abbott, in turn, pays any such royalties it receives to us. The Chiron branched DNA diagnostic probe technology was sold to Bayer Pharmaceutical Corporation in 2000. Under the agreement Abbott has paid us up-front fees and research support, and is obligated to pay milestone fees and royalties on sales. In June 1997, we received two milestone payments from Abbott totaling $1,000,000, as a result of a patent issuance in Europe for our RCR technology. This was partially credited against royalties. The issuance of the patent also entitles ImClone Systems to receive royalty payments on sales in covered European countries for products using our RCR technology. In December 1999, a U.S. patent was issued for the RCR technology for which we have received a $500,000 milestone payment from Abbott and have received royalties on sales by Abbott of products using the RCR technology. In February 2000, a Japanese patent was issued on this technology and as a result we received a $250,000 milestone payment. The agreement terminates upon the later of (1) the last to expire of any patents issued covered by the technology or (2) if no patents are granted, twenty years, subject to certain earlier termination provisions contained in the agreement. We have an exclusive worldwide fully paid up license to the RCR technology and the patents issued with respect to it. For the year ended December 31, 2001 we earned total revenues of $1,480,000 pursuant to our strategic alliance with Abbott which consisted of royalties. WYETH In December 1987, we 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 our common stock. During the three-year research period of the agreement, which period expired in December 1990, we were engaged in the development of two vaccine 18 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, Cyanamid's Lederle-Praxis Biologicals division and ImClone Systems 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, Wyeth (formerly known as American Home Products Corporation), has the responsibility under this agreement to pay research support to us, as well as milestone fees and royalties on sales of any N. gonorrhea vaccine that might arise from the collaboration. In January 1998, this agreement was extended to continue annual research funding payable to us in the amount of $300,000 through September 1999 and to extend the period by which Wyeth was required to have filed an INDA to initiate clinical trials with a vaccine candidate. In October 1999, this milestone was achieved, and Wyeth made a $500,000 payment to us. Wyeth 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. Wyeth is required to pay royalties to us in connection with sales of the vaccines, if any. In the year ended December 31, 2001, we recorded no revenues under the Wyeth agreements. GLAXOSMITHKLINE PLC In February 2000, we licensed to GlaxoSmithKline plc (formerly known as SmithKline Beecham) certain patents and patent applications to meningitis antigens along with related know-how and materials, exclusively for the purpose of developing meningitis vaccines. In return we will receive license fees, as well as milestone fees should an antigen or antigens based on our claims be included in its vaccine candidate, and royalties on sales of such vaccine. In the year ended December 31, 2001, we recorded revenues of $40,000 under the GlaxoSmithKline plc agreement, which consisted of a license fee. DAKO CORPORATION We have an agreement with DAKO Corporation for the development of an EGF receptor screening kit. Under the terms of the agreement, DAKO will develop the kit, which will be used to screen tumors for expression of EGF receptor to identify patients that may be receptive to treatment with ERBITUX. We selected DAKO to develop the screening kit because of its reputation for quality and its experience in the development of diagnostics for other oncology-related monoclonal antibody therapeutics. A wholly-owned subsidiary of DAKO A/S of Denmark, DAKO is a global provider of cancer diagnostics and research products that use antibodies, nucleic acid probes and proprietary detection technologies to identify specific disease-associated molecules in tissues and cells. In parallel with us, DAKO will be applying to the FDA for approval of the EGF receptor screening kit. IMMUNEX CORPORATION We are the exclusive licensee of a family of patents and patent applications covering the flk-2/flt-3 receptor. The flk-2/flt-3 growth factor is a protein that binds to and activates the flk-2/flt-3 receptor. The flk-2/flt-3 growth factor is owned by Immunex. In December 1996, we entered into a non-exclusive license and supply agreement with Immunex Corporation ("Immunex"), under which we granted Immunex an exclusive worldwide license to the flk-2/ flt-3 receptor for the limited use of the manufacture of the flk-2/flt-3 growth factor. Immunex is currently testing the growth factor in human trials for stem cell stimulation and for tumor inhibition. Under this agreement, we receive royalty and licensing fees from Immunex, and Immunex has granted us a license to use the flk-2/flt-3 growth factor for use in our ex vivo research on stem cells. In addition, Immunex has granted us a worldwide non-exclusive license to use and sell the flk-2/flt-3 growth factor, manufactured by Immunex, for ex vivo stem cell expansion, together with an exclusive license to distribute the growth factor with our own proprietary products for ex vivo stem cell expansion. Immunex will also supply flk-2/flt-3 growth factor to us. 19 The purchase and supply provisions of our original license and supply agreement were renewed for five years from December 2001, and the license remains in force. Immunex's license terminates thirteen years after the first commercial sale of the product. In the year ended December 31, 2001, we recorded no revenues under this agreement. MONSANTO COMPANY In July 2000, we entered into two agreements with Monsanto Company, pursuant to which Monsanto will investigate the feasibility of expressing in plants nonglycosylated and glycosylated monoclonal antibodies comparable to ERBITUX. The glycosylated antibody feasibility study provides for up-front and milestone payments by us to Monsanto of up to $335,000 in the aggregate, with $150,000 paid upon signing the agreement. The nonglycosylated antibody feasibility study provides for up-front and milestone payments by us to Monsanto of up to $855,000 in the aggregate, with $150,000 paid upon signing the agreement. MANUFACTURING We own and operate a pilot manufacturing facility for biologics in Somerville, New Jersey for the manufacture of clinical trial materials. At our pilot facility, we previously manufactured a portion of the ERBITUX utilized for clinical trials. We now are using our pilot facility to develop the cell culture and purification process for IMC-KDR antibodies and are in the early stages of production for clinical trials. Our pilot facility is operated in accordance with current Good Manufacturing Practices ("cGMP"), which is a requirement for product manufactured for use in clinical trials and for commercial sale. Production in commercial quantities required the expansion of our manufacturing capabilities and the hiring and training of additional personnel. We built a new 80,000 square foot product launch manufacturing facility on our Somerville, New Jersey campus. The manufacturing facility contains three 10,000 liter (working volume) fermenters and is dedicated to the clinical and commercial production of ERBITUX. The construction of the product launch manufacturing facility cost a total of approximately $53,000,000 excluding capitalized interest of approximately $1,966,000. The product launch manufacturing facility was ready for its intended use and put in operation in July 2001. We expect that the product launch manufacturing facility will be included in the resubmission of our BLA and material produced in the product launch manufacturing facility will be used to support ongoing clinical trials and product launch. In December 1999, we entered into a development and manufacturing services agreement with Lonza Biologics plc ("Lonza"). This agreement was amended in April 2001 to include additional services. Under the agreement, Lonza is responsible for process development and scale-up to manufacture ERBITUX in bulk form under cGMP conditions. These steps were taken to assure that the manufacturing process would produce bulk material that conforms with our reference material and to support, in part, our regulatory filing with the FDA. As of December 31, 2001, we had incurred approximately $7,030,000 for services provided under the development and manufacturing services agreement. In September 2000, we entered into a three-year commercial manufacturing services agreement with Lonza relating to ERBITUX. This agreement was amended in June 2001 and again in September 2001 to include additional services. As of December 31, 2001, we had incurred approximately $10,313,000 for services provided under the commercial manufacturing services agreement. Under these two agreements, Lonza is manufacturing ERBITUX at the 5,000 liter scale under cGMP conditions and is delivering it to us over a term ending no later than December 2003. The costs associated with both of these agreements are included in research and development expenses when incurred and will continue to be so classified until such time as ERBITUX may be approved for sale or until we obtain obligations from our corporate partners for supply of approved product. In the event of such approval or obligations from our corporate partners, the subsequent costs associated with manufacturing ERBITUX for commercial sale will be included in inventory and expensed as cost of goods sold when sold. In the event we terminate the commercial manufacturing services agreement with Lonza without cause, we will be required to pay 85% of the stated costs for each of the first ten batches cancelled, 65% of the stated costs for each of the next ten batches cancelled and 40% of the stated costs for each of the next six batches cancelled. The batch cancellation provisions for the subsequent batches contained in the amendment to the commercial manufac- 20 turing services agreement require us to pay 100% of the stated costs of cancelled batches scheduled within six months of the cancellation, 85% of the stated costs of cancelled batches scheduled between six and twelve months following the cancellation and 65% of the stated costs of cancelled batches scheduled between twelve and eighteen months following the cancellation. These amounts are subject to mitigation should Lonza use its manufacturing capacity caused by such termination for another customer. In December 2001, we entered into an agreement with Lonza to manufacture ERBITUX at the 2,000 liter scale for use in clinical trials by Merck KGaA. As of December 31, 2001, we had incurred approximately $2,483,000 for services provided under this agreement, to be reimbursed by Merck KGaA. On January 2, 2002 we executed a letter of intent with Lonza to enter into a long term supply agreement. The long term supply agreement would apply to a large scale manufacturing facility that Lonza is constructing. We expect such facility would be able to produce ERBITUX in 20,000 liter batches. We paid Lonza $3,250,000 for the exclusive rights to reserve and negotiate a long term supply agreement for a portion of the new facility's overall capacity. Under certain conditions, such payment shall be refunded to us. If we enter into a long term supply agreement, such payment will be creditable to us against the 20,000 liter batch price, such credit to be spread evenly over the batches manufactured each year of the initial term of the long term supply agreement. If we obtain FDA approval to market ERBITUX prior to the FDA approval required of our product launch manufacturing facility, or if a contract manufacturer retained for such contingency is unable to deliver approved product to ImClone Systems on a timely basis, we may have insufficient quantities of ERBITUX for the product launch. In any event, we will continue to seek to enter into arrangements with contract manufacturers in order to provide a second source of supply for our products as well as additional capacity for the manufacture of our products. Engineering plans have been developed relating to a second commercial manufacturing facility that would be a multi-use facility with capacity of up to 110,000 liters (working volume). Such a facility would be built on property we recently purchased that is adjacent to our product launch manufacturing facility. We are proceeding with the construction of the second commercial manufacturing facility. MARKETING AND SALES We intend to develop the capacity to market our cancer therapeutic products directly in the U.S. and Canada. As part of this strategy, we have entered into the Commercial Agreement with BMS and E.R. Squibb pursuant to which we have exercised the right to co-promote ERBITUX in the U.S. and Canada. We also have co-promotion rights for commercialization of our BEC2 cancer vaccine in North America pursuant to our BEC2 agreement with Merck KGaA. In order to develop our internal marketing and sales capabilities, ImClone Systems hired a strategic marketing team with experience in the commercial launch of a monoclonal antibody cancer therapeutic and we intend to build an internal sales force and an infrastructure to support our cancer therapeutic products. Pursuant to the terms of the Commercial Agreement, E.R. Squibb has primary responsibility for distribution, marketing and sales of ERBITUX in the territory and will provide sales force personnel and marketing services for ERBITUX. We have the right, at our election and sole expense, to co-promote ERBITUX with E.R. Squibb. Pursuant to this co-promotion option, which we have exercised, we will be entitled on or after April 11, 2002, to have our sales force and medical liaison personnel participate in the promotion of ERBITUX, provided that E.R. Squibb will retain the exclusive rights to sell and distribute the product. Except for our expenses incurred pursuant to the co-promotion option, E.R. Squibb will be responsible for 100% of the distribution, sales and marketing costs in the United States and Canada, and as between E.R. Squibb and ImClone Systems, each will be responsible for 50% of the distribution, sales, marketing costs and other related costs and expenses in Japan. We will continue to evaluate future arrangements and opportunities with respect to other products we may develop in order to optimize our profits, distribution, marketing and sales. 21 PATENTS AND TRADE SECRETS GENERALLY We seek patent protection for our proprietary technology and products 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. Our success will depend, in part, on whether we can: - obtain patents to protect our own products - obtain licenses to use the technologies of third parties, which may be protected by patents - protect our trade secrets and know-how - operate without infringing the intellectual property and proprietary rights of others PATENT RIGHTS; LICENSES We currently have exclusive licenses or assignments to 86 issued patents worldwide that relate to our proprietary technology in the United States and foreign countries, 48 of which are issued United States patents. In addition, we currently have exclusive licenses or assignments to approximately 59 families of patent applications. ERBITUX(TM). We have an exclusive license from the University of California at San Diego to an issued U.S. patent for the murine form of ERBITUX, our EGF receptor antibody product. We believe that this patent's scope should be its literal claim scope as well as other antibodies not literally embraced but potentially covered under the patent law doctrine of equivalents. Whether or not a particular antibody is found to be an equivalent to the antibodies literally covered by the patent can only be determined at the time of a potential infringement, and in view of the technical details of the potentially infringing antibody in question. Our licensor of this patent did not obtain patent protection outside the U.S. for this antibody. We are pursuing additional patent protection relating to the field of EGF receptor antibodies in the treatment of cancer that may limit the ability of third parties to commercialize EGF receptor antibodies for such use. Specifically, we are pursuing patent protection for the use of EGF receptor antibodies in combination with chemotherapy to inhibit tumors or tumor growth. We have exclusively licensed, from Rhone-Poulenc Rorer Pharmaceuticals, now known as Aventis, patent applications seeking to cover the therapeutic use of antibodies to the EGF receptor in conjunction with anti-neoplastic agents. Both a U.S. patent and a Canadian patent were issued in this family and the patent examiner in Europe has indicated an intent to issue a European patent. We have filed additional patent applications based, in part, on our own research that would cover the use of ERBITUX as well as other EGF receptor antibodies in conjunction with radiation therapy, and the use of ERBITUX as well as other EGF receptor inhibitors in refractory patients, either alone or in combination with chemotherapy or radiation therapy. We have also filed patent applications that include claims on the use of conjugated forms of ERBITUX, as well as humanized forms of the antibody and fragments. Our license agreements with the University of California, San Diego and Aventis require us to pay royalties on sales of ERBITUX that are covered by these licenses. There can be no assurance that patent applications related to the field of antibodies in the treatment of cancer to which our company holds rights will result in the issuance of patents, that any patents issued or licensed to our company related to ERBITUX or its use will not be challenged and held to be invalid or of a scope of coverage that is different from what we believe the patent's scope to be, or that our company's present or future patents related to these technologies will ultimately provide adequate patent coverage for or protection of our company's present or future EGF receptor antibody technologies, products or processes. Since, until recently, patent applications were secret until patents were issued in the U.S., or corresponding applications were published in foreign countries, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first to make our 22 inventions, or that we were the first to file patent applications for such inventions. In addition, patents do not give the holder the right to commercialize technology covered by the patents, should our production or its use be found by a court to be embraced by the patent of another. In the event that we are called upon to defend and/or prosecute patent suits and/or related legal or administrative proceedings, such proceedings are costly and time consuming and could result in loss of our patent rights, infringement penalties or both. Litigation and patent interference proceedings could result in substantial expense to us and significant diversion of efforts by our technical and management personnel. An adverse determination in any such interference or in patent litigation, particularly with respect to ERBITUX, to which we may become a party could subject us to significant liabilities to third parties or require us to seek licenses from third parties. If required, the necessary licenses may not be available on acceptable financial or other terms or at all. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us, in whole or in part, from commercializing our products, which could have a material adverse effect on our business, financial condition and results of operations. In the event that there is patent litigation involving one or more of the patents issued to our company, there can be no guarantee that the patents will be held valid and enforceable. The scope of patents are expected to be called into question and could result in a decision by a court that the claims have a different scope than we believe them to have. Further, the outcome of patent litigation is subject to intangibles that cannot be adequately quantified in advance, including the demeanor and credibility of witnesses that will be called to testify, the identity of the adverse party, etc. This is especially true in biotechnology related patent cases that may turn on the testimony of experts as to technical facts upon which experts may reasonably disagree. We are aware of a U.S. patent issued to a third party that includes claims covering the use, subject to certain restrictions, of antibodies to the EGF receptor and cytotoxic factors to inhibit tumor growth. Our patent counsel has advised us that in its opinion, subject to the assumptions and qualifications set forth in such opinion, no valid claim of this third party patent is infringed by reason of our manufacture or sale, or medical professionals' use of ERBITUX alone or in combination with chemotherapy or radiation therapy and, therefore, in the event of litigation for infringement of this third party patent, a court should find that no valid claim of this third party patent is infringed. Based upon this opinion, as well as our review, in conjunction with our patent counsel, of other relevant patents, we believe that we will be able to commercialize ERBITUX alone and in combination with chemotherapy and radiation therapy provided we successfully complete our clinical trials and receive the necessary FDA approvals. This opinion of counsel, however, is not binding on any court or the U.S. Patent and Trademark Office. In addition, there can be no assurance that we will not in the future, in the U.S. or any other country, be subject to patent infringement claims, patent interference proceedings or adverse judgments in patent litigation. There can be no assurance that our company will not be subject to claims in patent suits, that one or more of our products or processes infringe their patents or violate the proprietary rights of third parties. Defense and prosecution of such patent suits can result in the diversion of substantial financial, management and other resources from our company's other activities. An adverse outcome could subject our company to significant liability to third parties, require our company to obtain licenses from third parties, or require our company to cease any related product development activities or product sales. An adverse determination by a court in any such patent litigation, or the U.S. Patent and Trademark Office in a patent interference proceeding, particularly with respect to ERBITUX, to which we may become a party would subject us to significant liabilities to third parties or require us to seek licenses from third parties, or loss in whole or part of our ability to continue to sell our product. If required, the necessary licenses may not be available on acceptable terms or at all. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us, in whole or in part, from commercializing our products, which could have a material adverse effect on our business, financial condition and results of operations. ERBITUX is a "chimerized" monoclonal antibody, which means it is made of antibody fragments derived from more than one type of animal. Patents have been issued to other biotechnology companies that relate to chimerized antibodies or their manufacture. Therefore, we may be required to obtain licenses under 23 these patents before we can commercialize our own chimerized monoclonal antibodies, including ERBITUX. We cannot be certain that we will ever be able to obtain such patent licenses related to chimerized monoclonal antibodies in the U.S. or in other territories of the world where we would want to commercialize ERBITUX. Even if we are able to obtain other licenses as requested, there can be no assurance that our company would be able to obtain a license on financial or other terms acceptable to our company or that we would be able to successfully redesign our products or processes to avoid the scope of such patents. In either such case, such inability would have a material adverse effect on our business, financial condition and results of operations. We cannot guarantee that the cost of such licenses would not materially affect the ability to commercialize ERBITUX. BEC2. We have exclusively licensed from Memorial Sloan-Kettering Cancer Center a family of patents and patent applications relating to our BEC2 monoclonal anti-idiotypic antibody. We know that others have been issued patents in the U.S. and Europe relating to anti-idiotypic antibodies or their use for the treatment of tumors. These patents could be alleged by the third party patent holders in a suit for patent infringement to be valid and to cover BEC2 or certain uses of BEC2. We have entered into a license agreement with Merck KGaA, which entitles Merck KGaA to market BEC2 worldwide with the exception of North America, while we are entitled to co-promote BEC2 in North America. Merck KGaA, our licensee of BEC2, has informed us that it has obtained non-exclusive, worldwide licenses to some of these patents in order for Merck KGaA to market BEC2 within its territory. Our license from Memorial Sloan-Kettering Cancer Center requires us to pay royalties on sales of BEC2. Even if the BEC2-related patent applications mature into issued patents, there can be no assurance that others will not be, or have not been, issued patents that may prevent the sale of one or more of our company's products or the practice of one or more of our company's processes, or require licensing and the payment of significant fees or royalties by our company to third parties in order to enable us to conduct its business. There can be no assurance that our company will not be subject to claims that one or more of its products or processes infringe other patents or violate the proprietary rights of third parties. In the event that we are called upon to defend and/or prosecute patent suits the related legal and administrative proceedings would be costly and time consuming and could result in loss of patent rights, infringement penalties or both. In addition, defense and prosecution of patent suits can result in the diversion of substantial financial, management and other resources from our company's other activities. An adverse outcome could subject our company to significant liability to third parties, require our company to obtain licenses from third parties, or require our company to cease any related product development activities or product sales. In the event we are required to seek other patent licenses related to BEC2, we cannot be certain that we will ever be able to obtain such patent licenses in the U.S. or other parts of the world where we would want to commercialize BEC2. Even if we are able to obtain other licenses as requested, there can be no assurance that our company would be able to obtain a license on financial or other terms acceptable to our company or that we would be able to successfully redesign its products or processes to avoid such patents. In either such case, such inability could have a material adverse effect on our business, financial condition and results of operations. We cannot guarantee that the cost of such licenses would not materially affect the ability to commercialize BEC2. ANGIOGENESIS INHIBITORS. With respect to our research on inhibitors to angiogenesis based on the flk-1 receptor, we are the exclusive licensee from Princeton University of a family of patents and patent applications covering recombinant nucleic acid molecules that encode the flk-1 receptor and antibodies to extracellular portions of the receptor and its human homolog, KDR. We are also the assignee of a family of patents and patent applications filed by our scientists generally related to angiogenesis-inhibiting antibodies to receptors that bind VEGF as covered by the claim language, which is not presented herein. One of the patents licensed from Princeton University claims the use of flk-1 receptor antibodies to isolate cells expressing the 24 flk-1receptor on their cell surfaces. Additionally, we are a co-owner of a patent application claiming the use of flk-1/KDR receptor antibodies to isolate endothelial stem cells that express flk-1/KDR on their cell surfaces. At present, we are seeking exclusive rights to this invention from the co-owners. Our license from Princeton University requires us to pay royalties on sales that would otherwise infringe the licensed patents, which cover antibodies to the flk-1/KDR receptor including IMC-1C11. IMC-1C11 is a "chimerized" monoclonal antibody, which means it is made of antibody fragments derived from more than one type of animal. Patents have been issued to other biotechnology companies that relate to chimerized antibodies or their manufacture. Therefore, we may be required to obtain licenses under these patents before we can commercialize our own chimerized monoclonal antibodies, including IMC-1C11. IMC-1C11 is a phage-derived antibody, which means it is made using phage technology. Patents have been issued to biotechnology companies that relate to phage-derived antibodies and their manufacture. We are additionally developing other IMC-KDR antibodies that are phage-derived, therefore, we may be required to obtain licenses under these patents before we can commercialize certain phage-derived antibodies. We cannot be certain that we will ever be able to obtain such patent licenses related to chimerized monoclonal antibodies in the U.S. or in other territories of the world where we would want to commercialize IMC-1C11. Even if we are able to obtain other licenses as requested, there can be no assurance that our company would be able to obtain a license on financial or other terms acceptable to our company or that we would be able to successfully redesign our products or processes to avoid the scope of such patents. In either such case, such inability could have a material adverse effect on our business, financial condition and results of operations. We cannot guarantee that the cost of such licenses would not materially affect the ability to commercialize IMC-1C11. There can be no assurance that others will not be, or have not been, issued patents that may prevent the sale of one or more of our company's products or the practice of one or more of our company's processes, or require licensing and the payment of significant fees or royalties by us to third parties in order to enable us to conduct business. There can be no assurance that our company will not be subject to claims that one or more of our products or processes infringe other patents or violate the proprietary rights of third parties. In the event that we are called upon to defend and/or prosecute patent suits the related legal and administrative proceedings would be costly and time consuming and could result in loss of patent rights, infringement penalties or both. In addition, defense and prosecution of patent suits can result in the diversion of substantial financial, management and other resources from our company's other activities. An adverse outcome could subject our company to significant liability to third parties, require our company to obtain licenses from third parties, or require our company to cease any related product development activities or product sales. VE-CADHERIN. We have been assigned the exclusive rights to VE-cadherin-2, antibodies and we have an exclusive license to the patent rights pertaining to VE-cadherin for the treatment of cancer in humans. These two families of patent applications cover cadherin molecules that are involved in endothelial cell interactions. These interactions are believed to be involved in angiogenic processes. The subject patent applications also cover antibodies that bind to, and affect, the cadherin molecules. DIAGNOSTICS. Our diagnostics program has been licensed for commercial development to Abbott. The program includes target amplification technology and detection methods, such as RCR technology, signal amplification technology, such as Ampliprobe, and p53 mutation detection for assisting in cancer diagnosis. We have pending patent applications and have obtained patents that relate to our diagnostics program. We have either an assignment from our own scientists or exclusive licenses from academic institutions to these families of patents and patent applications. We have an exclusive license to an issued patent assigned to Princeton University related to the underlying technology for our Ampliprobe signal amplification and detection system. We are aware that patent applications have been filed by, and that patents have been issued to, third parties in the field of DNA amplification technology. This could affect Abbott's ability to commercialize our diagnostic products, and our ability to collect royalties for such commercialization. 25 Even if the diagnostics-related patent applications mature into issued patents, there can be no assurance that others will not be, or have not been, issued patents that may prevent the commercial development of one or more of the technologies included in the diagnostics program or practice of one or more of the technologies included in the diagnostics program, or require licensing and the payment of significant fees or royalties by our company to third parties in order to enable us to conduct our business. There can be no assurance that our company will not be subject to claims that one or more of our products or processes infringe other patents or violate the proprietary rights of third parties. In the event that we are called upon to defend and/or prosecute patent suits the related legal and administrative proceedings would be costly and time consuming and could result in loss of patent rights, infringement penalties or both. In addition, defense and prosecution of patent suits can result in the diversion of substantial financial, management and other resources from our company's other activities. An adverse outcome could subject our company to significant liability to third parties, require our company to obtain licenses from third parties, or require our company to cease any related product development activities or product sales. TRADEMARKS. ERBITUX, IMCLONE, IMCLONE SYSTEMS, IMCLONE SYSTEMS INCORPORATED, ENDOCLONE and the ANTIBODY DESIGN (Orange), our corporate icon, are trade and/or service marks of ImClone Systems. Applications are pending or registrations have been issued for various of these marks in the United States and/or foreign jurisdictions. TRADE SECRETS. With respect to certain aspects of our technology, we rely, and intend to continue to rely, on our confidential trade secrets, unpatented proprietary know-how and continuing technological innovation to protect our competitive position. Such aspects of our technology include 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 us. We cannot be certain that others will not independently develop substantially equivalent proprietary information or techniques, or that we are free of the patent or other rights of third parties to commercialize this technology. Relationships between us and our employees, scientific consultants and collaborators provide these persons with access to our trade secrets, know-how and technological innovation under confidentiality agreements with the parties involved. Similarly, our employees and consultants enter into agreements with us that require that they do not disclose confidential information of ours and they assign to us all rights to any inventions made while in our employ relating to our activities. GOVERNMENT REGULATION The research and development, manufacture and marketing of human therapeutic and diagnostic products are subject to regulation, primarily by the 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 (including testing in animals and in humans) and the testing, manufacturing, handling, labeling, storage, record keeping, approval, advertising and promotion of the products that we are developing. Noncompliance with applicable requirements can result in various adverse consequences, including, delay in approving or refusal to approve product licenses or other applications, suspension or termination of clinical investigations, revocation of approvals previously granted, fines, criminal prosecution, recall or seizure of products, injunctions against shipping products and total or partial suspension of production and/or refusal to allow a company to enter into governmental supply contracts. The process of obtaining requisite FDA approval has historically been costly and time consuming. Current FDA requirements for a new human drug or biological product to be marketed in the United States include: (1) the successful conclusion of pre-clinical laboratory and animal tests, if appropriate, to gain preliminary information on the product's safety; (2) filing with the FDA of an Investigational New Drug Application, commonly known as an INDA, to conduct human clinical trials for drugs or biologics; (3) the successful completion of adequate and well-controlled human clinical investigations to establish the safety and efficacy of the product for its recommended use; and (4) filing by a company and acceptance and approval by the FDA of a New Drug Application ("NDA") for a drug product or a Biological License Application ("BLA") for a biological product to allow commercial distribution of the drug or biologic. 26 Pre-clinical tests include the evaluation of the product in the laboratory and in 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 INDA to support the evaluation of the product in human subjects or patients. Clinical trials involve administration of the product to patients under 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: (1) determine the biological or clinical activity of the product for specific, targeted indications; (2) determine dosage tolerance and optimal dosage; and (3) identify possible adverse effects and safety risks. If phase II evaluations indicate that a product is effective and has an acceptable benefit-to-risk relationship, phase III trials may be undertaken to further evaluate clinical efficacy and to further test for safety within an expanded patient population. Phase IV studies, or post-marketing studies, may also be required to provide additional data on safety or efficacy. 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 the product candidate exposes clinical subjects to an unacceptable health risk. Investigational products used in clinical studies must be produced in compliance with cGMP pursuant to FDA regulations. On November 21, 1997, President Clinton signed into law the Food and Drug Administration Modernization Act. That act codified the FDA's policy of granting "fast track" approval for cancer therapies and other therapies intended to treat serious or life threatening diseases and that demonstrate the potential to address unmet medical needs. The fast track program emphasizes close, early communications between FDA and the sponsor to improve the efficiency of preclinical and clinical development, and to reach agreement on the design of the major clinical efficacy studies that will be needed to support approval. Under the fast track program, a sponsor also has the option to submit and receive review of parts of the NDA or BLA on a rolling schedule approved by FDA, which expedites the review process. The FDA's Guidelines for Industry Fast Track Development Programs require that a clinical development program must continue to meet the criteria for Fast Track designation for an application to be reviewed under the Fast Track Program. Previously, the FDA approved cancer therapies primarily based on patient survival rates or data on improved quality of life. While the FDA could consider evidence of partial tumor shrinkage, which is often part of the data relied on for approval, such information alone was usually insufficient to warrant approval of a cancer therapy, except in limited situations. Under the FDA's new policy, which became effective on February 19, 1998, fast track designation ordinarily allows a product to be considered for accelerated approval through the use of surrogate endpoints to demonstrate effectiveness. As a result of these provisions, the FDA has broadened authority to consider evidence of partial tumor shrinkage or other surrogate endpoints of clinical benefit for approval. This new policy is intended to facilitate the study of cancer therapies and shorten the total time for marketing approvals. Under accelerated approval, the manufacturer must continue with the clinical testing of the product after marketing approval to validate that the surrogate endpoint did predict meaningful clinical benefit. We intend to take advantage of the fast track programs; however, it is too early to tell what effect, if any, these provisions may have on the approval of our product candidates. The orphan drug provisions of the Federal Food, Drug, and Cosmetic Act provide incentives to drug and biologics manufacturers to develop and manufacture drugs for the treatment of rare diseases, currently defined as diseases that exist in fewer than 200,000 individuals in the U.S. or, for a disease that affects more than 200,000 individuals in the U.S., where the sponsor does not realistically anticipate that its product will become profitable. Under these provisions, a manufacturer of a designated orphan product can seek tax benefits, and the holder of the first FDA approval of a designated orphan product will be granted a seven-year period of marketing exclusivity for that product for the orphan indication. While the marketing exclusivity of an orphan drug would prevent other sponsors from obtaining approval of the same compound for the same indication, it would not prevent other types of drugs from being approved for the same indication. 27 Some of our cancer treatments require the use of in vitro diagnostic products to test patients for particular traits. In vitro diagnostic products are generally regulated by the FDA as medical devices. Before a medical device may be marketed in the United States, the manufacturer generally must obtain either clearance through a 510(k) premarket notification ("510(k)") process or approval through the premarket approval application ("PMA") process. Section 510(k) notifications may be filed only for those devices that are "substantially equivalent" to a legally marketed predicate device. If a device is not "substantially equivalent" to a legally marketed predicate device, a PMA must be filed. The premarket approval procedure generally involves more complex and lengthy testing, and a longer review process than the 510(k) process. Under current law, each domestic and foreign drug and device product-manufacturing establishment must be registered with the FDA before product approval. Domestic and foreign manufacturing establishments must meet strict standards for compliance with cGMP regulations and licensing specifications after the FDA has approved an NDA, BLA or PMA. The FDA and foreign regulatory authorities periodically inspect domestic and foreign manufacturing facilities where applicable. Sales outside the United States of products we develop will also be subject to regulatory requirements governing human clinical trials and marketing for drugs and biological products and devices. The requirements vary widely from country to country, but typically the registration and approval process takes several years and requires significant resources. In most cases, if the FDA has not approved a product for sale in the United States the product may be exported to any country if it complies with the laws of that country and has valid marketing authorization by the appropriate authority (i) in Canada, Australia, New Zealand, Japan, Israel, Switzerland or South Africa, or (ii) in the European Union or a country in the European Economic Area if the drug is marketed in that country or the drug is authorized for general marketing in the European Economic Area. There are specific FDA regulations that govern this process. Our ability to earn sufficient returns on our products may depend in part on the extent to which government health administration authorities, private health coverage insurers and other organizations will provide reimbursement for the costs of such products and related treatments. 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. ENVIRONMENTAL AND SAFETY MATTERS We use hazardous chemicals, viruses and various radioactive isotopes and compounds in our research and development activities. Accordingly, we are subject to regulations under federal, state and local laws regarding employee safety, environmental protection and hazardous substance control, and to other present and possible future federal, state and local regulations. We have in place safety procedures for storing, handling and disposing of these materials and to provide, in general, a safe working environment. However, we cannot completely eliminate the risk of contamination or injury. We could be held liable for any resulting damages, injuries or civil penalties, and our trials could be suspended. In addition, environmental laws or regulations may impose liability for the clean-up of contamination at properties we own or operate, regardless of fault. These environmental laws and regulations do not currently materially adversely affect our operations, business or assets. However, these laws may become more stringent, other facts may emerge, and our processes may change, and therefore the amount and timing of expenditures in the future may vary substantially from those currently anticipated. COMPETITION Competition in the biopharmaceutical industry is intense and based significantly on scientific and technological factors. These factors include 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. We compete 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 28 development efforts in the human therapeutics area, including cancer. 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 us in recruiting and retaining highly qualified scientific personnel and consultants. Our 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 us. We are aware of certain products under development or manufactured by competitors that are used for the prevention, diagnosis, or treatment of certain diseases we have targeted for product development. Various companies are developing biopharmaceutical products that potentially directly compete with our product candidates. These include areas such as (1) the use of small molecules to the receptor or antibodies to those receptors to treat cancer, (2) the use of anti-idiotypic antibody or recombinant antigen approaches to cancer vaccine therapy, (3) the development of inhibitors to angiogenesis, and (4) 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. We are aware of at least four companies that have potential antibody and small-molecule product candidates in clinical testing that may compete with our lead drug candidate, ERBITUX. The companies are (1) AstraZeneca PLC, (2) OSI Pharmaceuticals Inc. in collaboration with Genentech, Inc. (3) Abgenix, Inc. and (4) Pfizer/Warner-Lambert. We expect that our products under development and in clinical trials will address major markets within the cancer sector. Our competition will be determined in part by the potential indications for which drugs are developed and ultimately approved by regulatory authorities. Additionally, the timing of market introduction of some of our potential products or of competitors' products may be an important competitive factor. Accordingly, the relative speed with which we 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. We expect 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 We initiated our in-house research and development in 1986. We have assembled a scientific staff with a variety of complementary skills in a broad base of advanced research technologies, including oncology, immunology, molecular and cell biology, antibody engineering, protein and medicinal chemistry and high-throughput screening. We have also recruited a staff of technical and professional employees to carry out manufacturing of clinical trial materials at our Somerville, New Jersey facilities. Of our 399 full-time personnel on March 28, 2002, 223 were employed in our product development, clinical and manufacturing programs, 78 in research, and 98 in administration. Our staff includes 37 persons with Ph.D.s and 5 with M.D.s. 29 ITEM 2. PROPERTIES 180 VARICK STREET, NEW YORK, NEW YORK We have occupied two contiguous leased floors at 180 Varick Street in New York City since 1986. The property currently serves as our corporate headquarters and research facility. The current lease for the two floors was effective as of January 1, 1999 and expires in December 2004. The rent under the lease increases by 3% per year. During 2000, we completed renovations of this facility to better fit our needs at a cost of approximately $2,800,000. In December 2000, we modified our lease to provide for another approximately 1,800 square feet on a contiguous floor for an initial annual rent of $63,000, which increases annually by 3%. Rent expense for the Varick Street facility was approximately $946,000 for the year ended December 31, 2001. The original acquisition, construction and installation of our New York research and development facilities were financed principally through the sale of Industrial Development Agency Revenue Bonds (the "IDA Bonds") issued by the New York Industrial Development Agency ("NYIDA"). Equipment at these facilities purchased with the proceeds of the bond secure the payment of debt service on the outstanding IDA Bond. BROOKLYN, NEW YORK On May 1, 2001, we leased a 4,000 square foot portion of a 15,000 square foot building known as 710 Parkside Avenue, Brooklyn, New York and we have leased an adjacent 6,250 square foot building known as 313-315 Clarkson Avenue, Brooklyn, New York, (collectively "the premises"). The term of the lease is for five years with five successive one year extensions. The initial annual lease rate is $9 per square foot or $92,250 annually until six months after we have received all necessary permits for our improvements to the premises at which time the annual base rent will be $18 per square foot or $184,500 annually. When improvements are completed, the premises will serve as our new chemistry and high throughput screening facility. We expect to relocate our chemistry and high throughput screening personnel from 180 Varick Street to the premises during the second quarter of this year. In the year ended December 31, 2001, we incurred rent expense for the premises of $113,000. 325 SPRING STREET, NEW YORK, NEW YORK In October 2001, we entered into a sublease for a four story building located at 325 Spring Street, New York, New York to serve as our future corporate headquarters and research facility. The space, to be designed and improved by us in the future, includes between 75,000 and 100,000 square feet of usable space, depending on design, and includes possible additional expansion space. The sublease has a term of 22 years, followed by two five year renewal option periods. The future minimum lease payments are approximately $51,025,000 over the term of the sublease. In order to induce the sublandlord to enter into the sublease, we made a loan to and accepted from the sublandlord a $10,000,000 note receivable. The note is secured by a leasehold mortgage on the prime lease as well as a collateral assignment of rents by the sublandlord. The note is payable over 20 years and bears interest at 5 1/2% in years one through five, 6 1/2% in years six through ten, 7 1/2% in years eleven through fifteen and 8 1/2% in years sixteen through twenty. In addition, we paid the owner of the building a consent fee in the amount of $500,000. In the year ended December 31, 2001, we incurred rent expense of $414,000 for this sublease. 22 CHUBB WAY, SOMERVILLE, NEW JERSEY In 1992, we acquired a 5.1 acre parcel of land and a 54,400 square foot building located at 22 Chubb Way, Somerville, New Jersey at a cost to us of approximately $4,665,000, including expenses. We have retrofitted the building to serve as our pilot facility for clinical trial manufacturing. 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. We currently operate the facility to develop and manufacture materials for a portion of our clinical trials. Under certain circumstances, we also may use the facility for the manufacturing of commercial 30 products. In January 1998, we completed the construction and commissioning of a 1,750 square foot process development center at this facility dedicated to manufacturing process optimization for existing products and the pre-clinical and phase I development of new biological therapeutics. 36 CHUBB WAY, SOMERVILLE, NEW JERSEY We built a new 80,000 square foot product launch manufacturing facility adjacent to the pilot facility in Somerville, New Jersey. The product launch manufacturing facility was built on a 5.7 acre parcel of land we purchased in December 1999 for approximately $700,000. The product launch manufacturing facility contains three 10,000 liter (working volume) fermenters and is dedicated to the clinical and commercial production of ERBITUX(TM). The product launch manufacturing facility was ready for its intended use and put in operation in July 2001. The product launch manufacturing facility cost a total of approximately $53,000,000 excluding capitalized interest of approximately $1,966,000. 50 CHUBB WAY, SOMERVILLE, NEW JERSEY We have completed conceptual design and preliminary engineering plans and are currently reviewing detailed design plans for, and proceeding with construction of, the second commercial manufacturing facility. The second commercial manufacturing facility would be a multi-use facility with capacity of up to 110,000 liters (working volume). The facility would be built on a 7.12 acre parcel of land that we purchased in July 2000 for approximately $950,000, which is the parcel immediately to the west of 36 Chubb Way. We have broken ground on the initial construction of the second commercial manufacturing facility. The cost of this facility, for two completely fitted out suites and a third suite with utilities only, is expected to be approximately $225,000,000, excluding capitalized interest. We have incurred approximately $30,414,000 in costs through December 31, 2001. 41 CHUBB WAY, SOMERVILLE, NEW JERSEY In September 2000, we entered into a one-year lease with GM Stainless, Inc. for approximately 7,600 square feet of office space in a building across the street from the product launch manufacturing facility in order to house the additional personnel being hired in connection with our expansion of our clinical, medical and regulatory affairs functions. The lease will automatically renew each year for up to three additional years unless terminated three months prior to the expiration of that year. In the year ended December 31, 2001, we incurred rent expense of $103,000. CHUBB WAY PARKING LOT On May 2, 2001, we purchased a 4.45 acre parcel of land on Chubb Way, which is the parcel immediately to the east of 22 Chubb Way for approximately $597,000. We intend to use this property for a future parking lot for our Somerville campus. LOGISTICS BUILDING On January 31, 2002, we purchased a 7.5 acre parcel of land located at 1181 Route 202, which is the parcel immediately to the north of 36 Chubb Way and immediately to the East of 50 Chubb Way. The parcel includes a 50,000 square foot building, 40,000 square feet of which is warehouse space and 10,000 square feet of which is office space. The purchase price for the property and improvements was approximately $7,000,000. We intend to use this property for warehousing and logistics for our Somerville campus. 31 ITEM 3. LEGAL PROCEEDINGS A. LITIGATION 1. FEDERAL SECURITIES CLASS ACTIONS A number of complaints asserting claims under Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act have been filed in the U.S. District Court for the Southern District of New York against us and certain of our directors and officers on behalf of purported classes of our shareholders. The first-filed of these actions, which was filed on approximately January 7, 2002, is captioned Irvine v. ImClone Systems Inc., et al., No. 02 Civ. 0109 (RO). Several plaintiffs in these actions have filed motions that, if granted will result in the consolidation of these and any subsequently-filed actions that assert similar claims under the caption In re ImClone Systems Incorporated Securities Litigation. The complaints in these actions allege generally that various public statements made by us or our senior officers during 2001 and early 2002 regarding the prospects for FDA approval of ERBITUX(TM) were false or misleading when made, that various Company insiders were aware of material, non-public information regarding the actual prospects for ERBITUX at the time that those insiders engaged in transactions in our common stock and that members of the purported shareholder class suffered damages when the market price of our common stock declined following disclosure of the information that allegedly had not been previously disclosed. On December 28, 2001, we disclosed that we had received a "refusal to file" letter from the FDA relating to our biologics license application for ERBITUX. Thereafter, various news articles purported to describe the contents of the FDA's "refusal to file" letter. During this period, the market price of our common stock declined. The complaints in the various actions seek to proceed on behalf of a class of our present and former shareholders, other than defendants or persons affiliated with the defendants, seek monetary damages in an unspecified amount and seek recovery of plaintiffs' costs and attorneys' fees. 2. DERIVATIVE ACTIONS Beginning on January 13, 2002 and continuing thereafter, six separate purported shareholder derivative actions have been filed against the members of our Board of Directors and the Company, as nominal defendant, advancing claims based on allegations similar to the allegations in the federal securities class action complaints. Three of these derivative cases were filed in the Delaware Court of Chancery and have been consolidated in that court under the caption In re ImClone Systems Incorporated Derivative Litigation, Cons. C.A. No. 19341-NC. In addition, two purported derivative actions have been filed in the U.S. District Court for the Southern District of New York, styled Lefanto v. Waksal, et al., No. 02 Civ. 0163 (LLS), and Forbes v. Barth, et al., No. 02 Civ. 1400 (RO), and a sixth purported derivative action has been filed in New York State Supreme Court in Manhattan, styled Boghosian v. Barth, et al., Index No. 100759/02. All of these actions assert claims, purportedly on our behalf, for breach of fiduciary duty by certain members of the Board of Directors based on the allegation, among others, that certain directors engaged in transactions in our common stock while in possession of material, non-public information concerning the regulatory and marketing prospects for ERBITUX. A seventh complaint, purportedly asserting direct claims on behalf of a class of the Company's shareholders but in fact asserting derivative claims that are similar to those asserted in these six cases, was filed in the U.S. District Court for the Southern District of New York on February 13, 2002, styled Dunlap v. Waksal, et al., No. 02 Civ. 1154 (RO). The Dunlap complaint asserts claims against the Board of Directors for breach of fiduciary duty purportedly on behalf of all persons who purchased shares of the Company's common stock prior to June 28, 2001 and then held those shares through December 6, 2001. It alleges that the members of the purported class suffered damages as a result of holding their shares based on allegedly false information about the financial prospects of the Company that was disseminated during this period. All of these actions are in their earliest stages. We intend to contest vigorously the claims asserted in these actions. 32 B. GOVERNMENT INQUIRIES AND INVESTIGATIONS As previously reported, we have received subpoenas and requests for information in connection with investigations by the Securities Exchange Commission, the Subcommittee on Oversight and Investigations of the U.S. House of Representatives Committee on Energy and Commerce and the U.S. Department of Justice relating to the circumstances surrounding the disclosure of the FDA letter dated December 28, 2001 and trading in our securities by certain Company insiders in 2001. We are cooperating with all of these inquiries and intend to continue to do so. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 33 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION Our 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. Share prices shown are adjusted for our 2-for-1 stock split effected in the form of a dividend in October 2000.
HIGH LOW ---- --- Year ended December 31, 2001 First Quarter............................................. $44.25 $23.38 Second Quarter............................................ $56.30 $26.50 Third Quarter............................................. $59.69 $40.80 Fourth Quarter............................................ $75.45 $43.35
HIGH LOW ---- --- Year ended December 31, 2000 First Quarter............................................. $85.99 $17.00 Second Quarter............................................ $52.41 $30.19 Third Quarter............................................. $62.94 $30.75 Fourth Quarter............................................ $69.13 $30.81
On March 28, 2002, the closing price of our common stock was $24.63. STOCKHOLDERS As of the close of business on March 28, 2002, there were approximately 330 holders of record of our common stock. We estimate that there are approximately 41,200 beneficial owners of our common stock. DIVIDENDS We have never declared cash dividends on our common stock and have no present intention of declaring such cash dividends in the foreseeable future. RECENT SALES BY THE COMPANY OF UNREGISTERED SECURITIES In 2001, we issued an aggregate of 1,218,600 shares of unregistered common stock to holders of warrants upon exercise of such warrants for a total purchase price of approximately $1,400,000 which were consummated as private sales under Section 4(2) of the Securities Act of 1933, as amended. 34 ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ----------------------------------------------------- 2001 2000 1999 1998 1997 --------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues.............................. $ 33,219 $ 1,413 $ 2,143 $ 4,193 $ 5,348 Operating expenses: Research and development......... 96,085 57,384 30,027 21,049 16,455 Marketing, general and administrative................. 23,072 16,651 9,354 7,145 5,356 Expense associated with BMS acquisition, stockholder and commercial agreements.......... 16,055 -- -- -- -- --------- -------- -------- -------- -------- Total operating expenses.... 135,212 74,035 39,381 28,194 21,811 --------- -------- -------- -------- -------- Operating loss......... (101,993) (72,622) (37,238) (24,001) (16,463) --------- -------- -------- -------- -------- Net interest and other (income) expense(1)....... 236 (4,867) (2,627) (2,619) (972) --------- -------- -------- -------- -------- Loss before cumulative effect of change in accounting policy.... (102,229) (67,755) (34,611) (21,382) (15,491) Cumulative effect of change in accounting policy for the recognition of upfront non- refundable fees...... -- (2,596) -- -- -- --------- -------- -------- -------- -------- Net loss............... (102,229) (70,351) (34,611) (21,382) (15,491) Preferred dividends................... -- 6,773 3,713 3,668 163 --------- -------- -------- -------- -------- Net loss to common stockholders......... $(102,229) $(77,124) $(38,324) $(25,050) $(15,654) ========= ======== ======== ======== ======== Net loss per common share: Basic and diluted: Loss before cumulative effect of change in accounting policy......... $ (1.47) $ (1.18) $ (0.75) $ (0.52) $ (0.33) Cumulative effect of change in accounting policy...... -- (0.04) -- -- -- --------- -------- -------- -------- -------- Basic and diluted net loss per common share.......... $ (1.47) $ (1.22) $ (0.75) $ (0.52) $ (0.33) ========= ======== ======== ======== ======== Weighted average shares outstanding... 69,429 63,030 50,894 48,602 46,914
DECEMBER 31, --------------------------------------------------------- 2001 2000 1999 1998 1997 --------- --------- --------- --------- --------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and securities.................... $ 333,986 $ 297,169 $ 119,368 $ 46,739 $ 59,610 Working capital........................ 295,370 221,846 97,064 35,073 56,671 Total assets........................... 474,202 371,491 145,694 62,252 75,780 Long-term obligations.................. 242,279 242,688 3,335 3,746 3,430 Deferred revenue....................... 203,496 2,434 -- 75 208 Accumulated deficit.................... (346,037) (243,808) (173,457) (138,846) (117,464) Stockholders' equity (deficit)......... $ (5,174) $ 43,432 $ 112,298 $ 45,174 $ 68,226
- --------------- (1) Net interest and other income is presented net of interest income, interest expense and realized and unrealized gains and losses on securities and investments. 35 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis by our management is provided to identify certain significant factors that affected our financial position and operating results during the periods included in the accompanying financial statements. CRITICAL ACCOUNTING POLICIES During January 2002, the Securities and Exchange Commission ("SEC") published a Commission Statement in the form of Financial Reporting Release No. 61 which requested that all registrants discuss their most "critical accounting policies" in management's discussion and analysis of financial condition and results of operations. The SEC has defined critical accounting policies as those that are both important to the portrayal of a company's financial condition and results, and that require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. While our significant accounting policies are summarized in Note 2 to our consolidated financial statements included in this Form 10-K, we believe the following accounting policies to be critical: Revenue -- We adopted Staff Accounting Bulletin No. 101 ("SAB 101") in the fourth quarter of 2000 with an effective date of January 1, 2000, implementing a change in accounting policy with respect to revenue recognition. Beginning January 1, 2000, nonrefundable fees received upon entering into collaborative agreements where the Company has continuing involvement are recorded as deferred revenue and recognized over the estimated service period. Payments received under the development, promotion, distribution and supply agreement (the "Commercial Agreement") dated September 19, 2001 with Bristol-Myers Squibb Company ("BMS") and E.R. Squibb & Sons, L.L.C., a Delaware limited liability company and a wholly-owned subsidiary of BMS ("E.R. Squibb"), relating to ERBITUX, are being deferred and recognized as revenue based upon the actual product research and development costs incurred to date by BMS, E.R. Squibb and ImClone Systems as a percentage of the estimated total of such costs to be incurred over the term of the agreement. Of the $200,000,000 upfront payment we received from BMS in September 2001, approximately $2,553,000 was recognized as revenue during the year ended December 31, 2001. The methodology used to recognize revenue previously deferred involves a number of estimates and judgments, such as the estimate of total product research and development costs to be incurred under the Commercial Agreement. Changes in these estimates and judgments can have a significant effect on the timing of when revenue is recognized. Non-refundable milestone payments, which represent the achievement of a significant step in the research and development process, pursuant to collaborative agreements, other than the Commercial Agreement with BMS, are recognized as revenue upon the achievement of the specified milestone. Research and development funding revenue is derived from collaborative agreements and is recognized in accordance with the terms of the respective contracts. Royalty revenue is recognized when earned and collection is probable. Litigation -- We are currently involved in certain legal proceedings as discussed in "Contingencies" Note 13 to the financial statements and Item 3 of this 10-K. In accordance with Statement of Financial Accounting Standards No. 5, no legal reserve has been established in our financial statements for these matters because we do not believe that a loss is probable at this time. However, if we deem it probable that an unfavorable ruling in any such legal proceeding will occur, there exists the possibility of a material adverse impact on the operating results of that period. Long-Lived Assets -- We review long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. Assets are considered to be impaired and written down to fair value if expected associated undiscounted cash flows are less than carrying 36 amounts. Fair value is generally the present value of the expected associated cash flows. We recently built a product launch manufacturing facility and are building a second commercial manufacturing facility which are summarized in Note 4 to the financial statements. The product launch manufacturing facility is dedicated to the clinical and commercial production of ERBITUX and the second commercial manufacturing facility will be a multiuse production facility. ERBITUX is currently being produced for clinical trials and potential commercialization. We believe that ERBITUX will ultimately be approved for commercialization. As such, we believe that the full carrying value of both the product launch manufacturing facility and the second commercial manufacturing facility will be recovered. Changes in business conditions in the future could change our judgements about the carrying value of these facilities which could result in the recognition of material impairment losses. Manufacturing Contracts -- As summarized under Contract Services in "Commitments", Note 14 to the financial statements, we have entered into certain development and manufacturing services agreements with Lonza Biologics plc ("Lonza") for the clinical and commercial production of ERBITUX. We have commitments from Lonza to manufacture ERBITUX at the 5,000 liter scale through December 2003. On December 31, 2001, the estimated remaining future commitments under the amended commercial manufacturing services agreement with Lonza were $42,563,000 in 2002 and $10,175,000 in 2003. If ERBITUX were not to receive regulatory approval when anticipated it is possible that a liability would need to be recognized for any remaining commitments to Lonza. Valuation of Stock Options -- We apply APB Opinion No. 25 and related interpretations in accounting for our stock options and warrants. Accordingly, compensation expense is recorded on the date of grant of an option to an employee or member of the Board of Directors only if the fair market value of the underlying stock at the time of grant exceeded the exercise price. Had we applied the fair-value-based-method as defined in SFAS No. 123 instead of APB Opinion No. 25, our net loss to common stockholders in 2001, 2000 and 1999 would have been increased by approximately $67,244,000, $33,730,000 and $9,282,000, respectively. In addition, we have granted options to certain Scientific Advisory Board members and outside consultants, which are required to be measured at fair value. Estimating the fair value of equity securities involves a number of judgements and variables that are subject to significant change. A change in the fair value estimate could have a significant effect on the amount of compensation expense recognized. See Note 11(d). Production Costs -- The costs associated with the manufacture of ERBITUX are included in research and development expenses when incurred and will continue to be so classified until such time as ERBITUX may be approved for sale or until we obtain obligations from our corporate partners for supply of such product. In the event of such approval or obligations from our corporate partners, the subsequent costs associated with manufacturing ERBITUX for commercial sale will be included in inventory and expensed as cost of goods sold when sold. If ERBITUX is approved by the United States Food and Drug Administration ("FDA"), any subsequent sale of this inventory, previously expensed, will result in revenue from product sales with no corresponding cost of goods sold. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS: In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual value, and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company does not have any goodwill or other intangible assets acquired in business combinations. In August 2001 the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for 37 Long-Lived Assets to Be Disposed Of. However, SFAS 144 retains the fundamental provisions of SFAS 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS 144 supersedes the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. However, SFAS 144 retains the requirement of Opinion 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of (by sale, by abandonment, or in distribution to owners) or is classified as held for sale. SFAS 144 also amends ARB No. 51, Consolidated Financial Statements, to eliminate the exception to consolidation for a temporarily controlled subsidiary. The Company is required to adopt SFAS 144 effective January 1, 2002. We do not expect the adoption of SFAS 144 for long-lived assets held for sale to have a material impact on our consolidated financial statements because the impairment assessment under SFAS 144 is largely unchanged from SFAS 121. OVERVIEW AND RISK FACTORS We are a biopharmaceutical company whose mission is to advance oncology care by developing a portfolio of targeted biologic treatments, which address the unmet medical needs of patients with a variety of cancers. Our three programs include growth factor blockers, cancer vaccines and angiogenesis inhibitors. Since our inception in April 1984, we have devoted substantially all of our efforts and resources to research and development conducted on our own behalf and through collaborations with corporate partners and academic research and clinical institutions. We have not derived any revenue from commercial product sales. As a result of our substantial research and development costs, we have incurred significant operating losses and we have generated a cumulative net loss of approximately $346,000,000 for the period from our inception to December 31, 2001. We expect to incur additional operating losses, which could be substantial. Substantially all of our revenues were generated from collaborative arrangements with our partners. Such revenues, as well as our results of operations, have fluctuated and are expected to continue to fluctuate significantly from period to period due to: - the status of development of our various product candidates; - the time at which we enter into collaborative arrangements with corporate partners that provide for payments to us, and the timing and accounting treatment of payments to us under these agreements; - whether or not we achieve specified research or commercialization milestones; - timely payment by our corporate partners of amounts payable to us; - the addition or termination of research programs or funding support; - variations in the level of expenses related to our proprietary product candidates during any given period. To be commercialized our product candidates will require additional development and clinical testing. Generally, to make a profit we will need to successfully develop, test, introduce and market our products. It is not certain that any of our products will be successfully developed or that required regulatory approvals to commercialize them can be obtained. Further, even if we successfully develop a product, there is no assurance that we will be able to successfully manufacture or market that product or that potential customers will buy it. In December 1998, we entered into an agreement with Merck KGaA, a Germany-based drug company, relating to the development, marketing and sale of ERBITUX. Under the terms of this agreement (which were subsequently amended in August 2001, see below): (1) we retained the rights to develop and market ERBITUX within the United States and Canada (which we subsequently licensed to BMS and E.R. Squibb pursuant to the terms of the Commercial Agreement), (2) we granted Merck KGaA exclusive rights, except in Japan, to develop and market ERBITUX outside of the United States and Canada; (3) we agreed to 38 seek to supply Merck KGaA, and Merck KGaA agreed to purchase from us, ERBITUX for conducting clinical trials and the commercialization of the product outside of the United States and Canada (which we are now currently supplying to Merck KGaA, and Merck KGaA is currently purchasing from us) (4) we (along with E.R. Squibb pursuant to the terms of the Commercial Agreement) will co-develop and co-market ERBITUX in Japan with Merck KGaA; and (5) we granted Merck KGaA an exclusive license outside of the United States and Canada, without the right to sublicense, to certain of our patents to apply to a humanized antibody to the EGF receptor on which Merck KGaA currently has in development. In return, Merck KGaA (1) has paid us $30,000,000 in up-front fees and early cash-based milestone payments based upon our achievement of the milestones set forth in the agreement, and (2) has agreed, subject to the terms of the agreement, to pay us an additional $30,000,000 if further milestones are achieved, for which Merck KGaA will receive equity in ImClone Systems that will be priced at varying premiums to the then-market price of our common stock depending upon the timing of the achievement of the respective milestones, $5,000,000 of which was achieved and received by ImClone Systems through December 31, 2001 (3) fund clinical development of ERBITUX outside of the United States and Canada, except in Japan where co-development rights exist and (4) pay us royalties on future sales of ERBITUX in its territory, if any. This agreement may be terminated by Merck KGaA in various instances, including (1) at its discretion on any date on which a milestone is achieved (in which case no milestone payment will be made), or (2) for a one-year period after first commercial sale of ERBITUX in Merck KGaA's territory, upon Merck KGaA's reasonable determination that the product is economically unfeasible (in which case Merck KGaA is entitled to receive back 50% of up-front fees and cash-based milestone payments then paid to date, but only out of revenues received, if any, based upon a royalty rate applied to the gross profit from ERBITUX sales or a percentage of ERBITUX fees and royalties from a sublicensee on account of the sale of ERBITUX in the United States and Canada). In August 2001, the Company and Merck KGaA amended this agreement to provide, among other things, that Merck KGaA may manufacture ERBITUX for supply in its territory and may utilize a third party to do so upon the Company's reasonable acceptance. The amendment further released Merck KGaA from its obligations under the agreement relating to providing a guaranty under a $30,000,000 credit facility relating to the build-out of the product launch manufacturing facility. In addition, the amendment provides that the companies have co-exclusive rights to ERBITUX in Japan, including the right to sublicense and Merck KGaA waived its right of first offer in the case of a proposed sublicense by the Company of ERBITUX in the Company's territory. In consideration for the amendment, the Company agreed to a reduction in royalties payable by Merck KGaA on sales of ERBITUX in Merck KGaA's territory. Through December 31, 2001, ImClone Systems has received the $30,000,000 in up-front fees and cash-based milestone payments as well as, $5,000,000 of the equity-based milestone payments. Of the cash-based milestone payments received through December 31, 2001, $2,000,000 was received and recognized as revenue in the year ended December 31, 2001. A total of $28,000,000 was received prior to January 1, 2001 and originally recorded as fees potentially refundable to corporate partner and not as revenue due to the fact that they were refundable to Merck KGaA in the event a condition relating to obtaining certain collateral license agreements was not satisfied by us. In March 2001, this condition was satisfied and $24,000,000 in milestone payments was recognized as revenue by the Company during the three months ended March 31, 2001. The remaining $4,000,000 represents the up-front payment associated with the agreement and has been recorded as deferred revenue. This revenue is being recognized ratably over the anticipated life of the agreement. The Company recognized approximately $222,000 of the up-front payment as revenue during the year ended December 31, 2001. In August 2001, the Company received its first equity-based milestone payment totaling $5,000,000 and accordingly issued to Merck KGaA 63,027 shares of its common stock. The number of shares issued for this milestone payment was determined using a price of $79.33 per share. During the year ended December 31, 2001, the Company recognized revenue of approximately $1,760,000 representing the excess of the amount paid by Merck KGaA for these shares over the fair value of the Company's common stock. 39 We have also granted Merck KGaA a license, with the right to sublicense, to make, have made, use, sell, or have sold BEC2 and gp75 outside North America. The agreement also grants Merck KGaA a license, without the right to sublicense, to use, sell, or have sold, but not to make BEC2 within North America in conjunction with ImClone Systems. Pursuant to the terms of the agreement we have retained the rights, (1) without the right to sublicense, to make, have made, use, sell, or have sold BEC2 in North America in conjunction with Merck KGaA and (2) with the right to sublicense, to make, have made, use, sell, or have sold gp75 in North America. In return, Merck KGaA has made research support payments to us totaling $4,700,000 and is required to make milestone payments to us of up to $22,500,000, of which $4,000,000 has been received through December 31, 2001. In addition, Merck KGaA is required to make royalty payments to us on any sales of BEC2 or gp75 outside North America, with a portion of the milestone and research support payments received under the agreement being creditable against the amount of royalties due. On September 19, 2001, we entered into an acquisition agreement (the "Acquisition Agreement") with BMS and Bristol-Myers Squibb Biologics Company, a Delaware corporation ("BMS Biologics") which is a wholly-owned subsidiary of BMS, providing for the tender offer by BMS Biologics to purchase up to 14,392,003 shares of our common stock for $70.00 per share, net to the seller in cash. The tender offer by BMS Biologics, available to all shareholders, allowed for our present or former employees and directors who held exercisable options to purchase shares of our common stock having exercise prices less than $70.00 per share to conditionally exercise any or all of those options and tender the underlying shares in the tender offer. In connection with the Acquisition Agreement, we entered into a stockholder agreement with BMS and BMS Biologics, dated as of September 19, 2001 (the "Stockholder Agreement"), pursuant to which all parties agreed to various arrangements regarding the respective rights and obligations of the each party with respect to, among other things, the ownership of shares of our common stock by BMS and BMS Biologics. Concurrently with the execution of the Acquisition Agreement and the Stockholder Agreement, we entered into the Commercial Agreement with BMS and E.R. Squibb, relating to ERBITUX, pursuant to which, among other things, we are co-developing and co-promoting ERBITUX in the United States and Canada, and co-developing ERBITUX (together with Merck KGaA) in Japan. On March 5, 2002, we amended the Commercial Agreement with E.R. Squibb and BMS. The amendment changed certain economics of the Commercial Agreement and has expanded the clinical and strategic role of BMS in the ERBITUX development program. One of the principal economic changes to the Commercial Agreement is that we received $140,000,000 on March 7, 2002 and an additional payment of $60,000,000 is payable on March 5, 2003. Such payments are in lieu of the $300,000,000 payment we would have received on acceptance by the FDA of the ERBITUX BLA under the original terms of the Commercial Agreement. In addition, the Company agreed to resume construction of its second commercial manufacturing facility as soon as reasonably practicable after the execution of the amendment. The terms of the Commercial Agreement, as amended on March 5, 2002, are set forth in more detail in the business section above. On October 29, 2001, pursuant to the Acquisition Agreement, BMS Biologics accepted for payment pursuant to the tender offer 14,392,003 shares our common stock on a pro rata basis from all tendering shareholders and those conditionally exercising stock options. The terms of the Acquisition Agreement are set forth in more detail in the business section above. The Stockholder Agreement, among other things, described in greater detail in the business section above, gave BMS the right to nominate two initial directors and also set forth BMS' (i) limitation on additional purchases of shares, (ii) option to purchase shares in the event of dilution and (iii) restrictions as to transfer of shares. In exchange for the rights granted to BMS under the amended Commercial Agreement, we can receive up-front and milestone payments totaling $900,000,000 in the aggregate, of which $200,000,000 was received on September 19, 2001, $140,000,000 was received on March 7, 2002, $60,000,000 is payable on March 5, 2003, $250,000,000 is payable upon receipt of marketing approval from the FDA with respect to an initial indication for ERBITUX and $250,000,000 is payable upon receipt of marketing approval from the FDA with respect to a second indication for ERBITUX. All such payments are non-refundable and non- creditable. Except for our expenses incurred pursuant to a co-promotion option, E.R. Squibb is also 40 responsible for 100% of the distribution, sales and marketing costs in the United States and Canada, and as between ImClone Systems and E.R. Squibb, each will be responsible for 50% of the distribution, sales, marketing costs and other related costs and expenses in Japan. The Commercial Agreement provides that E.R. Squibb shall pay us distribution fees based on a percentage of annual sales of ERBITUX by E.R. Squibb in the United States and Canada. The distribution fee is 39% of net sales in the United States and Canada. The Commercial Agreement also provides that the distribution fees for the sale of ERBITUX in Japan by E.R. Squibb or us shall be equal to 50% of operating profit or loss with respect to such sales for any calendar month. In the event of an operating profit, E.R. Squibb will pay us the amount of such distribution fee, and in the event of an operating loss, we will credit E.R. Squibb the amount of such distribution fee. The Commercial Agreement provides that we will be responsible for the manufacture and supply of all requirements of ERBITUX in bulk form for clinical and commercial use in the United States, Canada and Japan and that E.R. Squibb will purchase all of its requirements of ERBITUX in bulk form for commercial use from us. We will supply ERBITUX for clinical use at our fully burdened manufacturing cost, and will supply ERBITUX for commercial use at our fully burdened manufacturing cost plus a mark-up of 10%. In addition to the up-front and milestone payments, the distribution fees for the United States, Canada and Japan and the 10% mark-up on the commercial supply of ERBITUX, E.R. Squibb is also responsible for 100% of the cost of all clinical studies other than those studies undertaken post-launch which are not pursuant to an Investigational New Drug Application ("INDA") (e.g. phase IV studies), the cost of which will be shared equally between E.R. Squibb and ImClone Systems. As between E.R. Squibb and ImClone Systems, each will each be responsible for 50% of the cost of all clinical studies in Japan. Unless earlier terminated pursuant to the termination rights discussed below, the Commercial Agreement expires with regard to the Product in each country in the Territory on the later of September 19, 2018 and the date on which the sale of the Product ceases to be covered by a validly issued or pending patent in such country. The Commercial Agreement may also be terminated prior to such expiration as follows: - by either party, in the event that the other party materially breaches any of its material obligations under the Commercial Agreement and has not cured such breach within 60 days after notice; - by E.R. Squibb, if the JEC determines that there exists a significant concern regarding a regulatory or patient safety issue that would seriously impact the long-term viability of all products; or - by either party, in the event that the JEC does not approve additional clinical studies that are required by the FDA in connection with the submission of the initial regulatory filing with the FDA within 90 days of receiving the formal recommendation of the PDC concerning such additional clinical studies. The Company incurred approximately $16,055,000 in advisor fees associated with consummating the Acquisition Agreement, the Stockholder Agreement and the Commercial Agreement with BMS and its affiliates through December 31, 2001. These costs have been expensed during the year ended December 31, 2001 and included as a separate line item in operating expenses in the consolidated statement of operations. At December 31, 2001, research and development and marketing costs associated with ERBITUX that are reimbursable by E.R. Squibb totaled $6,714,000 and are included in amounts due from corporate partners in the consolidated balance sheets. These amounts have been recorded as a reduction to research and development and marketing, general and administrative expenses in the consolidated statements of operations in the year ended December 31, 2001. RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2001 AND 2000. Revenues. Revenues for the years ended December 31, 2001 and 2000 were $33,219,000 and $1,413,000, respectively, an increase of $31,806,000 in 2001. Revenues for the year ended December 31, 2001 primarily included $27,760,000 in milestone revenues from our development and license agreement with Merck KGaA 41 for ERBITUX. Pursuant to this agreement, we received a $2,000,000 cash milestone payment in June 2001, which was recognized as revenue and a $5,000,000 equity-based milestone payment in August 2001, of which $1,760,000, the excess of the amount paid by Merck KGaA for the shares over the fair value, was recognized as revenue. The remaining $24,000,000 of these milestone payments were received in prior periods and originally recorded as fees potentially refundable to corporate partner because they were refundable in the event a condition relating to obtaining certain collateral license agreements was not satisfied. This condition was satisfied in March 2001. In addition, we recognized $222,000 of the $4,000,000 up-front payment received upon entering into this agreement. This revenue is being recognized ratably over the anticipated life of the agreement. Under this agreement, an additional $25,000,000 in equity-based milestones may be received upon the achievement of additional milestones. Revenues for the year ended December 31, 2001 also included (1) $1,480,000 in royalty revenue from our strategic corporate alliance with Abbott Laboratories ("Abbott") in diagnostics, (2) $1,000,000 in milestone revenues, and $162,000 in license fee revenues from our strategic corporate alliance with Merck KGaA for our principal cancer vaccine product candidate, BEC2, and (3) $2,553,000 from our ERBITUX Commercial Agreement with BMS and its wholly-owned subsidiary, E.R. Squibb. Revenues from payments under this agreement (of which $200,000,000 were received in 2001) are being recognized over the clinical and regulatory development life of ERBITUX. An additional $140,000,000 was received on March 7, 2002, $60,000,000 is payable on March 5, 2003, $250,000,000 is payable upon receipt of marketing approval from the FDA with respect to an initial indication for ERBITUX and $250,000,000 is payable upon receipt of marketing approval from the FDA with respect to a second indication for ERBITUX. All such payments are non-refundable and non-creditable. Revenues for the year ended December 31, 2000 primarily consisted of (1) $250,000 in milestone revenue and $961,000 in royalty revenue from our strategic corporate alliance with Abbott in diagnostics and (2) $162,000 in license fee revenue from our strategic corporate alliance with Merck KGaA for our principal cancer vaccine product candidate, BEC2. The license fee revenue related to the BEC2 agreement has been recognized as a direct result of a change in accounting policy with respect to revenue recognition. (see notes 2(g) and 9 to the accompanying consolidated financial statements). OPERATING EXPENSES Total operating expenses for the years ended December 31, 2001 and 2000 were $135,212,000 and $74,035,000, respectively, an increase of $61,177,000, or 83% in 2001. Operating expenses for the year ended December 31, 2001 included $16,055,000 in advisor fees associated with consummating each of the Acquisition Agreement, Stockholder Agreement and Commercial Agreement (the "BMS agreements") with BMS and its affiliates. Operating Expenses: Research and Development. Research and development expenses for the years ended December 31, 2001 and 2000 were $96,085,000 and $57,384,000, respectively, an increase of $38,701,000 or 67% in 2001. Research and development expenses for the years ended December 31, 2001 and 2000 as a percentage of total operating expenses, excluding the advisor fees associated with consummating the BMS agreements in the year ended December 31, 2001 were 81% and 78%, respectively. Research and development expenses include costs associated with our in-house and collaborative research programs, product and process development expenses, costs to manufacture our product candidates, particularly ERBITUX, prior to any approval that we may obtain of a product candidate for commercial sale or obligations of our corporate partners to acquire product from us, quality assurance and quality control costs, and costs to conduct our clinical trials and associated regulatory activities. Research and development expenses for the years ended December 31, 2001 and 2000 have been reduced by $14,894,000 and $4,817,000, respectively, for clinical, regulatory and contract manufacturing costs that are reimbursable by BMS and Merck KGaA. The increase in research and development expenses for the year ended December 31, 2001 was primarily attributable to (1) the costs associated with newly initiated and ongoing clinical trials of ERBITUX, (2) costs related to the manufacturing services agreements with Lonza, (3) expenditures in the functional areas of product development, manufacturing, clinical and regulatory affairs associated with ERBITUX and (4) increased expenditures associated with discovery research. We expect research and development costs to increase in future periods as 42 we continue to manufacture ERBITUX prior to any approval of the product that we may obtain for commercial use or obligations of our corporate partners. Such increase will be mitigated to the extent that certain research and development costs relating to ERBITUX will be borne by E.R. Squibb pursuant to the terms of the Commercial Agreement. In the event of such approval or obligations from our corporate partner, the subsequent costs associated with manufacturing ERBITUX for supply to E.R. Squibb for commercial use will be included in inventory and expensed as cost of goods sold when sold. We expect research and development costs associated with discovery research and product development also to continue to increase in future periods. Operating Expenses: Marketing, General and Administrative. Marketing, general and administrative expenses include marketing and administrative personnel costs, including related occupancy costs, additional costs to develop internal marketing and sales capabilities, costs to pursue arrangements with strategic corporate partners and technology licensors, and expenses associated with applying for patent protection for our technology and products. Such expenses for the years ended December 31, 2001 and 2000 were $23,072,000 and $16,651,000, respectively, an increase of $6,421,000, or 39% in 2001. Marketing, general and administrative expenses for the year ended December 31, 2001 have been reduced by $1,887,000, for marketing costs that are reimbursable by BMS (such marketing costs have subsequently been paid by BMS). The increase in marketing, general and administrative expenses primarily reflected (1) costs associated with our marketing efforts, (2) additional administrative staffing required to support our commercialization efforts for ERBITUX and (3) expenses associated with general corporate activities. We expect marketing, general and administrative expenses to increase in future periods to support our continued commercialization efforts for ERBITUX. Interest Income, Interest Expense and Other (Income) Expense Interest income was $14,990,000 for the year ended December 31, 2001 compared with $20,819,000 for the year ended December 31, 2000, a decrease of $5,829,000, or 28%. The decrease was primarily attributable to (1) a decrease in interest rates associated with our portfolio of debt securities as well as (2) a lower average portfolio balance during the year ended December 31, 2001 when compared with the year ended December 31, 2000. Interest expense was $13,585,000 and $12,085,000 for the years ended December 31, 2001 and 2000, respectively, an increase of $1,500,000 or 12% in 2001. The increase was primarily attributable to the interest on our 5 1/2% convertible subordinated notes due March 1, 2005 (the "Convertible Subordinated Notes") issued in February 2001. Interest expense for the years ended December 31, 2001 and 2000 was offset by the capitalization of interest costs of $1,656,000 and $846,000, respectively, during the construction period of our product launch manufacturing facility and a second commercial manufacturing facility for which design, engineering, and pre-construction costs have been incurred. Interest expense for both periods included (1) interest on the convertible subordinated notes, (2) interest on an outstanding Industrial Development Revenue Bond issued in 1990 (the "1990 IDA Bond") with a principal amount of $2,200,000 and (3) interest recorded on various capital lease obligations under a 1996 financing agreement and a 1998 financing agreement with Finova Technology Finance, Inc. ("Finova"). We recorded losses on securities and investments of $1,641,000 and $3,867,000 for the years ended December 31, 2001 and 2000, respectively. The net losses on securities and investments for the year ended December 31, 2001 included $4,375,000 in write- downs of our investment in ValiGen N.V. and a $1,000,000 write-off of our convertible promissory note from A.C.T. Group, Inc. These losses were offset by gains in our portfolio of debt securities of $3,734,000 during the year ended December 31, 2001. The net losses on securities available for sale for the year ended December 31, 2000 included a $5,125,000 write-down of our investment in ValiGen N.V., which was partially offset by gains associated with our investment portfolio. Net Losses. We had a net loss to common stockholders of $102,229,000 or $1.47 per share for the year ended December 31, 2001, compared with a net loss of $77,124,000 or $1.22 per share for the year ended December 31, 2000. Included in the net loss for the year ended December 31, 2001 was $16,055,000 in advisor 43 fees associated with consummating the BMS agreements. Excluding these expenses, the net loss to common stockholders for the year ended December 31, 2001 would have been $86,174,000 or $1.24 per share. Included in the loss for the year ended December 31, 2000 was a non-cash charge of $2,596,000 related to the cumulative effect of a change in accounting policy (see notes 2(g) and 9 to the accompanying consolidated financial statements). Excluding the effect of this change in accounting policy, the net loss to common stockholders for the year ended December 31, 2000 would have been $74,528,000 or $1.18 per share. The increase in the net losses and per share net loss to common stockholders was due to the factors noted above offset by the $6,773,000 premium associated with the redemption of and dividends on the series A preferred stock in 2000. YEARS ENDED DECEMBER 31, 2000 AND 1999. Revenues. Revenues for the years ended December 31, 2000 and 1999 were $1,413,000 and $2,143,000, respectively, a decrease of $730,000, or 34% in 2000. Revenues for the year ended December 31, 2000 primarily consisted of (1) $250,000 in milestone revenue and $961,000 in royalty revenue from our strategic corporate alliance with Abbott in diagnostics and (2) $162,000 in license fee revenue from our strategic corporate alliance with Merck KGaA for our principal cancer vaccine product candidate, BEC2. The license fee revenue related to the BEC2 agreement has been recognized as a direct result of a change in accounting policy with respect to revenue recognition (see notes 2(g) and 9 to the accompanying consolidated financial statements). Effective January 1, 2000, a portion of the previously recognized revenue from upfront payments received under the BEC2 research and license agreement was deferred and is now being recognized over the term of the agreement. Revenues for the year ended December 31, 1999 primarily consisted of (1) $500,000 in milestone revenue and $225,000 in research support from our strategic corporate alliance with Wyeth (formerly known as American Home Products Corporation) in infectious disease vaccines, (2) $533,000 in research and support payments from our strategic corporate alliance with Merck KGaA for BEC2, (3) $500,000 in milestone revenue and $305,000 in royalty revenue from our strategic corporate alliance with Abbott in diagnostics, and (4) $75,000 in license fees from our cross-licensing agreement with Immunex Corp. for novel hematopoietic growth factors. The decrease in revenues for the year ended December 31, 2000 was primarily attributable to the decrease in research and support revenue as a result of the completion of all research and support payments due from our research and license agreement with Merck KGaA for BEC2 and our strategic corporate alliance with Wyeth in infectious disease vaccines. The decrease was partially offset by the increase in royalties from our strategic corporate alliance with Abbott in diagnostics. OPERATING EXPENSES: Total operating expenses for the years ended December 31, 2000 and 1999 were $74,035,000 and $39,381,000, respectively, an increase of $34,654,000, or 88% in 2000. Operating Expenses: Research and Development. Research and development expenses for the years ended December 31, 2000 and 1999 were $57,384,000 and $30,027,000, respectively, an increase of $27,357,000 or 91% in 2000. Such amounts for the years ended December 31, 2000 and 1999 represented 78% and 76%, respectively, of total operating expenses. Research and development expenses include costs associated with our in-house and collaborative research programs, product and process development expenses, costs to manufacture our product candidates, particularly ERBITUX, prior to any approval that we may obtain of a product candidate for commercial sale or obligations of our corporate partners to acquire product from us, quality assurance and quality control costs, and costs to conduct our clinical trials and associated regulatory activities. Research and development expenses for the years ended December 31, 2000 and 1999 have been reduced by $4,817,000 and $6,473,000, respectively, for clinical trial and contract manufacturing costs that are reimbursable by Merck KGaA. The increase in research and development expenses for the year ended December 31, 2000 was primarily attributable to (1) the costs associated with newly initiated and ongoing clinical trials of ERBITUX, (2) costs related to the manufacturing services agreements with Lonza, (3) expenditures in the functional areas of 44 product development, manufacturing, clinical and regulatory affairs associated with ERBITUX, (4) non-cash expenses recognized in connection with the issuance of options granted to scientific consultants and (5) increased expenditures associated with discovery research. Operating Expenses: Marketing, General and Administrative. Marketing, general and administrative expenses include marketing and administrative personnel costs, including related occupancy costs, additional costs to develop internal marketing and sales capabilities, costs to pursue arrangements with strategic corporate partners and technology licensors, and expenses associated with applying for patent protection for our technology and products. Such expenses for the years ended December 31, 2000 and 1999 were $16,651,000 and $9,354,000, respectively, an increase of $7,297,000, or 78% in 2000. The increase in marketing, general and administrative expenses primarily reflected (1) costs associated with our marketing efforts, (2) additional administrative staffing required to support our expanding research, development, clinical, marketing and manufacturing efforts, particularly with respect to ERBITUX, and (3) expenses associated with the pursuit of strategic corporate alliances and other corporate development efforts. Interest Income, Interest Expense and Other (Income) Expense. Interest income was $20,819,000 for the year ended December 31, 2000 compared with $2,842,000 for the year ended December 31, 1999, an increase of $17,977,000. The increase was primarily attributable to the increase in our investment portfolio as a result of the November 1999 public common stock offering and the February 2000 private placement of convertible subordinated notes. Interest expense was $12,085,000 and $292,000 for the years ended December 31, 2000 and 1999, respectively, an increase of $11,793,000 in 2000 which was primarily attributable to the convertible subordinated notes. Interest expense for both periods also included (1) interest on the 1990 IDA Bond with a principal amount of $2,200,000 and (2) interest recorded on various capital lease obligations under a 1996 financing agreement and a 1998 financing agreement with Finova. Interest expense for the years ended December 31, 2000 and 1999 were offset by the capitalization of interest costs of $846,000 and $204,000, respectively, during the construction period of the Company's product launch manufacturing facility. We recorded losses on securities available for sale for the year ended December 31, 2000 in the amount of $3,867,000 as compared with gains of $77,000 for the year ended December 31, 1999. The net losses on securities available for sale for the year ended December 31, 2000 included a $5,125,000 write-down of our investment in ValiGen N.V., which was partially offset by gains associated with our investment portfolio. The net gain for the year ended December 31, 1999 included an $828,000 write-down of our investment in CombiChem Inc. ("CombiChem") as a result of an other than temporary impairment. In November 1999, we disposed of our investment in CombiChem resulting in a net gain of $109,000 for the year ended December 31, 1999. Net Losses. We had a net loss to common stockholders of $77,124,000 or $1.22 per share for the year ended December 31, 2000 compared with $38,324,000 or $0.75 per share for the year ended December 31, 1999. Included in the net loss for the year ended December 31, 2000 was a non-cash charge of $2,596,000 related to the cumulative effect of a change in accounting policy (see notes 2(g) and 9 to the accompanying consolidated financial statements). Excluding the effect of this change in accounting policy, the net loss to common stockholders for the year ended December 31, 2000 would have been $74,528,000 or $1.18 per share. The increase in the net losses and per share net loss to common stockholders was due to the premium associated with the redemption of the series A preferred stock and the factors noted above. 45 LIQUIDITY AND CAPITAL RESOURCES At December 31, 2001, our principal sources of liquidity consisted of cash and cash equivalents and securities available for sale of approximately $334,000,000. From our inception on April 26, 1984 through December 31, 2001, we have financed our operations primarily through the following means: - Public and private sales of equity securities and convertible notes in financing transactions have raised approximately $492,652,000 in net proceeds; - We have earned approximately $67,034,000 from license fees, contract research and development fees and royalties from collaborative partners. Additionally, we have approximately $203,496,000 in deferred revenue related to up-front payments received from our ERBITUX Commercial Agreement with BMS and E.R. Squibb, our ERBITUX development and license agreement with Merck KGaA and our BEC2 development and commercialization agreement with Merck KGaA. These amounts are being recognized as revenue over the expected lives of the respective agreements (see Notes 9 and 10 to the consolidated financial statements); - We have earned approximately $47,114,000 in interest income; - The sale of the IDA Bonds in each of 1985, 1986 and 1990 raised an aggregate of $6,300,000, the proceeds of which have been used for the acquisition, construction and installation of our research and development facility in New York City, and of which $2,200,000 is outstanding. We may, from time to time, consider a number of strategic alternatives designed to increase shareholder value, which could include joint ventures, acquisitions and other forms of alliances, as well as the sale of all or part of the Company. Until September 19, 2006, or earlier upon the occurrence of certain specified events, we may not take any action that constitutes a prohibited action under our Stockholder Agreement with BMS and BMS Biologics without the consent of the BMS directors. Such prohibited actions include (i) issuing additional shares or securities convertible into shares in excess of 21,473,002 shares of our common stock in the aggregate, subject to certain exceptions; (ii) incurring additional indebtedness if the total of the principal amount of such indebtedness incurred since September 19, 2001 and then-outstanding, and the net proceeds from the issuance of any redeemable preferred stock then-outstanding, would exceed the amount of indebtedness outstanding as of September 19, 2001 by more than $500 million; (iii) acquiring any business if the aggregate consideration for such acquisition, when taken together with the aggregate consideration for all other acquisitions consummated during the previous twelve months, is in excess of 25% of the aggregate value of the Company at the time we enter into the binding agreement relating to such acquisition; (iv) disposing of all or any substantial portion of our non-cash assets; (v) issuing capital stock with more than one vote per share. In September 2001, we entered into a Commercial Agreement with BMS and its wholly-owned subsidiary, E.R. Squibb, relating to ERBITUX, pursuant to which, among other things, together with E.R. Squibb we are (a) co-developing and co-promoting ERBITUX in the United States and Canada, and (b) co-developing ERBITUX (together with Merck KGaA) in Japan. The Commercial Agreement was amended on March 5, 2002 to change certain economics of the agreement and has expanded the clinical and strategic role of BMS in the ERBITUX development program. Pursuant to the amended Commercial Agreement, we can receive up-front and milestone payments totaling $900,000,000 in the aggregate, of which $200,000,000 was received upon the signing of the agreement. The remaining $700,000,000 in payments is comprised of $140,000,000 paid on March 7, 2002, $60,000,000 payable on March 5, 2003, $250,000,000 payable upon receipt of marketing approval from the FDA with respect to an initial indication for ERBITUX and $250,000,000 payable upon receipt of marketing approval from the FDA with respect to a second indication for ERBITUX. All such payments are non-refundable and non-creditable. Except for our expenses incurred pursuant to the co-promotion option, E.R. Squibb is responsible for 100% of the distribution, sales and marketing costs in the United States and Canada, and as between ImClone Systems and E.R. Squibb, each will be responsible for 50% of the distribution, sales, marketing costs and other related costs and expenses in Japan. The Commercial Agreement provides that E.R. Squibb shall pay us distribution fees based on a 46 percentage of annual sales of ERBITUX by E.R. Squibb in the United States and Canada. The distribution fee is 39% of net sales in the United States and Canada. The Commercial Agreement also provides that the distribution fees for the sale of ERBITUX in Japan by E.R. Squibb or us shall be equal to 50% of operating profit or loss with respect to such sales for any calendar month. In the event of an operating profit, E.R. Squibb will pay us the amount of such distribution fee, and in the event of an operating loss, we will credit E.R. Squibb the amount of such distribution fee. The Commercial Agreement provides that we will be responsible for the manufacture and supply of all requirements of ERBITUX in bulk form for clinical and commercial use in the United States, Canada and Japan and that E.R. Squibb will purchase all of its requirements of ERBITUX in bulk form for commercial use from us. We will supply ERBITUX for clinical use at our fully burdened manufacturing cost, and will supply ERBITUX for commercial use at our fully burdened manufacturing cost plus a mark-up of 10%. In addition to the up-front and milestone payments, the distribution fees for the United States, Canada and Japan and the 10% mark-up on the commercial supply of ERBITUX, E.R. Squibb is also responsible for 100% of the cost of all clinical studies other than those studies undertaken post-launch which are not pursuant to an INDA (e.g. phase IV studies), the cost of which will be shared equally between E.R. Squibb and ImClone Systems. As between E.R. Squibb and ImClone Systems, each will each be responsible for 50% of the cost of all clinical studies in Japan. In February 2000, we completed a private placement of $240,000,000 in 5 1/2% convertible subordinated notes due March 1, 2005. We received net proceeds of approximately $231,500,000, after deducting expenses associated with the offering. Accrued interest on the notes was approximately $4,400,000 at December 31, 2001. A holder may convert all or a portion of a note into common stock at any time on or before March 1, 2005 at a conversion price of $55.09 per share, subject to adjustment under certain circumstances. We may redeem some or all of the notes prior to March 6, 2003 if specified common stock price thresholds are met. On or after March 6, 2003, we may redeem some or all of the notes at specified redemption prices. In December 1999, we entered into a development and manufacturing services agreement with Lonza. This agreement was amended in April 2001 to include additional services. Under the agreement, Lonza is responsible for process development and scale-up to manufacture ERBITUX in bulk form under current Good Manufacturing Practices ("cGMP") conditions. These steps were taken to assure that the manufacturing process would produce bulk material that conforms with our reference material and to support in part, our regulatory filing with the FDA. As of December 31, 2001, we had incurred approximately $7,030,000 for services provided under the development and manufacturing services agreement. In September 2000, we entered into a three-year commercial manufacturing services agreement with Lonza relating to ERBITUX. This agreement was amended in June 2001 and again in September 2001 to include additional services. As of December 31, 2001, we had incurred approximately $10,313,000 for services provided under the commercial manufacturing services agreement. Under these two agreements, Lonza is manufacturing ERBITUX at the 5,000 liter scale under cGMP conditions and is delivering it to us over a term ending no later than December 2003. The costs associated with both of these agreements are included in research and development expenses when incurred and will continue to be so classified until such time as ERBITUX may be approved for sale or until we obtain obligations from our corporate partners for supply of such product. In the event of such approval or obligations from our corporate partners, the subsequent costs associated with manufacturing ERBITUX for commercial sale will be included in inventory and expensed as cost of goods sold when sold. In the event we terminate the commercial manufacturing services agreement without cause, we will be required to pay 85% of the stated costs for each of the first ten batches cancelled, 65% of the stated costs for each of the next ten batches cancelled and 40% of the stated costs for each of the next six batches cancelled. The batch cancellation provisions for the subsequent batches require us to pay 100% of the stated costs of cancelled batches scheduled within six months of the cancellation, 85% of the stated costs of cancelled batches scheduled between six and twelve months following the cancellation and 65% of the stated costs of cancelled batches scheduled between twelve and eighteen months following the cancellation. These amounts are subject to mitigation should Lonza use its manufacturing capacity caused by such termination for another customer. At December 31, 2001, the estimated remaining future commitments under the amended commercial manufacturing services agreement are $42,563,000 in 2002 and $10,175,000 in 2003. 47 In April 1990, we entered into a development and commercialization agreement with Merck KGaA with respect to BEC2 and the recombinant gp75 antigen. The agreement has been amended a number of times, most recently in December 1997. The agreement grants Merck KGaA a license, with the right to sublicense, to make, have made, use, sell, or have sold BEC2 and gp75 outside North America. The agreement also grants Merck KGaA a license, without the right to sublicense, to use, sell, or have sold, but not to make BEC2 within North America in conjunction with ImClone Systems. Pursuant to the terms of the agreement we have retained the rights, (1) without the right to sublicense, to make, have made, use, sell, or have sold BEC2 in North America in conjunction with Merck KGaA and (2) with the right to sublicense, to make, have made, use, sell, or have sold gp75 in North America. In return, we have recognized research support payments totaling $4,700,000 and are entitled to no further research support payments under the agreement. Merck KGaA is also required to make payments of up to $22,500,000, of which $4,000,000 has been recognized, based on milestones achieved in the licensed products' development. Merck KGaA is also responsible for worldwide costs of up to DM17,000,000 associated with a multi-site, multinational phase III clinical trial for BEC2 in limited disease small-cell lung carcinoma. This expense level was reached during the fourth quarter of 2000 and all expenses incurred from that point forward are being shared 60% by Merck KGaA and 40% by ImClone Systems. Such cost sharing applies to all expenses beyond the DM17,000,000 threshold. Merck KGaA is also required to pay royalties on the eventual sales of BEC2 outside of North America, if any. Revenues from sales, if any, of BEC2 in North America will be distributed in accordance with the terms of a co-promotion agreement to be negotiated by the parties. In December 1998, we entered into a development and license agreement with Merck KGaA with respect to our interventional therapeutic product candidate for cancer, ERBITUX. In exchange for granting Merck KGaA exclusive rights to market ERBITUX outside of the United States and Canada and co-development rights in Japan, we received through December 31, 2001, $30,000,000 in up-front fees and early cash-based milestone payments based on the achievement of defined milestones. An additional $30,000,000 can be received, of which $5,000,000 has been received as of December 31, 2001, assuming the achievement of further milestones for which Merck KGaA will receive equity in ImClone Systems. The equity underlying these milestone payments will be priced at varying premiums to the then-market price of the common stock depending upon the timing of the achievement of the respective milestones. If issuing shares of common stock to Merck KGaA would result in Merck KGaA owning greater than 19.9% of our common stock, the milestone shares will be a non-voting preferred stock, or other non-voting stock convertible into our common stock. These convertible securities will not have voting rights. They will be convertible at a price determined in the same manner as the purchase price for shares of our common stock if shares of common stock were to be issued. They will not be convertible into common stock if, as a result of the conversion, Merck KGaA would own greater than 19.9% of our common stock. This 19.9% limitation is in place through December 2002. Merck KGaA will pay us a royalty on future sales of ERBITUX outside of the United States and Canada, if any. This agreement may be terminated by Merck KGaA in various instances, including (1) at its discretion on any date on which a milestone is achieved (in which case no milestone payment will be made), or (2) for a one-year period after first commercial sale of ERBITUX in Merck KGaA's territory, upon Merck KGaA's reasonable determination that the product is economically unfeasible (in which case Merck KGaA is entitled to receive back 50% of the cash-based up front fess and milestone payments then paid to date, but only out of revenues received, if any, based upon a royalty rate applied to the gross profit from ERBITUX sales or a percentage of ERBITUX fees and royalties from a sublicensee on account of the sale of ERBITUX in the United States and Canada). In August 2001, ImClone Systems and Merck KGaA amended this agreement to provide, among other things, that Merck KGaA may manufacture ERBITUX for supply in its territory and may utilize a third party to do so upon ImClone System's reasonable acceptance. The amendment further released Merck KGaA from its obligations under the agreement relating to providing a guaranty under a $30,000,000 credit facility relating to the build-out of the product launch manufacturing facility. In addition, the amendment provides that the companies have co-exclusive rights to ERBITUX in Japan, including the right to sublicense and Merck KGaA waived its right of first offer in the case of a proposed sublicense by ImClone System of ERBITUX in ImClone System's territory. In consideration for the amendment, we agreed to a reduction in royalties payable by Merck KGaA on sales of ERBITUX in Merck KGaA's territory. 48 In December 2001, we entered into an agreement with Lonza to manufacture ERBITUX at the 2,000 liter scale for use in clinical trials by Merck KGaA. We had incurred approximately $2,483,000 for services provided under this agreement, of which $1,779,000 was received from Merck KGaA. The remaining $704,000 that is due from Merck KGaA is included in the amounts due from corporate partners, in the consolidated balance sheet at December 31, 2001. On January 2, 2002 we executed a letter of intent with Lonza to enter into a long term supply agreement. The long term supply agreement would apply to a large scale manufacturing facility that Lonza is constructing. We expect such facility would be able to produce ERBITUX in 20,000 liter batches. We paid Lonza $3,250,000 for the exclusive rights to reserve and negotiate a long term supply agreement for a portion of the new facility's overall capacity. Under certain conditions, such payment shall be refunded to us. If we enter into a long term supply agreement, such payment will be creditable to us against the 20,000 liter batch price, such credit to be spread evenly over the batches manufactured each year of the initial term of the long term supply agreement. We cannot be certain that we will be able to enter into agreements for commercial supply with third party manufacturers on terms acceptable to us. Even if we are able to enter into such agreements, we cannot be certain that we will be able to produce or obtain sufficient quantities for commercial sale of our products. Any delays in producing or obtaining commercial quantities of our products could have a material effect on our business, financial condition and results of operations. We have obligations under various capital leases for certain laboratory, office and computer equipment and also certain building improvements, primarily under 1996 and 1998 financing agreements with Finova. These agreements allowed us to finance the lease of equipment and make certain building and leasehold improvements to existing facilities. Each lease has a fair market value purchase option at the expiration of its 42- or 48-month term. We have entered into twelve individual leases under the financing agreements with an aggregate cost of $3,695,000. These financing arrangements are now expired. We rent our current New York corporate headquarters and research facility under an operating lease that expires in December 2004. In 2000 we completed renovations of the facility to better suit our needs, at a cost of approximately $2,800,000. In October 2001, we entered into a sublease for a four story building in downtown New York to serve as our future corporate headquarters and research facility. The space, to be designed and improved in the future, includes between 75,000 and 100,000 square feet of usable space, depending on design, and includes possible additional expansion space. The sublease has a term of 22 years, followed by two five-year renewal option periods. The future minimum lease payments are approximately $51,025,000 over the term of the sublease. In order to induce the sublandlord to enter into the sublease, we made a loan to and accepted from the sublandlord a $10,000,000 note receivable. The note is secured by a leasehold mortgage on the prime lease as well as a collateral assignment of rents by the sublandlord. The note receivable is payable by the sublandlord over 20 years and bears interest at 5 1/2% in years one through five, 6 1/2% in years six through ten, 7 1/2% in years eleven through fifteen and 8 1/2% in years sixteen through twenty. In addition, we paid the owner a consent fee in the amount of $500,000. On May 1, 2001, we entered into a lease for an approximately 4,000 square foot portion of a 15,000 square foot building known as 710 Parkside Avenue, Brooklyn, New York and we have leased an adjacent 6,250 square foot building know as 313-315 Clarkson Avenue, Brooklyn, New York, (collectively "the premises") to serve as our new chemistry and high throughput screening facility. The term of the lease is for five years with five successive one-year extensions. For the year ended December 31, 2001, we have incurred approximately $662,000 for the retrofit of this facility to better fit our needs. The total cost for the retrofit will be approximately $4,000,000. We built a new 80,000 square foot product launch manufacturing facility adjacent to the pilot facility in Somerville, New Jersey. The product launch manufacturing facility was built on a 5.7 acre parcel of land we purchased in December 1999 for approximately $700,000. The product launch manufacturing facility contains three 10,000 liter (working volume) fermenters and is dedicated to the clinical and commercial production of 49 ERBITUX. The cost of the facility was approximately $53,000,000, excluding capitalized interest of approximately $1,966,000. The cost for the facility has come from our cash reserves, which were primarily obtained through the issuance of debt and equity securities. The product launch manufacturing facility was ready for its intended use and put in operation in July 2001 and we commenced depreciation at that time. We have completed conceptual design and preliminary engineering plans and are currently reviewing detailed design plans for, and proceeding with construction of, the second commercial manufacturing facility. The second commercial manufacturing facility will be a multi-use facility of approximately 250,000 square feet and will contain up to 10 fermenters with a total capacity of up to 110,000 liters (working volume). The facility will be built on a 7.12 acre parcel of land that we purchased in July 2000 for approximately $950,000. The cost of this facility, for two completely fitted out suites and a third suite with utilities only, is expected to be approximately $225,000,000, excluding capitalized interest. The actual amount may change depending upon various factors. We have incurred approximately $29,674,000, excluding capitalized interest of approximately $740,000, in conceptual design, engineering and construction costs through December 31, 2001. On January 31, 2002 we purchased a 7.5 acre parcel of land located at 1181 Route 202, which is the parcel immediately to the north of 36 Chubb Way and immediately to the east of 50 Chubb Way. The parcel includes a 50,000 square foot building, 40,000 square feet of which is warehouse space and 10,000 square feet of which is office space. The purchase price for the property and improvements was approximately $7,000,000. We intend to use this property for warehousing and logistics for our Somerville campus. Total capital expenditures made during the year ended December 31, 2001 were $60,218,000 and primarily included $2,734,000 related to the purchase of equipment for and leasehold improvement costs associated with our corporate office and research laboratories in our New York facility, $20,784,000 related to engineering, construction and capitalized interest costs of the product launch manufacturing facility, $28,746,000 related to the conceptual design, preliminary engineering plans and construction costs for a second commercial manufacturing facility, $3,746,000 related to improving and equipping our pilot manufacturing facility, $3,576,000 in computer hardware, software and design and configuration costs related to the implementation of an enterprise resource planning system and $612,000 related to the purchase of land adjacent to the existing pilot manufacturing facility. We believe that our existing cash on hand and amounts to which we are entitled should enable us to maintain our current and planned operations through at least 2003. We are also entitled to reimbursement for certain marketing and research and development expenditures and certain other payments, some of which are payable upon the achievement of research and development milestones. Such amounts include $700,000,000 in cash-based payments under our Commercial Agreement with BMS and E.R. Squibb of which $140,000,000 was received on March 7, 2002 and $60,000,000 is payable on March 5, 2003, as well as up to $25,000,000 in equity-based milestone payments under our ERBITUX development and license agreement with Merck KGaA and up to $18,500,000 in cash-based milestone payments under our BEC2 development agreement with Merck KGaA. There can be no assurance that we will achieve these milestones. Our future working capital and capital requirements will depend upon numerous factors, including, but not limited to: - progress and cost of our research and development programs, pre-clinical testing and clinical trials; - our corporate partners fulfilling their obligations to us; - timing and cost of seeking and obtaining regulatory approvals; - timing and cost of manufacturing scale-up and effective commercialization activities and arrangements; - level of resources that we devote to the development of marketing and sales capabilities; - costs involved in filing, prosecuting and enforcing patent claims; - technological advances; - status of competitors; 50 - our ability to maintain existing corporate collaborations and establish new collaborative arrangements with other companies to provide funding to support these activities. In order to fund our capital needs after 2003, we will require significant levels of additional capital and we intend to raise the capital through additional arrangements with corporate partners, equity or debt financings, or from other sources, including the proceeds of product sales, if any. There is no assurance that we will be successful in consummating any such arrangements. If adequate funds are not available, we may be required to significantly curtail our planned operations. Below is a table which presents our contractual obligations and commercial commitments as of December 31, 2001:
PAYMENTS DUE BY PERIOD ------------------------------------------------------------------------ LESS THAN TOTAL ONE YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS ------------ ------------ ----------- ------------ ------------- Long-term debt............... $242,200,000 $ -- $ 2,200,000 $240,000,000 $ -- Capital lease obligations including interest......... 491,000 430,000 61,000 -- -- Operating leases............. 55,632,000 2,055,000 8,910,000 4,570,000 40,097,000 Construction commitments..... 89,189,000 62,761,000 26,428,000 -- -- Lonza........................ 52,738,000 42,563,000 10,175,000 -- -- ------------ ------------ ----------- ------------ ----------- Total contractual cash obligations................ $440,250,000 $107,809,000 $47,774,000 $244,570,000 $40,097,000 ============ ============ =========== ============ ===========
At December 31, 2001, we had net operating loss carryforwards for United States federal income tax purposes of approximately $437,189,000, which expire at various dates from 2002 through 2021. At December 31, 2001 we had research credit carryforwards of approximately $19,415,000, which expire at various dates from 2008 through 2021. Under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation's ability to use net operating loss and research credit carryforwards may be limited if the corporation experiences a change in ownership of more than 50 percentage points within a three-year period. Since 1986, we have experienced two such ownership changes. As a result, we are only permitted to use in any one year approximately $5,159,000 of our available net operating loss carryforwards that occurred prior to February 1996. Similarly, we are limited in using our research credit carryforwards. We have determined that our November 1999 public stock offering, our February 2000 private placement of convertible subordinated notes, our August 2001 issuance of common stock to Merck KGaA associated with an equity milestone payment under the ERBITUX development and license agreement and our September 2001 Acquisition Agreement with BMS did not cause an additional ownership change that would further limit the use of our net operating losses and research credit carryforwards. Of our $437,189,000 in net operating loss carry forwards, we have approximately $395,245,000 available to use in 2002, approximately $5,159,000 available to use in each year from 2003 through 2010 and approximately $672,000 available to use in 2011. Any of the aforementioned net operating loss carryforwards which are not utilized are available for utilization in future years, subject to the statutory expiration dates of such net operating loss carryforwards. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Our holdings of financial instruments comprise a mix of securities that may include U.S. corporate debt, foreign corporate debt, U.S. government debt, foreign government/agency guaranteed debt and commercial paper. All such instruments are classified as securities available for sale. Generally, we do not invest in portfolio equity securities or commodities or use financial derivatives for trading purposes. Our debt security portfolio represents funds held temporarily pending use in our business and operations. We manage these funds accordingly. We seek reasonable assuredness of the safety of principal and market liquidity by investing in investment grade fixed income securities while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of changes in the credit quality of issuers. We invest in securities that 51 have a range of maturity dates. Typically, those with a short-term maturity are fixed-rate, highly liquid, debt instruments and those with longer-term maturities are highly liquid debt instruments with fixed interest rates or with periodic interest rate adjustments. We also have certain foreign exchange currency risk. See note 2 of the consolidated financial statements. The table below presents the principal amounts and related weighted average interest rates by year of maturity for our investment portfolio as of December 31, 2001.
2007 AND 2002 2003 2004 2005 2006 THEREAFTER TOTAL ----------- -------- ----------- ----------- ---------- ------------ ------------ Fixed Rate.............. $19,961,000 $246,000 $ -- $ -- $3,256,000 $ 29,566,000 $ 53,029,000 Average Interest Rate... 3.33% 6.00% -- -- 5.86% 6.27% 5.14% Variable Rate........... 10,999,000(1) -- 32,811,000(1) 12,840,000(1) 2,695,000(1) 180,364,000(1) 239,709,000 Average Interest Rate... 2.25% -- 3.26% 3.65% 2.37% 3.10% 3.11% ----------- -------- ----------- ----------- ---------- ------------ ------------ $30,960,000 $246,000 $32,811,000 $12,840,000 $5,951,000 $209,930,000 $292,738,000 =========== ======== =========== =========== ========== ============ ============ FAIR VALUE ------------ Fixed Rate.............. $ 54,990,000 Average Interest Rate... -- Variable Rate........... 240,903,000 Average Interest Rate... -- ------------ $295,893,000 ============
- --------------- (1) These holdings consist of U.S. corporate and foreign corporate floating rate notes. Interest on the securities is adjusted monthly, quarterly or semi-annually, depending on the instrument, using prevailing interest rates. These holdings are highly liquid and we consider the potential for loss of principal to be minimal. Our 5 1/2% convertible subordinated notes in the principal amount of $240,000,000 due March 1, 2005 and other long-term debt have fixed interest rates. The subordinated notes are convertible into our common stock at a conversion price of $55.09 per share. The fair value of fixed interest rate instruments are affected by changes in interest rates and in the case of the convertible notes by changes in the price of our common stock. The fair value of the 5 1/2% convertible subordinated notes (which have a carrying value of $240,000,000) was approximately $210,600,000 at March 22, 2002, and $255,000,000 at December 31, 2001. 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. 52 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 our Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 23, 2002. PART IV 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) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
EXHIBIT INCORPORATION NO. DESCRIPTION BY REFERENCE ------- ----------- ------------- 3.1 Certificate of Incorporation, as amended through December 31, 1998.................................................... O (3.1) 3.1A Amendment dated June 4, 1999 to the Company's Certificate of Incorporation, as amended................................... U (3.1A) 3.1B Amendment dated June 12, 2000 to the Company's Certificate of Incorporation as amended................................. Y (3.1A) 3.2 Amended and Restated By-Laws of the Company................. N (3.2) 4.1 Form of Warrant issued to the Company's officers and directors under Warrant Agreements.......................... A (4.1) 4.2 Stock Purchase Agreement between Erbamont Inc. and the Company, dated May 1, 1989.................................. A (4.2) 4.3 Stock Purchase Agreement between American Cyanamid Company (Cyanamid) and the Company dated December 18, 1987.......... A (4.3) 4.4 Form of Subscription Agreement entered into in connection with September 1991 private placement....................... A (4.4) 4.5 Form of Warrant issued in connection with September 1991 private placement........................................... A (4.5) 4.6 Preferred Stock Purchase Agreement between the Company and Merck KGaA ("Merck") dated December 3, 1997................. P (4.6) 4.7 Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock........................ P (4.7) 4.8 Certificate of Elimination of the Series A Convertible Preferred Stock............................................. AF (4.8) 4.9 Certificate of Designations, Preferences and Rights of Series B Participating Cumulative Preferred Stock........... AD (4.7) 10.1 Company's 1986 Employee Incentive Stock Option Plan, including form of Incentive Stock Option Agreement.......... F (10.1) 10.2 Company's 1986 Non-qualified Stock Option Plan, including form of Non-qualified Stock Option Agreement................ F (10.2) 10.3 Company's 401(k) Plan....................................... F (10.3) 10.4 Research and License Agreement between Merck and the Company dated December 19, 1990..................................... B (10.4)
53
EXHIBIT INCORPORATION NO. DESCRIPTION BY REFERENCE ------- ----------- ------------- 10.5 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........................ B (10.6) 10.6 Agreement between Cyanamid and the Company dated December 18, 1987 and supplemental letter agreement between Cyanamid and the Company dated September 6, 1991..................... B (10.7) 10.7 Agreement between Hadasit Medical Research Services & Development, Ltd. and the Company........................... B (10.8) 10.8 Agreement between Hadasit Medical Research Services & Development, Ltd. and the Company dated September 21, 1989........................................................ B (10.9) 10.9 Supported Research Agreement between Memorial Sloan Kettering Cancer Center (MSKCC) and the Company dated March 26, 1990.................................................... A (10.10) 10.10 License Agreement between MSKCC and the Company, dated March 26, 1990.................................................... B (10.11) 10.11 License Agreement between MSKCC and the Company, dated March 26, 1990.................................................... B (10.12) 10.12 License Agreement between MSKCC and the Company, dated March 26, 1990.................................................... B (10.13) 10.13 Research Agreement between the Trustees of Princeton University (Princeton) and the Company dated January 1, 1991........................................................ B (10.14) 10.14 Research Agreement between Princeton and the Company dated May 1, 1991................................................. B (10.15) 10.15 Research Agreement between Princeton and the Company dated May 1, 1991................................................. B (10.16) 10.16 License Agreement between Princeton and the Company dated March 20, 1991.............................................. B (10.17) 10.17 License Agreement between Princeton and the Company dated May 29, 1991................................................ B (10.18) 10.18 License Agreement between Princeton and Oncotech, Inc. dated September 3, 1987........................................... B (10.19) 10.19 Supported Research Agreement between The University of North Carolina at Chapel Hill ("UNC") and the Company effective July 5, 1988................................................ B (10.20) 10.20 License Agreement between UNC and the Company dated July 5, 1988........................................................ B (10.21) 10.21 License Agreement between UNC and the Company dated July 27, 1988........................................................ B (10.22) 10.22 Supported Research Agreement between UNC and the Company effective April 1, 1989..................................... B (10.23) 10.23 License Agreement between UNC and the Company dated July 1, 1991........................................................ B (10.24) 10.24 Agreement between Celltech Limited and the Company dated May 23, 1991.................................................... B (10.25) 10.25 Form of Non-disclosure and Discovery Agreement between employees of the Company and the Company.................... A (10.30) 10.26 Industrial Development Bond Documents:...................... A (10.31) 10.26.1 Industrial Development Revenue Bonds (1985 ImClone Systems Incorporated Project)....................................... A (10.31.1) 10.26.1.1 Lease Agreement, dated as of October 1, 1985, between the New York City Industrial Development Agency (NYCIDA) and the Company, as Lessee.......................................... A (10.31.1.3) 10.26.1.2 Indenture of Trust, dated as of October 1, 1985, between NYCIDA and United States Trust Company of New York (US Trust), as Trustee.......................................... A (10.31.1.2) 10.26.1.3 Company Sublease Agreement, dated as of October 1, 1985, between the Company and NYCIDA.............................. A (10.31.1.3) 10.26.1.4 Tax Regulatory Agreement, dated October 9, 1985, from NYCIDA and the Company to US Trust, as Trustee..................... A (10.31.1.4)
54
EXHIBIT INCORPORATION NO. DESCRIPTION BY REFERENCE ------- ----------- ------------- 10.26.1.5 Lessee Guaranty Agreement, dated as of October 1, 1985, between the Company and US Trust, as Trustee................ A (10.31.1.5) 10.26.1.6 First Supplemental Indenture of Trust, dated as of November 1, 1985 from the NYCIDA to US Trust......................... A (10.31.1.6) 10.26.1.7 Third Supplemental Indenture of Trust, dated as of October 12, 1990 from NYCIDA to US Trust............................ A (10.31.1.7) 10.26.2 Industrial Development Revenue Bonds (1986 ImClone Systems Incorporated Project)....................................... A (10.31.2) 10.26.2.1 First Amendment to Company Sublease Agreement, dated as of December 1, 1986, between the Company, as Sublessor, and NYCIDA as Sublessee......................................... A (10.31.2.1) 10.26.2.2 First Amendment to Lease Agreement, dated as of December 1, 1986, between NYCIDA and the Company, as Lessee............. A (10.31.2.2) 10.26.2.3 Second Supplement Indenture of Trust, dated as of December 1, 1986 between NYCIDA and US Trust, as Trustee............. A (10.31.2.3) 10.26.2.4 Tax Regulatory Agreement, dated December 31, 1986, from NYCIDA and the Company to US Trust, as Trustee.............. A (10.31.2.4) 10.26.2.5 First Amendment to Lessee Guaranty Agreement, dated as of December 1, 1986, between the Company and US Trust, as Trustee..................................................... A (10.31.2.5) 10.26.2.6 Bond Purchase Agreement, dated as of December 31, 1986, between NYCIDA and New York Muni Fund, Inc., as Purchaser... A (10.31.2.6) 10.26.2.7 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.......................... A (10.31.2.7) 10.26.3 Industrial Development Revenue Bonds (1990 ImClone Systems Incorporated Project)....................................... A (10.31.3) 10.26.3.1 Lease Agreement, dated as of August 1, 1990, between NYCIDA and the Company, as lessee.................................. A (10.31.3.1) 10.26.3.2 Company Sublease Agreement, dated as of August 1, 1990, between the Company, as Sublessor, and NYCIDA............... A (10.31.3.2) 10.26.3.3 Indenture of Trust, dated as of August 1, 1990, between NYCIDA and US Trust, as Trustee............................. A (10.31.3.3) 10.26.3.4 Guaranty Agreement, dated as of August 1, 1990, from the Company to US Trust, as Trustee............................. A (10.31.3.4) 10.26.3.5 Tax Regulatory Agreement, dated August 1, 1990, from the Company and NYCIDA to US Trust, as Trustee.................. A (10.31.3.5) 10.26.3.6 Agency Security Agreement, dated as of August 1, 1990, from the Company, as Debtor, and the NYCIDA to US Trust, as Trustee..................................................... A (10.31.3.6) 10.26.3.7 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.................. A (10.31.3.7) 10.27 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........................ A (10.32) 10.28 License Agreement between The Board of Trustees of the Leland Stanford Junior University and the Company effective May 1, 1991................................................. A (10.33)
55
EXHIBIT INCORPORATION NO. DESCRIPTION BY REFERENCE ------- ----------- ------------- 10.29 License Agreement between Genentech, Inc. and the Company dated December 28, 1989..................................... A (10.34) 10.30 License Agreement between David Segev and the Company dated December 28, 1989........................................... B (10.35) 10.31 Letter of Intent between the Company and Dr. David Segev dated November 18, 1991..................................... C (10.40) 10.32 Agreement between the Company and Celltech Limited dated March 11, 1992.............................................. C (10.42) 10.33 Agreement of Sale dated June 19, 1992 between the Company and Korsch Tableting Inc.................................... D (10.45) 10.34 Research and License Agreement, having an effective date of December 15, 1992, between the Company and Abbott Laboratories................................................ E (10.46) 10.35 Research and License Agreement between the Company and Chugai Pharmaceutical Co., Ltd. dated January 25, 1993...... E (10.47) 10.36 License Agreement between the Company and the Regents of the University of California dated April 9, 1993................ G (10.48) 10.37 Contract between the Company and John Brown, a division of Trafalgar House, dated January 19, 1993..................... H (10.49) 10.38 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............ G (10.50) 10.39 Termination Agreement between the Company and Erbamont Inc. dated July 21, 1993......................................... H (10.51) 10.40 Research and License Agreement between the Company and Cyanamid dated September 15, 1993........................... G (10.52) 10.41 Clinical Trials Agreement between the Company and the National Cancer Institute dated November 23, 1993........... H (10.53) 10.42 License Agreement between the Company and UNC dated December 1, 1993..................................................... G (10.54) 10.43 Notice of Termination for the research collaboration between the Company and Chugai Pharmaceutical Co., Ltd. dated December 17, 1993........................................... H (10.55) 10.44 License Agreement between the Company and Rhone-Poulenc Rorer dated June 13, 1994................................... I (10.56) 10.45 Offshore Securities Subscription Agreement between ImClone Systems Incorporated and GFL Ultra Fund Limited dated August 12, 1994.................................................... I (10.57) 10.46 Offshore Securities Subscription Agreement between ImClone Systems Incorporated and GFL Ultra Fund Limited dated November 4, 1994............................................ I (10.58) 10.47 Offshore Securities Subscription Agreement between ImClone Systems Incorporated and Anker Bank Zuerich dated November 10, 1994.................................................... I (10.59) 10.48 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.................................. J (10.60) 10.49 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................................ J (10.61)
56
EXHIBIT INCORPORATION NO. DESCRIPTION BY REFERENCE ------- ----------- ------------- 10.50 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................................ J (10.62) 10.51 Stock Purchase Agreement, dated as of August 10, 1995, by and between ImClone Systems Incorporated and the members of the Oracle Group............................................ J (10.63) 10.52 Form of Warrant issued to the members of the Oracle Group... J (10.64) 10.53 Loan Agreement, dated as of August 10, 1995, by and between ImClone Systems Incorporated and the members of the Oracle Group....................................................... J (10.65) 10.54 Security Agreement, dated as of August 10, 1995, by and between ImClone Systems Incorporated and the members of the Oracle Group................................................ J (10.66) 10.55 Mortgage, dated August 10, 1995, made by ImClone Systems Incorporated for the benefit of Oracle Partners, L.P., as Agent....................................................... J (10.67) 10.56 Financial Advisory Agreement entered into between the Company and Genesis Merchant Group Securities dated November 2, 1995..................................................... K (10.68) 10.57 Repayment Agreement (with Confession of Judgment, and Security Agreement) entered into between the Company and Pharmacia, Inc. on March 6, 1996............................ K (10.69) 10.58 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........................................... K (10.70) 10.59 Amendment of September 1993 to the Research and License Agreement between the Company and Merck of April 1, 1990.... K (10.71) 10.60 Amendment of October 1993 to the Research and License Agreement between the Company and Merck of April 1, 1990.... K (10.72) 10.61 Employment agreement dated May 17, 1996 between the Company and Carl S. Goldfischer..................................... L (10.73) 10.62 Financial Advisory Agreement dated February 26, 1997 between the Company and Hambrecht & Quist LLC....................... L (10.74) 10.63 Exchange Agreement exchanging debt for common stock dated as of April 15, 1996 among the Company and members of The Oracle Group................................................ L (10.75) 10.64 Collaborative Research and License Agreement between the Company and CombiChem, Inc. dated October 10, 1997.......... M (10.76) 10.65 Amendment of May 1996 to Research and License Agreement between the Company and Merck of April 1, 1990.............. P (10.65) 10.66 Amendment of December 1997 to Research and License Agreement between the Company and Merck of April 1, 1990.............. P (10.66) 10.67 Equipment Leasing Commitment from Finova Technology Finance, Inc. ....................................................... Q (10.67) 10.68 Development and License Agreement between the Company and Merck KGaA dated December 14, 1998.......................... R (10.70) 10.69 Lease dated as of December 15, 1998 for the Company's premises at 180 Varick Street, New York, New York........... T (10.69) 10.70 Engagement Agreement, as amended between the Company and Diaz & Altschul Capital LLC................................. T (10.70) 10.71 Amendment dated March 2, 1999 to Development and License Agreement between the Company and Merck KGaA................ T (10.71)
57
EXHIBIT INCORPORATION NO. DESCRIPTION BY REFERENCE ------- ----------- ------------- 10.72 Agreement for Supply of Material dated as of January 1, 1997 between the Company, Connaught Laboratories Limited, a Pasteur Merieux Company and Merck KGaA...................... U (10.72) 10.73 Development and Supply Agreement dated as of April 30, 1999 between the Company and Beohringer Ingelheim Pharma KG...... V (10.73) 10.74 Indenture dated as of February 29, 2000 by and between the Company and The Bank of New York, as Trustee................ W (10.74) 10.75 Form of 5 1/2% Convertible Subordinated Notes Due 2005...... W (10.75) 10.76 Stock Purchase Agreement between the Company and Valigen NV dated May 31, 2000.......................................... Z (10.76) 10.77 Stock Purchase Agreement between the Company and Valigen NV dated May 31, 2001.......................................... AB (10.77) 10.78 Acquisition Agreement, dated as of September 19, 2001, among the Company, Bristol-Myers Squibb Company and Bristol-Myers Squibb Biologics Company.................................... AC 10.79 Stockholder Agreement, dated as of September 19, 2001, among, Bristol-Myers Squibb Company, Bristol-Myers Squibb Biologics Company and the Company........................... AC 10.80 Development, Promotion, Distribution and Supply Agreement, dated as of September 19, 2001, among the Company, Bristol-Myers Squibb Company and E.R. Squibb & Sons, L.L.C....................................................... AC 10.81 Employment Agreement, dated as of September 19, 2001, between the Company and Samuel D. Waksal, Ph.D. ............ AC 10.82 Employment Agreement, dated as of September 19, 2001, between the Company and Harlan W. Waksal, M.D. ............. AC 10.83 Employment Agreement, dated as of September 19, 2001, between the Company and Daniel S. Lynch..................... AC 10.84 Employment Agreement, dated as of September 19, 2001, between the Company and John B. Landes...................... AC 10.85 Employment Agreement, dated as of September 19, 2001, between the Company and S. Joseph Tarnowski, Ph.D. ......... AC 10.86 Agreement of Sublease dated October 5, 2001, by and between 325 Spring Street LLC and the Company. ..................... AF 10.86.1 Promissory Note in the principle amount of $10,000,000, dated October 5, 2001, executed by 325 Spring Street LLC in favor of the Company........................................ AF 10.87 Amendment No. 1 to Development, Promotion, Distribution and Supply Agreement, dated as of March 5, 2002, among the Company, Bristol-Myers Squibb Company and E.R. Squibb & Sons, L.L.C. ............................................... AE 10.88 Amendment, dated as of August 16, 2001 to the Development and License Agreement between the Company and Merck KGaA. ...................................................... AG 10.89 Agreement of Purchase and Sale, dated as of December 17, 2001 between the Company and Corum Realty, LP............... AF 12.1 Ratio of Earnings to Fixed Charges.......................... AF 21.1 Subsidiaries................................................ T (21.1) 23.1 Consent of KPMG LLP......................................... AF 99.1 1996 Incentive Stock Option Plan, as amended................ AF 99.2 1996 Non-Qualified Stock Option Plan, as amended............ AF
58
EXHIBIT INCORPORATION NO. DESCRIPTION BY REFERENCE ------- ----------- ------------- 99.3 ImClone Systems Incorporated 1998 Non-Qualified Stock Option Plan, as amended............................................ AF 99.4 ImClone Systems Incorporated 1998 Employee Stock Purchase Plan........................................................ W (99.4) 99.5 Option Agreement, dated as of September 1, 1998, between the Company and Ron Martell..................................... S (99.3) 99.6 Option Agreement, dated as of January 4, 1999, between the Company and S. Joseph Tarnowski............................. X (99.4) 99.7 Rights Agreement dated as of February 15, 2002 between the Company and EquiServe Trust Company, N.A., as Rights Agent. ..................................................... AD
- --------------- (A) Previously filed with the Commission; incorporated by reference to Registration Statement on Form S-1, File No. 33-43064. (B) Previously filed with the Commission; incorporated by reference to Registration Statement on Form S-1, File No. 33-43064. Confidential treatment was granted for a portion of this exhibit. (C) Previously filed with the Commission; incorporated by reference to Registration Statement on Form S-1, File 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 for the fiscal year ended December 31, 1992. Confidential treatment was granted for a portion of this Exhibit. (F) Previously filed with the Commission; incorporated by reference to Amendment No. 1 to Registration Statement on to Form S-1, File No. 33-61234. (G) Previously filed with the Commission; incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. 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 for the fiscal year ended December 31, 1993. (I) Previously filed with the Commission; incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. (J) Previously filed with the Commission; incorporated by reference to Registration Statement on Form S-2, File No. 33-98676. (K) Previously filed with the Commission, incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995. (L) Previously filed with the Commission, incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (M) Previously filed with the Commission; incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, as amended. Confidential treatment was granted for a portion of this Exhibit. (N) Previously filed with the Commission; incorporated by reference to the Company's Current Report on Form 8-K dated January 21, 1998. (O) Previously filed with the Commission; incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (P) Previously filed with the Commission; incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Confidential treatment was granted for a portion of this Exhibit. 59 (Q) Previously filed with the Commission; incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. (R) Previously filed with the Commission; incorporated by reference to the Company's Registration Statement on Form S-3, File No. 333-67335. Confidential treatment was granted for a portion of this Exhibit. (S) Previously filed with the Commission; incorporated by reference to the Company's Registration Statement on Form S-8, File No. 333-64827. (T) Previously filed with the Commission; incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. (U) Previously filed with the Commission; incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. (V) Previously filed with the Commission; incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. Confidential Treatment has been granted for a portion of this exhibit. (W) Previously filed with the Commission; incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1999. (X) Previously filed with the Commission; incorporated by reference to the Company's Registration Statement on Form S-8; File No. 333-30172. (Y) Previously filed with the Commission; incorporated by reference to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2000. (Z) Previously filed with the Commission; incorporated by reference to the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2000. (AA) Previously filed with the Commission; incorporated by reference to the Company's Annual Report on Form 10-K, for the year ended December 31, 2000. (AB) Previously filed with the Commission; incorporated by reference to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2001. (AC) Previously filed with the Commission; incorporated by reference to the Company's Schedule 14D-9 filed on September 28, 2001. (AD) Previously filed with the Commission; incorporated by reference to the Company's Current Report on Form 8-K dated February 19, 2002. (AE) Previously filed with the Commission; incorporated by reference to the Company's Current Report on Form 8-K dated March 6, 2002. (AF) Filed herewith. (AG) Filed herewith and Confidential Treatment has been requested for a portion of this exhibit. (b) Reports on Form 8-K None. 60 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 29, 2002 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 DATE INDICATED.
SIGNATURE TITLE DATE - --------- ----- ---- /s/ ROBERT F. GOLDHAMMER Chairman of the Board of March 29, 2002 - --------------------------------------------------- Directors (ROBERT F. GOLDHAMMER) /s/ SAMUEL D. WAKSAL President, Chief Executive March 29, 2002 - --------------------------------------------------- Officer and Director (Principal (SAMUEL D. WAKSAL) Executive Officer) /s/ HARLAN W. WAKSAL Executive Vice President, Chief March 29, 2002 - --------------------------------------------------- Operating Officer and Director (HARLAN W. WAKSAL) /s/ DANIEL S. LYNCH Senior Vice President, Finance March 29, 2002 - --------------------------------------------------- and Chief Financial Officer (DANIEL S. LYNCH) (Principal Financial Officer) /s/ VINCENT T. DEVITA, JR. Director March 29, 2002 - --------------------------------------------------- (VINCENT T. DEVITA, JR.) /s/ DAVID M. KIES Director March 29, 2002 - --------------------------------------------------- (DAVID M. KIES) /s/ PAUL B. KOPPERL Director March 29, 2002 - --------------------------------------------------- (PAUL B. KOPPERL) /s/ ARNOLD LEVINE Director March 29, 2002 - --------------------------------------------------- (ARNOLD LEVINE) /s/ JOHN MENDELSOHN Director March 29, 2002 - --------------------------------------------------- (JOHN MENDELSOHN) /s/ WILLIAM R. MILLER Director March 29, 2002 - --------------------------------------------------- (WILLIAM R. MILLER) /s/ PETER S. RINGROSE Director March 29, 2002 - --------------------------------------------------- (PETER S. RINGROSE) /s/ ANDREW G. BODNAR Director March 29, 2002 - --------------------------------------------------- (ANDREW G. BODNAR) /s/ RICHARD BARTH Director March 29, 2002 - --------------------------------------------------- (RICHARD BARTH)
61 PART II INDEX TO FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS: Independent Auditors' Report................................ F-2 Consolidated Balance Sheets at December 31, 2001 and 2000... F-3 Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999.......................... F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2001, 2000 and 1999...... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999.......................... F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS AND STOCKHOLDERS IMCLONE SYSTEMS INCORPORATED: We have audited the consolidated financial statements of ImClone Systems Incorporated and subsidiary as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ImClone Systems Incorporated and subsidiary as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. As discussed in Notes 2(g) and 9 to the consolidated financial statements, the Company changed its method of revenue recognition for certain upfront non-refundable fees in 2000. KPMG LLP Princeton, New Jersey March 22, 2002 F-2 IMCLONE SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
DECEMBER 31, DECEMBER 31, 2001 2000 ------------ ------------ ASSETS Current assets: Cash and cash equivalents................................. $ 38,093 $ 60,325 Securities available for sale............................. 295,893 236,844 Prepaid expenses.......................................... 3,891 2,628 Amounts due from corporate partners (including $6,714 from BMS at December 31, 2001)............................... 8,230 3,113 Note receivable -- officer................................ -- 282 Other current assets...................................... 3,547 4,025 --------- --------- Total current assets............................... 349,654 307,217 --------- --------- Property and equipment, net................................. 107,248 52,600 Patent costs, net........................................... 1,513 1,168 Deferred financing costs, net............................... 5,404 7,114 Notes receivable............................................ 10,000 -- Investment in equity securities and other assets............ 383 3,392 --------- --------- $ 474,202 $ 371,491 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.......................................... $ 16,919 $ 12,729 Accrued expenses.......................................... 11,810 11,374 Interest payable.......................................... 4,446 4,444 Deferred revenue (including deferred revenue from BMS of $20,299 at December 31, 2001)........................... 20,683 2,434 Fees potentially refundable to Merck KGaA................. -- 28,000 Current portion of long-term liabilities.................. 426 626 Preferred stock called for redemption and dividends payable................................................. -- 25,764 --------- --------- Total current liabilities.......................... 54,284 85,371 --------- --------- Deferred revenue (including deferred revenue from BMS of $177,148 at December 31, 2001)............................ 182,813 -- Long-term debt.............................................. 242,200 242,200 Other long-term liabilities, less current portion........... 79 488 --------- --------- Total liabilities.................................. 479,376 328,059 --------- --------- Commitments and contingencies (Note 13) Stockholders' equity (deficit): Preferred stock, $1.00 par value; authorized 4,000,000 shares; 200,000 Series A Convertible shares called for redemption and classified as a current liability at December 31, 2000......................................... -- -- Common stock, $.001 par value; authorized 120,000,000 shares; issued 73,348,271 and 65,818,362 at December 31, 2001 and December 31, 2000, respectively, outstanding 73,159,021, and 65,767,545 at December 31, 2001 and December 31, 2000, respectively........................... 73 66 Additional paid-in capital.................................. 341,735 283,268 Accumulated deficit......................................... (346,037) (243,808) Treasury stock, at cost; 189,250 and 50,817 shares at December 31, 2001 and December 31, 2000, respectively..... (4,100) (492) Accumulated other comprehensive income: Unrealized gain on securities available for sale............ 3,155 4,398 --------- --------- Total stockholders' equity (deficit)............... (5,174) 43,432 --------- --------- $ 474,202 $ 371,491 ========= =========
See accompanying notes to consolidated financial statements F-3 IMCLONE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, --------------------------------- 2001 2000 1999 --------- -------- -------- Revenues: License fees and milestone revenue (including BMS revenue of $2,553 for the year ended December 31, 2001)................................................ $ 31,737 $ 452 $ 1,080 Research and development funding and royalties.......... 1,482 961 1,063 --------- -------- -------- Total revenues.................................. 33,219 1,413 2,143 --------- -------- -------- Operating expenses: Research and development................................ 96,085 57,384 30,027 Marketing, general and administrative................... 23,072 16,651 9,354 Expenses associated with BMS acquisition, stockholder and commercial agreements............................ 16,055 -- -- --------- -------- -------- Total operating expenses........................ 135,212 74,035 39,381 --------- -------- -------- Operating loss........................... (101,993) (72,622) (37,238) --------- -------- -------- Other: Interest income......................................... (14,990) (20,819) (2,842) Interest expense........................................ 13,585 12,085 292 Loss (gain) on securities and investments............... 1,641 3,867 (77) --------- -------- -------- Net interest and other (income) expense......... 236 (4,867) (2,627) --------- -------- -------- Loss before cumulative effect of change in accounting policy.................. (102,229) (67,755) (34,611) Cumulative effect of change in accounting policy for the recognition of upfront non-refundable fees.............. -- (2,596) -- --------- -------- -------- Net loss................................. (102,229) (70,351) (34,611) Preferred dividends (including redemption premium of $4,000 for the year ended December 31, 2000 and assumed incremental yield attributable to beneficial conversion feature of $1,009 and $1,331 for the years ended December 31, 2000 and 1999, respectively)............... -- 6,773 3,713 --------- -------- -------- Net loss to common stockholders.......... $(102,229) $(77,124) $(38,324) ========= ======== ======== Net loss per common share: Basic and diluted: Loss before cumulative effect of change in accounting policy............................. $ (1.47) $ (1.18) $ (0.75) Cumulative effect of change in accounting policy........................................ -- (0.04) -- --------- -------- -------- Basic and diluted net loss per common share... $ (1.47) $ (1.22) $ (0.75) ========= ======== ======== Weighted average shares outstanding....................... 69,429 63,030 50,894 ========= ======== ======== Proforma information assuming new revenue recognition policy had been applied retroactively: Net loss................................. $(67,755) $(34,449) ======== ======== Net loss to common stockholders.......... $(74,528) $(38,162) ======== ======== Basic and diluted net loss per common share................................. $ (1.18) $ (0.75) ======== ========
See accompanying notes to consolidated financial statements F-4 IMCLONE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE ----------------- ------------------- PAID-IN ACCUMULATED TREASURY OFFICER AND SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK STOCKHOLDER -------- ------ ---------- ------ ---------- ----------- -------- ----------- Balance at December 31, 1998......... 400,000 $ 400 24,567,312 $25 $184,853 $(138,846) $ (492) $(142) -------- ----- ---------- --- -------- --------- ------- ----- Conversion of preferred stock........ (100,000) (100) 800,000 1 99 Issuance of common stock............. 3,162,500 3 94,122 Options exercised.................... 671,305 1 5,315 Warrants exercised................... 495,220 1,257 Issuance of shares through employee stock purchase plan................. 6,753 177 Options granted to non-employees..... 2,411 Options granted to employees......... 175 Interest received on note receivable -- officer and stockholder......................... 11 Interest accrued on note receivable -- officer and stockholder......................... 11 (11) Preferred stock dividends............ (2,382) Comprehensive loss: Net loss............................. (34,611) Other comprehensive income (loss) Unrealized holding gain arising during the period................... Less: Reclassification adjustment for realized gain included in net loss.............................. Total other comprehensive income....................... Comprehensive loss................... -------- ----- ---------- --- -------- --------- ------- ----- Balance at December 31, 1999......... 300,000 300 29,703,090 30 286,038 (173,457) (492) (142) -------- ----- ---------- --- -------- --------- ------- ----- Conversion of preferred stock........ (100,000) (100) 499,220 1 99 Preferred stock called for redemption.......................... (200,000) (200) (19,800) Stock split in the form of a stock dividend............................ 32,446,614 32 (32) Options exercised.................... 2,009,569 2 14,154 Warrants exercised................... 1,152,350 1 3,653 Issuance of shares through employee stock purchase plan................. 7,519 420 Options granted to non-employees..... 4,425 Options granted to employees......... 72 Repayment of note receivable -- officer, including interest............................ 145 Interest accrued on note receivable -- officer and stockholder......................... 3 (3) Preferred stock dividends, including redemption premium.................. (5,764) Comprehensive loss: Net loss............................. (70,351) Other comprehensive income (loss) Unrealized holding gain arising during the period................... Less: Reclassification adjustment for realized gain included in net loss.............................. Total other comprehensive income....................... Comprehensive loss................... -------- ----- ---------- --- -------- --------- ------- ----- Balance at December 31, 2000......... -- -- 65,818,362 66 283,268 (243,808) (492) -- -------- ----- ---------- --- -------- --------- ------- ----- Options exercised.................... 6,229,892 6 52,132 Warrants exercised................... 1,218,600 1 1,358 Issuance of shares to Merck KGaA..... 63,027 3,239 Issuance of shares through employee stock purchase plan................. 18,390 708 Options granted to non-employees..... 958 Options granted to employees......... 72 Treasury shares...................... (3,608) Comprehensive loss: Net loss............................. (102,229) Other comprehensive income (loss) Unrealized holding gain arising during the period................... Less: Reclassification adjustment for realized gain included in net loss.............................. Total other comprehensive (loss)....................... Comprehensive loss................... -------- ----- ---------- --- -------- --------- ------- ----- Balance at December 31, 2001......... -- $ -- 73,348,271 $73 $341,735 $(346,037) $(4,100) $ -- ======== ===== ========== === ======== ========= ======= ===== ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) TOTAL ------------- --------- Balance at December 31, 1998......... $ (624) $ 45,174 ------- --------- Conversion of preferred stock........ -- Issuance of common stock............. 94,125 Options exercised.................... 5,316 Warrants exercised................... 1,257 Issuance of shares through employee stock purchase plan................. 177 Options granted to non-employees..... 2,411 Options granted to employees......... 175 Interest received on note receivable -- officer and stockholder......................... 11 Interest accrued on note receivable -- officer and stockholder......................... -- Preferred stock dividends............ (2,382) Comprehensive loss: Net loss............................. (34,611) Other comprehensive income (loss) Unrealized holding gain arising during the period................... 722 722 Less: Reclassification adjustment for realized gain included in net loss.............................. 77 77 ------- --------- Total other comprehensive income....................... 645 645 --------- Comprehensive loss................... (33,966) ------- --------- Balance at December 31, 1999......... 21 112,298 ------- --------- Conversion of preferred stock........ -- Preferred stock called for redemption.......................... (20,000) Stock split in the form of a stock dividend............................ -- Options exercised.................... 14,156 Warrants exercised................... 3,654 Issuance of shares through employee stock purchase plan................. 420 Options granted to non-employees..... 4,425 Options granted to employees......... 72 Repayment of note receivable -- officer, including interest............................ 145 Interest accrued on note receivable -- officer and stockholder......................... -- Preferred stock dividends, including redemption premium.................. (5,764) Comprehensive loss: Net loss............................. (70,351) Other comprehensive income (loss) Unrealized holding gain arising during the period................... 5,635 5,635 Less: Reclassification adjustment for realized gain included in net loss.............................. 1,258 1,258 ------- --------- Total other comprehensive income....................... 4,377 4,377 --------- Comprehensive loss................... (65,974) ------- --------- Balance at December 31, 2000......... 4,398 43,432 ------- --------- Options exercised.................... 52,138 Warrants exercised................... 1,359 Issuance of shares to Merck KGaA..... 3,239 Issuance of shares through employee stock purchase plan................. 708 Options granted to non-employees..... 958 Options granted to employees......... 72 Treasury shares...................... (3,608) Comprehensive loss: Net loss............................. (102,229) Other comprehensive income (loss) Unrealized holding gain arising during the period................... 2,491 2,491 Less: Reclassification adjustment for realized gain included in net loss.............................. 3,734 3,734 ------- --------- Total other comprehensive (loss)....................... (1,243) (1,243) --------- Comprehensive loss................... (103,472) ------- --------- Balance at December 31, 2001......... $ 3,155 $ (5,174) ======= =========
See accompanying notes to consolidated financial statements F-5 IMCLONE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ---------------------------------- 2001 2000 1999 --------- --------- -------- Cash flows from operating activities: Net loss.................................................. $(102,229) $ (70,351) $(34,611) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................... 5,702 2,501 1,959 Amortization of deferred financing costs................ 1,710 1,435 9 Expense associated with issuance of options and warrants.............................................. 1,030 4,497 2,586 Write-off of patent costs............................... 37 48 86 Gain on securities available for sale................... (3,734) (1,258) (77) Write-down of investment in Valigen N.V................. 4,375 5,125 -- Write-off of convertible promissory note receivable from A.C.T Group, Inc...................................... 1,000 -- -- Changes in: Prepaid expenses...................................... (1,263) (2,470) 312 Amounts due from corporate partners (including $6,714 from BMS for the year ended December 31, 2001)...... (5,117) (2,839) (5,653) Other current assets.................................. 1,195 3,300 (852) Due from officer and stockholder...................... -- -- 102 Note receivable associated with sublease.............. (10,000) -- -- Other assets.......................................... (83) (712) (128) Interest payable...................................... 2 4,399 -- Accounts payable...................................... 4,190 8,742 2,878 Accrued expenses...................................... 436 6,251 276 Deferred revenue (including amounts from BMS of $197,447 for the year ended December 31, 2001....... 201,062 2,434 (75) Fees potentially refundable to Merck KGaA............. (28,000) 8,000 16,000 --------- --------- -------- Net cash provided by (used in) operating activities........................................ 70,313 (30,898) (17,188) --------- --------- -------- Cash flows from investing activities: Acquisitions of property and equipment.................... (60,218) (37,761) (7,118) Purchases of securities available for sale................ (316,029) (405,514) (105,520) Sales and maturities of securities available for sale..... 259,471 281,656 40,980 Investment in Valigen N.V................................. (2,000) (7,500) -- Note receivable from officer and stockholder.............. -- (282) -- Loan to A.C.T. Group, Inc................................. (1,000) -- -- Proceeds from repayment of note receivable -- officer and stockholder............................................. 282 -- -- Sale of investment in CombiChem, Inc...................... -- -- 2,109 Additions to patents...................................... (513) (328) (346) --------- --------- -------- Net cash used in investing activities............... (120,007) (169,729) (69,895) --------- --------- -------- Cash flows from financing activities: Net proceeds from issuance of common stock................ -- -- 94,125 Proceeds from exercise of stock options and warrants...... 16,477 17,810 6,573 Proceeds from issuance of common stock under the employee stock purchase plan..................................... 708 420 177 Proceeds from issuance of common stock to Merck KGaA...... 3,239 -- -- Proceeds from equipment and building improvement financings.............................................. -- -- 94 Proceeds from issuance of 5 1/2% convertible subordinated notes................................................... -- 240,000 -- Deferred financing costs.................................. -- (8,512) -- Proceeds from repayment of note receivable -- officer and stockholder............................................. -- 142 -- Interest received on note receivable -- officer and stockholder............................................. -- 3 11 Proceeds from repayment of notes receivable -- officers and board members....................................... 35,241 -- -- Purchase of treasury stock................................ (1,830) -- -- Payment of preferred stock dividends...................... (5,764) -- (4,893) Redemption of series A preferred stock.................... (20,000) -- -- Payments of other liabilities............................. (609) (927) (876) --------- --------- -------- Net cash provided by financing activities........... 27,462 248,936 95,211 --------- --------- -------- Net increase (decrease) in cash and cash equivalents....................................... (22,232) 48,309 8,128 Cash and cash equivalents at beginning of year.............. 60,325 12,016 3,888 --------- --------- -------- Cash and cash equivalents at end of year.................... $ 38,093 $ 60,325 $ 12,016 ========= ========= ========
See accompanying notes to consolidated financial statements F-6 IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BUSINESS OVERVIEW AND BASIS OF PREPARATION ImClone Systems Incorporated (the "Company") is a biopharmaceutical company advancing oncology care by developing a portfolio of targeted biologic treatments, which address the unmet medical needs of patients with a variety of cancers. The Company's three programs include growth factor blockers, cancer vaccines and anti-angiogenesis therapeutics. A substantial portion of the Company's efforts and resources is devoted to research and development conducted on its own behalf and through collaborations with corporate partners and academic research and clinical institutions. The Company has not derived any commercial revenue from product sales. The Company is operated as one business and is comprehensively managed by a single management team that reports to the Chief Operating Officer. The Company does not operate separate lines of business or separate business entities with respect to any of its product candidates. In addition, the Company does not conduct any of its operations outside of the United States. Accordingly, the Company does not prepare discrete financial information with respect to separate product areas or by location and does not have separately reportable segments. The Company employs accounting policies that are in accordance with accounting principles generally accepted in the United States of America. The biopharmaceutical industry is subject to rapid and significant technological change. The Company has numerous competitors, including major pharmaceutical companies, specialized biotechnology firms, universities and other research institutions. These competitors may succeed in developing technologies and products that are more effective than any that are being developed by the Company or that would render the Company's technology and products obsolete and non-competitive. Many of these competitors have access to 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. 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 Food and Drug Administration ("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 experience. The Company's lead product candidate, ERBITUX (Cetuximab), formerly known as IMC,-C225, is a therapeutic monoclonal antibody that inhibits stimulation of Epidermal Growth Factor ("EGF") receptor upon which certain solid tumors depend in order to grow. The United States Food and Drug Administration ("FDA") has designated as Fast Track our development program for ERBITUX for the treatment of irinotecan-refractory (patients previously failed regimen containing irinotecan) colorectal cancer. Upon the receipt of regulatory approval, the Company intends to market ERBITUX in the United States and Canada together with its development, promotion and distribution partner Bristol-Myers Squibb Company ("BMS") through its wholly-owned subsidiary E.R. Squibb & Sons, L.L.C. ("E.R. Squibb"). The Company has granted its development and marketing partner, Merck KGaA, rights to market ERBITUX outside the United States and Canada. In Japan, the Company and E.R. Squibb will share the development and marketing of ERBITUX with Merck KGaA. The Company is manufacturing ERBITUX for clinical trials and eventual commercial sales worldwide. On December 28, 2001, the FDA issued a refusal to file letter with respect to the Company's rolling Biologics License Application ("BLA") for ERBITUX. The BLA was submitted for marketing approval to F-7 treat irinotecan-refractory colorectal cancer. On February 26, 2002, the Company, along with representatives from its strategic partners BMS and Merck KGaA, met with the FDA to discuss the FDA's letter refusing to file the BLA for ERBITUX and to seek guidance on how to proceed. The February 26, 2002 meeting with the FDA provided the Company with direction on an approach and process for resubmitting the ERBITUX BLA. Based on concerns raised by the FDA regarding the BLA, the Company discussed providing the FDA with data from a European clinical trial in irinotecan-refractory colorectal cancer currently being enrolled by Merck KGaA in conjunction with reanalyzed clinical data from the Company's U.S. Phase II clinical trials. The Company believes that ERBITUX will be an important drug in the oncology field and will continue to focus its efforts on gaining approval for this product. On October 16, 2000, the Company effected a 2-for-1 stock split in the form of a stock dividend. Accordingly, shareholders of record as of September 29, 2000 of the Company's approximately 32.4 million shares of common stock outstanding each received one additional share of common stock for each share of common stock they owned on the record date. The stock split was recorded in the December 31, 2000 consolidated balance sheet as a transfer of $32,000 from additional paid-in capital to common stock. All references to number of shares, per share amounts, weighted average shares, option and warrant shares and related exercise prices for all periods presented in the accompanying consolidated statements of operations, and notes to the consolidated financial statements have been retroactively adjusted to give effect to the stock split. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the financial statements of ImClone Systems Incorporated and its wholly-owned subsidiary, EndoClone Incorporated. All significant intercompany balances and transactions have been eliminated in consolidation. (b) 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. (c) INVESTMENTS IN SECURITIES The Company classifies its investments in debt and marketable equity securities as available-for-sale. Available-for-sale securities are recorded at fair value. 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 accumulated comprehensive income (loss) 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 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. Dividend and interest income are recognized when earned. The Company accounts for its investments in non-marketable equity securities using the cost method of accounting for investments where the Company's ownership is less than 20% and the equity method of accounting for investments where the Company's ownership is between 20% and 50%. The Company utilizes these methods of accounting for its investments in non-marketable equity securities unless there is an other than temporary impairment at which point the Company writes the investment down to its estimated net realizable value. F-8 (d) LONG-LIVED ASSETS Property and equipment are stated at cost. Equipment under capital leases is stated at the present value of minimum lease payments. Depreciation of fixed assets is provided by straight-line methods over estimated useful lives of three to twenty years, and leasehold improvements are being amortized over the related lease term or the service lives of the improvements, whichever is shorter. Patent and patent application costs are capitalized and amortized on a straight-line basis over their respective expected useful lives, up to a 15-year period. The Company reviews long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. Assets are considered to be impaired and are written down to fair value if expected associated undiscounted cash flows are less than the carrying amounts. Fair value is generally the present value of the expected associated cash flows. (e) DEFERRED FINANCING COSTS Costs incurred in issuing the 5 1/2% Convertible Subordinated Notes and in obtaining the Industrial Development Revenue Bond (see Note 7) are amortized using the straight-line method over the terms of the related instrument. (f) COMPUTER SOFTWARE COSTS The Company records the costs of internal-use computer software in accordance with AICPA Statement of Position 98-1, "Accounting for the Costs of Computer Software Development or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires that certain internal-use computer software costs be capitalized and amortized over the useful life of the asset. Total costs capitalized under this policy are included in property and equipment. (g) REVENUE RECOGNITION The Company adopted Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101") in the fourth quarter of its fiscal year ended December 31, 2000. Accordingly, the Company implemented a change in accounting policy effective January 1, 2000 with respect to revenue recognition associated with non-refundable fees received upon entering into research and licensing arrangements in accordance with the guidance provided in SAB 101. Beginning January 1, 2000, non-refundable fees received upon entering into license and other collaborative agreements where the Company has continuing involvement are recorded as deferred revenue and recognized over the estimated service period. Payments received under the development, promotion, distribution and supply agreement (the "Commercial Agreement") dated September 19, 2001 with BMS and E.R. Squibb are being deferred and recognized as revenue based on the percentage of actual product research and development costs incurred to date by both BMS and the Company to the estimated total of such costs to be incurred over the term of the agreement. In previous years, prior to SAB 101, non-refundable upfront fees from licensing and other collaborative agreements were recognized as revenue when received, provided all contractual obligations of the Company relating to such fees had been fulfilled. Non-refundable milestone payments, which represent the achievement of a significant step in the research and development process, pursuant to collaborative agreements, other than the BMS agreement, are recognized as revenue upon the achievement of the specified milestone. Research and development funding revenue is derived from collaborative agreements and is recognized in accordance with the terms of the respective contracts. Royalty revenue is recognized when earned and collection is probable. Royalty revenue is derived from sales of products by corporate partners using licensed Company technology. Revenue recognized in the accompanying consolidated statements of operations is not subject to repayment. Amounts received that are subject to repayment if certain specified goals are not met are classified F-9 as fees potentially refundable to corporate partner; revenue recognition of such amounts will commence upon the achievement of such specified goals. Payments received that are related to future performance are classified as deferred revenue and recognized when the revenue is earned. (h) FOREIGN CURRENCY TRANSACTIONS Gains and losses from foreign currency transactions, such as those resulting from the translation and settlement of receivables and payables denominated in foreign currencies, are included in the consolidated statements of operations. The Company does not currently use derivative financial instruments to manage the risks associated with foreign currency fluctuations. The Company recorded losses on foreign currency transactions of approximately $35,000 for the year ended December 31, 2001, gains on foreign currency transactions of approximately $25,000 for the year ended December 31, 2000 and losses on foreign currency transactions of approximately $7,000 for the year ended December 31, 1999. Gains and losses from foreign currency transactions are included as a component of operating expenses. (i) STOCK-BASED COMPENSATION PLANS The Company has two types of stock-based compensation plans; stock option plans and a stock purchase plan. The Company accounts for its stock-based compensation plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations including the Statement of Financial Accounting Standards Board Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation -- An Interpretation of APB Opinion No. 25" ("Interpretation No. 44"). Accordingly, compensation expense would be recorded on the date of grant of an option to an employee or member of the Board of Directors only if the market price of the underlying stock on the date of grant exceeded the exercise price. The Company provides the pro forma net income and pro forma earnings per share disclosures for employee and director stock option grants made in 1995 and thereafter as if the fair-value-based method defined in Statement of Financial Accounting Standards ("SFAS") No. 123 had been applied. (j) RESEARCH AND DEVELOPMENT Research and development expenses are comprised of the following types of costs incurred in performing research and development activities: salaries and benefits, allocated overhead and occupancy costs, clinical trial and related clinical manufacturing costs, contract services and other outside costs. Research and development expenses also include costs related to activities performed on behalf of corporate partners that are not subject to reimbursement. Research and development costs are expensed as incurred. The Company is currently producing clinical and commercial grade ERBITUX in its product launch manufacturing facility and under a third-party manufacturing arrangement. The cost associated with these manufacturing activities is being recognized as research and development expense and will continue to be until regulatory approval for commercial use is received or until the Company receives purchase obligations from its corporate partners. (k) INTEREST Interest costs are expensed as incurred, except to the extent such interest is related to construction in progress, in which case interest is capitalized. Interest costs capitalized for the years ended December 31, 2001, 2000, and 1999, were $1,656,000, $846,000, and $204,000, respectively. (l) INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or F-10 settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income or expense in the period that includes the enactment date of the rate change. (m) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and related revenue and expense accounts and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles in the United States of America. Actual results could differ from those estimates. (n) NET LOSS PER COMMON SHARE Basic and diluted loss per common share is based on the net loss for the relevant period, adjusted for series A convertible preferred stock ("series A preferred stock") dividends, redemption premiums and the assumed incremental yield attributable to the beneficial conversion feature aggregating $6,773,000, and $3,713,000 for the years ended December 31, 2000 and 1999, respectively, divided by the weighted average number of shares issued and outstanding during the period. For purposes of the diluted loss per share calculation, the exercise or conversion of all potential common shares is not included since their effect would be anti-dilutive for all years presented. As of December 31, 2001, 2000 and 1999, the Company had approximately 15,427,000, 19,143,000 and 19,501,000, respectively, potential common shares outstanding which represent new shares which could be issued under convertible preferred stock, convertible debt, stock options and stock warrants. In December 2000, the Company called for redemption of the remaining 200,000 shares of series A convertible preferred stock. The potential common stock outstanding relating to series A preferred stock conversion for the year ended December 31, 1999 was estimated based on the closing price of the common stock at December 31, 1999. The Company has filed with the state of Delaware a Certificate of Elimination with respect to its series A preferred stock. (o) COMPREHENSIVE INCOME (LOSS) SFAS No. 130, "Reporting Comprehensive Income," establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income (loss) consists of net income (loss) and net unrealized gains (losses) on securities and is presented in the consolidated statements of stockholders' equity. (p) RECLASSIFICATION Certain amounts previously reported have been reclassified to conform to the current year's presentation. (q) ACCOUNTING FOR DERIVATIVE AND HEDGING ACTIVITIES Effective January 1, 2001, the Company adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), which establishes new accounting and reporting guidelines for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. SFAS No. 133 was subsequently amended by SFAS Nos. 137 and 138. SFAS No. 133 generally requires the recognition of all derivative financial instruments as either assets or liabilities in the consolidated balance sheet and measurement of those derivatives at fair value. The adoption of SFAS No. 133 did not have an effect on the results of operations or the financial position of the Company because the Company did not have any derivative financial instruments as of January 1, 2001. F-11 (3) SECURITIES AVAILABLE FOR SALE The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value for available-for-sale securities by major security type at December 31, 2001 and 2000 were as follows: At December 31, 2001:
GROSS GROSS UNREALIZED UNREALIZED AMORTIZED COST HOLDING GAINS HOLDING LOSSES FAIR VALUE -------------- ------------- -------------- ------------ U.S. Government agency debt........ $ 30,822,000 $2,450,000 $ -- $ 33,272,000 U.S. corporate debt................ 54,915,000 406,000 (546,000) 54,775,000 Foreign corporate debt............. 207,001,000 890,000 (45,000) 207,846,000 ------------ ---------- --------- ------------ $292,738,000 $3,746,000 $(591,000) $295,893,000 ============ ========== ========= ============
At December 31, 2000:
GROSS GROSS UNREALIZED UNREALIZED AMORTIZED COST HOLDING GAINS HOLDING LOSSES FAIR VALUE -------------- ------------- -------------- ------------ U.S. Government agency debt........ $ 99,262,000 $4,387,000 $ -- $103,649,000 U.S. corporate debt................ 33,860,000 7,000 (100,000) 33,767,000 Foreign corporate debt............. 97,890,000 178,000 (74,000) 97,994,000 Foreign government/agency guaranteed debt.................. 1,434,000 -- -- 1,434,000 ------------ ---------- --------- ------------ $232,446,000 $4,572,000 $(174,000) $236,844,000 ============ ========== ========= ============
Maturities of debt securities classified as available-for-sale were as follows at December 31, 2001: Years ended December 31,
AMORTIZED COST FAIR VALUE -------------- ------------ 2002....................................... $ 30,960,000 $ 30,421,000 2003....................................... 246,000 251,000 2004....................................... 32,811,000 33,076,000 2005....................................... 12,840,000 12,917,000 2006....................................... 5,951,000 6,127,000 2007 and thereafter........................ 209,930,000 213,101,000 ------------ ------------ $292,738,000 $295,893,000 ============ ============
Proceeds from the sale of investment securities available-for-sale were $155,497,000, $110,772,000 and $25,081,000 for the years ended December 31, 2001, 2000 and 1999, respectively. Gross realized gains included in income in the years ended December 31, 2001, 2000 and 1999 were $3,778,000, $1,280,000 and $33,000, respectively, and gross realized losses included in income in the years ended December 31, 2001, 2000 and 1999 were $44,000, $22,000 and $65,000, respectively. F-12 (4) PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and consist of the following:
DECEMBER 31, DECEMBER 31, 2001 2000 ------------ ------------ Land......................................... 2,733,000 2,111,000 Building and building improvements........... 50,720,000 10,989,000 Leasehold improvements....................... 8,302,000 7,863,000 Machinery and equipment...................... 33,057,000 9,995,000 Furniture and fixtures....................... 2,031,000 1,311,000 Construction in progress..................... 33,080,000 37,436,000 ----------- ----------- Total cost................................. 129,923,000 69,705,000 Less accumulated depreciation and amortization.............................. (22,675,000) (17,105,000) ----------- ----------- Property and equipment, net..................... 107,248,000 52,600,000 =========== ===========
The Company built a product launch manufacturing facility on its campus in Somerville, New Jersey. The facility is approximately 80,000 square feet, contains three 10,000 liter fermenters and is being dedicated to the clinical and commercial production of ERBITUX. The cost of the facility was approximately $53,000,000, excluding capitalized interest of approximately $1,966,000. The product launch manufacturing facility was ready for its intended use and put in operation in July 2001 and depreciation commenced at that time. The Company is building a second commercial manufacturing facility adjacent to its new product launch manufacturing facility in New Jersey. This new facility will be a multiuse facility with capacity of up to 110,000 liters (working volume). The 250,000 square foot facility will cost approximately $225,000,000, and is being built on land purchased in December 2000. The actual amount may change depending upon various factors. The Company incurred approximately $29,674,000, excluding capitalized interest of approximately $740,000, in conceptual design, engineering and pre-construction costs through December 31, 2001. Through March 22, 2002, committed purchase orders totaling approximately $39,718,000 have been placed for subcontracts and equipment related to this project. In addition, $49,471,000 in engineering, procurement, construction management and validation costs were committed. The process of preparing consolidated financial statements in accordance with generally accepted accounting principles requires the Company to evaluate the carrying values of its long-lived assets. The recoverability of the carrying values of the Company's product launch manufacturing facilities and its second commercial manufacturing facility currently in process will depend on (1) receiving FDA approval of ERBITUX, (2) receiving FDA approval of the manufacturing facilities and (3) the Company's ability to earn sufficient returns on ERBITUX. Based on management's current estimates, the Company expects to recover the carrying value of such assets. In the year ended December 31, 2001, the Company capitalized $3,211,000 of computer software costs of which $474,000 was amortized as of December 31, 2001. On January 31, 2002, the Company purchased real estate consisting of a 7.5 acre parcel of land located near the Company's product launch facility and pilot facility in Somerville, New Jersey, and a 50,000 square foot building, 40,000 square feet of which is warehouse space and 10,000 square feet of which is office space. The purchase price for the property and improvements was approximately $7,000,000. The Company intends to use this property for warehousing and logistics for its Somerville campus. (5) INVESTMENT IN EQUITY SECURITIES In May 2000, the Company made an equity investment in ValiGen N.V. ("ValiGen"), a private biotechnology company specializing in therapeutic target identification and validation using the tools of genomics and gene expression analysis. The Company purchased 705,882 shares of ValiGen's series A preferred stock and received a five-year warrant to purchase 388,235 shares of ValiGen's common stock at an F-13 exercise price of $12.50 per share. The aggregate purchase price was $7,500,000. The Company assigned a value of $594,000 to the warrant based on the Black-Scholes Pricing Model. The ValiGen series A preferred stock contains voting rights identical to holders of ValiGen's common stock. Each share of ValiGen series A preferred stock is convertible into one share of ValiGen common stock. The Company may elect to convert the ValiGen series A preferred stock at any time; provided, that the ValiGen preferred stock will automatically convert into ValiGen common stock upon the closing of an initial public offering of ValiGen's common stock with gross proceeds not less than $20,000,000. The Company also received certain protective rights and customary registration rights under this arrangement. The Company recorded this original investment in ValiGen using the cost method of accounting. During the second quarter of 2001, the Company purchased 160,000 shares of ValiGen's series B preferred stock for $2,000,000. The terms of the series B preferred stock are substantially the same as the series A preferred stock. The investment in ValiGen represents approximately 7% of ValiGen's outstanding equity. As of June 30, 2001, the Company had completely written-off its investment in ValiGen. The Company recorded write-downs of approximately $4,375,000 in the year ended December 31, 2001 and $5,125,000 in the year ended December 31, 2000, determined based on the modified equity method of accounting. These write-downs are included in loss (gain) on securities and investments in the accompanying consolidated statements of operations. In the spring of 2001, the Company also entered into a no-cost Discovery Agreement with ValiGen to evaluate certain of its technology. The Company's Chief Executive Officer is a member of ValiGen's Board of Directors. During the second quarter of 2001, the Company made a $1,000,000 loan to A.C.T. Group, Inc. ("A.C.T. Group") and received its convertible promissory note and five-year warrant to purchase its common stock as consideration. A.C.T. Group is engaged in the research and development of technologies enabling the genetic manipulation of cells to produce transgenic animals for pharmaceutical protein production. A.C.T. Group also is developing transgenic cloned cells and tissues for application in cell and organ transplant therapy. The promissory note is due November 30, 2001, does not bear interest, and is payable as follows: (i) if, prior to November 30, 2001, A.C.T. Group sells a stated minimum amount of its series B convertible preferred stock ("A.C.T. Group series B stock"), A.C.T. Group will issue to the Company shares of A.C.T. Group series B stock at a 20% discount to the price at which they are sold; (ii) if, prior to November 30, 2001, A.C.T. Group has not sold the series B stock but enters into a binding agreement with respect to a merger or other transaction in which its stockholders receive securities of another entity with a stated minimum amount of cash, A.C.T. Group will issue to the Company shares of its common stock valued at $1.60 per share; and (iii) if neither of the events described in (i) or (ii) occurs, the note will be payable on November 30, 2001 in cash, or at the option of A.C.T. Group, common stock valued at $1.60 per share. If common stock is used to repay the promissory note, the Company will have the right at that time to purchase up to an additional $1,000,000 worth of A.C.T. Group common stock at $1.60 per share. The Company is to be repaid the promissory note in common stock and has opted not to purchase additional shares of common stock. The warrant to purchase common stock entitles the Company to buy $1,000,000 worth of A.C.T. Group common stock beginning with the earlier of November 30, 2001 or the closing of the sale, if any, of the A.C.T. Group series B stock. The exercise prices are the same as the convertible promissory note repayment provisions. Due to the uncertainty regarding the ultimate collection of the note and the absence of a readily determinable market value for A.C.T. Group's common and preferred stock, the Company recorded a $1,000,000 write-down of the note during the year ended December 31, 2001. The write-down is included in loss (gain) on securities and investments in the accompanying consolidated statement of operations for the year ended December 31, 2001. The Company's Chief Executive Officer is a member of A.C.T. Group's Board of Directors. In October 1997, the Company entered into a Collaborative Research and License Agreement with CombiChem, Inc. ("CombiChem") to discover and develop novel small molecules for use against selected targets for the treatment of cancer. The Company provided CombiChem with research funding through October 1999 in the amount of $500,000. Concurrent with the execution of the Collaborative Research and License Agreement, the Company entered into a Stock Purchase Agreement pursuant to which the Company purchased 312,500 shares of common stock of CombiChem, as adjusted, for aggregate consideration of $2,000,000. This investment was included in Investment in equity securities and other assets. In 1999, the F-14 Company disposed of its investment in CombiChem resulting in a net gain of $109,000 which is included in loss (gain) on securities and investments in the consolidated statement of operations. (6) ACCRUED EXPENSES The following items are included in accrued expenses:
DECEMBER 31, DECEMBER 31, 2001 2000 ------------ ------------ Salaries and other payroll related expenses.................................. $ 4,818,000 $ 2,436,000 Research and development contract services... 4,360,000 6,747,000 Other........................................ 2,632,000 2,191,000 ----------- ----------- $11,810,000 $11,374,000 =========== ===========
(7) LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, DECEMBER 31, 2001 2000 ------------ ------------ 5 1/2% Convertible Subordinated Notes due March 1, 2005.............................. $240,000,000 $240,000,000 11 1/4% Industrial Development Revenue Bond due May 1, 2004............................ 2,200,000 2,200,000 ------------ ------------ $242,200,000 $242,200,000 ============ ============
In February 2000, the Company completed a private placement of $240,000,000 in convertible subordinated notes due March 1, 2005. The Company received net proceeds from this offering of approximately $231,500,000, after deducting costs associated with the offering. Accrued interest on the notes was approximately $4,400,000 at December 31, 2001 and 2000, respectively. The holders may convert all or a portion of the notes into common stock at any time on or before March 1, 2005 at a conversion price of $55.09 per share, subject to adjustment under certain circumstances. The notes are subordinated to all existing and future senior indebtedness. The Company may redeem any or all of the notes at any time prior to March 6, 2003, at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest to the redemption date if the closing price of the common stock has exceeded 150% of the conversion price for at least 20 trading days in any consecutive 30-trading day period, provided the Company makes an additional payment of $152.54 per $1,000 aggregate principal amount of notes, minus the amount of any interest actually paid thereon prior to the redemption notice date. On or after March 6, 2003, the Company may redeem any or all of the notes at specified redemption prices, plus accrued and unpaid interest to the day preceding the redemption date. The Company was required to file with the SEC and obtain the effectiveness of a shelf registration statement covering resales of the notes and the common stock. Such registration statement was declared effective in July 2000. Upon the occurrence of a "fundamental change" as defined in the agreement, holders of the notes may require the Company to redeem the notes at a price equal to 100% of the principal amount to be redeemed. In August 1990, the NYIDA issued $2,200,000 principal amount of its 11 1/4% Industrial Development Revenue Bond due 2004 (the "1990 Bond"). The proceeds from the sale of the 1990 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 all equipment located in its New York City facility purchased with the proceeds from the 1990 bond to secure the obligation of the Company to the NYIDA relating to the 1990 Bond. Interest expense on the 1990 Bond was approximately $248,000 for each of the years ended December 31, 2001, 2000 and 1999. F-15 (8) OTHER LONG-TERM LIABILITIES Other long-term liabilities consisted of the following:
DECEMBER 31, DECEMBER 31, 2001 2000 ------------ ------------ Liability under capital lease obligations.... $ 470,000 $1,089,000 Other........................................ 35,000 25,000 --------- ---------- 505,000 1,114,000 Less current portion......................... (426,000) (626,000) --------- ---------- $ 79,000 $ 488,000 ========= ==========
The Company has obligations under various capital leases for certain laboratory, office and computer equipment and also certain building improvements primarily under two financing agreements with Finova Technology Finance, Inc. ("Finova") entered into in 1996 and 1998. The financing agreements allowed the Company to finance the lease of equipment and make certain building and leasehold improvements to existing facilities. Each lease has a fair market value purchase option at the expiration of its 42-month or 48-month term. Pursuant to the financing agreement entered into in 1996, the Company issued to Finova a warrant to purchase 46,440 shares of common stock at an exercise price of $4.85 per share which was exercised in November 1999. The Company recorded a non-cash debt discount of approximately $125,000 in connection with this financing. This discount has been amortized over the 42-month term of the first lease. The Company has entered into twelve individual leases under the financing agreements aggregating a total cost of $3,695,000. There is no further funding available under these agreements. During the years ended December 31, 2001 and 2000, the Company elected to exercise the fair market value purchase option at the expiration of the first six leases under the 1996 and 1998 agreements. There are no covenants associated with these financing agreements that materially restrict the Company's activities. See Notes 14 and 16. At December 31, 2001 and 2000, the amounts of laboratory equipment, office and computer equipment, building improvements and furniture and fixtures and the related accumulated amortization recorded under all capital leases were as follows:
DECEMBER 31, DECEMBER 31, 2001 2000 ------------ ------------ Laboratory, office and computer equipment.... $1,495,000 $ 2,213,000 Building improvements........................ 313,000 632,000 Furniture and fixtures....................... 163,000 170,000 ---------- ----------- 1,971,000 3,015,000 Less accumulated depreciation and amortization.............................. (985,000) (1,218,000) ---------- ----------- $ 986,000 $ 1,797,000 ========== ===========
(9) CHANGE IN ACCOUNTING POLICY FOR REVENUE RECOGNITION The Company adopted SAB 101 in the fourth quarter of 2000 with an effective date of January 1, 2000, implementing a change in accounting policy with respect to revenue recognition. See Note 2(g). The adoption of SAB 101 resulted in a $2,596,000 cumulative effect of a change in accounting policy related to nonrefundable upfront licensing fees received from Merck KGaA in connection with the development and commercialization agreement with Merck KGaA with respect to the Company's principal cancer vaccine product candidate, BEC2 and the recombinant gp75 antigen (collectively "BEC2"). The cumulative effect represents revenue originally recorded upon receipt of such payments that now is recorded as deferred revenue and recognized over the life of the related patent(s). During the year ended December 31, 2000, the impact of the change in accounting policy increased net loss by $2,434,000, or $0.04 per share, comprising the F-16 $2,596,000 cumulative effect of the change described above, net of $162,000 of related deferred revenue that was recognized during the period. Had the change in accounting policy been applied retroactively, net loss would have been reduced by $162,000 in the year ended December 31, 1999. (10) COLLABORATIVE AGREEMENTS (a) MERCK KGAA In April 1990, the Company entered into a development and commercialization agreement with Merck KGaA with respect to BEC2 and the recombinant gp75 antigen. The agreement has been amended a number of times, most recently in December 1997. The agreement grants Merck KGaA a license, with the right to sublicense, to make, have made, use, sell, or have sold BEC2 and gp75 outside North America. The agreement also grants Merck KGaA a license, without the right to sublicense, to use, sell, or have sold, but not to make BEC2 within North America in conjunction with the Company. Pursuant to the terms of the agreement the Company has retained the rights, (1) without the right to sublicense, to make, have made, use, sell, or have sold BEC2 in North America in conjunction with Merck KGaA and (2) with the right to sublicense, to make, have made, use, sell, or have sold gp75 in North America. In return, the Company has recognized research support payments totaling $4,700,000 and is entitled to no further research support payments under the agreement. The Company recognized research support revenue relating to this agreement of $533,000 in the year ended December 31, 1999. Merck KGaA is also required to make payments of up to $22,500,000, of which $4,000,000 has been recognized, through December 31, 2001, based on milestones achieved in the licensed products' development. Merck KGaA is also responsible for worldwide costs of up to DM17,000,000 associated with a multi-site, multinational phase III clinical trial for BEC2 in limited disease small-cell lung carcinoma. This expense level was reached during the fourth quarter of 2000 and all expenses incurred from that point forward are being shared 60% by Merck KGaA and 40% the Company. The Company incurred approximately $657,000 and $412,000 associated with this agreement in the years ended December 31, 2001 and 2000, respectively. Such cost sharing applies to all expenses beyond the DM17,000,000 threshold. Merck KGaA is also required to pay royalties on the eventual sales of BEC2 outside of North America, if any. Revenues from sales, if any, of BEC2 in North America will be distributed in accordance with the terms of a co-promotion agreement to be negotiated by the parties. In December 1998, the Company entered into a development and license agreement with Merck KGaA with respect to our interventional therapeutic product candidate for cancer, ERBITUX. In exchange for granting Merck KGaA exclusive rights to market ERBITUX outside of the United States and Canada and co-development rights in Japan, the Company received through December 31, 2001, $30,000,000 in up-front fees and early cash-based milestone payments based on the achievement of defined milestones. An additional $30,000,000 can be received, of which $5,000,000 has been received as of December 31, 2001, assuming the achievement of further milestones for which Merck KGaA will receive equity in the Company. In August 2001, the Company received its first equity-based milestone payment totaling $5,000,000 and accordingly issued to Merck KGaA 63,027 shares of its common stock. The number of shares issued for this milestone payment was determined using a price of $79.33 per share. During the year ended December 31, 2001, the Company recognized revenue of approximately $1,760,000 representing the excess of the amount paid by Merck KGaA for these shares over the fair value of the Company's common stock. The equity underlying these milestone payments will be priced at varying premiums to the then-market price of the common stock depending upon the timing of the achievement of the respective milestones. If issuing shares of common stock to Merck KGaA would result in Merck KGaA owning greater than 19.9% of our common stock, the milestone shares will be a non-voting preferred stock, or other non-voting stock convertible into the Company's common stock. These convertible securities will not have voting rights. They will be convertible at a price determined in the same manner as the purchase price for shares of the Company's common stock if shares of common stock were to be issued. They will not be convertible into common stock if, as a result of the conversion, Merck KGaA would own greater than 19.9% of the Company's common stock. This 19.9% limitation is in place through December 2002. Merck KGaA will pay the Company a royalty on future sales of ERBITUX outside of the United States and Canada, if any. This agreement may be terminated by Merck KGaA in various instances, including (1) at its discretion on any date on which a milestone is achieved (in which case no milestone payment will be made), or (2) for a one-year F-17 period after first commercial sale of ERBITUX in Merck KGaA's territory, upon Merck KGaA's reasonable determination that the product is economically unfeasible (in which case Merck KGaA is entitled to receive back 50% of the cash-based up front fees and milestone payments then paid to date, but only out of revenues received, if any, based upon a royalty rate applied to the gross profit from ERBITUX sales or a percentage of ERBITUX fees and royalties received from a sublicensee on account of the sale of ERBITUX in the United States and Canada). In August 2001, the Company and Merck KGaA amended this agreement to provide, among other things, that Merck KGaA may manufacture ERBITUX for supply in its territory and may utilize a third party to do so upon the Company's reasonable acceptance. The amendment further released Merck KGaA from its obligations under the agreement relating to providing a guaranty under a $30,000,000 credit facility relating to the build-out of the product launch manufacturing facility. In addition, the amendment provides that the companies have co-exclusive rights to ERBITUX in Japan, including the right to sublicense and Merck KGaA waived its right of first offer in the case of a proposed sublicense by the Company of ERBITUX in the Company's territory. In consideration for the amendment, the Company agreed to a limited reduction in royalties payable by Merck KGaA on sales of ERBITUX in Merck KGaA's territory. In conjunction with Merck KGaA, the Company has expanded the trial of ERBITUX plus radiotherapy in squamous cell carcinoma of the head and neck into Europe, South Africa, Israel, Australia and New Zealand. In order to support these clinical trials, Merck KGaA has agreed to purchase ERBITUX manufactured by Lonza Biologies PLC ("Lonza") for use in these trials and further agreed to reimburse the Company for one-half of the outside contract service costs incurred with respect to the Phase III clinical trial of ERBITUX for the treatment of head and neck cancer in combination with radiation. Amounts due from Merck KGaA related to these agreements totaled approximately $1,503,000 and $2,560,000 at December 31, 2001 and 2000, respectively, and are included in amounts due from corporate partners in the consolidated balance sheet. The aforementioned reimbursements from Merck KGaA for manufacturing and clinical trial costs were recorded as reductions to research and development expenses and totaled approximately $10,067,000, $4,476,000, and $5,554,000 for the years ended December 31, 2001, 2000 and 1999, respectively. (b) BRISTOL-MYERS SQUIBB COMPANY On September 19, 2001, the Company entered into an acquisition agreement (the "Acquisition Agreement") with BMS and Bristol-Myers Squibb Biologics Company, a Delaware corporation ("BMS Biologics") which is a wholly-owned subsidiary of BMS, providing for the tender offer by BMS Biologics to purchase up to 14,392,003 shares of the Company's common stock for $70.00 per share, net to the seller in cash. The tender offer by BMS Biologics, available to all shareholders, allowed for the Company's present or former employees and directors who held exercisable options to purchase shares of the Company's common stock having exercise prices less than $70.00 per share to conditionally exercise any or all of those options and tender the underlying shares in the tender offer. In connection with the Acquisition Agreement, the Company entered into a stockholder agreement with BMS and BMS Biologics, dated as of September 19, 2001 (the "Stockholder Agreement"), pursuant to which the Company agreed with BMS and BMS Biologics to various arrangements regarding each of our respective rights and obligations with respect to, among other things, the ownership of shares of our common stock by BMS and BMS Biologics. Concurrently with the execution of the Acquisition Agreement and the Stockholder Agreement, the Company entered into the Commercial Agreement with BMS and E.R. Squibb, pursuant to which, among other things, BMS and E.R. Squibb are (a) co-developing and co-promoting the biologic pharmaceutical product ERBITUX in the United States and Canada with us, and (b) co-developing and co-promoting ERBITUX in Japan with us and Merck KGaA. On March 5, 2002, the Company amended the Commercial Agreement with E.R. Squibb and BMS. The amendment changed certain economics of the Commercial Agreement and has expanded the role of BMS in the ERBITUX development program. One of the principal economic changes to the Commercial Agreement is that the Company received $140,000,000 on March 7, 2002 and is entitled to a payment of $60,000,000 is payable on March 5, 2003. Such payments are in lieu of the $300,000,000 payment the Company would have received on acceptance by the FDA of the ERBITUX BLA under the original terms of the Commercial Agreement. In addition, the Company agreed to resume construction of its second F-18 commercial manufacturing facility as soon as reasonably practicable after the execution of the amendment. The terms of the Commercial Agreement, as amended on March 5, 2002, are set forth in more detail below. ACQUISITION AGREEMENT On October 29, 2001 BMS Biologics accepted for payment pursuant to the tender offer, 14,392,003 shares of the Company's common stock on a pro rata basis from all tendering shareholders and those conditionally exercising stock options. STOCKHOLDER AGREEMENT Pursuant to the Stockholder Agreement, the Company's Board of Directors (the "Board") was increased from ten to twelve members. BMS received the right to nominate two directors to the Company's Board of Directors (each a "BMS director") so long as its ownership interest in the Company is 12.5% or greater. If BMS' ownership interest is 5% or greater but less than 12.5%, BMS will have the right to nominate one BMS director, and if BMS' ownership interest is less than 5%, BMS will have no right to nominate a BMS director. Based on the number of shares of common stock acquired pursuant to the tender offer, BMS has the right to nominate two directors. Currently BMS has designated Peter S. Ringrose, M.A., Ph.D., BMS's Chief Scientific Officer, and Andrew G. Bodnar, M.D., J.D., BMS's Senior Vice President, Medical and External Affairs, as the initial BMS directors. The nominations of such individuals were approved by the Board on November 15, 2001. If the size of the Company's Board is increased to a number greater than twelve, the number of BMS directors would be increased, subject to rounding, such that the number of BMS directors is proportionate to the lesser of BMS' then-current ownership interest and 19.9%. BMS has agreed to waive this right until the Company's next annual meeting of stockholders to the extent the Company choose to increase the Board to 13 members. Notwithstanding the foregoing, BMS will have no right to nominate any BMS directors if (i) the Company have terminated the Commercial Agreement due to a material breach by BMS or (ii) BMS' ownership interest were to remain below 5% for 45 consecutive days. Voting of Shares. During the period in which BMS has the right to nominate at least one BMS director, BMS and its affiliates are required to vote all of their shares in the same proportion as the votes cast by all of the Company's other stockholders with respect to the election or removal of non-BMS directors. Committees of the Board of Directors. During the period in which BMS has the right to nominate at least one BMS director, BMS also has the right, subject to certain exceptions and limitations to have one member of each committee of the Board be a BMS director. Approval Required for Certain Actions. The Company may not take any action that constitutes a prohibited action under the Stockholder Agreement without the consent of the BMS directors, until September 19, 2006 or, if earlier, the occurrence of any of (i) a reduction in BMS's ownership interest to below 5% for 45 consecutive days, (ii) a transfer or other disposition of shares of the Company's common stock by BMS or any of its affiliates such that BMS and its affiliates own or have control over less than 75% of the maximum number of shares of the Company's common stock owned by BMS and its affiliates at any time after September 19, 2001, (iii) an acquisition by a third party of more than 35% of the outstanding shares of the Company's common stock, (iv) a termination of the Commercial Agreement by BMS due to significant regulatory or safety concerns regarding ERBITUX, or (v) a termination of the Commercial Agreement due to a material breach by BMS. Such prohibited actions include (i) issuing additional shares or securities convertible into shares in excess of 21,473,002 shares of the Company's common stock in the aggregate, subject to certain exceptions; (ii) incurring additional indebtedness if the total of (A) the principal amount of indebtedness incurred since September 19, 2001 and then-outstanding, and (B) the net proceeds from the issuance of any redeemable preferred stock then-outstanding, would exceed the Company's amount of indebtedness for borrowed money outstanding as of September 19, 2001 by more than $500 million; (iii) acquiring any business if the aggregate consideration for such acquisition, when taken together with the F-19 aggregate consideration for all other acquisitions consummated during the previous twelve months, is in excess of 25% of the Company's aggregate value at the time the binding agreement relating to such acquisition was entered into; (iv) disposing of all or any substantial portion of the Company's non-cash assets; (v) entering into non-competition agreements that would be binding on BMS, its affiliates or any BMS director; (vi) taking certain actions that would have a discriminatory effect on BMS or any of its affiliates as a stockholder; and (vii) issuing capital stock with more than one vote per share. Limitation on Additional Purchases of Shares and Other Actions. Subject to the exceptions set forth below, until September 19, 2006 or, if earlier, the occurrence of any of (i) an acquisition by a third party of more than 35% of the Company's outstanding shares, (ii) the first anniversary of a reduction in BMS's ownership interest in us to below 5% for 45 consecutive days, or (iii) the Company's taking a prohibited action under the Stockholder Agreement without the consent of the BMS directors, neither BMS nor any of its affiliates will acquire beneficial ownership of any shares of the Company's common stock or take any of the following actions: (i) encourage any proposal for a business combination with the Company or an acquisition of the Company's shares; (ii) participate in the solicitation of proxies from holders of shares of the Company's common stock; (iii) form or participate in any "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to shares of the Company's common stock; (iv) enter into any voting arrangement with respect to shares of the Company's common stock; or (v) seek any amendment to or waiver of these restrictions. The following are exceptions to the standstill restrictions described above: (i) BMS Biologics may acquire beneficial ownership of shares of the Company's common stock either in the open market or from us pursuant to the option described below, so long as, after giving effect to any such acquisition of shares, BMS's ownership interest would not exceed 19.9%; (ii) BMS may make, subject to certain conditions, a proposal to the Board to acquire shares of the Company's common stock if the Company provide material non-public information to a third party in connection with, or begin active negotiation of, an acquisition by a third party of more than 35% of the outstanding shares; (iii) BMS may acquire shares of the Company's common stock if such acquisition has been approved by a majority of the non-BMS directors; and (iv) BMS may make, subject to certain conditions, including that an acquisition of shares be at a premium of at least 25% to the prevailing market price, non-public requests to the Board to amend or waive any of the standstill restrictions described above. Certain of the exceptions to the standstill provisions described above will terminate upon the occurrence of: (i) a reduction in BMS's ownership interest in the Company to below 5% for 45 consecutive days, (ii) a transfer or other disposition of shares of the Company's common stock by BMS or any of its affiliates such that BMS and its affiliates own or have control over less than 75% of the maximum number of shares owned by BMS and its affiliates at any time after September 19, 2001, (iii) a termination of the Commercial Agreement by BMS due to significant regulatory or safety concerns regarding ERBITUX, or (iv) a termination of the Commercial Agreement by the Company due to a material breach by BMS. Option to Purchase Shares in the Event of Dilution. BMS Biologics has the right under certain circumstances to purchase additional shares of common stock from us at market prices, pursuant to an option granted to BMS by the Company, in the event that BMS's ownership interest is diluted (other than by any transfer or other disposition by BMS or any of its affiliates). BMS can exercise this right (i) once per year, (ii) if the Company issue shares of common stock in excess of 10% of the then-outstanding shares in one day, and (iii) if BMS's ownership interest is reduced to below 5% or 12.5%. BMS Biologics's right to purchase additional shares of common stock from the Company pursuant to this option will terminate on September 19, 2006 or, if earlier, upon the occurrence of (i) an acquisition by a third party of more than 35% of the outstanding shares, or (ii) the first anniversary of a reduction in BMS's ownership interest in the Company to below 5% for 45 consecutive days. Transfers of Shares. Until September 19, 2004, neither BMS nor any of its affiliates may transfer any shares of the Company's common stock or enter into any arrangement that transfers any of the economic consequences associated with the ownership of shares. After September 19, 2004, neither BMS nor any of its affiliates may transfer any shares or enter into any arrangement that transfers any of the economic consequences associated with the ownership of shares, except (i) pursuant to registration rights granted to BMS with respect to the shares, (ii) pursuant to Rule 144 under the Securities Act of 1933, as amended or F-20 (iii) for certain hedging transactions. Any such transfer is subject to the following limitations: (i) the transferee may not acquire beneficial ownership of more than 5% of the then-outstanding shares of common stock; (ii) no more than 10% of the total outstanding shares of common stock may be sold in any one registered underwritten public offering; and (iii) neither BMS nor any of its affiliates may transfer shares of common stock (except for registered firm commitment underwritten public offerings pursuant to the registration rights described below) or enter into hedging transactions in any twelve-month period that would, individually or in the aggregate, have the effect of reducing the economic exposure of BMS and its affiliates by the equivalent of more than 10% of the maximum number of shares of common stock owned by BMS and its affiliates at any time after September 19, 2001. Notwithstanding the foregoing, BMS Biologics may transfer all, but not less than all, of the shares of common stock owned by it to BMS or to E.R. Squibb or another wholly owned subsidiary of BMS. Registration Rights. We granted BMS customary registration rights with respect to shares of common stock owned by BMS or any of its affiliates. COMMERCIAL AGREEMENT Rights Granted to E.R. Squibb. Pursuant to the Commercial Agreement, as amended on March 5, 2002, the Company granted to E.R. Squibb (i) the exclusive right to distribute, and the co-exclusive right to develop and promote (together with the Company) any prescription pharmaceutical product using the compound ERBITUX (the "product") in the United States and Canada, (ii) the co-exclusive right to develop, distribute and promote (together with the Company and Merck KGaA and its affiliates) the product in Japan, and (iii) the non-exclusive right to use the Company's registered trademarks for the product in the United States, Canada and Japan (collectively, the "territory") in connection with the foregoing. In addition, the Company agreed not to grant any right or license to any third party, or otherwise permit any third party, to develop ERBITUX for animal health or any other application outside the human health field without the prior consent of E.R. Squibb (which consent may not be unreasonably withheld). Rights Granted to the Company. Pursuant to the Commercial Agreement, E.R. Squibb has granted to the Company and the Company's affiliates a license, without the right to grant sublicenses (other than to Merck KGaA and its affiliates for use in Japan and to any third party for use outside the territory), to use solely for the purpose of developing, using, manufacturing, promoting, distributing and selling ERBITUX or the product, any process, know-how or other invention developed solely by E.R. Squibb Or Bms that has general utility in connection with other products or compounds in addition to ERBITUX or the product ("E.R. Squibb Inventions"). Up-Front and Milestone Payments. The Commercial Agreement provides for up-front and milestone payments by E.R. Squibb to the Company of $900,000,000 in the aggregate, of which $200,000,000 was paid on September 19, 2001, $140,000,000 was paid on March 7, 2002, $60,000,000 is payable on March 5, 2003, $250,000,000 is payable upon receipt of marketing approval from the FDA with respect to an initial indication for ERBITUX and $250,000,000 is payable upon receipt of marketing approval from the FDA with respect to a second indication for ERBITUX. All such payments are non-refundable and non-creditable. The upfront payment of $200,000,000, which was received in September 2001, has been recorded as deferred revenue (see Note 2g) and is being recognized as revenue over the estimated clinical and regulatory development period for ERBITUX based on an estimate of completion based on costs incurred. The Company recognized approximately $2,553,000 of this up-front payment as revenue during the year ended December 31, 2001. Distribution Fees. The Commercial Agreement provides that E.R. Squibb shall pay the Company distribution fees based on a percentage of "annual net sales" of the product (as defined in the Commercial Agreement) by E.R. Squibb in the United States and Canada. The distribution fee is 39% of net sales in the United States and Canada. The Commercial Agreement also provides that the distribution fees for the sale of the product in Japan by E.R. Squibb or The Company shall be equal to 50% of operating profit or loss with respect to such F-21 sales for any calendar month. In the event of an operating profit, E.R. Squibb shall pay the Company the amount of such distribution fee, and in the event of an operating loss, the Company shall credit E.R. Squibb the amount of such distribution fee. Development of the Product. Responsibilities associated with clinical and other ongoing studies will be apportioned between the parties as determined by the product development committee described below. The Commercial Agreement provides for the establishment of clinical development plans setting forth the activities to be undertaken by the parties for the purpose of obtaining marketing approvals, providing market support and developing new indications and formulations of the product. After transition of responsibilities for certain clinical and other studies, each party will be primarily responsible for performing the studies designated to it in the clinical development plans. In the United States and Canada, E.R. Squibb will be responsible for 100% of the cost of all clinical studies other than those studies undertaken post-launch which are not pursuant to an INDA (e.g. phase IV studies), the cost of which will be shared equally between E.R. Squibb and the Company. As between E.R. Squibb and the Company, each will be responsible for 50% of the costs of all studies in Japan. Except as otherwise agreed upon by the parties, the Company will own all registrations for the product and will be primarily responsible for the regulatory activities leading to registration in each country. E.R. Squibb will be primarily responsible for the regulatory activities in each country after the product has been registered in that country. Pursuant to the terms of the Commercial Agreement, as amended, Andrew G. Bodnar, M.D., J.D., Senior Vice President of Medical and External Affairs of BMS, and a member of the Company's Board of Directors, will oversee the implementation of the clinical and regulatory plan for ERBITUX. Distribution and Promotion of the Product. Pursuant to the Commercial Agreement, E.R. Squibb has agreed to use all commercially reasonable efforts to launch, promote and sell the product in the territory with the objective of maximizing the sales potential of the product and promoting the therapeutic profile and benefits of the product in the most commercially beneficial manner. In connection with its responsibilities for distribution, marketing and sales of the product in the territory, E.R. Squibb will perform all relevant functions, including but not limited to the provision of all sales force personnel, marketing (including all advertising and promotional expenditures), warehousing and physical distribution of the product. However, the Company have the right, at the Company's election and sole expense, to co-promote with E.R. Squibb the product in the territory. Pursuant to this co-promotion option, which the Company have exercised, the Company will be entitled on and after April 11, 2002 (at the Company's sole expense) to have the Company's sales force and medical liaison personnel participate in the promotion of the product consistent with the marketing plan agreed upon by the parties, provided that E.R. Squibb will retain the exclusive rights to sell and distribute the product. Except for the Company's expenses incurred pursuant to the co-promotion option, E.R. Squibb will be responsible for 100% of the distribution, sales and marketing costs in the United States and Canada, and as between E.R. Squibb and the Company, each will be responsible for 50% of the distribution, sales, marketing costs and other related costs and expenses in Japan. Manufacture and Supply. The Commercial Agreement provides that the Company will be responsible for the manufacture and supply of all requirements of ERBITUX in bulk form ("API") for clinical and commercial use in the territory, and that E.R. Squibb will purchase all of its requirements of API for commercial use from the Company. The Company will supply API for clinical use at the Company's fully burdened manufacturing cost, and will supply API for commercial use at the Company's fully burdened manufacturing cost plus a mark-up of 10%. The parties intend to negotiate the Company's use of process development at one of BMS's facilities for the support of a non-commercial supply of API. Upon the expiration, termination or assignment of any existing agreements between The Company and third party manufacturers, E.R. Squibb will be responsible for processing API into the finished form of the product. Management. The parties have formed the following committees for purposes of managing their relationship and their respective rights and obligations under the Commercial Agreement: - a joint executive committee (the "JEC"), which consists of certain senior officers of each party. The JEC is co-chaired by a representative of each of BMS and the Company. The JEC is responsible for, among other things, managing and overseeing the development and commercialization of ERBITUX pursuant to the terms of the Commercial Agreement, approving the annual F-22 budgets and multi-year expense forecasts, and resolving disputes, disagreements and deadlocks arising in the other committees; - a product development committee (the "PDC"), which consists of members of senior management of each party with expertise in pharmaceutical drug development and/or marketing. The PDC is chaired by the Company's representative. The PDC is responsible for, among other things, managing and overseeing the development and implementation of the clinical development plans, comparing actual versus budgeted clinical development and regulatory expenses, and reviewing the progress of the registrational studies; - a joint commercialization committee (the "JCC"), which consists of members of senior management of each party with clinical experience and expertise in marketing and sales. The JCC is chaired by a representative of BMS. The JCC is responsible for, among other things, overseeing the preparation and implementation of the marketing plans, coordinating the sales efforts of E.R. Squibb and the Company, and reviewing and approving the marketing and promotional plans for the product in the territory; and - a joint manufacturing committee (the "JMC"), which consists of members of senior management of each party with expertise in manufacturing. The JMC is chaired by the Company's representative (unless a determination is made that a long-term inability to supply API exists, in which case the JMC will be co-chaired by representatives of E.R. Squibb and the Company). The JMC is responsible for, among other things, overseeing and coordinating the manufacturing and supply of API and the product, and formulating and directing the manufacturing strategy for the product. Any matter which is the subject of a deadlock (i.e., no consensus decision) in the PDC, the JCC or the JMC will be referred to the JEC for resolution. Subject to certain exceptions, deadlocks in the JEC will be resolved as follows: (i) if the matter was also the subject of a deadlock in the PDC, by the co-chairperson of the JEC designated by the Company, (ii) if the matter was also the subject of a deadlock in the JCC, by the co-chairperson of the JEC designated by BMS, or (iii) if the matter was also the subject of a deadlock in the JMC, by the co-chairperson of the JEC designated by the Company. All other deadlocks in the JEC will be resolved by arbitration. Right of First Offer. E.R. Squibb has a right of first offer with respect to the Company's IMC-KDR antibodies should the Company decide to enter into a partnering arrangement with a third party with respect to IMC-KDR antibodies at any time prior to the earlier to occur of September 19, 2006 and the first anniversary of the date which is 45 days after any date on which BMS's ownership interest in The Company is less than 5%. If the Company decide to enter into a partnering arrangement during such period, the Company must notify E.R. Squibb. If E.R. Squibb notifies the Company that it is interested in such an arrangement, the Company will provide the Company's proposed terms to E.R. Squibb and the parties will negotiate in good faith for 90 days to attempt to agree on the terms and conditions of such an arrangement. If the parties do not reach agreement during this period, E.R. Squibb must propose the terms of an arrangement which it is willing to enter into, and if the Company reject such terms the Company may enter into an agreement with a third party with respect to such a partnering arrangement (provided that the terms of any such agreement may not be more favorable to the third party than the terms proposed by E.R. Squibb). Right of First Negotiation. If, at any time during the restricted period (as defined below), the Company are interested in establishing a partnering relationship with a third party involving certain compounds or products not related to ERBITUX, the product or IMC-KDR antibodies, the Company must notify E.R. Squibb and E.R. Squibb will have 90 days to enter into a non-binding heads of agreement with the Company with respect to such a partnering relationship. In the event that E.R. Squibb and the Company do not enter into a non-binding heads of agreement, the Company is free to negotiate with third parties without further obligation to E.R. Squibb. The "restricted period" means the period from September 19, 2001 until the earliest to occur of (i) September 19, 2006, (ii) a reduction in BMS's ownership interest in the Company to below 5% for 45 consecutive days, (iii) a transfer or other disposition of shares of the Company's common stock by BMS or any of its affiliates such that BMS and its affiliates own or have control over less than 75% of the maximum number of shares of the Company's common stock owned by BMS and its affiliates at any time F-23 after September 19, 2001, (iv) an acquisition by a third party of more than 35% of the outstanding Shares, (v) a termination of the Commercial Agreement by BMS due to significant regulatory or safety concerns regarding ERBITUX, or (vi) the Company's termination of the Commercial Agreement due to a material breach by BMS. Restriction on Competing Products. During the period from the date of the Commercial Agreement until September 19, 2008, the parties have agreed not to, directly or indirectly, develop or commercialize a competing product (defined as a product that has as its only mechanism of action an antagonism of the EGF receptor) in any country in the territory. In the event that any party proposes to commercialize a competing product or purchases or otherwise takes control of a third party which has developed or commercialized a competing product, then such party must either divest the competing product within 12 months or offer the other party the right to participate in the commercialization and development of the competing product on a 50/50 basis (provided that if the parties cannot reach agreement with respect to such an agreement, the competing product must be divested within 12 months). Ownership. The Commercial Agreement provides that the Company will own all data and information concerning ERBITUX and the product and (except for the E.R. Squibb Inventions) all processes, know-how and other inventions relating to the product and developed by either party or jointly by the parties. E.R. Squibb will, however, have the right to use all such data and information, and all such processes, know-how or other inventions, in order to fulfill its obligations under the Commercial Agreement. Product Recalls. If E.R. Squibb is required by any regulatory authority to recall the product in any country in the territory (or if the JCC determines such a recall to be appropriate), then E.R. Squibb and the Company shall bear the costs and expenses associated with such a recall (i) in the United States and Canada, in the proportion of 39% for the Company and 61% for E.R. Squibb and (ii) in Japan, in the proportion for which each party is entitled to receive operating profit or loss (unless, in the territory, the predominant cause for such a recall is the fault of either party, in which case all such costs and expenses shall be borne by such party). Mandatory Transfer. Each of BMS and E.R. Squibb has agreed under the Commercial Agreement that in the event it sells or otherwise transfers all or substantially all of its pharmaceutical business or pharmaceutical oncology business, it must also transfer to the transferee its rights and obligations under the Commercial Agreement. Indemnification. Pursuant to the Commercial Agreement, each party has agreed to indemnify the other for (i) its negligence, recklessness or wrongful intentional acts or omissions, (ii) its failure to perform certain of its obligations under the agreement, and (iii) any breach of its representations and warranties under the agreement. Termination. Unless earlier terminated pursuant to the termination rights discussed below, the Commercial Agreement expires with regard to the product in each country in the territory on the later of September 19, 2018 and the date on which the sale of the product ceases to be covered by a validly issued or pending patent in such country. The Commercial Agreement may be also be terminated prior to such expiration as follows: - by either party, in the event that the other party materially breaches any of its material obligations under the Commercial Agreement and has not cured such breach within 60 days after notice; - by E.R. Squibb, if the JEC determines that there exists a significant concern regarding a regulatory or patient safety issue that would seriously impact the long-term viability of all products; or - by either party, in the event that the JEC does not approve additional clinical studies that are required by the FDA in connection with the submission of the initial regulatory filing with the FDA within 90 days of receiving the formal recommendation of the PDC concerning such additional clinical studies. F-24 The Company incurred approximately $16,055,000 in advisor fees associated with consummating the acquisition agreement, the stockholder agreement and the commercial agreement with BMS and its affiliates during the year ended December 31, 2001. These costs have been expensed during the year ended December 31, 2001 and included as a separate line item in operating expenses in the consolidated statement of operations. At December 31, 2001, research and development and marketing costs associated with ERBITUX that are reimbursable by E.R. Squibb totaled $6,714,000 and are included in amounts due from corporate partners in the consolidated balance sheets. These amounts have been recorded as a reduction to research and development ($4,827,000) and marketing, general and administrative ($1,887,000) expenses in the consolidated statements of operations in the year ended December 31, 2001. Revenues for the years ended December 31, 2001, 2000 and 1999 were $33,219,000, $1,413,000 and $2,143,000, respectively. Revenues for the year ended December 31, 2001 primarily consisted of $27,982,000 in milestone and license fee revenues from our development and license agreement with Merck KGaA for ERBITUX. Pursuant to this agreement, the Company received a $2,000,000 cash milestone payment in June 2001 which was recognized as revenue and a $5,000,000 equity-based milestone payment in August 2001, of which $1,760,000 was recognized as revenue. The remaining $24,000,000 of these milestone payments were received in prior periods and originally recorded as fees potentially refundable to corporate partner because they were refundable in the event a condition relating to obtaining certain collateral license agreements was not satisfied. This condition was satisfied in March 2001. In addition, the Company recognized $222,000 of the $4,000,000 up-front payment received upon entering into this agreement. This revenue is being recognized ratably over the anticipated life of the agreement. Revenues for the year ended December 31, 2001 also included $1,480,000 in royalty revenue from our strategic corporate alliance with Abbott Laboratories ("Abbott") in diagnostics and $1,000,000 in milestone revenues and $162,000 in license fee revenues from the Company's strategic corporate alliance with Merck KGaA for BEC2. Revenues for the year ended December 31, 2001 also included $2,553,000 from the Company's ERBITUX commercial agreement with BMS and its wholly-owned subsidiary, E.R. Squibb related to the recognition of a portion of the up-front fee. Payments received under the ERBITUX commercial agreement with BMS are being deferred and recognized as revenue based on the percentage of actual product research and development costs incurred to date by both BMS and the Company to the estimated total of such costs to be incurred over the term of the agreement. Payments received under the Commercial Agreement are being deferred and recognized as revenue based upon the actual product research and development costs incurred to date by BMS, E.R. Squibb and ImClone Systems as a percentage of the estimated total of such costs to be incurred over the term of the agreement. Revenues for the year ended December 31, 2000 primarily consisted of $250,000 in milestone revenue and $961,000 in royalty revenue from the Company's strategic corporate alliance with Abbott in diagnostics and $162,000 in license fee revenue from the Company's strategic corporate alliance with Merck KGaA for BEC2. Revenues for the year ended December 31, 1999 primarily included $500,000 in milestone revenue and $225,000 in research support from the Company's partnership with the Wyeth (formerly known as American Home Products Corporation) in infectious disease vaccines, $533,000 in research and support payments from the Company's strategic corporate alliance with Merck KGaA for BEC2, $500,000 in milestone revenue and $305,000 in royalty revenue from the Company's strategic corporate alliance with Abbott in diagnostics. Revenues were derived from the following geographic areas:
YEAR ENDED DECEMBER 31, ------------------------------------- 2001 2000 1999 ----------- ---------- ---------- United States.... $ 4,075,000 $1,251,000 $1,610,000 Germany.......... 29,144,000 162,000 533,000 ----------- ---------- ---------- $33,219,000 $1,413,000 $2,143,000 =========== ========== ==========
F-25 (11) STOCKHOLDER' EQUITY (a) COMMON STOCK In May 2000, the stockholders approved the amendment of the Company's certificate of incorporation to increase the total number of shares of common stock the Company is authorized to issue from 60,000,000 shares to 120,000,000 shares. (b) PREFERRED STOCK In connection with the December 1997 amendment to the research and license agreement between them, Merck KGaA purchased from the Company 400,000 shares of the Company's series A preferred stock for total consideration of $40,000,000. Cumulative annual dividends of $6.00 per share were accrued on the outstanding series A preferred stock. In 1999, Merck KGaA converted 100,000 shares of series A preferred stock into 1,600,000 shares of common stock at a conversion price of $6.25 per share. In 2000, Merck KGaA converted another 100,000 shares of the series A preferred stock into 499,220 shares of common stock at a conversion price of $20.03 per share. On December 28, 2000, the Company exercised its redemption right for the remaining 200,000 outstanding shares of series A preferred stock at the stated redemption price of $120 per share. The above mentioned redemption price and the accrued dividends on the 100,000 shares of series A preferred stock converted on December 15, 2000 and the 200,000 shares of series A preferred stock called for redemption on December 28, 2000 both were paid in January 2001. This amount totaled approximately $25,764,000 and is included as a component of current liabilities in the consolidated balance sheet as of December 31, 2000. The redemption premium of $4,000,000 has been included as preferred dividends in the year ended December 31, 2000. In accordance with the terms of the series A preferred stock, the Company calculated an assumed incremental yield of $5,455,000 at the date of issuance based on a beneficial conversion feature included in the terms of the security. Such amount was being amortized as a preferred stock dividend over the four-year period beginning with the day of issuance. The assumed incremental yield and related amortization period for the respective period after the December 2000 and 1999 conversions and the December 2000 redemption of the series A preferred stock has been adjusted to reflect a decrease in the aggregate assumed incremental yield of $1,796,000 as a result of the aforementioned conversions and redemption prior to the period in which the beneficial conversion feature was available. The assumed incremental yield associated with the shares of series A preferred stock converted has been amortized through each respective conversion date and the assumed incremental yield associated with the shares of series A preferred stock redeemed has been amortized through the call for redemption date. The Company has recognized a total incremental yield attributable to the beneficial conversion feature of $3,659,000 for the period from the date of issuance through December 31, 2000 and there is no remaining unamortized amount. The Company has filed with the State of Delaware a Certificate of Elimination with respect to its series A preferred stock. (c) STOCKHOLDER RIGHTS PLAN On February 15, 2002, the Company's Board of Directors approved a Stockholder Rights Plan and declared a dividend of one right for each share of our common stock outstanding at the close of business on February 19, 2002. In connection with the Board of Directors approval of the stockholders rights plan Series B Participating Cumulative Preferred Stock was created. Under certain conditions, each right entitles the holder to purchase from the Company one-hundredth of a share of series B Participating Cumulative Preferred Stock at an initial purchase price of $175 per share. The Stockholder Rights Plan is designed to enhance the Board's ability to protect stockholders against, among other things, unsolicited attempts to acquire control of the Company which do not offer an adequate price to all of the Company's stockholders or are otherwise not in best interests of the Company and the Company's stockholders. Subject to certain exceptions, rights become exercisable (i) on the tenth day after public announcement that any person, entity, or group of persons or entities has acquired ownership of 15% or more F-26 of the Company's outstanding common stock, or (ii) 10 business days following the commencement of a tender offer or exchange offer by any person which would, if consummated, result in such person acquiring ownership of 15% or more of the Company's outstanding common stock, (collectively an "Acquiring Person"). In such event, each right holder will have the right to receive the number of shares of common stock having a then current market value equal to two times the aggregate exercise price of such rights. If the Company were to enter into certain business combination or disposition transactions with an Acquiring Person, each right holder will have the right to receive shares of common stock of the acquiring company having a value equal to two times the aggregate exercise price of the rights. The Company may redeem these rights in whole at a price of $.001 per right. The rights expire on February 15, 2012. (d) STOCK OPTIONS AND WARRANTS STOCK OPTION PLANS: In February 1986, the Company adopted and the shareholders thereafter approved an Incentive Stock Option Plan and a Non-Qualified Stock Option Plan (the "86 Plans"). In February 1996, the Company's Board of Directors adopted and the shareholders thereafter approved an additional Incentive Stock Option Plan and Non-Qualified Stock Option Plan (the "96 Plans"). In May 1998, the Company's Board of Directors adopted an additional Non-Qualified Stock Option Plan (the "98 Plan"), which shareholders were not required to approve. Combined, the 86 Plans, the 96 Plans, as amended, and the 98 Plan, as amended provide as of December 31, 2001 for the granting of options to purchase up to 20,000,000 shares of common stock to employees, directors, consultants and advisors of the Company. Incentive stock options may not be granted at a price less than the fair market value of the stock at the date of grant and may not be granted to non-employees. Options under all the plans, unless earlier terminated, expire ten years from the date of grant. Options granted under these plans generally vest over one-to-five-year periods. At December 31, 2001, options to purchase 11,061,052 shares of common stock were outstanding and 3,875,768 shares were available for grant. Options may no longer be granted under the 86 Plans pursuant to the terms of the 86 Plans. In November 2001, the Board of Directors approved the amendment of the 96 Plans and the 98 Plan whereby upon the occurrence of a change in control, as defined in the amended plan documents, each outstanding option under the 96 Plans and the 98 Plan shall become fully vested and exercisable. In the event a change in control triggers the acceleration of vesting of stock option awards, the Company would be required to recognize compensation expense, in accordance with Interpretation No. 44, for those options that would have otherwise expired unexercisable pursuant to the original terms. F-27 A summary of stock option activity follows:
WEIGHTED AVERAGE NUMBER OF EXERCISE PRICE SHARES PER SHARE ---------- ---------------- Balance at December 31, 1998................................ 8,818,248 $ 4.10 Granted................................................ 7,028,520 12.22 Exercised.............................................. (1,342,610) 3.96 Canceled............................................... (117,556) 5.39 ---------- Balance at December 31, 1999................................ 14,386,602 8.07 Granted................................................ 3,021,694 40.30 Exercised.............................................. (3,634,486) 3.88 Canceled............................................... (205,622) 24.06 ---------- Balance at December 31, 2000................................ 13,568,188 16.12 Granted................................................ 4,078,500 48.39 Exercised.............................................. (6,229,892) 8.37 Canceled............................................... (355,744) 23.13 ---------- Balance at December 31, 2001................................ 11,061,052 $32.17 ==========
The following table summarizes information concerning stock options outstanding at December 31, 2001:
WEIGHTED AVERAGE REMAINING WEIGHTED WEIGHTED NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE RANGE OF OUTSTANDING TERM EXERCISE EXERCISABLE EXERCISE EXERCISE PRICE AT 12/31/01 (YEARS) PRICE AT 12/31/01 PRICE - -------------- ----------- ----------- -------- ----------- -------- $0.28...................... 5,000 3.13 $ .28 5,000 $ .28 .53-3.56................... 475,945 4.70 2.48 447,195 2.44 3.63-6.63.................. 1,470,385 6.12 5.41 1,314,135 5.52 6.88-18.06................. 2,367,848 7.92 17.38 1,108,245 17.54 19.00-42.16................ 2,554,463 8.77 34.72 660,059 35.29 42.64-68.61................ 4,038,411 9.47 51.09 976,913 50.24 69.54-73.83................ 149,000 9.13 70.40 54,500 70.59 ---------- --------- 11,061,052 8.32 $32.17 4,566,047 $22.78 ========== =========
In September 2001, and in connection with the Board of Directors approval of certain employment agreements, the Company granted options to purchase, in the aggregate, 2,450,000 shares of its common stock to its President and Chief Executive Officer, Executive Vice President and Chief Operating Officer and Senior Vice President, Finance and Chief Financial Officer. The options have a per-share exercise price equal to $50.01, the last reported sale price of the common stock preceding the date Board of Director approval was obtained. The terms of the options granted to the CEO and COO provide that they vest in their entirety three years from the date of grant, but may vest earlier as to 33.33% of the shares if certain targets in the Company's common stock price are achieved. The option granted to the CFO vests equally over three years. See also Note 14. The Company's employee stock option plans generally permit option holders to pay for the exercise price of stock options and any related income tax withholding with shares of the Company's common stock that have been owned by the option holders for at least six months. During the year ended December 31, 2001, 138,433 shares of common stock were delivered to the Company in payment of the aggregate exercise price and related income tax withholding associated with the exercise of stock options to purchase an aggregate of 240,000 shares of common stock. The 138,433 shares delivered to the Company had a value of approximately F-28 $3,608,000 determined by multiplying the closing price of the common stock on the date of delivery by the number of shares presented for payment. These shares have been included as treasury stock in the consolidated balance sheet at December 31, 2001. In May 1996, the Company granted its then Chief Financial Officer a non-qualified stock option to purchase 450,000 shares of the Company's common stock at an exercise price below the market price of the stock on the date of grant. The Company recorded compensation expense of $150,000 in the year ended December 31, 1999, as prescribed under APB Opinion No. 25. In January 1999, the Company granted an option to its Vice President of Product and Process Development to purchase 120,000 shares of common stock. This option was not granted under any of the above mentioned Incentive Stock Option or Non-Qualified Stock Option Plans. The terms of this option are substantially similar to those granted under the 98 Plan. During the years ended December 31, 2000 and 1999, the Company granted options to purchase 95,000 and 168,000 shares, respectively, of its common stock to certain Scientific Advisory Board members and outside consultants in consideration for future services. During the years ended December 31, 2001, 2000 and 1999, the Company recognized approximately $957,000, $4,425,000 and $2,411,000, respectively, in compensation expense relating to the options granted to Scientific Advisory Board members and outside consultants. At December 31, 2001, options to purchase 74,500 shares of the Company's common stock related to these grants were vested and outstanding. The fair value of these options was subject to remeasurement through the vesting date using the Black-Scholes option pricing model using assumptions generally comparable to those disclosed below. During the years ended December 31, 2000 and 1999, the Company granted options to outside members of its Board of Directors to purchase approximately 341,474 and 310,000 shares, respectively, of its common stock. No compensation expense was recorded for these option grants. In May 1999, the Company's stockholders approved the grant of an option to the President and Chief Executive Officer and Executive Vice President and Chief Operating Officer to purchase 2,000,000 and 1,300,000 shares, respectively, of common stock at a per share exercise price equal to $9.125, the last reported sale price of the common stock on the date shareholder approval was obtained. The original terms of the options provided that they vest in their entirety seven years from the date of grant, but may vest earlier as to 20% of the shares annually if certain targets in the Company's common stock price are achieved. In May 2000, the Company's stockholders approved an amendment to these options to provide that each tranche vests immediately upon achievement of the relevant target stock price associated with such tranche without regard to the passage of time, which was a requirement in the original options. The options became fully vested and exercisable upon the approval of the amendments. During April 1995, the Company completed the sale of the remaining one-half of its shares of capital stock of Cadus Pharmaceutical Corporation ("Cadus") for $3.0 million to High River Limited Partnership ("High River"). In exchange for receiving a now-expired right to repurchase all outstanding shares of capital stock of Cadus held by High River, the Company granted to High River two options to purchase shares of common stock. One option is for 300,000 shares at an exercise price per share equal to $1.00, subject to adjustment under certain circumstances, and the other option is for 600,000 shares at an exercise price per share equal to $0.34, subject to adjustment under certain circumstances. Both options were exercised in March 2000. WARRANTS As of December 31, 2001, there were no outstanding warrants. 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. F-29 A summary of warrant activity follows:
WEIGHTED AVERAGE NUMBER OF EXERCISE PRICE SHARES PER SHARE ---------- ---------------- Balance at December 31, 1998................................ 4,527,180 $1.40 Granted................................................ -- -- Exercised.............................................. (990,440) 1.27 Canceled............................................... -- -- ---------- Balance at December 31, 1999................................ 3,536,740 1.43 Granted................................................ -- -- Exercised.............................................. (2,318,140) 1.60 Canceled............................................... -- -- ---------- Balance at December 31, 2000................................ 1,218,600 1.13 Granted................................................ -- -- Exercised.............................................. (1,218,600) 1.13 Canceled............................................... -- -- ---------- ----- Balance at December 31, 2001................................ -- $ -- ========== =====
SFAS NO. 123 DISCLOSURES: The following table summarizes the weighted average fair value of stock options and warrants granted to employees and directors during the years ended December 31, 2001, 2000 and 1999:
OPTION PLANS ---------------------------------------------------------------- 2001 2000 1999 ------------------- ------------------- ------------------ SHARES $ SHARES(1) $ SHARES(1) $ --------- ------ --------- ------ --------- ----- Exercise price is less than market value at date of grant....................... -- $ -- -- $ -- 200,000(2) $5.44 Exercise price equals market value at date of grant...... 4,078,500 $27.57 2,926,694 $23.79 6,660,520 $8.30
- --------------- (1) Does not include 95,000 shares in 2000 and 168,000 shares in 1999 under options granted to non-employees. The fair value of these non-employee grants has been recorded as compensation expense as prescribed by SFAS No. 123. (2) The Company has recorded compensation expense of $72,000 in the years ended December 31, 2001 and 2000 and $25,000 in the year ended December 31, 1999 in connection with these grants as prescribed under APB Opinion No. 25. The fair value of stock options 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 of the common stock, the expected volatility and the dividend yield of the underlying common stock, and the risk-free interest rate during the expected term of the option. The following summarizes the weighted average assumptions used:
YEAR ENDED DECEMBER 31, ----------------------- 2001 2000 1999 ----- ----- ----- Expected life (years)........................ 3.43 3.41 5.9 Interest rate................................ 4.27% 6.16% 5.47% Volatility................................... 82.16% 83.79% 79.96% Dividend yield............................... 0% 0% 0%
F-30 The Company applies APB Opinion No. 25 and related interpretations in accounting for its options and warrants. Except as previously indicated, no compensation cost has been recognized for its stock option and warrant grants. Had compensation cost for the Company's stock option grants been determined based on the fair value at the grant dates for awards consistent with the method of SFAS No. 123, the Company's net loss to common stockholders and net loss per common share would have been increased to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, ---------------------------------------------- 2001 2000 1999 ------------- ------------- ------------ Net loss: As reported............................... $(102,229,000) $ (70,351,000) $(34,611,000) Pro forma................................. (169,473,000) (114,081,000) (43,893,000) Basic and diluted net loss per common share: As reported............................... $ (1.47) $ (1.22) $ (0.75) Pro forma................................. (2.44) (1.81) (0.94)
The pro forma effect on the net loss for the years ended December 31, 2001, 2000 and 1999 is not necessarily indicative of the pro forma effect on future years' operating results. (e) EMPLOYEE STOCK PURCHASE PLAN In April 1998, the Company's Board of Directors adopted the ImClone Systems Incorporated 1998 Employee Stock Purchase Plan (the "ESPP"), subject to shareholders' approval, which was received in May 1998. The ESPP, as amended, allows eligible employees to purchase shares of the Company's common stock through payroll deductions at the end of quarterly purchase periods. To be eligible, an individual must be an employee, work more than 20 hours per week for at least five months per calendar year and not own greater than 5% of the Company's common stock. Pursuant to the ESPP, the Company has reserved 1,000,000 shares of common stock for issuance. Prior to the first day of each quarterly purchase period, each eligible employee may elect to participate in the ESPP. The participant is granted an option to purchase a number of shares of common stock determined by dividing each participant's contribution accumulated prior to the last day of the quarterly period by the purchase price. The participant has the ability to withdraw from the ESPP until the second to last day of the quarterly purchase period. The purchase price is equal to 85% of the market price per share on the last day of each quarterly purchase period. An employee may purchase stock from the accumulation of payroll deductions up to the lesser of 15% of such employee's compensation or $25,000 in value, per year. As adjusted for the stock split, participating employees have purchased 18,390 shares of common stock at an aggregate purchase price of $708,000 for the year ended December 31, 2001, 11,153 shares of common stock at an aggregate purchase price of $420,000 for the year ended December 31, 2000, and 13,506 shares of common stock at an aggregate purchase price of $177,000 for the year ended December 31, 1999. As of December 31, 2001, 948,175 shares were available for future purchases. No compensation expense has been recorded in connection with the ESPP. Pro forma compensation expense of $125,000, $74,000 and $31,000 related to the discount given to employees is included in the pro forma operating results disclosed above in note 11(d) for the years ended December 31, 2001, 2000 and 1999, respectively. F-31 (12) INCOME TAXES The tax effects of temporary differences that give rise to significant portions of the gross deferred tax assets and gross deferred tax liabilities at December 31, 2001, and December 31, 2000, are presented below:
DECEMBER 31, DECEMBER 31, 2001 2000 ------------- ------------- Gross deferred tax assets: Research and development credit carryforwards............. $ 19,415,000 $ 7,960,000 Compensation relating to the issuance of stock options and warrants............................................... 3,993,000 2,864,000 Net operating loss carryforwards.......................... 184,325,000 133,124,000 Deferred revenue.......................................... 92,758,000 13,872,000 Other..................................................... 7,728,000 4,143,000 ------------- ------------- Total gross deferred tax assets............................. 308,219,000 161,963,000 Less valuation allowance.................................. (306,781,000) (159,958,000) ------------- ------------- Net deferred tax assets................................... 1,438,000 2,005,000 ------------- ------------- Gross deferred tax liabilities: Unrealized gain on marketable securities.................. 1,438,000 2,005,000 ------------- ------------- Net deferred tax asset.................................... $ -- $ -- ============= =============
The Company has established a valuation allowance because more likely than not substantially all of its gross deferred tax assets will not be realized. The net change in the total valuation allowance for the years ended December 31, 2001 and 2000 was an increase of $146,823,000 and $76,048,000, respectively. The valuation allowance includes approximately $146,722,000 pertaining to tax deductions relating to stock option exercises for which any subsequently recognized tax benefit will be recorded as an increase to additional paid-in capital. The tax benefit assumed using the federal statutory tax rate of 34% has been reduced to an actual benefit of zero due principally to the aforementioned valuation allowance. At December 31, 2001, the Company had net operating loss carryforwards for federal income tax purposes of approximately $437,189,000, which expire at various dates from 2002 through 2021. At December 31, 2001, the Company had research credit carryforwards of approximately $19,415,000, which expire at various dates from 2008 through 2021. Under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation's ability to use net operating loss and research credit carryforwards may be limited if the corporation experiences a change in ownership of more than 50 percentage points within a three-year period. Since 1986, the Company experienced two such ownership changes. As a result, the Company is only permitted to use in any one year approximately $5,159,000 of its available net operating loss carryforwards that occurred prior to February 1996. Similarly, the Company is limited in using its research credit carryforwards. The Company has determined that its November 1999 public stock offering, its February 2000 private placement of convertible subordinated notes, its August 2001 issuance of common stock to Merck KGaA associated with an equity milestone payment under the ERBITUX development and license agreement and its September 2001 acquisition agreement with BMS did not cause an additional ownership change that would further limit the use of its net operating losses and research credit carryforwards. Of the $437,189,000 in net operating loss carry forwards, approximately $395,245,000 is available to use in 2002, approximately $5,159,000 is available to use in each year from 2003 through 2010 and approximately $672,000 is available to use in 2011. Any of the aforementioned net operating loss carryforwards which are not utilized are available for utilization in future years, subject to the statutory expiration dates of such net operating loss carryforwards. (13) CONTINGENCIES The Company and certain of its officers and directors are named as defendents in a number of complaints filed on behalf of purported classes of its stockholders asserting claims under Section 10(b) of the Securities and Exchange Act of 1934 (the "Exchange Act"), Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act. It is anticipated that a motion will be filed that would result in the consolidation of these and any subsequently-filed actions that assert similar claims. The complaints in these actions allege generally that various public statements made by the Company or its senior officers during 2001 F-32 and early 2002 regarding the prospects for FDA approval of ERBITUX were false or misleading when made, that various Company insiders were aware of material, non-public information regarding the actual prospects for ERBITUX at the time that those insiders engaged in transactions in the Company's common stock and that members of the purported shareholder class suffered damages when the market price of the Company's common stock declined following disclosure of the information that allegedly had not been previously disclosed. On December 28, 2001, the Company disclosed that it had received a "refusal to file" letter from the FDA relating to its biologics license application for ERBITUX. Thereafter, various news articles purported to describe the contents of the FDA's "refusal to file" letter. During this period, the market price of the Company's common stock declined. The complaints in the various actions seek to proceed on behalf of a class of the Company's present and former stockholders, other than defendants or persons affiliated with the defendants, seek monetary damages in an unspecified amount and seek recovery of plaintiffs' costs and attorneys' fees. Beginning on January 13, 2002 and continuing thereafter, six separate purported stockholders derivative actions have been filed against the members of its board of directors and the Company, as nominal defendant, making allegations similar to the allegations in the federal securities class action complaints. All of these actions assert claims, purportedly on the Company's behalf, for breach of fiduciary duty by certain members of the board of directors based on the allegation that certain directors engaged in transactions in the Company's common stock while in possession of material, non-public information concerning the regulatory and marketing prospects for ERBITUX. A seventh complaint, purportedly asserting direct claims on behalf of a class of the Company's shareholders but in fact asserting derivative claims that are similar to those asserted in these six cases, was filed in the U.S. District Court for the Southern District of New York on February 13, 2002, styled Dunlap v. Waksal, et al., No. 02 Civ. 1154 (RO). The Dunlap complaint asserts claims against the Board of Directors for breach of fiduciary duty purportedly on behalf of all persons who purchased shares of the Company's common stock prior to June 28, 2001 and then held those shares through December 6, 2001. It alleges that the members of the purported class suffered damages as a result of holding their shares based on allegedly false information about the financial prospects of the Company that was disseminated during this period. All of these actions are in their earliest stages. The Company intends to contest vigorously the claims asserted in these actions. The Company has received subpoenas and requests for information in connection with investigations by the Securities and Exchange Commission, the Subcommittee on Oversight and Investigations of the U.S. House of Representatives Committee on Energy and Commerce and the U.S. Department of Justice relating to the circumstances surrounding the disclosure of the FDA letter dated December 28, 2001 and trading in the Company's securities by certain Company insiders in 2001. The Company is cooperating with all of these inquiries and intends to continue to do so. (14) COMMITMENTS LEASES The Company leases office, operating and laboratory space under various lease agreements. Rent expense was approximately $1,576,000, $838,000 and $817,000 for the years ended December 31, 2001, 2000, and 1999, respectively. The Company leases its Research and Development and Corporate headquarters in New York City, under an operating lease, which expires in December 2004. See also Note 7. In May 2001, the Company entered into an operating lease for a 4,000 square foot portion of a 15,000 square foot building and an adjacent 6,250 square foot building (collectively the "premises") in Brooklyn, New York. The Company has begun to make improvements to the premises in order to relocate its chemistry and high throughput screening personnel from its Research and Development and Corporate headquarters in New York City. The term of the lease is for five years and contains five successive one-year extensions. F-33 In October 2001, the Company entered into a sublease for a four story building in downtown New York to serve as its future corporate headquarters and research facility. The space, to be designed and improved by the Company in the future, includes between 75,000 and 100,000 square feet of usable space, depending on design, and includes possible additional expansion space. The sublease has a term of 22 years, followed by two five year renewal option periods. In order to induce the sublandlord to enter into the sublease, the Company made a loan to and accepted from the sublandlord a $10,000,000 note receivable. The note is secured by a leasehold mortgage on the prime lease as well as a collateral assignment of rents by the sublandlord. The note is payable over 20 years and bears interest at 5 1/2% in years one through five, 6 1/2% in years six through ten, 7 1/2% in years eleven through fifteen and 8 1/2% in years sixteen through twenty. In addition, the Company paid the owner a consent fee in the amount of $500,000. The sublease is classified as an operating lease, and rent expense is recorded on a straight line basis over the term of the sublease. In addition, the interest payments received on the related note receivable are being recorded as a reduction to rent expense. The consent fee is being recognized as rent expense over the term of the lease. Future minimum lease payments under the capital and operating leases are as follows:
CAPITAL OPERATING LEASES LEASES -------- ----------- Year ending December 31, 2002....................... $430,000 $ 2,055,000 2003........................................... 61,000 3,024,000 2004........................................... -- 3,512,000 2005........................................... -- 2,374,000 2006........................................... -- 2,302,000 2007 and thereafter............................ -- 42,365,000 -------- ----------- 491,000 55,632,000 Less interest expense............................... (21,000) -- -------- ----------- $470,000 $55,632,000 ======== ===========
EMPLOYMENT AGREEMENTS In September 2001, and February 2002, the Company entered into employment agreements with six senior executive officers, including the Chief Executive Officer and Chief Operating Officer. The September agreements each have three-year terms and the February agreement has a one-year term. The term of employment for each of the CEO and COO will be automatically extended for one additional day each day during the term of employment unless either the Company or the Executive otherwise gives notice. The employment agreements provide for a stated base salary, and minimum bonuses and benefits aggregating $3,765,000 annually. The employment agreements also provide for the grant of a total of 2,450,000 options to three of the executives at a per share exercise price of $50.01. See also Note 11(d). SUPPORTED RESEARCH The Company has entered into various research and license agreements with certain academic institutions and others 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 and are terminable at the Company's option. See Note 17. F-34 CONTRACT SERVICES In April 1999, the Company signed a definitive agreement with BI Pharma for the further development, production scale-up and manufacture of ERBITUX for use in human clinical trials. The total cost under the agreement was DM11,440,000 or $6,283,000 based on the foreign currency rate on the dates of payment. All of the material manufactured under this agreement has been provided to Merck KGaA for use in clinical trials and Merck KGaA has reimbursed the Company for the costs under this agreement. This reimbursement has been accounted for as reduction to research and development expense in the third quarter of 2000 and the fourth quarter of 1999. In December 1999, the Company entered into a development and manufacturing services agreement with Lonza. This agreement was amended in April 2001 to include additional services. Under the agreement, Lonza is responsible for process development and scale-up to manufacture ERBITUX in bulk form under cGMP conditions. These steps were taken to assure that the manufacturing process would produce bulk material that conforms with the Company's reference material. As of December 31, 2001, the Company had incurred approximately $5,353,000 and $1,677,000 for the years ended December 31, 2001 and 2000, respectively, for services provided under the development and manufacturing services agreement. In September 2000, the Company entered into a three-year commercial manufacturing services agreement with Lonza relating to ERBITUX. This agreement was amended in June 2001 and again in September 2001 to include additional services. The total cost for services to be provided under the three-year commercial manufacturing services agreement is approximately $63,050,000. As of December 31, 2001, the Company incurred approximately $4,913,000 and $5,400,000 for the years ended December 31, 2001 and 2000, respectively, for services provided under the commercial manufacturing services agreement. Under these two agreements, Lonza is manufacturing ERBITUX at the 5,000 liter scale under cGMP conditions and is delivering it to the Company over a term ending no later than December 2003. The costs associated with both of these agreements are included in research and development expenses when incurred and will continue to be so classified until such time as ERBITUX may be approved for sale or until the Company obtains obligations from its corporate partners for supply of such product. In the event of such approval or obligations from its corporate partners, the subsequent costs associated with manufacturing ERBITUX for commercial sale will be included in inventory and expensed when sold. In the event the Company terminates the commercial manufacturing services agreement without cause, the Company will be required to pay 85% of the stated costs for each of the first ten batches cancelled, 65% of the stated costs for each of the next ten batches cancelled and 40% of the stated costs for each of the next six batches cancelled. The batch cancellation provisions for the subsequent batches require the company to pay 100% of the stated costs of cancelled batches scheduled within six months of the cancellation, 85% of the stated costs of cancelled batches scheduled between six and twelve months following the cancellation and 65% of the stated costs of cancelled batches scheduled between twelve and eighteen months following the cancellation. These amounts are subject to mitigation should Lonza use its manufacturing capacity caused by such termination for another customer. At December 31, 2001, the estimated remaining future commitments under the amended commercial manufacturing services agreement are $42,562,000 in 2002 and $10,175,000 in 2003. In December 2001, the Company entered into an agreement with Lonza to manufacture ERBITUX at the 2,000 liter scale for use in clinical trials by Merck KGaA. The costs associated with the agreement are reimbursable by Merck KGaA and accordingly the reimbursements are accounted for as reduction to research and development expenses. As of December 31, 2001, the Company had incurred and recorded reimbursements from Merck KGaA for approximately $2,483,000 for services provided under this agreement. At December 31, 2001, approximately $133,000 was reimbursable by Merck KGaA and is included in amounts due from corporate partners in the consolidated balance sheets. On January 2, 2002 the Company executed a letter of intent with Lonza to enter into a long-term supply agreement. The long-term supply agreement would apply to a large scale manufacturing facility that Lonza is constructing. The Company expects such facility would be able to produce ERBITUX in 20,000 liter batches. The Company paid Lonza $3,250,000 for the exclusive negotiating right of a long term supply agreement. Under certain conditions such payment shall be refunded to the Company. Provided the Company enters into a long-term supply agreement such payment shall be creditable against the 20,000 liter batch price. F-35 (15) RETIREMENT PLAN The Company maintains a 401(k) retirement plan available to all full-time, eligible employees. Employee contributions are voluntary and are determined by the individual, limited to the maximum amount allowable under federal tax regulations. The Company, at its discretion, may make certain contributions to the plan. The Company contributed approximately $243,000, $108,000 and $70,000 to the plan for the years ended December 31, 2001, 2000 and 1999, respectively. (16) SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING ACTIVITIES
YEAR ENDED DECEMBER 31, ----------------------------------------- 2001 2000 1999 ----------- ----------- ----------- Cash paid during the year for: Interest, including amounts capitalized of $1,656,000 in 2001 $846,000 in 2000 and $204,000 in 1999............................... $13,529,000 $ 7,097,000 $ 497,000 =========== =========== =========== Non-cash investing and financing activities: Redemption of series A preferred stock............ -- 20,000,000 -- =========== =========== =========== Conversion of series A preferred stock............ -- 10,000,000 10,000,000 =========== =========== =========== Series A preferred stock redemption premium and dividends...................................... -- 5,764,000 -- =========== =========== =========== Finova capital asset and lease obligations additions...................................... -- -- 532,000 =========== =========== =========== Unrealized gain (loss) on securities available-for-sale............................. (1,243,000) 4,377,000 645,000 =========== =========== =========== Officers and board directors notes issued to exercise options............................... 35,241,000 -- -- =========== =========== =========== Treasury shares received for withholding taxes related to exercise of options................. 1,778,000 -- -- =========== =========== =========== Accrued interest on note receivable -- officer and stockholder.................................... -- 3,000 11,000 =========== =========== ===========
(17) CERTAIN RELATED PARTY TRANSACTIONS The Company has scientific consulting agreements with two members of the Board of Directors. Expenses relating to these agreements were $112,000 for each of the years ended December 31, 2001, 2000 and 1999. Certain transactions engaged in by Dr. Samuel Waksal in securities of the Company were deemed to have resulted in "short-swing profits" under Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"). In accordance with Section 16(b) of the Exchange Act, Dr. Samuel Waksal has paid the Company an aggregate amount of approximately $486,000, in March 2002, as disgorgement of "short-swing profits" he realized. In December 2001, the Company entered into an agreement to sublease a 1,520 square foot portion of its corporate headquarters and research facility in New York City to Scientia Health Group Inc ("Scientia"). Base rent under the sublease is $5,496 per month and is subject to annual escalation. Scientia is also responsible for additional rent representing its pro-rata share of operating expenses. The amount charged to Scientia represents a direct pass through of the Company's cost. The term of the sublease shall continue month to month until such notice of termination by the Company. During the year ended December 31, 2001, the Company incurred, and was subsequently reimbursed by Scientia, for approximately $111,000 in costs associated with preparing the premises for occupancy. The Company's Chief Executive Officer is the Executive Chairman of Scientia. F-36 In July 2001, the Company accepted a promissory note from each of its President and Chief Executive Officer, Executive Vice President and Chief Operating Officer and Chairman of the Board, and in August 2001 the Company accepted a promissory note from a member of its Board of Directors, in payment of the aggregate exercise price associated with the exercise of stock options and warrants they held to purchase a total of approximately 4,473,000 shares of the Company's common stock. The President and Chief Executive Officer's promissory note was in the amount of $18,178,750; the Executive Vice President and Chief Operating Officer's promissory note was in the amount of $15,747,550; the Chairman of the Board's promissory note was in the amount of $1,228,065; and the other Board member's promissory note was in the amount of $87,000. The unsecured promissory notes were full-recourse, payable on the earlier of one year from the date of the notes or on demand by the Company and bore interest at the prime lending rate plus 1% (7 3/4% on the date of the note). Interest was payable quarterly and the interest rate adjusted quarterly during the term of each note to the then current prime lending rate plus 1%. On October 31, 2001, the Company made demand for repayment by November 23, 2001, of the principal amount of the notes and accrued interest thereon. As of November 14, 2001, the principal amount of all of these notes of $35,241,000 and accrued interest of $879,000 were paid in full. The Company accepted from its President and Chief Executive Officer, a full recourse, unsecured promissory note dated as of December 21, 2000 in the principal amount of $282,200. The note was payable upon the earlier of June 21, 2001 or demand by the Company and bore interest at 10.5% (the prime lending rate plus 1% on the date of the note) for the period that the loan is outstanding. The Company extended the term of the note to December 21, 2001. As of November 14, 2001, the principal amount of this note and accrued interest totaling $310,000 was paid in full. In January 1999, the Company accepted an unsecured promissory note totaling $60,000 from its Vice President, Product and Process Development. The note was payable upon the earlier of the Company's demand or July 28, 1999 including interest at an annual rate of 8 3/4% for the period that the loan was outstanding. The loan was made in connection with the acceptance of employment and the corresponding relocation of the officer. In July 1999, the note, including all interest, was paid in full. In October 1998, the Company accepted an unsecured promissory note totaling $100,000 from its Executive Vice President and COO. The note was payable on demand including interest at the annual rate of 8 1/4% for the period that the loan was outstanding. In April 1999, the note, including all interest, was paid in full. In January 1998, the Company accepted a promissory note totaling approximately $131,000 from its President and CEO in connection with the exercise of a warrant to purchase 174,610 shares of the Company's common stock. The note was due no later than two years from issuance and was full recourse. Interest was payable on the first anniversary date of the promissory note and on the stated maturity or any accelerated maturity at the annual rate of 8 1/2%. The note, including all interest, was paid in full during 2000. The Company uses Concord Investment Management, a New York-based money management firm, to manage a substantial portion of the Company's debt security portfolio tabulated in Note 3. The Company's Chairman of the Board is a limited partner of Concord International Holdings, LP. Concord International Holdings, LP is the holding company and controls Concord Investment Management. The Company paid investment management fees to Concord Investment Management of approximately $370,000, $412,000 and $60,000 in the years ended December 31, 2001, 2000 and 1999, respectively. (18) FAIR VALUE OF FINANCIAL INSTRUMENTS As of December 31, 2001 and 2000, the following methods and assumptions were used to estimate the fair value of each class of financial instrument: CASH AND CASH EQUIVALENTS, OTHER RECEIVABLES, ACCOUNTS PAYABLE, ACCRUED AND OTHER CURRENT LIABILITIES The carrying amounts approximate fair value because of the short maturity of those instruments. F-37 LONG-TERM OBLIGATIONS The fair value of the 5 1/2% convertible subordinated notes was approximately $210,600,000 at March 22, 2002, and $255,000,000 at December 31, 2001 based on their quoted market price. Discounted cash flow analyses were used to determine the fair value of other long-term obligations because no quoted market prices on these instruments were available. The fair value of other long-term obligations approximated their carrying amount. (19) QUARTERLY FINANCIAL DATA (UNAUDITED) The tables below summarize the Company's unaudited quarterly operating results for 2001 and 2000. The first three quarters of 2000 were restated as a result of the adoption of SAB 101 in the fourth quarter of 2000, effective as of the beginning of the year, as described in note 2g.
THREE MONTHS ENDED --------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2001 2001 2001 2001 ----------- ------------ ------------- ------------ Revenues.............................. $24,744,000 $ 3,251,000 $ 2,911,000 $ 2,313,000 Net loss to common stockholders....... (1,195,000) (29,503,000) (41,072,000) (30,459,000) Basic and diluted net loss per common share............................... $ (0.02) $ (0.44) $ (0.57) $ (0.42)
THREE MONTHS ENDED ---------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2000 2000 2000 2000 ------------ ------------ ------------- ------------ Revenues............................. $ 247,000 $ 200,000 $ 813,000 $ 153,000 Net loss before cumulative effect of change in accounting policy........ (12,016,000) (13,809,000) (12,904,000) (29,026,000) Net loss............................. (14,612,000) (13,809,000) (12,904,000) (29,026,000) Net loss to common stockholders before cumulative effect of change in accounting policy............... (12,718,000) (14,512,000) (13,616,000) (33,682,000) Net loss to common stockholders after cumulative effect of change in accounting policy.................. (15,314,000) (14,512,000) (13,616,000) (33,682,000) Basic and diluted loss per common share before cumulative effect of change in accounting policy........ (0.21) (0.23) (0.21) (0.52) Basic and diluted net loss per common share after cumulative effect of change in accounting policy........ $ (0.26) $ (0.23) $ (0.21) $ (0.52)
F-38 The table below reflects the effect of the change in accounting policy on net loss to common stockholders and basic and diluted net loss per common share under the Company's historical revenue recognition policy as a result of the adoption of SAB 101 in the fourth quarter of 2000.
THREE MONTHS ENDED ---------------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2000 2000 2000 2000 ------------ ------------ ------------- ------------ Net loss under historical revenue recognition policy................. $(12,057,000) $(13,849,000) $(12,944,000) $(29,067,000) Effect of change in accounting policy............................. 41,000 40,000 40,000 41,000 Cumulative effect of change in accounting policy.................. (2,596,000) -- -- -- ------------ ------------ ------------ ------------ Net loss............................. $(14,612,000) $(13,809,000) $(12,904,000) $(29,026,000) ============ ============ ============ ============ Basic and diluted net loss per common share under historical revenue recognition policy................. $ (0.22) $ (0.23) $ (0.21) $ (0.52) Effect of change in accounting policy............................. -- -- -- -- Cumulative effect of change in accounting policy.................. (0.04) -- -- -- ------------ ------------ ------------ ------------ Basic and diluted net loss per common share after cumulative effect of change in accounting policy........ $ (0.26) $ (0.23) $ (0.21) $ (0.52) ============ ============ ============ ============
F-39 EX-4.8 3 y58958ex4-8.txt CERTIFICATE OF ELIMINATION Exhibit 4.8 CERTIFICATE OF ELIMINATION OF THE SERIES A CONVERTIBLE PREFERRED STOCK OF IMCLONE SYSTEMS INCORPORATED Pursuant to Section 151(g) of the General Corporation Law of the State of Delaware I, Samuel D. Waksal, President and Chief Executive Officer, of IMCLONE SYSTEMS INCORPORATED, a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), do hereby certify that: 1. The voting powers, designations, preferences, and the relative, participating, optional, or other rights, and the qualifications, limitations, and restrictions of the Series A Convertible Preferred Stock were provided for in resolutions adopted by the Board of Directors of the Corporation on December 3, 1997 pursuant to authority expressly vested in it by the provisions of the Certificate of Incorporation of the Corporation. A certificate setting forth said resolutions was filed with the Secretary of State of the State of Delaware on December 3, 1997 pursuant to the provisions of Section 151(g) of the General Corporation Law of the State of Delaware. 2. The Board of Directors of the Corporation has adopted the following resolutions: WHEREAS, pursuant to the Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (the "Certificate of Designations") filed with the office of the Secretary of State of the State of Delaware on December 3, 1997, the Corporation established the voting powers, designations, preferences and the relative, participating, optional or other rights of, and the qualifications, limitations and restrictions of said series of shares of stock (the "Series A Convertible Preferred Stock"); and WHEREAS, this Board of Directors deems it desirable and in the best interests of the Corporation and its stockholders to eliminate from the Certificate of Incorporation of the Corporation all matters set forth in the Certificate of Designations with respect to the Series A Convertible Preferred Stock; NOW, THEREFORE, BE IT RESOLVED, that none of the authorized shares of Series A Convertible Preferred Stock of the Corporation is outstanding; and; FURTHER RESOLVED, that none of the authorized shares of Series A Convertible Preferred Stock of the Corporation will be issued subject to the Certificate of Designations; and FURTHER RESOLVED, that the proper officers of the Corporation be and hereby are authorized and directed to file a Certificate of Elimination setting forth these resolutions with the Secretary of State of the State of Delaware pursuant to the provisions of Section 151(g) of the General Corporation Law of the State of Delaware for the purpose of eliminating from the Certificate of Incorporation of the Corporation all reference to the Series A Convertible Preferred Stock. 3. Accordingly, all matters set forth in the Certificate of Designations with respect to the Series A Convertible Preferred Stock be, and they hereby are, eliminated from the Certificate of Incorporation of the Corporation. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by a duly authorized officer this 15th day of February, 2002. IMCLONE SYSTEMS INCORPORATED By: /s/ SAMUEL D. WAKSAL ------------------------------ Name: Samuel D. Waksal Title: President and Chief Executive Officer Attest: /s/ DANIEL S. LYNCH - ------------------------------------ Name: Daniel S. Lynch Title: Senior V.P. Finance and CFO EX-10.86 4 y58958ex10-86.txt AGREEMENT OF SUBLEASE Exhibit 10.86 SUBLEASE AGREEMENT OF SUBLEASE ("Sublease") dated as of the 5th day of October, 2001, by and between 325 SPRING STREET LLC, a Delaware limited liability company having an office c/o Savanna Partners, 80 Fifth Avenue, New York, New York ("Sublandlord"), and IMCLONE SYSTEMS INCORPORATED, a Delaware corporation having an office at 180 Varick Street, New York, New York ("Subtenant"). WHEREAS: I. By lease agreement dated as of May 8, 2000 between United Parcel Service, Inc. ("Overlandlord"), as landlord, and SenseNet, Inc., as tenant, as amended by (a) First Amendment to Lease Agreement (the "First Amendment"), dated as of November 1, 2000 and (b) Second Amendment to Lease Agreement, dated as of October 4, 2001 (as amended, the "Overlease"), SenseNet leased from Overlandlord certain premises in the building (the "Building") known as 325 Spring Street, New York, New York; and II. By Assignment and Assumption of Lease, dated as of November, 2000, SenseNet assigned to Sublandlord, and Sublandlord assumed from SenseNet, all of SenseNet's right, title, obligations and interest in and to the Overlease; and III. Subtenant desires to sublet from Sublandlord the portion of the premises demised to Sublandlord under the Overlease more particularly described on Exhibit A annexed hereto (the "Sublease Premises"), upon the terms and subject to the provisions and conditions hereinafter set forth. NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants, conditions and agreements hereinafter contained, do hereby agree as follows WITNESSETH: 1. Term. Sublandlord hereby sublets the Sublease Premises to Subtenant, and Subtenant hereby hires the Sublease Premises from Sublandlord, for a term (the "Term") which shall commence on the later to occur of (a) October 5, 2001 and (b) two (2) business days after the date upon which a copy of the consent, executed by Overlandlord, whereby Overlandlord grants its consent to this Sublease in accordance with Article 21 herein is delivered to Subtenant (the "Commencement Date"), and which shall end on April 29, 2023 (the "Expiration Date"), unless sooner terminated in accordance with the provisions of this Sublease. 2. Annual Fixed Rent and Additional Rent. A. Subtenant covenants and agrees that, during and throughout the entire Term, Subtenant shall pay to Sublandlord annual fixed rent ("FIXED RENT") in the amounts more particularly set forth on SCHEDULE 1 annexed hereto and made a part hereof, during and for the period commencing on the Commencement Date and continuing through and including the Expiration Date; which Subtenant covenants and agrees to pay to Sublandlord, in lawful money of the United States, in equal monthly installments in advance, on the fifth (5th) business day prior to the first day of each calendar month during the Term, without demand, deduction, offset, abatement, defense, and/or counterclaim whatsoever, except that Subtenant shall pay the first monthly installment of Fixed Rent simultaneously with the execution and delivery of this Sublease. The monthly installment of Fixed Rent payable on account of any partial calendar month during the Term shall be prorated. Notwithstanding anything to the contrary contained herein, in the event (a) Sublandlord files a voluntary petition under the United States Bankruptcy Code (or any other federal or state bankruptcy or insolvency law) (the "CODE"), or (b) any direct or indirect member, shareholder, partner, principal, affiliate, employee, officer, director, agent or representative of Sublandlord (each, a "RELATED PARTY") commences, files, solicits, participates in or joins in the filing of, an involuntary petition against Sublandlord under the Code, or (c) Sublandlord files an answer consenting to or acquiescing in (actual as distinguished from implied or constructive consent) any involuntary petition filed it by any other person under the Code, then the Fixed Rent from and after the date of such filing (until such bankruptcy is discharged provided this Sublease is not as a result of such bankruptcy, rejected, modified or terminated) shall be an amount equal to the Base Rent payable by Sublandlord to Overlandlord under the Overlease. Upon the occurrence of any of the events set forth in clauses (a), (b) or (c) of the immediately preceding sentence (and until such bankruptcy is discharged, provided this Sublease is not as a result of such bankruptcy, rejected, modified or terminated), Subtenant may pay the Base Rent payable by Sublandlord to Overlandlord under the Overlease, directly to Overlandlord. B. In addition to the Fixed Rent payable hereunder, Subtenant shall be liable for, and shall pay to Sublandlord on or before the date which is five (5) business days prior to the date upon which any and all such amounts are payable by Sublandlord to Overlandlord pursuant to Sections 3(b) and 3(h) of the Overlease, 95.1% of any and all amounts payable by Sublandlord to Overlandlord pursuant to Sections 3(b) and 3(h) of the Overlease. C. All payments of Fixed Rent and additional rent (Fixed Rent and additional rent are collectively referred to herein as "rent" and all sums as shall become due and payable by Subtenant to Sublandlord pursuant to this Sublease other than Fixed Rent shall be deemed to be "additional rent") shall be made by good and sufficient check (subject to collection) currently dated, drawn on a bank which is a member of the New York Clearing House or any successor thereto, issued directly from Subtenant, without endorsements, to the order of Sublandlord (or such other party as Sublandlord may, from time to time, direct) at Sublandlord's office (or such other place as Sublandlord may designate from time to time) Contemporaneously herewith, Sublandlord, Subtenant and Bank of America Securities, L.L.C. (together 2 with any successor thereto, the "LOCK BOX BANK") are entering into a lock-box arrangement. Notwithstanding the provisions of this sub-paragraph C, from and after November 1, 2001, and for so long as such arrangement is in effect, Sublandlord and Subtenant agree that all rent shall be paid to and disbursed by the Lock Box Bank in accordance with the terms of such lock-box arrangement; provided, however, that the foregoing shall not in any way limit Subtenant's obligations hereunder for the payment of rent and additional rent, and Subtenant acknowledges and agrees that the rent and additional rent payable by Subtenant under this Sublease shall not be deemed to have been paid by Subtenant unless and until disbursed and received in accordance with the lock-box arrangement. D. In the event that additional rent is due under the Overlease with respect to any period which precedes the Commencement Date or follows the Expiration Date, Subtenant's obligations hereunder on account of such additional rent shall be appropriately prorated. E. Sublandlord shall have the same rights and remedies in the event of nonpayment of additional rent as are available to Sublandlord for the non-payment of Fixed Rent. 3. Use of the Sublease Premises. Subtenant shall use and occupy the Sublease Premises for (i) general and executive offices and/or (ii) a biotechnology laboratory and incidental uses thereto, including, but not limited to, laboratories for molecular biology, organic chemistry, tissue culture and immunology (with appropriate drainage and ventilation), in accordance with the terms and conditions of the Overlease (the "PERMITTED USE"), and for no other purpose, and further covenants not to do any act which will result in a violation of the Overlease. 4. Incorporation of Overlease Terms. A. All capitalized and other terms not otherwise defined herein shall have the meanings ascribed to them in the Overlease, unless the context clearly requires otherwise. B. Except as herein otherwise expressly provided, all of the terms, provisions, covenants and conditions contained in the Overlease are hereby made a part hereof. The rights and obligations contained in the Overlease are, during the term of this subletting, hereby imposed upon the respective parties hereto, Sublandlord as being substituted for Overlandlord, and Subtenant being substituted for Sublandlord with respect to the Overlease; provided, however, that Sublandlord shall not be liable to Subtenant for any failure in performance resulting from the failure in performance by Overlandlord under the Overlease of the corresponding covenant of the Overlease, except to the extent such failure is due to the negligence or willful misconduct of Sublandlord, and Sublandlord's obligations hereunder are accordingly conditional where such obligations require such parallel performance by Overlandlord. It is expressly agreed that Sublandlord shall not be obligated to perform any obligation which is the obligation of Overlandlord under the Overlease. Sublandlord shall have 3 no liability to Subtenant by reason of the default of Overlandlord under the Overlease. Subtenant recognizes that Sublandlord is not in a position and shall not be required to render any of the services or utilities, to make repairs, replacements, restorations, alterations or improvements or to perform any of the obligations required of Overlandlord by the terms of the Overlease. Notwithstanding anything contained herein to the contrary, Sublandlord agrees, however, to use reasonable efforts to enforce its rights against Overlandlord under the Overlease for the benefit of Subtenant upon Subtenant's written request therefor (and to forward to Overlandlord any notices or requests for consent as Subtenant may reasonably request). Upon presentation of reasonable back-up of such costs, Subtenant shall promptly reimburse Sublandlord for any and all costs which Sublandlord shall incur in expending such efforts, and Subtenant does hereby indemnify and agree to hold Sublandlord harmless from and against any and all claims, liabilities, damages, costs and expenses (including, without limitation, reasonable attorney's fees and disbursements) incurred by Sublandlord in expending such efforts. Nothing contained in this Subparagraph B shall require Sublandlord to institute any suit or action to enforce any such rights. Notwithstanding the foregoing, Sublandlord shall permit Subtenant to (a) bring an action, in the name of Sublandlord and at Subtenant's sole cost and expense, to enforce Overlandlord's obligations under the Overlease and/or (b) provide notices (as the agent of Sublandlord) to Overlandlord to enforce Sublandlord's rights against Overlandlord under the Overlease (to the extent Sublandlord does not wish to do so or Sublandlord fails to do so after notice from Subtenant and reasonable opportunity to respond, taking into account the nature of the notice or if Sublandlord is in default hereunder beyond the expiration of applicable notice and cure periods; except that in the case of the First Extension Notice and the Second Extension Notice only, provided there does not exist a default by Subtenant under this Sublease beyond the expiration of applicable notice and cure periods, Subtenant may deliver such First Extension Notice and/or Second Extension Notice, as the case may be, directly to Overlandlord (as agent for Sublandlord) without first requesting that Sublandlord deliver such extension notices to Overlandlord); provided that Subtenant shall, and hereby does, indemnify Sublandlord against, and hold Sublandlord harmless from, any loss, cost, damage, liability and expense (including, without limitation, reasonable attorneys fees) which may arise in connection therewith, except if arising from the negligence or willful misconduct of Sublandlord. Subtenant acknowledges that the failure of Overlandlord to provide any services or comply with any obligations under the Overlease shall not entitle Subtenant to any abatement or reduction in rent payable hereunder except to the extent (a) resulting from Sublandlord's negligence or willful misconduct or (b) on a pro-rata basis, of any corresponding abatement as a result thereof received by Sublandlord from Overlandlord. C. Wherever the Overlease refers to the "Premises," such references for the purposes hereof shall be deemed to refer to the Sublease Premises. D. Sublandlord represents that to the best knowledge of Sublandlord, as of the date hereof the Overlease annexed hereto as EXHIBIT "B" and made a part hereof is a true and complete copy of the Overlease (and all amendments and modifications thereto), except as to certain intentionally omitted provisions, which provisions are expressly not incorporated herein and made inapplicable to Subtenant and the Sublease Premises. 4 5. Sublease Subject to Overlease. A. This Sublease is expressly made subject and subordinate to all of the terms and conditions of the Overlease and to all matters to which the foregoing is subject, except as specifically provided to the contrary in this Sublease. Subtenant hereby assumes and covenants that, throughout the Term, Subtenant shall observe and perform, all of the provisions of the Overlease which are to be observed and performed by the tenant thereunder with respect to the Sublease Premises. Subtenant covenants that Subtenant shall not do any act, matter or thing which will be, result in, or constitute a violation or breach of or a default under the Overlease; it being expressly agreed to by Subtenant that any such violation, breach or default shall constitute a material breach by Subtenant of a substantial obligation under this Sublease. Subtenant hereby agrees that Subtenant shall indemnify and hold Sublandlord harmless from and against all claims, liabilities, penalties and expenses, including, without limitation, attorneys' fees and disbursements, arising from or in connection with any default by Subtenant in Subtenant's performance of those terms, covenants and conditions of this Sublease and/or of the Overlease which are or shall be applicable to Subtenant, and all amounts payable by Subtenant to Sublandlord on account of such indemnity shall be deemed to be additional rent hereunder and shall be payable upon demand. In any case where the consent or approval of Overlandlord shall be required pursuant to the Overlease or otherwise, Overlandlord's and Sublandlord's consent shall be required hereunder (except in respect of Article 6 of the Overlease and Article 9 of the Sublease it being agreed to by Sublandlord that Sublandlord shall not deny consent to any request made pursuant to the provisions thereof which is consented to by Overlandlord), and Sublandlord shall have no obligation to consent to any matter to which Overlandlord's consent is so required but not obtained. B. Subtenant covenants and agrees that if, by reason of a default on the part of Sublandlord, as the tenant under the Overlease, in the performance of any of the terms or provisions of the Overlease, or for any other reason of any nature whatsoever, such lease or the leasehold estate of the tenant thereunder, is terminated by summary dispossess proceeding or otherwise, then Subtenant will, at Overlandlord's election, attorn to Overlandlord, and will recognize Overlandlord as Subtenant's landlord under this Sublease. Subtenant covenants and agrees to execute and deliver, at any time and from time to time, within five (5) days following a request therefor by Sublandlord or Overlandlord, any instrument which may be reasonably necessary or appropriate to evidence such attornment. C. Subtenant agrees to be bound, for all purposes of this Sublease, by any modifications or amendments to the Overlease. Sublandlord agrees not to amend or modify the Overlease in any way that would discriminate against Subtenant, or which would increase Subtenant's monetary obligations hereunder, shorten the term hereof or decrease Subtenant's rights with respect to the Permitted Use of the Sublease Premises, or which would otherwise materially adversely affect Subtenant's rights or obligations hereunder or permit the same to be canceled or terminated, unless required pursuant to the terms of the Overlease, without Subtenant's prior written consent, provided, however, that Sublandlord shall have the right to terminate this Sublease in the event that Overlandlord terminates the Overlease in 5 accordance with the provisions of Article 10 of the Overlease (provided, that, Sublandlord shall promptly deliver to Subtenant any notice received by Sublandlord from Overlandlord pursuant to Article l0 of the Overlease and if, upon receipt by Subtenant of such notice there exits no default by Subtenant beyond the expiration of applicable notice and cure periods under this Sublease, either Sublandlord or Subtenant may exercise the rights granted to Sublandlord (as Tenant under the Overlease) under clauses (i) and (ii) of Article 10 of the Overlease; provided, further, that if Subtenant elects to not exercise any such rights and Sublandlord does elect to exercise such rights, Subtenant shall be released from any further obligations arising hereunder and this Sublease shall terminate and expire). Sublandlord shall promptly provide to Subtenant copies of all amendments and modifications of the Overlease to the extent same affects the rights or obligations of Subtenant. D. (i) This Sublease is expressly made subject and subordinate to all of the terms and conditions of any Leasehold Mortgage (as hereinafter defined), provided, however, that such subordination is conditioned upon the holder of any such Leasehold Mortgage delivering to Subtenant a Nondisturbance Agreement (as hereinafter defined), in form reasonably satisfactory to such Leasehold Mortgagee, Sublandlord and Subtenant (but in any event subject to clause (iii) below). Sublandlord shall use its reasonable efforts to obtain from each holder of a mortgage of Sublandlord's interest in the Overlease (a "LEASEHOLD MORTGAGE") an agreement to the effect that, if there shall be a foreclosure of its Leasehold Mortgage, the holder of such Leasehold Mortgage will not make Subtenant a party defendant to such foreclosure, evict Subtenant, disturb Subtenant's possession under this Sublease, or terminate or disturb Subtenant's leasehold estate or rights hereunder, and will recognize Subtenant as the direct tenant of the holder of such Leasehold Mortgage on the same terms and conditions as are contained in this Sublease, subject to the provisions hereinafter set forth, provided no default shall have occurred and be continuing hereunder (any such agreement, or any agreement of similar import, from the holder of a Leasehold Mortgage being hereinafter referred to as a "NONDISTURBANCE AGREEMENT"). (ii) Sublandlord shall have no liability to Subtenant for its failure to obtain any Nondisturbance Agreement referred to in subparagraph (i) above. Sublandlord's agreement to use reasonable efforts under this subparagraph D shall not impose any obligation upon Sublandlord (y) to incur any cost or expense or (z) to institute any legal or other proceeding in connection with obtaining such Nondisturbance Agreement. (iii) Any Nondisturbance Agreement may be made on the condition that the holder of the Leasehold Mortgage, or anyone claiming by, through or under such holder, including a purchaser at a foreclosure sale, shall not be: (a) liable for any act or omission of any prior landlord (including, without limitation, the then defaulting landlord) except to the extent such act or omission continues after the effective date of such transfer, or (b) subject to any defense or offsets which Subtenant may have against any prior landlord (including, without limitation, the then defaulting Sublandlord), or 6 (c) bound by any payment of Fixed Rent or additional rent which tenant may have made to any prior landlord (including, without limitation, the then defaulting Sublandlord) more than thirty (30) days in advance of the date upon which such payment was due (except to the extent such payment is recovered by such successor to Sublandlord), or (d) bound by any obligation to make any payment to or on behalf of Subtenant which was required to be made prior to the time such successor to Sublandlord succeeded to Sublandlord's interest, or (e) bound by any obligation to perform any work or to make improvements to the Sublease Premises, or (f) bound by any amendment or modification of this Sublease made without its consent, or (g) bound to return Subtenant's security deposit, if any, until such deposit has come into its actual possession and Subtenant would be entitled to such security deposit pursuant to the terms of this Sublease. (iv) If required by the holder of a Leasehold Mortgage, within ten (10) business days after notice thereof, Subtenant shall join in any Nondisturbance Agreement to indicate its concurrence with the provisions thereof and its agreement in the event of a foreclosure of such Leasehold Mortgage or the granting of a deed in lieu to attorn to such mortgagee or to any person acquiring the interest of Sublandlord in the Overlease as Subtenant's landlord hereunder. Any such Nondisturbance Agreement may also contain other terms and conditions as may otherwise be required by such holder which do not increase Subtenant's monetary obligations under this Sublease, or increase Subtenant's non-monetary obligations under this Sublease in any material respect, or adversely affect or diminish Subtenant's rights in any material respect. 6. Electricity. A. Subtenant shall, at its sole cost and expense, obtain directly from the public utility company furnishing electric service to the Building all electric energy used or to be used in the Sublease Premises. Sublandlord represents that it is currently obtaining electricity directly from Con Edison. Promptly following the Commencement Date, Sublandlord shall cooperate with Subtenant to cause the applicable Con Edison accounts currently existing in respect of the Sublease Premises to be assigned into Subtenant's name. Sublandlord shall not be liable or responsible to Subtenant for any loss, damage or expense which Subtenant may sustain or incur if (i) the supply of electric energy to the Sublease Premises is temporarily interrupted, or (ii) the quantity or character of electric service is changed or is no longer available or suitable for Subtenant's requirements, except to the extent that the same was caused by the negligent or wrongful act of Sublandlord. Subtenant's use of electricity within the Sublease Premises shall never exceed the capacity of the then existing 7 wires, feeders or other electrical equipment serving the Sublease Premises. In the event Subtenant is legally unable to obtain electric service directly from the utility company servicing the Sublease Premises, Sublandlord shall install sub-meters, at Subtenant's sole cost and expense, to measure Subtenant's consumption of electrical energy and use reasonable efforts to cause Overlandlord to supply electricity to the Sublease Premises. If Sublandlord does so, Subtenant shall pay to Sublandlord, as additional rent, within fifteen (15) days after demand, from time to time, but no more frequently than monthly, for its consumption and demand of electrical energy at the rate which Sublandlord pays to the utility serving the Building as evidenced by such submeter (plus all of Sublandlord's actual out of pocket costs in connection with the administration thereof). For the purpose hereof the rate to be paid by Subtenant in the event of sub-metering shall include any taxes or other charges in connection therewith. If any tax shall be imposed upon Sublandlord's receipts from the sale or resale of electrical energy to Subtenant, the pro rata share allocable to the electrical energy service received by Subtenant shall be passed on to, included in the bill of, and paid by Subtenant if and to the extent permitted by law. Where more than one meter measures the electricity supplied to Subtenant, the electricity rendered through each meter may be computed and billed separately in accordance with the provisions hereinabove set forth. Subtenant expressly acknowledges that, in connection with the installation of the sub-meters, the electricity being furnished to the Sublease Premises may be temporarily interrupted. Sublandlord shall use reasonable efforts to minimize interference with the conduct of Subtenant's business in connection with such installation, but the foregoing shall not require Sublandlord to utilize premium or overtime labor in connection therewith. If following the installation of submeters, Sublandlord is prohibited from selling or reselling electrical energy to Subtenant, Sublandlord may, upon reasonable prior notice to Subtenant, if practicable, remove the submeters and Sublandlord shall have no further obligation to Subtenant in respect of electricity service. B. Without limiting the terms of Subparagraph 4B, except as otherwise expressly provided in this Article 6, the terms of Article 4 of the Overlease (as amended by paragraph 2 of the First Amendment) shall be incorporated by reference in this Sublease as if fully stated herein. As incorporated herein, there shall be substituted in said Article 4 (i) Sublandlord for Overlandlord, (ii) Subtenant for Sublandlord and (iii) Sublease Premises for Premises. 7. Occupancy Tax. If any commercial rent or occupancy tax shall be levied with regard to the Sublease Premises during the Term, Subtenant shall pay the same either to the taxing authority, or, if appropriate, to Sublandlord, as additional rent, not less than ten (10) days before the due date of each and every such tax payment. In the event that any such tax payment shall be made by Subtenant to Sublandlord, Sublandlord shall remit the amount of such payment to the taxing authority on Subtenant's behalf. 8. Non-Applicability of Certain Provisions of the Overlease. The following provisions of the Overlease shall not be incorporated in this Sublease by reference: the Lease Summary Sheet, Articles 1(a), 2, 3(a), 3(b), 3(c), 3(d), 8 3(i), the first three (3) lines of Section 5(a) up and until the word "Tenant" appearing on such line, 18, 19, 23, 24(a), and 24(b). 9. Assignment and Subletting. A. Prohibition Without Consent. Subtenant may, without Sublandlord's consent, but subject to the terms of this Article 9 and to Overlandlord's consent in accordance with the Overlease, assign, mortgage, pledge, encumber or otherwise transfer this Sublease, or sublet the Sublease Premises or any part thereof to be used or occupied by others (whether for desk space, mailing privileges or otherwise), provided that as of the effective date of such proposed assignment or subletting Subtenant is not in default of any of Subtenant's obligations under this Sublease (after notice and expiration of applicable grace periods). If this Sublease be assigned, or if the Sublease Premises or any part thereof be underlet or occupied by anybody other than Subtenant, Sublandlord may, after default by Subtenant, collect rent from the assignee, undertenant or occupant, and apply the net amount collected to the Fixed Rent herein reserved, but no assignment, underletting, occupancy or collection shall be deemed a waiver of the provisions hereof, the acceptance of the assignee, undertenant or occupant as Subtenant, or a release of Subtenant from the further performance by Subtenant of covenants on the part of Subtenant herein contained. In no event shall any permitted subtenant assign or encumber its sublease or further sublet all or any portion of its sublet space, or otherwise suffer or permit the sublet space or any part thereof to be used or occupied by others, without Overlandlord's prior written consent in each instance. Any assignment, sublease, mortgage, pledge, encumbrance or transfer in contravention of the provisions of this Article 9 shall be void. B. Notice of Proposed Transfer. 1. If Subtenant shall at any time or times during the Term desire to assign this Sublease or sublet all or part of the Sublease Premises, Subtenant shall give notice thereof to Sublandlord, which notice shall be accompanied by (i) a conformed or photostatic copy of the proposed assignment or sublease, the effective or commencement date of which shall be not less than forty-five (45) nor more than one hundred and twenty (120) days after the giving of such notice, (ii) a statement setting forth in reasonable detail the identity of the proposed assignee or subtenant, the nature of its business and its proposed use of the Sublease Premises, (iii) an agreement by Subtenant to indemnify Sublandlord against liability resulting from any claims that may be made against Sublandlord by the proposed assignee or subtenant or by any brokers or other persons claiming a commission or similar compensation in connection with the proposed assignment or sublease, except for any liability arising from Sublandlord's negligence or willful misconduct, and (iv) in the case of a sublease, such additional information related to the proposed subtenant as Overlandlord shall reasonably request, if any. 2. As a condition to any assignment or sublease, Sublandlord must obtain Overlandlord's consent in accordance with the provisions of Article 18 of the Overlease. Sublandlord agrees to deliver to Overlandlord copies of all information provided by Subtenant 9 in connection with any proposed assignment or sublease within 2 Business Days after receipt of same from Subtenant. Sublandlord further agrees to provide Subtenant with any requests for additional information or other communications from Overlandlord immediately upon receipt of same. C. Conditions. Each subletting pursuant to this subsection C of this Article 9 shall be subject to all of the covenants, agreements, terms, provisions and conditions contained in this Sublease. Notwithstanding any assignment or subletting to any subtenant and/or acceptance of Fixed Rent or additional rent by Sublandlord from any subtenant, Subtenant shall and will remain fully liable for the payment of the Fixed Rent and additional rent due and to become due hereunder and for the performance of all the covenants, agreements, terms, provisions and conditions contained in this Sublease on the part of Subtenant to be performed and all acts and omissions of any licensee or subtenant or anyone claiming under or through any subtenant which shall be in violation of any of the obligations of this Sublease shall be deemed to be a violation by Subtenant. Subtenant further agrees that notwithstanding any such subletting, no other and further subletting of the Sublease Premises by Subtenant or any person claiming through or under Subtenant shall or will be made except upon compliance with and subject to the provisions of this Article 9. D. Sublease Provisions. With respect to each and every sublease or subletting authorized by Sublandlord under the provisions of this Sublease, it is further agreed that: (i) No subletting shall be for a term ending later than one (1) day prior to the Expiration Date of this Sublease; (ii) No sublease shall be effective, and no subtenant shall take possession of the Sublease Premises or any part thereof, until an executed counterpart of such sublease has been delivered to Sublandlord; (iii) Each sublease shall provide that it is subject and subordinate to this Sublease and to the matters to which this Sublease is or shall be subordinate, and that in the event of termination, re-entry or dispossession by Sublandlord under this Sublease Sublandlord may, at its option, take over all of the right, title and interest of Subtenant, as sublessor, under such sublease, and such subtenant shall, at Sublandlord's option, attorn to Sublandlord pursuant to the then executory provisions of such sublease, except that Sublandlord shall not (a) be liable for any previous act or omission of Subtenant under such sublease, (b) be subject to any counterclaim, offset or defense, not expressly provided in such sublease, which theretofore accrued to such subtenant against Subtenant, or (c) be bound by any previous modification of such sublease or by any previous prepayment of more than one (1) month's Fixed Rent, except to the extent received by Sublandlord. The provisions of this Article 9 shall be self-operative and no further instrument shall be required to give effect to this provision. 10 E. Other Transfers. (i) If Subtenant is a corporation other than a corporation whose stock is listed and traded on a nationally recognized stock exchange (hereinafter referred to as a "public corporation"), the provisions of subsection A of this Article 9 shall apply to a transfer (by one or more transfers) of a majority of the stock of Subtenant as if such transfer of a majority of the stock of Subtenant were an assignment of this Sublease; but said provisions shall not apply to transactions with a corporation into or with which Subtenant is merged or consolidated or to which substantially all of Subtenant's assets are transferred, provided that in any of such events (a) the successor to Subtenant has a net worth computed in accordance with generally accepted accounting principles at least equal to the greater of (1) the net worth of Subtenant immediately prior to such merger, consolidation or transfer, or (2) the net worth of Subtenant herein named on the date of this Sublease and (b) proof satisfactory to Sublandlord of such net worth shall have been delivered to Sublandlord at least ten (10) days prior to the effective date of any such transaction. (ii) If Subtenant is a partnership, the provisions of subsection A of this Article 9 shall apply to a transfer (by one or more transfers) of a majority interest in the partnership, as if such transfer were an assignment of this Sublease. (iii) If Subtenant is a subdivision, authority, body, agency, instrumentality or other entity created and/or controlled pursuant to the laws of the State of New York or any city, town or village of such state or of federal government ("Governmental Entity"), the provisions of subsection A of this Article 9 shall apply to a transfer (or one or more transfers) of any of Subtenant's rights to use and occupy the Sublease Premises, to any other Governmental Entity, as if such transfer of the right of use and occupancy were an assignment of this Sublease; but said provisions shall not apply to a transfer of any of Subtenant's rights in and to the Sublease Premises to any Governmental Entity which shall replace or succeed to substantially similar public functions, responsibilities and areas of authority as Subtenant, provided that in any of such events the successor Governmental Entity shall utilize the Sublease Premises in a manner substantially similar to Subtenant. F. Assumption by Assignee. Any assignment or transfer, shall be made only if, and shall not be effective until, the assignee shall execute, acknowledge and deliver to Sublandlord an agreement in form and substance reasonably satisfactory to Sublandlord whereby the assignee shall assume the obligations of this Sublease on the part of Subtenant to be performed or observed and whereby the assignee shall agree that the provisions in subsection A of this Article 9 shall, notwithstanding such assignment or transfer, continue to be binding upon it in respect of all future assignments and transfers. The original named Subtenant covenants that, notwithstanding any assignment or transfer, whether or not in violation of the provisions of this Sublease, and notwithstanding the acceptance of Fixed Rent and/or additional rent by Sublandlord from an assignee, transferee or any other party, the original named Subtenant shall remain fully liable for the payment of the Fixed Rent and additional rent and for the other obligations of this Sublease on the part of Subtenant to be performed or observed. 11 G. Liability of Subtenant. The joint and several liability of Subtenant and any immediate or remote successor in interest of Subtenant and the due performance of the obligations of this Sublease on Subtenant's part to be performed or observed shall not be discharged, released or impaired in any respect by any agreement or stipulation made by Sublandlord extending the time, or modifying any of the obligations, of this Sublease, or by any waiver or failure of Sublandlord to enforce any of the obligations of this Sublease. H. Re-entry by Sublandlord. If Sublandlord shall recover or come into possession of the Sublease Premises before the date herein fixed for the termination of this Sublease, Sublandlord shall have the right, at its option, to take over any and all subleases or sublettings of the Sublease Premises or any part thereof made by Subtenant and to succeed to all the rights of said subleases and sublettings or such of them as it may elect to take over. Subtenant hereby expressly assigns and transfers to Sublandlord such of the subleases and sublettings as Sublandlord may elect to take over at the time of such recovery of possession, such assignment and transfer not to be effective until the termination of this Sublease or re-entry by Sublandlord hereunder or if Sublandlord shall otherwise succeed to Subtenant's estate in the Sublease Premises, at which time Subtenant shall upon request of Sublandlord, execute, acknowledge and deliver to Sublandlord such further instruments of assignment and transfer as may be necessary to vest in Sublandlord the then existing subleases and sublettings. Every subletting hereunder is subject to the condition and by its acceptance of and entry into a sublease, each subtenant thereunder shall be deemed conclusively to have thereby agreed from and after the termination of this Sublease or re-entry by Sublandlord hereunder of or if Sublandlord shall otherwise succeed to Subtenant's estate in the Sublease Premises, that such subtenant shall waive any right to surrender possession or to terminate the sublease and, at Sublandlord's election, such subtenant shall be bound to Sublandlord for the balance of the term of such sublease and shall attorn to and recognize Sublandlord, as its Sublandlord, under all of the then executory terms of such sublease, except that Sublandlord shall not (i) be liable for any previous act, omission or negligence of Subtenant under such sublease, (ii) be subject to any counterclaim, defense or offset not expressly provided for in such sublease, which theretofore accrued to such subtenant against Subtenant, (iii) be bound by any previous modification or amendment of such sublease or by any previous prepayment of more than one (1) month's Fixed Rent and additional rent which shall be payable as provided in the sublease, (iv) be obligated to repair the subleased space or the Building or any part thereof, in the event of total or substantial total damage beyond such repair as can reasonably be accomplished from the net proceeds of insurance actually made available to Sublandlord, (v) be obligated to repair the subleased space or the Building or any part thereof, in the event of partial condemnation beyond such repair as can reasonably be accomplished from the net proceeds of any award actually made available to Sublandlord as consequential damages allocable to the part of the subleased space or the Building not taken or (vi) be obligated to perform any work in the subleased space of the Building or to prepare them for occupancy beyond Sublandlord's obligations under this Sublease, and the subtenant shall execute and deliver to Sublandlord any instruments Sublandlord may reasonably request to evidence and confirm such attornment. Each subtenant or licensee of Subtenant shall be deemed automatically upon and as a condition of occupying or using the Sublease Premises or any part thereof, to have given a waiver of the type described in and to the extent and upon the conditions set forth in this Article 9. 12 10. Insurance. A. Subtenant shall, with respect to the Sublease Premises, obtain at its own expense and keep in full force and effect during the Term, each and every policy of insurance required to be carried by the lessee pursuant to Article 9 of the Overlease (including, without limitation, any increase in coverage which may be required by Overlandlord pursuant to the terms thereof) under which Subtenant is named as the insured, and Overlandlord, Sublandlord, Sublandlord's asset manager (Savanna Asset Management LLC or any successor thereto), the present and any future mortgagee of the Real Property or the Building and/or such other designees specified by Sublandlord from time to time, are named as additional insureds. B. Notwithstanding anything to the contrary contained in Article 9 of the Overlease, and notwithstanding the limits of insurance specified in this Paragraph 10, Subtenant agrees to defend, indemnify and hold harmless Sublandlord, and the agents, partners, shareholders, directors, officers and employees of Sublandlord, from and against all damage, loss, liability, cost and expense (including, without limitation, engineers', architects' and attorneys' fees and disbursements) resulting from any of the risks referred to in this Paragraph 10 and Article 9 of Overlease. Such indemnification shall operate whether or not Subtenant has placed and maintained the insurance specified in this Paragraph 10, and whether or not proceeds from such insurance (such insurance having been placed and maintained) actually are collectible from one or more of the aforesaid insurance companies; provided, however, that Subtenant shall be relieved of its obligation of indemnity herein pro tanto of the amount actually recovered by Sublandlord from one or more of said insurance companies by reason of injury or damage to or loss sustained on the Sublease Premises. C. Subtenant hereby agrees to indemnify, hold harmless and defend Sublandlord, its officers, directors, employees, agents and contractors (the "Sublandlord Parties") from and against any and all claims, damages, liabilities, costs and expenses (including, but not limited to, attorneys' fees and disbursements) arising as a result of (i) any breach by Subtenant of any of the representations, warranties, covenants and agreements of Subtenant under this Sublease, or (ii) the conduct of business in or management of the Sublease Premises during the Term or while Subtenant is in possession of or otherwise occupies all or any pat of the Sublease Premises, or (iii) any work or thing whatsoever done or any condition created in or about the Sublease Premises during the Term or while Subtenant is in possession of or otherwise occupies all or any part of the Sublease Premises, or (iv) any negligent or willful act or omission of Subtenant or of any licensee or invitee or other occupant of, or person present at, the Sublease Premises or of any employee, agent or contractor of any of the foregoing during the Term or while Subtenant is in possession of or otherwise occupies all or any part of the Sublease Premises. Notwithstanding the foregoing, Subtenant shall not indemnify the Sublandlord Parties against any negligence or willful misconduct of any of the Sublandlord Parties. D. Each of Subtenant and Sublandlord shall procure an appropriate clause in or endorsement to any property insurance covering the Premises demised under the 13 Overlease, the Sublease Premises and any personal property, fixtures, and equipment located therein, wherein the insurance companies shall waive subrogation or consent to a waiver of right of recovery, and Sublandlord and Subtenant agree not to make any claim against, or to seek to recover from, the other, for any loss or damage to its property or the property of others resulting from fire and other hazards to the extent covered by such property insurance; provided, however, that the release, discharge, exoneration and covenant not to sue contained herein shall be limited by and coextensive with the terms and provisions of the waiver or subrogation or waiver of right of recovery. 11. Brokerage. Subtenant represents and warrants to Sublandlord, and Sublandlord represents and warrants to Subtenant, that no broker, other than Spaceworks Real Estate Services, Inc. and Outer Boro Brokerage, Inc. (collectively, the "BROKER"), was instrumental in consummating this Sublease, and that no conversations or prior negotiations were had with any broker other than the Broker concerning the subletting of the Sublease Premises. Subtenant shall indemnify and hold Sublandlord harmless from and against, and Sublandlord shall indemnify and hold Subtenant harmless from and against, any claims for brokerage commissions or similar fees claimed by any person or entity other than the Broker and any and all other claims, damages, liabilities, costs and expenses (including, without limitation, attorneys' fees and disbursements) arising out of or in connection with the breach of the foregoing representations and warranties, respectively. A commission in respect of this Sublease shall be paid to Broker by Sublandlord pursuant to separate agreement. 12. Assignment of the Overlease. The term "Sublandlord" as used in this Sublease means only the tenant under the Overlease, at the time in question, so that if Sublandlord's interest in the Overlease is assigned, Sublandlord shall be thereupon released and discharged from all covenants, conditions and agreements of Sublandlord hereunder accruing with respect to the Overlease from and after the date of such assignment, but such covenants, conditions and agreements shall be binding on the assignee until thereafter assigned. 13. Notices and Cure Periods; Default and Remedies. A. All notices hereunder to Sublandlord or Subtenant shall be given in writing and delivered by hand, national overnight courier or mailed by certified or registered mail, return receipt requested, to the addresses set forth below: If to Sublandlord: 325 Spring Street LLC c/o Savanna Partners 80 Fifth Avenue New York, New York Attn: Christopher Schlank 14 with a copy to: Solomon and Weinberg LLP 685 Third Avenue New York, New York 10017 Attn: Jay Stark, Esq. If to Subtenant: ImClone Systems Incorporated 180 Varick Street New York, New York Attn: John B. Landes, General Counsel with a copy to: Morrison Cohen Singer & Weinstein, LLP 750 Lexington Avenue New York, New York 10022 Attn: Laurie F. Golub, Esq. B. By notice given in the aforesaid manner, either party hereto may notify the other as to any change as to where and to whom such party's notices are thereafter to be addressed. C. The effective date of any notice shall be the date such notice is delivered (if by hand or by national overnight courier) or three (3) days after the date of mailing thereof. D. In connection with the incorporation by reference of notice and other time limit provisions of the Overlease into this Sublease (and except with respect to actions to be taken by Subtenant for which shorter time limits are specifically set forth in this Sublease, which time limits shall control for the purposes of this Sublease), the time limits provided in the Overlease for the giving or making of any notice by the tenant thereunder to Overlandlord, the holder of any mortgage, the lessor under any ground or underlying lease or any other party, or for the performance of any act, condition or covenant or the curing of any default by the tenant thereunder, or for the exercise of any right, remedy or option by the tenant thereunder, are changed for the purposes of this Sublease, by shortening the same in each instance: (i) to fifty (50) calendar days with respect to all such periods of sixty (60) or more calendar or business days, (ii) to twenty (20) calendar days with respect to all such periods of thirty (30) or more calendar or business days but less than sixty (60) calendar or business days, (iii) to fifteen (15) calendar days with respect to all such periods of twenty (20) or more calendar or business days but less than thirty (30) calendar or business days, (iv) to seven (7) calendar days with respect to all such periods of ten (10) or more calendar or business days but less than twenty (20) calendar or business days, and (v) to three (3) business 15 days with respect to all such periods of five (5) or more calendar or business days but less than ten (10) calendar or business days; but in any and all events to a time limit enabling Sublandlord to give any notice, perform any act, condition or covenant, cure any default, and/or exercise any option within the time limit relating thereto as contained in the Overlease. Subtenant shall, immediately upon receipt thereof, notify Sublandlord of any notice served by Overlandlord upon Subtenant under any of the provisions of the Overlease or with reference to the Sublease Premises. Sublandlord shall, immediately upon receipt thereof, notify Subtenant of any notice of default served by Overlandlord upon Sublandlord under any of the provisions of the Overlease or with reference to the Sublease Premises. Subtenant shall immediately furnish notice to Sublandlord of any action taken by Subtenant to cure any default under, or comply with any request or demand made by Overlandlord and/or Sublandlord in connection with the Overlease (pertaining to the Sublease Premises) or this Sublease. E. Article 14 of the Overlease as incorporated herein by reference is hereby modified (i) by the words "five (5) days" appearing in subsection (a) thereof being deleted and the words "three (3) business days" being inserted in lieu thereof; (ii) by the words "twenty (20) days" appearing in subsection (a) thereof being deleted and the words "fifteen (15) days" being inserted in lieu thereof; (iii) by the words "thirty (30) days" appearing in subsection (j) thereof being deleted and the words "twenty (20) days" being inserted in lieu thereof; and (iv) by the words "ninety (90) days" appearing in subsection (j) thereof being deleted and the words "eighty (80) days" being inserted in lieu thereof. F. (i) If this Sublease shall be terminated under the provisions of Article 15 of the Overlease as incorporated herein: (a) Subtenant shall quit and peacefully surrender the Sublease Premises to Sublandlord, and Sublandlord and its agents may immediately, or at any time after such termination or after the date upon which this Sublease and the Term shall expire and come to an end, re-enter the Sublease Premises or any part thereof, without notice, either by summary proceedings, or by any other applicable action or proceeding, or by force or otherwise (without being liable to indictment, prosecution or damages thereof or), and may repossess the Sublease Premises and dispossess Subtenant and any other persons from the Sublease Premises and remove any and all of their property and effects from the Sublease Premises; and (b) Sublandlord, at Sublandlord's option, may relet the whole or any part or parts of the Sublease Premises from time to time, either in the name of Sublandlord or otherwise, to such subtenant or subtenants, for such term or terms ending before, on or after the Expiration Date, at such rental or rentals and upon such other conditions, which may include concessions and free rent periods, as Sublandlord, in its sole discretion, may determine; provided, however, that Sublandlord shall have no obligation to relet the Sublease Premises or any part thereof and shall in no event be liable for refusal or failure to relet the Sublease Premises or any part thereof, or, in the event of any such reletting, for refusal or failure to collect any rent due upon any such reletting, and no such refusal or failure shall operate to relieve Subtenant of any liability under this Sublease or otherwise affect any 16 such liability, and Sublandlord, at Sublandlord's option, may make such repairs, replacements, alterations, additions, improvements, decorations and other physical changes in and to the Sublease Premises as Sublandlord, in its sole discretion, considers advisable or necessary in connection with any such reletting or proposed reletting, without relieving Subtenant of any liability under this Sublease or otherwise affecting any such liability. (ii) Subtenant hereby waives the service of any notice of intention to re-enter or to institute legal proceedings to that end which may otherwise be required to be given under any present or future law. Subtenant, on its own behalf and on behalf of all persons claiming through or under Subtenant, including all creditors, does further hereby waive any and all rights which Subtenant and all such persons might otherwise have under any present or future law to redeem the Sublease Premises, or to re-enter or repossess the Sublease Premises, or to restore the operation of this Sublease, after (a) Subtenant shall have been dispossessed by a judgment or by warrant of any court or judge, or (b) any re-entry by Sublandlord, or (c) any expiration or termination of this Sublease and the Term, whether such dispossess, re-entry, expiration or termination shall be by operation of law or pursuant to the provisions of this Sublease. The words "reenter," re-entry" and "re-entered" as used in this Sublease shall not be deemed to be restricted to their technical legal meanings. In the event of a breach or threatened breach by Subtenant, or any persons claiming through or under Subtenant, of any term, covenant or condition of this Sublease, Sublandlord shall have the right to enjoin such breach and the right to invoke any other remedy allowed by law or in equity as if re-entry, summary proceedings and other special remedies were not provided in this Sublease for such breach. The rights to invoke the remedies hereinbefore set forth are cumulative and shall not preclude Sublandlord from invoking any other remedy allowed at law or in equity. (iii) If this Sublease and the Term shall expire and come to an end as provided in Article 15 of the Overlease as incorporated herein or in this Subparagraph 13F, or by or under any summary proceeding or any other action or proceeding, or if Sublandlord shall re-enter the Sublease Premises as provided in said Article 15 as incorporated herein or this Subparagraph 13F, or by or under any summary proceeding or any other action or proceeding, then, in any of said events: (a) Subtenant shall pay to Sublandlord all rent (including additional rent) and other items payable under this Sublease by Subtenant to Sublandlord to the date upon which this Sublease and the Term shall have expired and come to an end or to the date of re-entry upon the Sublease Premises by Sublandlord, as the case may be; (b) Subtenant also shall be liable for and shall pay to Sublandlord, as damages, any deficiency (referred to as "DEFICIENCY") between the rent (including additional rent) for the period which otherwise would have constituted the unexpired portion of the Term and the net amount, if any, of rents collected under any reletting effected pursuant to the provisions of clause (a) of sub-subparagraph 13F(i) hereof for any part of such period (first deducting from the rents collected under any such reletting all of 17 Sublandlord's expenses in connection with the termination of this Sublease, Sublandlord's reentry upon the Sublease Premises and with such reletting including, but not limited to, all repossession costs, brokerage commissions, legal expenses, attorneys' fees and disbursements, alteration costs and other expenses of preparing the Sublease Premises for such reletting); any such Deficiency shall be paid in monthly installments by Subtenant on the days and in the manner specified in this Sublease for payment of monthly installments of Fixed Rent, Sublandlord shall be entitled to recover from Subtenant each monthly Deficiency as the same shall arise, and no suit to collect the amount of the Deficiency for any month shall prejudice Sublandlord's right to collect the Deficiency for any subsequent month by a similar proceeding; and (c) whether or not Sublandlord shall have collected any monthly Deficiency as aforesaid, Sublandlord shall be entitled to recover from Subtenant, and Subtenant shall pay to Sublandlord, on demand, in lieu of any further Deficiency as and for liquidated and agreed final damages, a sum equal to the amount by which the rent (including additional rent) for the period which otherwise would have constituted the unexpired portion of the Term exceeds the then fair and reasonable rental value of the Sublease Premises for the same period, both discounted to present worth at the 4% per annum, less the aggregate amount of Deficiencies theretofore collected by Sublandlord pursuant to the provisions of clause (b) of sub-subparagraph 13 F(iii) hereof for the same period; if, before presentation of proof of such liquidated damages to any court, commission or tribunal, the Sublease Premises, or any part thereof, shall have been relet by Sublandlord for the period which otherwise would have constituted the unexpired portion of the Term, or any part thereof, the amount of rent reserved upon such reletting shall be deemed, prima facie, to be the fair and reasonable rental value for the part or the whole of the Sublease Premises so relet during the term of the reletting. (iv) If the Sublease Premises, or any part thereof, shall be relet together with other space in the Building, the rents collected or reserved under any such reletting and the expenses of any such reletting shall be equitably apportioned for the purposes of sub-subparagraph 13F(iii) hereof. Subtenant shall in no event be entitled to any rents collected or payable under any reletting, whether or not such rents shall exceed the fixed annual rent reserved in this Sublease. 14. Binding Effect. The covenants, conditions and agreements contained in this Sublease shall bind and inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns (to the extent permitted hereunder). 15. Condition of the Sublease Premises. A. It is understood and agreed that all understandings and agreements heretofore had between the parties are merged in this Sublease, which alone fully and completely expresses their agreements, and that the same are entered into after full investigation, neither party relying upon any statement or representation made by the other and not embodied in this Sublease. Subtenant agrees to accept possession of the Demised Premises in "as is" and "where is" condition on the date hereof and Sublandlord is not required to 18 perform work of any kind, nature or description to prepare the Sublease Premises for Subtenant's occupancy. B. Subtenant acknowledges and agrees that any and all alterations, installations, renovations or other items of work necessary to prepare the Sublease Premises for Subtenant's initial occupancy ("Subtenant's Work") shall be performed by Subtenant (subject to the applicable provisions of the Overlease), at Subtenant's sole cost and expense. 16. At End of Term. Upon the expiration or sooner termination of the Term, Subtenant shall vacate and surrender the Sublease Premises in broom clean condition, in good order and condition and otherwise in accordance with Article 8 of the Overlease (or any other condition expressly consented to in writing by Overlandlord if different than the express provisions of Article 8 of the Overlease). 17. Intentionally Reserved. 18. Miscellaneous. A. This Sublease is made in the State of New York and shall be governed by and construed under the laws thereof. This Sublease supersedes any and all other or prior understandings, agreements, covenants, promises, representations or warranties of or between the parties (which are fully merged herein). The headings in this Sublease are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. Whenever necessary or appropriate, the neuter gender as used herein shall be deemed to include the masculine and feminine; the masculine to include the feminine and neuter; the feminine to include the masculine and neuter; the singular to include the plural; and the plural to include the singular. This Sublease shall not be binding upon Sublandlord for any purpose whatsoever unless and until Sublandlord has delivered to Subtenant a fully executed duplicate original hereof. The captions appearing in this Sublease have been inserted for convenience only and shall not control or affect or be deemed part of this Sublease or control or affect the meaning or construction of any of the terms, conditions or provisions hereof. B. Tenant Access. Subject to the terms of the Overlease and the terms of this Sublease, Subtenant shall have access to the Sublease Premises twenty-four (24) hours per day, seven (7) days per week. C. HVAC Placement. Subject to the express prior written consent of Overlandlord, Subtenant shall have the non-exclusive right to install, inspect, adjust and maintain HVAC equipment (the "EQUIPMENT") (or such other type of Equipment as may be reasonably approved by Overlandlord) on the Building rooftop at Subtenant's sole risk, cost and expense (said right is hereinafter referred to as "SUBTENANT'S HVAC Right") provided said Equipment does not involve any penetration of the roof surface and such installation is otherwise, in all respects, satisfactory to, Overlandlord and its roofing contractor. The 19 dimensions and performance characteristics of said Equipment shall be subject to Overlandlord's approval, in Overlandlord's sole and absolute discretion. Sublandlord hereby assigns and conveys to Subtenant, for so long as this Sublease is in full force and effect, all of Sublandlord's rights under the Overlease in respect of the Building rooftop (including without limitation, the right to place signage thereon), if any. (a) Roof Access. Sublandlord and Subtenant agree that Subtenant's HVAC Right will necessitate that Subtenant have access to the rooftop of the Building. To the extent that Subtenant's HVAC Right expands the area of the Building to which Subtenant has access (the "new access areas"), then Sublandlord and Subtenant agree that any and all provisions of the Sublease that apply to the Sublease Premises, shall also apply to new access areas, except as modified herein and except to the extent that said Sublease provisions place any additional responsibilities on the Sublandlord with respect to the new access areas. The precise location of the Equipment shall be subject to the approval of Overlandlord in accordance with Articles 6 and 7 of the Overlease. (b) Subtenant's Obligations. (i) Increase in Sublandlord's Insurance Cost. If the rate of any insurance carried by Sublandlord is increased as a result of the exercise of Subtenant's HVAC Right, then Subtenant will pay to Sublandlord, as additional rent, not later than thirty (30) days before the date Sublandlord is obligated to pay a premium on the insurance or within ten (10) days after Sublandlord delivers to Subtenant a certified statement from Sublandlord's insurance carrier stating that the rate increase was caused by Subtenant's HVAC Right, whichever date is later, a sum equal to the difference between the original premium and the increased premium resulting solely from the installation of the Equipment. (ii) Rooftop Access. Sublandlord has not made any representations or promises pertaining to physical condition of the Building's rooftop or its suitability for the installation and maintenance of the Equipment. Subtenant, for the purpose of this Sublease and its right to rooftop access hereunder, accepts the rooftop in its "as is" condition. (iii) Insurance. Subtenant will, at all times during the term of this Sublease, and at its cost and expense, ensure that the insurance policies to be maintained by Subtenant under Section 10 hereof are properly endorsed to reflect the Equipment and Subtenant's HVAC Right. Subtenant agrees to pay the premiums therefor and to deliver copies of said policies and/or endorsements thereto to Sublandlord on the first day of the term of this Sublease, and the failure of Subtenant to either obtain said insurance or deliver copies of said policies or certificates thereof to Sublandlord shall be a default under this Sublease. (iv) Indemnity. Subtenant shall and hereby does indemnify and hold harmless the Sublandlord against and from any and all claims arising from the Subtenant's use of the new access areas and Subtenant's installation, inspection, adjustment and maintenance of the Equipment. Subtenant assumes all risk of damage to property or injury to 20 persons, in, upon or about the new access areas as a result of Subtenant's installation, inspection, adjustment and maintenance of the Equipment, except to the extent caused by the negligence or willful misconduct of Sublandlord, its agents, employees or contractors. (v) Default. Subtenant's HVAC Right shall terminate in the event this Sublease terminates. D. Deliveries. Subject to the consent of Overlandlord, Subtenant shall have the right to use Overlandlord's ramp to access the third (3rd) floor of the Sublease Premises throughout the Term to make regularly scheduled deliveries to the Sublease Premises. E. Parking. Sublandlord hereby assigns to Subtenant, to the extent assignable, and Subtenant hereby assumes from Sublandlord, Sublandlord's rights and obligations arising under and pursuant to Article 23 of the Overlease including, without limitation, the indemnity set forth in the penultimate sentence of Article 23 of the Overlease (pursuant to which Sublandlord shall also be indemnified against and held harmless by Subtenant). Sublandlord shall have no liability whatsoever for Overlandlord's failure to provide the Parking Spaces (as defined in the Overlease), except if due to the negligence or willful misconduct of Sublandlord. 19. Valid Authority. Subtenant and Sublandlord each hereby represents and warrants to the other that: (i) Sublandlord and Subtenant, respectively, is duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the full right and authority to enter into this Sublease; and (ii) The execution, delivery and performance of this Sublease by Sublandlord and Subtenant, respectively: (a) has been duly authorized, (b) does not conflict with any provisions of any instrument to which Sublandlord and Subtenant, respectively, is a party or by which Sublandlord or Subtenant, respectively, is bound, and (c) constitutes a valid, legal and binding obligation of Sublandlord and Subtenant, respectively. 20. Failure to Give Possession. If Sublandlord is unable to give possession of the Sublease Premises to Subtenant on the Commencement Date, because of any reason, Sublandlord shall not be subject to any liability for failure to give possession on said date and the validity of this Sublease shall not be impaired under such circumstances, nor shall the same be construed to extend the term of this Sublease, but the Fixed Rent shall be abated (provided that Subtenant is not responsible for the inability to obtain possession) until Sublandlord shall have delivered possession of the Sublease Premises to Subtenant. The provisions of this Paragraph are intended to constitute "an express provision to the contrary" within the meaning of Section 223 a of the New York Real Property Law. 21 21. Consent of Overlandlord under the Overlease. This Sublease shall have no effect (and the Commencement Date shall not be deemed to have occurred) until Overlandlord shall have given its written consent hereto in accordance with the terms of the Overlease. If Overlandlord does not give its consent to this Sublease for any reason whatsoever other than Subtenant's failure to provide information requested by Overlandlord, within ten (10) days after the date hereof, then either party may elect to cancel this Sublease by giving notice to the other party after the expiration of said 10-day period, but prior to the giving of said consent by Overlandlord to this Sublease. Subtenant acknowledges that Subtenant will be required to execute and deliver such consent as a condition precedent to the execution thereof by Overlandlord. Subtenant agrees that Subtenant shall promptly execute and deliver to Sublandlord Overlandlord's consent to this Sublease, provided (a) such consent is in the form more particularly set forth on SCHEDULE 2 attached hereto and made a part hereof (the "SUBLEASE CONSENT"), and (b) contemporaneously therewith or prior thereto, Overlandlord shall execute and deliver to Sublandlord and Subtenant an estoppel certificate in the form more particularly set forth on Schedule 3 attached hereto and made a part hereof (the "LANDLORD ESTOPPEL"). Subtenant's execution of such consent shall be deemed to be Subtenant's acceptance of the resolution of such matters and Subtenant shall not, after executing such consent, have the right to terminate this Sublease based on any allegations that such matters have not been consented to by Overlandlord. If either party shall have given notice of cancellation to the other party (in accordance with the provisions of this Paragraph 21), then: (i) neither Sublandlord nor Subtenant shall be obligated to take any further action to obtain such consent, (ii) Sublandlord shall refund to Subtenant the installment of Fixed Rent paid by Subtenant at the execution of this Sublease, and (iii) this Sublease shall thereupon be deemed null and void and of no further force and effect, and neither of the parties hereto shall have any rights or claims against the other. It is expressly agreed that Overlandlord's delivery of the Sublease Consent and Landlord Estoppel shall be a condition to Subtenant's obligations hereunder. 22. Renewal Options. The terms and provisions of Articles 26 and 27 of the Overlease are hereby incorporated herein by reference, mutatis mutandis, except that (a) the Fixed Rent payable by Subtenant for each of the First Extension Term (as defined in the Overlease) and the Second Extension Term (as defined in the Overlease), respectively, shall be equal to ninety-five (95%) percent of the Fair Market Rent (as defined in the Overlease) and (b) Subtenant's Renewal Option shall be effective only if Sublandlord has effectively exercised Sublandlord's Renewal Option pursuant to Article 26 of the Overlease, it being understood and agreed that Sublandlord shall (y) promptly and timely exercise Sublandlord's Renewal Option pursuant to Article 26 of the Overlease promptly after the exercise by Subtenant of its option under this Paragraph 22, and (z) shall have no obligation to exercise Sublandlord's Renewal Option, nor shall Subtenant have the renewal option contemplated by this Paragraph 22 if either (1) at the time of the giving of the First Extension Notice (as defined in the Overlease) or the Second Extension Notice (as defined in the Overlease), as the case may be, or at the time of the First Extension Term or the Second Extension Term, as the case may be, there exists a default by Subtenant under this Sublease beyond the expiration of the applicable notice and cure periods or (2) the First Extension Notice is delivered by Subtenant to Sublandlord on 22 or after April 16, 2022, or the Second Extension Notice is delivered by Subtenant to Sublandlord on or after April 16, 2027, as the case may be." 23. Right of First Offer. In the event Sublandlord intends to sublease the portion of the premises demised to Sublandlord under the Overlease which does not constitute the Sublease Premises (the "NON-SUBLEASE PREMISES"), and provided Sublandlord intends to sublease the Non-Sublease Premises for non-retail use only, Sublandlord shall notify Subtenant in writing (a "ROFO NOTICE") of such intention. If Sublandlord and Subtenant have not entered into a term sheet for the subleasing by Subtenant of the Non-Sublease Premises within fifteen (15) days of the receipt by Subtenant of such ROFO Notice, Time Being of the Essence, Subtenant's rights with respect to the Non-Sublease Premises shall be null and void, and Sublandlord shall have the right to enter into a transaction in respect of the Non-Sublease Premises with any party and on any terms as Sublandlord shall elect in its sole discretion. Upon delivery by Sublandlord to Subtenant of a ROFO Notice, Sublandlord and Subtenant shall endeavor to negotiate the aforementioned term sheet within such fifteen (15) day period in good faith. 24. Cooperation. Sublandlord, as lessee of the Non-Sublease Premises and in respect thereof, and Subtenant, in respect of the Sublease Premises, shall each use commercially reasonable efforts to minimize interference with the other party's use of its respective demised premises. Without limiting the foregoing, (a) if Subtenant shall, in connection with any alterations, repairs, renovations or other work to be performed to the Sublease Premises, cause to be installed any scaffolding or other structure to be located on the sidewalk in front of or adjacent to the Non-Sublease Premises, such scaffolding or other structure shall be not less than fourteen (14) feet in height (unless otherwise required by law or to preserve the safety of individuals or property), (b) notwithstanding anything to the contrary contained in Article 18(C) of this Sublease, Sublandlord shall be permitted to keep in place the three (3) condenser units (two (2) on the roof of the Building and one (1) on the roof of the elevator control room) heretofore installed by Sublandlord on the Building and install a kitchen exhaust blower on the roof of the elevator control room (collectively, the "SUBLANDLORD EQUIPMENT"), and to access the Sublandlord Equipment during the Term (to maintain, repair and replace same), provided that, (i) Sublandlord shall exercise due care in maintaining, repairing and replacing same and shall be responsible for repairing any damage caused by Sublandlord in connection therewith, and (ii) in the event Subtenant constructs, during the Term, additional floor(s) on the Building, Sublandlord shall, at Sublandlord's expense, have the right to relocate the Sublandlord Equipment to the new roof on the Building, in such place and manner as Sublandlord and Subtenant in good faith mutually agree (provided that Subtenant shall not be liable to Sublandlord for any loss, cost, damage or expense incurred in connection with the removal of such Sublandlord Equipment in connection with any construction on the roof), and (iii) in the event Subtenant reasonably determines that the Sublandlord Equipment must be relocated because it unreasonably interferes with the use and occupancy of the Sublease Premises by Subtenant, Sublandlord shall, at Sublandlord's expense, relocate such Sublandlord Equipment to a location upon which Sublandlord and Subtenant in good faith mutually agree, (c) during the Term, the door in the Non-Sublease Premises which opens into the lobby of the Building shall remain and be used only as a means 23 of egress from the Non-Sublease Premises during an emergency, and (d) the elevator located in the Sublease Premises which descends to the basement of the Building may be used by handicapped employees of the lessee of the Non-Sublease Premises, on a non-exclusive basis, for the purpose of accessing the basement of the Building. [SIGNATURES ON NEXT PAGE] 24 IN WITNESS WHEREOF, Sublandlord and Subtenant have duly executed this Sublease as of the day and year first written above. SUBLANDLORD: 325 SPRING STREET LLC, a Delaware limited liability company By: 325 Savanna LLC By: /s/ ILLEGIBLE ------------------------------ Name: Illegible Title: Member SUBTENANT: IMCLONE SYSTEMS INCORPORATED By: /s/ JOHN B. LANDES ------------------------------ Name: John B. Landes Title: Senior Vice President ILLEGIBLE ---------------------------------- Subtenant's Tax I.D. # 25 SCHEDULE 1 Fixed Rent For purposes hereof, "Lease Year" shall mean (i) with respect to Lease Year 1, the period commencing on the Commencement Date through and including April 30, 2002, and (ii) with respect to each succeeding Lease Year, each period of twelve (12) months commencing on May 1, and each succeeding May 1 thereafter, and ending on the day preceding the anniversary thereof (for example, Lease Year 2 is the period from May 1, 2002 through April 30, 2003, Lease Year 3 is the period from May 1, 2003 through April 30, 2004, etc.). Lease Year 1: $ 350,000.00 ($50,000.00/mo.) Lease Year 2: $ 600,000.00 ($50,000.00/mo.) Lease Year 3: $2,082,000.00 ($173,500.00/mo.) Lease Year 4: $2,085,000.00 ($173,750.00/mo.) Lease Year 5: $2,090,000.00 ($174,166.66/mo.) Lease Year 6: $2,255,000.00 ($187,916.66/mo.) Lease Year 7: $2,275,000.00 ($189,583.33/mo.) Lease Year 8: $2,290,000.00 ($190,833.33/mo.) Lease Year 9: $2,340,000.00 ($195,000.00/mo.) Lease Year 10: $2,350,000.00 ($195,833.33/mo.) Lease Year 11: $2,380,000.00 ($198,333.33/mo.) Lease Year 12: $2,580,000.00 ($215,000.00/mo.) Lease Year 13: $2,631,000.00 ($219,250.00/mo.) Lease Year 14: $2,700,000.00 ($225,000.00/mo.) Lease Year 15: $2,725,000.00 ($227,083.33/mo.) Lease Year 16: $2,727,000.00 ($227,250.00/mo.) Lease Year 17: $2,730,000.00 ($227,500.00/mo.) Lease Year 18: $2,735,000.00 ($227,916.66/mo.) Lease Year 19: $2,780,000.00 ($231,666.66/mo.) Lease Year 20: $2,785,000.00 ($232,083.33/mo.) Lease Year 21: $2,790,000.00 ($232,500.00/mo.) Lease Year 22: $2,795,000.00 ($232,916.66/mo.) SCHEDULE 2 Sublease Consent CONSENT TO SUBLEASE CONSENT TO SUBLEASE AGREEMENT (this "Consent") made as of October 5, 2001, by and among UNITED PARCEL SERVICE, INC, a New York corporation, having an office and place of business at 643 West 43rd Street, New York, New York, 10036, as owner ("Owner"), 325 SPRING STREET LLC, a Delaware limited liability company, having an office and place of business at, c/o Savanna Partners, 80 Fifth Avenue, New York, New York 10011 (as assignee of SenseNet, Inc., "Tenant"), as tenant, under a certain agreement of lease, dated as of May 8, 2000, by and between Owner and Tenant (as amended by that certain First Amendment of Lease, dated as of November 1, 2000 and as further amended by that certain Second Amendment of Lease, dated as of October 4, 2001, the Lease"), pursuant to which Tenant has leased the certain premises (the "Demised Premises") in the building (the "Building") known as 325 Spring Street, New York, New York, as more particularly described in the Lease, and IMCLONE SYSTEMS INCORPORATED, a Delaware corporation, having an office and place of business at 180 Varick Street, New York, New York ("Subtenant"). Pursuant to the terms of a Sublease, dated as of October 5, 2001 (the "Sublease"), a true and complete copy of which Tenant and Subtenant each represent is attached hereto as Exhibit A and made a part hereof, Tenant has subleased to Subtenant a portion of the Demised Premises more particularly described in Sublease (the "Sublease Space"). Owner hereby consents to the subletting by Tenant to Subtenant of the Sublease Space, such consent being subject to and upon the following terms and conditions, to each of which Owner, Tenant and Subtenant expressly agree: 1. Except as expressly provided herein to the contrary, nothing herein or in the Sublease contained shall: (a) operate as a consent to or approval by Owner of any of the terms, covenants or conditions of the Sublease, and Owner shall not be bound thereby, except as provided herein; (b) be construed to modify, waive or affect: (i) any of the provisions, covenants or conditions contained in the Lease; (ii) any of Tenant's obligations under the Lease, or to waive any breach thereof, or (iii) any rights of Owner under the Lease (except insofar as they are modified by the provisions of this Consent and/or in connection with the Sublease); (c) be construed to enlarge or increase Owner's obligations under the Lease, to establish Subtenant as a party entitled to the performance or benefit of any of such obligations, or to confer upon Subtenant any benefits or legal rights under the Lease; or (d) operate as a consent to or approval by Owner of any alteration, modification, improvement or renovation of the Sublease Space or any part thereof to accommodate Subtenant or otherwise (and Subtenant covenants not to make any alteration, modification, improvement or renovation therein except in accordance with, and subject to, the provisions of the Lease and this Consent). 2. This consent is not assignable. 3. In order to induce Owner to execute and deliver this consent, Tenant agrees to pay or cause to be paid to Owner, as additional rent under the Lease, an amount equal to One Million Dollars ($1,000,000) in lieu of a share of any rent and/or other consideration paid by Subtenant to Tenant, and the effectiveness of this Consent is contingent upon receipt of such funds. Owner shall acknowledge receipt of such funds as and when received. 4. The Sublease shall be subject and subordinate at all times to the Lease and all of the provisions, covenants and conditions thereof. If there shall be a conflict between the provisions of the Lease and the Sublease, the provisions of the Lease (as modified by the provisions of this Consent) shall prevail. 5. Neither the Sublease nor this consent thereto shall release or discharge Tenant from any liability under the Lease, and Tenant shall remain liable and responsible for the full performance and observance of all the provisions, covenants and conditions set forth in the Lease on the part of Tenant to be performed and observed. Any breach or violation of any provision of the Lease by Subtenant shall be deemed to be and shall constitute a default by Tenant in fulfilling such provision. 6. Except as expressly provided in Paragraph 8 hereof or the Lease to the contrary (i) this consent by Owner shall not be construed as a consent by Owner to any further subletting either by Tenant or Subtenant and (ii) the Sublease may not be assigned, amended, modified, renewed or extended, nor shall the Demised Premises, or any part thereof, be further sublet, used by others or licensed as desk space, without the prior written consent of Owner in each instance. Any violation of the provisions of the immediately preceding sentence by Tenant or Subtenant shall be a default under the Lease. Subtenant shall procure all insurance coverage contemplated by the Lease and the Sublease and shall include Owner and Owner's managing agent for the Building, if applicable, as additional insureds thereunder. 7. Except as otherwise specifically provided below in this Consent, upon the expiration or any earlier termination of the term of the Lease, or in case of the surrender of the Lease by Tenant to Owner, the Sublease and its term shall expire and come to an end as of the effective date of such expiration or termination, and Subtenant shall vacate the Sublease Space on or before such date. Notwithstanding the foregoing, if the Lease shall expire or terminate during the term of the Sublease for any reason (including any recapture by Owner) other than (A) condemnation or destruction by fire or other casualty (subject to Section 10(d) of the Lease, (B) as a result of any default or breach by Subtenant of the terms of the Sublease, the Lease or this Consent beyond any applicable notice and cure period, or (C) both Tenant and Subtenant voluntarily surrendering the Lease and Sublease to Owner during the term of the Sublease, then without any additional or further agreement of any kind on the part of Owner or Subtenant, effective as of such expiration or termination date and notwithstanding such fact, Subtenant's occupancy rights under the Sublease shall continue with the same force and effect as if Owner, as lessor, and Subtenant, as lessee, had entered into a direct lease as of such effective date for a term equal to the then unexpired term of the Sublease but containing all of the same provisions as those contained in the Lease, including the Base Rent due thereunder (except to the extent any provision thereof is in conflict with the provisions of this Paragraph 7 or Paragraph 8 of this Consent, in which case, the provisions of this Consent shall prevail), in which event Subtenant shall attorn to Owner and Owner and Subtenant shall have the same rights, obligations and remedies thereunder as were had by Tenant thereunder prior to such effective date, except that in no event shall Owner be: (i) liable for any act or omission by Tenant; (ii) subject to any offsets or defenses which Subtenant had or might have against Tenant; (iii) bound by any payment of rent, additional rent or other sum made by Subtenant to Tenant in advance of any periods reserved therefor in the Sublease except for the prepayment by Tenant of the first month's Base Rent ($57,375.00); (iv) required to make any installation or do any alteration or work for Subtenant; or (v) liable for the return of any security deposit made by Tenant or liable for the return of any -2- security deposit made by Subtenant not actually received by Owner. In such event each of Subtenant and Owner agree to execute such agreement as the other party shall reasonably request to evidence the foregoing direct Lease and the terms of Paragraphs 7 and 8 hereof. Upon any expiration or termination of the Sublease pursuant to the provisions of the first sentence of this Paragraph 7, in the event of the failure of Subtenant to vacate the Sublease Space as herein provided, Owner shall be entitled to all of the rights and remedies available to a landlord against a tenant holding over after the expiration of a term and to all losses and damages, direct or consequential, and all reasonable attorneys' fees, incurred or suffered by Owner by reason thereof. 8. Notwithstanding anything to the contrary contained in this Consent or the Lease, each of Owner, Tenant and Subtenant acknowledges and agrees that: (i) Subtenant shall be permitted to use the Sublease Space for the "Permitted Use" as defined in Section 3 of the Sublease, (ii) the terms and provisions, and rights and obligations, set forth in Section 22 of the Lease, including the right to obtain a Non-Disturbance Agreement (as defined in the Lease), shall inure to the benefit of, and be binding upon, Subtenant, as if Subtenant were the "Tenant" first named in the Lease, (iii) the terms and provisions set forth in Section 23 of the Lease shall inure to the benefit of, and be binding upon, Subtenant, as if Subtenant were the "Tenant" first named in the Lease, and for purposes hereof any reference therein to Dane Atkinson and/or Bernar Bekirov shall be deemed deleted, (iv) Owner hereby consents to (A) the use of the Atrium Area as a permanently enclosed area and/or as additional office space and (B) Subtenant's HVAC Rights (as defined in Section 18C of the Sublease); provided that, any Alterations to or effecting the Atrium Area, or the roof or other structural or exterior components of the Building, shall remain subject to all of the remaining provisions of Section 6 of the Lease or any other provisions of the Lease applicable to Alterations or to Tenant's use and occupancy of the Demised Premises, including all required approvals and consents and, provided, however, that nothing herein or in Section 6(d) the Lease is intended or shall be deemed to require Tenant or Subtenant to remove (x) any Alterations performed or installed in connection with Subtenant's HVAC Rights, except to the extent that removal thereof is an express condition to Owner's consent or approval thereof at the time same is granted, or (y) any structural or exterior components of the Alterations, including any new roof or enclosure, performed or installed in connection with the construction of the Atrium Area; and provided further that, for purposes of Section 6(d) of the Lease, any "clean rooms", walk-in refrigeration or cooling units or other built-in laboratory equipment that is not readily convertible to general office use or would otherwise materially increase demolition or reletting costs incurred by Owner shall be deemed "specialt" installations under the Lease; and except as modified herein, all of the terms. of Article 6 of the Lease shall inure to the benefit of, and be binding upon, Subtenant, as if Subtenant were the "Tenant" first named in the Lease. (v) Tenant shall have the right to grant a leasehold mortgage secured by Tenant's interest in the Demised Premises to Subtenant (or any Affiliate of Subtenant created or existing for the purpose of making such mortgage loan), and (vi) the terms and provisions set forth in Section 18 of the Lease shall inure to the benefit of, and be binding upon, Subtenant, as if Subtenant were the "Tenant" first named in the Lease; provided, however, that Section 18(b) of the Lease shall not be applicable thereto. -3- 9. Tenant shall be and continue to be liable for all bills rendered by Owner for charges incurred by or imposed upon Subtenant for services rendered and materials supplied to the Demised Premises, and both Tenant and Subtenant shall be and continue to be liable for all bills rendered by Owner for charges incurred by or imposed upon Subtenant for services rendered and materials supplied to the Sublease Space. Owner may submit bills to Subtenant directly for all such charges related to the Sublease Space, but neither such billing nor Owner's acceptance of payment directly from Subtenant shall create or be deemed to create any privity of contract between Owner and Subtenant, it being understood and agreed that Owner's transmittal of bills to Subtenant and acceptance of payment from Subtenant will be done solely to accommodate Tenant. 10. Tenant hereby agrees to indemnify and hold Owner harmless with respect to all liability, costs and expenses incurred by Owner in connection with any action or proceeding brought by Subtenant (or parties claiming through Subtenant) against Owner to enforce the obligations of Owner under the Lease. Unless and to the extent that Subtenant shall become a direct tenant of Owner pursuant to Paragraph 7 above, notwithstanding anything in the Sublease to the contrary, (i) neither Subtenant nor any parties claiming through Subtenant shall have or be deemed to have any privity with Owner, it being agreed by Subtenant that any rights it may have in respect of the Sublease Space derive solely from Tenant and (ii) in no event shall Owner be liable to Subtenant (or parties claiming through Subtenant) for Owner's failure, if any, fully to perform and observe all of the provisions, covenants and conditions set forth in the Lease on the part of Owner to be performed and observed. 11. Any notice or communication which Tenant or Subtenant may desire or be required to give to any other party under or with respect to this consent shall be given in the fashion provided in the Lease. 12. Each of the following shall constitute a default by Tenant under the Lease: (a) any extension of the term of the Sublease without the prior written consent of Owner; (b) any modification or amendment of the Sublease without prior written consent of Owner; or (c) any failure by Tenant or Subtenant to comply with the terms and provisions of this Consent. If any one or more of the foregoing defaults occurs Owner shall be entitled to enforce any or all of its remedies under the Lease, at law or in equity. 13. Tenant and Subtenant hereby jointly and severally represent and warrant to and for the benefit of Owner that, except as is expressly set forth and described in the Sublease, Subtenant has not paid, is not paying, and has not obligated itself to pay (conditionally or otherwise) any rent, additional rent or other consideration of any type or nature whatsoever for or in respect of the Demised Premises, the Sublease or any other thing or matter in connection with or related to any of the foregoing, except for Subtenant's contribution toward the payment of the sum described in Paragraph 3 hereof and the mortgage loan consented to in Paragraph 8 hereof. 14. Subtenant shall not use the words UPS or UNTED PARCEL SERVICE in any advertising or for any other promotional or profit making purpose whatsoever and any sublease of all or any part of the Demised Premises or any assignment of the Sublease shall contain a provision identical to this paragraph. 15. Subtenant hereby confirms receipt of notification from Owner that, the Building may be located on, or hereafter may be deemed, a landmark site or otherwise subject to Title 25, Chapter 3 of the Administrative Code of the City of New York (the "Landmarks Law") and, in such event, in accordance with Sections 305, 306, 309 or 310 of the Landmarks Law any occupant of the Demised Premises must obtain a permit from the Landmarks Preservation Commission of the City of New York before commencing any exterior or interior work in or to -4- the Demised Premises, except for ordinary repair and maintenance as that term is defined in Subdivision (r) of Section 302 of the Landmarks Law. 16. This Consent, which shall be construed in accordance with the internal laws of the State of New York without regard to principles of conflicts of law, contains the entire agreement of the parties hereto with respect to the subject matter hereof and may not be changed or terminated orally or by course of conduct. All prior understandings and agreements with respect to the subject matter hereof are merged into this Consent, the Lease and the Sublease which alone reflect the agreement of the parties hereto. This consent shall be void and of no force and effect until executed by Owner and unconditionally delivered to Tenant. 17. This consent may be executed in any number of counterparts, each of which (together or separately) shall be an original, but all of which shall constitute one instrument. -5- IN WITNESS WHEREOF, the parties hereto have duly executed this Consent To Sublease Agreement as of the day and year first above written. Owner: UNITED PARCEL SERVICE, INC., By:_____________________________ Name: _________________ Title:_________________ Tenant: 325 SPRING STREET LLC, By: 325 Savanna LLC By:_____________________________ Name: Title: Subtenant: IMCLONE SYSTEMS INCORPORATED By:_____________________________ Name: Title: -6- SCHEDULE 3 Landlord Estoppel LANDLORD'S ESTOPPEL October , 2001 325 Spring Street c/o Savanna Partners 80 Fifth Avenue New York, New York 10011 ImClone Systems Incorporated 180 Varick Street New York, New York 10014 Re: Lease Agreement, dated as of May 8, 2000, by and between United Parcel Service, Inc., as Landlord, and Sensenet, Inc. ("Sensenet"), as Tenant, as (i) amended by that certain First Amendment to Lease Agreement, dated as of November 1, 2000 and that certain Second Amendment to Lease, dated as of October 4, 2001, and (ii) assigned pursuant to that certain Assignment and Assumption of Lease, dated as of November 1, 2000, by and between Sensenet,, as Assignor, and 325 Spring Street LLC ("325"), as Assignee (collectively, the "Lease") Gentlemen: In connection with that certain Sublease ("Sublease"), by and between 325, as Sublandlord, and ImClone Systems Incorporated ("ImClone"), as Subtenant, dated as of the date hereof, a copy of which is annexed hereto as Exhibit A, Landlord hereby certifies to 325 and ImClone as follows: 1. To the best knowledge of Landlord, 325 is not in default in the performance of any covenant, agreement or condition contained in the Lease, Landlord has not delivered to 325 any notice of default under the Lease that remains uncured and to the best knowledge of Landlord, no event has occurred which, with the passage of time or the giving of notice, or both, would constitute a default by 325 under the Lease. 2. Landlord is not in default in the performance of any of its obligations under the Lease, nor, to the best knowledge of Landlord, has any event occurred which, with the giving of notice or passage of time, or both, would constitute a default by Landlord under the Lease. Landlord has not yet received any notice of default under the Lease. 3. The Lease (together with any amendments thereto), a copy of which is attached hereto as Exhibit "B" is in full force and effect and constitutes the entire agreement between Landlord and Tenant with respect to the Premises and has not been modified except as described in any amendments attached hereto. 4. No work is required under the Lease to have been done to date by Landlord. Landlord has no right to "buyback" the Lease or "buy out" 325's interest in the Lease. 5. Landlord hereby acknowledges that it has heretofore received $57,375.00 on account of Base Rent (as defined in the Lease) payable under the Lease for the month of May, 2003. The foregoing statements are not affirmative representations, warranties or covenants nor shall they shall they subject Landlord to any liability whatsoever, the sole effect of same being to estop Landlord from making assertions to the contrary of such statements against 325 or ImClone. Landlord acknowledges that this certificate and consent will be relied upon only by 325 and ImClone in connection with consummation of the Sublease and that it is solely for the benefit of 325 and ImClone in connection with the Sublease and may not be relied upon by any other person or for any other purpose whatsoever. The person executing this certificate is duly authorized and empowered to do so. Very truly yours, UNITED PARCEL SERVICE By:_____________________________ Name: Title: -2- EXHIBIT A Sublease -3- EXHIBIT B Lease -4- EXHIBIT A Sublease Premises EXHIBIT B The Overlease EX-10.86.1 5 y58958ex10-86_1.txt PROMISSORY NOTE EXHIBIT 10.86.1 PROMISSORY NOTE $10,000,000.00 October 5, 2001 New York, New York FOR VALUE RECEIVED, 325 SPRING STREET LLC, a Delaware limited liability company, having offices in care of Savanna Partners, 80 Fifth Avenue, New York, New York 10010 ("Borrower"), hereby promises to pay to IMCLONE SYSTEMS INCORPORATED, a Delaware corporation, having an address at 180 Varick Street, New York, New York 10014, and its successors and assigns ("Lender"), the principal sum of TEN MILLION DOLLARS ($10,000,000.00) (the "Principal Sum"), in lawful money of the United States of America, together with interest on said Principal Sum, or so much thereof as shall be outstanding hereunder from time to lime, to be computed from the date hereof at the rates and in the amounts hereinafter set forth. The Principal Sum shall be reduced by any payments in reduction of principal made by the Borrower from time to time. Borrower hereby covenants with Lender as follows: 1. Interest Rate. Borrower shall pay to Lender, monthly in arrears, base interest on the Principal Sum calculated on the basis of a year of 365 days and the actual number of days elapsed (a) from the date hereof through and until the Maturity Date (as hereinafter defined) at the Interest Rate (as hereinafter defined) and (b) from and after the Maturity Date and until the Principal Sum has been paid in full, at the Default Rate (as hereinafter defined). As used in this Note, the following terms shall have the meanings provided for below: "Business Day" shall mean any day other than a day on which banking institutions in New York are authorized or obligated by law or executive order to close. "Default Rate" shall mean the lesser of (i) five (5%) percent per annum over the Interest Rate and (ii) the maximum lawful non-usurious contract rate of interest allowed by applicable law. "Effective Date" shall mean the Commencement Date as defined in the Sublease (as hereinafter defined). "Interest Rate" shall mean a fixed rate of interest equal to (a) 5.5% per annum, for the period commencing on the Effective Date through and including the day immediately preceding the fifth (5th) anniversary of the Effective Date, (b) 6.5% per annum, for the period commencing on the fifth (5th) anniversary of the Effective Date through and including the day immediately preceding the tenth (10th) anniversary of the Effective Date, (c) 7.5% per annum, for the period commencing on the tenth (10th) anniversary of the Effective Date through and including the day immediately preceding the fifteenth (15th) anniversary of the Effective Date and (d) 8.5% per annum, for the period commencing on the fifteenth (15th) anniversary of the Effective Date through and including the Maturity Date. "Payment Date" shall have the meaning ascribed thereto in Section 3.1 below. 2. Maturity Date. The entire unpaid balance of the Principal Sum, together with all interest accrued and unpaid thereon shall be due and payable in full on the day immediately preceding the twentieth (20th) anniversary of the Effective Date (which date, or such earlier date to which the maturity of this Note is accelerated, shall be referred to as the "Maturity Date"); provided, however, that mandatory prepayment of all or a portion of this Note may be required under certain circumstances as provided herein; and provided, further, that upon the occurrence of an Event of Default (as hereinafter defined), at the option of Lender, the entire unpaid balance of the Principal Sum, together with all interest accrued and unpaid thereon shall become immediately due and payable. 3. Interest and Principal Payments. The Principal Sum and interest thereon shall be paid by Borrower to Lender in accordance with the further provisions of this Section 3. 3.1 On the first day of the month immediately following the Effective Date of this Note, and on the first day of each of the succeeding months thereafter to and including the Maturity Date (each, a "Payment Date"), Borrower shall pay to Lender the monthly payments on account of principal and interest more particularly described on Exhibit A annexed hereto and made a part hereof. 3.2 On the Maturity Date, Borrower shall pay to Lender the entire unpaid balance of the Principal Sum, together with all accrued and unpaid interest thereon and all other amounts due hereunder. 3.3 All sums payable hereunder shall be payable in lawful money of the United States of America at Lender's address listed above, or, upon receipt of notification by Borrower, at such other place designated in writing by Lender. If the date on which any payment is required to be made hereunder is not a Business Day, then such date for payment shall be extended to the next succeeding Business Day. 2 4. Event of Default: Acceleration by Lender. 4.1 The occurrence of any one of the following events shall constitute an event of default (each an "Event of Default") by Borrower under this Note: (i) if Borrower defaults, and such default remains uncured for five (5) days after notice from Lender, with respect to (i) any repayment of the principal amount of his/its obligations hereunder when due and payable, whether at stated maturity, upon acceleration or otherwise, or (ii) the payment of any interest hereunder when due and payable or declared due and payable, unless such default is caused solely by the failure of the Lock Box Bank (as such term is defined in the Sublease as defined in Section 13.4 hereof) from making payment to Lender and not by any fault, acts or omissions of Borrower; (ii) if a petition under any section or chapter of the United States Bankruptcy Code or any similar law or regulation is filed by the Borrower or if Borrower shall make an assignment for the benefit of its creditors; (iii) if Borrower is enjoined, restrained or in any way prevented by court order from conducting all or any material part of his business affairs or if a petition under any section or chapter of the United States Bankruptcy Code or any similar law or regulation is filed against the Borrower and such injunction, restraint or petition is not dismissed or stayed within sixty (60) days after entry or filing thereof; (iv) if application is made by Borrower for the appointment of a receiver, trustee or custodian for any of Borrower's assets; or (v) if an application is made by any person other than Borrower for the appointment of a receiver, trustee or custodian for any of such Obligor's assets and such application is not dismissed within sixty (60) days after the application therefore; (vi) the dissolution of Borrower; (vii) if Borrower defaults beyond the expiration of applicable notice and cure periods with respect to any of its obligations under the Leasehold Mortgage (as herein defined). 4.2 Upon the occurrence and during the continuation of any Event of Default, Lender, by written notice to Borrower, may declare the entire unpaid principal amount of this Note, the interest accrued thereon, and all obligations of Borrower hereunder to be immediately due and payable; and the entire unpaid principal amount owed hereunder, all interest accrued thereon, and all other obligations of the undersigned to the holder hereof shall automatically become immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. 3 5. Prepayment by Borrower. The outstanding Principal Sum may be prepaid, in whole or in part, at any time, without the prior consent of Lender, without premium or penalty of any kind, upon not less than five (5) days prior written notice to Lender, with all accrued interest to the date of prepayment. Any prepayment shall be applied first to any interest accrued and outstanding hereunder and then to the outstanding Principal Sum. Notwithstanding the foregoing to the contrary, there shall be no adjustment in the due date or in the amount of the monthly payments on account of principal and interest described on Exhibit A due hereunder as a result of such prepayment. 6. Default Rate Interest/Late Charge 6.1 Upon the occurrence of any Event of Default hereunder, and after maturity (whether by acceleration or otherwise), whichever shall occur earlier, interest on the Principal Sum, all overdue interest and all other sums payable hereunder shall be at the Default Rate, which Default Rate shall apply from the date of the occurrence of such Event of Default or the maturity of this Note, as the case may be, until the indefeasible repayment of all amounts outstanding hereunder, including without limitation overdue interest, fees, costs and all other sums payable hereunder, it being the intention of Lender and Borrower that the Default Rate will apply from the time of an Event of Default or maturity, as the case may be, occurs until Lender is so indefeasibly repaid in full, and shall include without limitation the period commencing on the date a judgment with respect to this Note is entered through and including the time of satisfaction of such judgment. Borrower hereby knowingly, intelligently and after consultation with Borrower's counsel waives the benefits of all applicable statutes providing for an interest rate hereon other than as set forth herein. Interest at the Default Rate shall be paid immediately upon demand, which demand may be made as frequently as Lender shall elect. 6.2 If any payment due hereunder is not paid within ten (10) days after the date when due, Borrower shall pay to Lender a late charge of four percent (4%) of the amount so overdue in order to defray part of the expense incident to handling such delinquent payment. Such late charge shall be immediately due and payable without notice or demand by Lender. Borrower recognizes that its default in making, when due, any payment under this Note will require Lender to incur additional expense in servicing and administering this Note and a loss to Lender of the use of the money due and in frustration to Lender in meeting its other financial and loan commitments. Borrower additionally acknowledges that the damages caused thereby would be extremely difficult and impractical to ascertain. Borrower agrees (i) that an amount equal to the late charge plus the accrual of interest at the Default Rate is a reasonable estimate of the damage to Lender in the event of a late payment, and (ii) that the accrual of interest at the Default Rate following any other Event of Default is a reasonable estimate of the damage to Lender in the event of such other Event of Default, regardless of whether there has been an acceleration of this Note. 7. Borrower's Waivers. Borrower, for itself and its successors and assigns, hereby waives presentment for payment, demand, notice of dishonor, protest, notice of 4 protest and any other notice Borrower may lawfully waive and any and all lack of diligence or delays in the collection or enforcement hereof, and waives and renounces all rights to the benefits of any statute of limitations and any moratorium, appraisal, exemption and homestead rights now provided or which may hereafter be provided by any federal or state statute, including, but not limited to, exemptions provided or allowed under the Bankruptcy Reform Act of 1978, as amended (the "Bankruptcy Code"), both as to itself and as to all of its property, whether real or personal, against the enforcement and collection of the obligations evidenced by this Note and any and all extensions, renewals and modifications hereof. Borrower consents to any extension of time of payment hereof, release of all or any part of the security for the payment of this obligation, and release of any party liable for payment of this obligation, by Lender, from time to time, and any such extension or release may be made without notice to any party and without discharging any party's liability hereunder. 8. No Waiver by Lender. The liability, of Borrower hereunder shall be unconditional and shall not be in any manner effected by any indulgence whatsoever granted or consented to by the holder hereof, including but not limited to any extension of time, renewal, waiver or other modification. No failure on the part of Lender to exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Upon the occurrence of any Event of Default, the Lender may proceed to protect and enforce its rights hereunder by suit in equity, action at law or by other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Note, or may proceed to enforce the payment of this Note, or to enforce any other legal or equitable right of the Lender hereunder. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 9. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH WAIVES, AND COVENANTS THAT THEY WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT (OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY N ANY FORUM N RESPECT OF ANY ACTION BROUGHT ON, UNDER OR BY VIRTUE OF THIS NOTE OR IN ANY WAY CONNECTED WITH THIS NOTE. 10. Governing Law; Severability. The provisions of this Note shall be governed by and interpreted in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such State. The invalidity, illegality or unenforceability of any provision of this Note shall not affect or impair the validity, legality or enforceability of the remainder of this Note, and to this end, the provisions of this Note are declared to be severable. 11. Notices. Any notice, request, demand, consent, approval or other communication which Borrower or Lender is obligated or may elect to give hereunder, shall be in writing, and shall be deemed to have been duly given (a) three (3) days after being deposited in the United States mail, postage prepaid, if sent by registered or certified mail 5 (return receipt requested), (b) when delivered, if delivered personally, and (c) on the following Business Day, if sent by prepaid overnight mail or prepaid overnight courier, in each case, to the parties at the following addresses or facsimile numbers, as applicable: (a) If to Lender, at: ImClone Systems Incorporated 180 Varick Street New York, New York 10014 Attention: John B. Landes, General Counsel with a copy to: Morrison Cohen Singer & Weinstein, LLP 750 Lexington Avenue New York, New York 10022 Attention: Laurie F. Golub, Esq. (b) If to Borrower, at: 325 Spring Street LLC c/o Savanna Partners 80 Fifth Avenue New York, New York 10010 Attention: Christopher Schlank with a copy to: Solomon and Weinberg LLP 685 Third Avenue New York, New York 10017 Attention: Jay Stark, Esq. or at such other address or facsimile number as may be substituted by notice given as herein provided. 12. Successors and Assigns. The rights, duties and obligations of Borrower under this Note may not be assigned without the prior written consent of the Lender. Notwithstanding the foregoing to the contrary, so long as all or any portion of the Note remains outstanding, Borrower shall not assign its rights, obligations and liabilities under this Note without the prior written consent of Lender, which consent shall not be unreasonably withheld, delayed or conditioned, and which consent shall be (a) granted, provided that Borrower is assigning all of its interest in the Sublease (as defined herein in Article 13.4) to the proposed assignee, and such proposed assignee at the time of such assignment, (i) has a 6 net worth at least equal to the net worth of Borrower on the date hereof, (ii) has a reasonably good reputation and character, and (iii) is a "single-purpose" (but not necessarily "bankruptcy remote") entity, and (b) deemed granted if not given or denied within ten (10) days after Borrower's request therefore. The rights, duties and obligations of the Lender under this Note may be assigned without the prior written consent of the Borrower, provided Lender, in accordance with the terms of the Sublease, assigns all of its interest in the Sublease (as defined in Section 13.4 herein) to the proposed assignee. The provisions of this Note shall bind Borrower and its successors and assigns and inure to the benefit of Lender and its successors and assigns. 13. Miscellaneous. 13.1 This Note may not be changed, amended, modified or discharged orally, but only by a written instrument signed by Borrower and Lender, and may be waived only by an instrument in writing signed by the party waiving compliance. 13.2 Borrower hereby agrees to pay to Lender, on demand, all reasonable costs and expenses of Lender incurred by or on behalf of Lender (a) in connection with the enforcement and collection hereof, whether or not any suit is brought on this Note, and (b) in the maintenance of the liens granted Lender, in both cases, including without limitation reasonable attorneys' fees, expenses and costs incurred by or on behalf of Lender in connection with (w) any litigation or proceeding affecting this Note (including probate, appellate, and bankruptcy proceedings), (x) any post-judgment proceedings to collect or enforce any judgment or other relating to this Note, or (z) in preparation for the commencement or defense of any action or proceeding. All such costs and expenses shall be immediately due and payable to Lender, upon demand, with interest thereon at the Default Rate from the date incurred by and on behalf of Lender. This provision is separate and several and shall survive, the merger of this provision into any judgment. 13.3 Anything in this Note to the contrary notwithstanding, in no event shall Borrower be obligated to make any payment of interest or late charges, and in no event shall Lender be entitled to receive payment of any such interest or charges, if and to the extent that such payment would violate any usury laws of the State of New York applicable to this Note. If payment of any such interest or charges in made by Borrower and received by Lender and such payment is in violation of such usury laws, the portion of such payment which exceeds the maximum allowable by or under such usury laws shall not be or be deemed to be interest or late charges, but shall be applied in reduction of the Principal Sum. 13.4 Reference is made to that certain Sublease, dated as of October __, 2001, by and between Borrower, as Sublandlord, and Lender, as Subtenant (the "Sublease"). Lender acknowledges and agrees that payments by Lender to Borrower of Fixed Rent and additional rent (as such terms are defined in the Sublease) under the Sublease are to be used, in part, by Borrower to make payments to Lender of principal and interest payable to Lender 7 under this Note. Accordingly, anything in this Note to the contrary notwithstanding, provided Borrower is not in default (beyond the expiration of applicable notice and cure periods) of its obligations, as Sublandlord, under the Sublease (a) in the event Lender, as Subtenant, defaults in its obligation to pay Fixed Rent and/or additional rent under the Sublease when due, Borrower shall not be liable to pay the monthly payment payable to Lender under this Note for the applicable month until such time as such default is cured, and (b) in the event the Sublease is terminated for any reason whatsoever except for a default thereunder or hereunder by Borrower, as Sublandlord or Borrower, respectively, no further payments shall be payable by Borrower to Lender under this Note and Borrower shall be deemed to have fulfilled its obligations to pay to Lender the entire unpaid balance of the Principal Sum, together with all interest accrued and unpaid thereon provided Borrower is not otherwise in default hereunder. 13.5 Provided that no Event of Default has occurred, Lender shall not modify Schedule I to the lockbox arrangement without the written consent of Borrower. Lender and Borrower agree that~ upon receipt of revised bills for amounts due under Paragraphs 3(b) and 3(h) of the Overlease (as defined in the Sublease) Lender and Borrower shall promptly revise Schedule I to the lockbox arrangement in accordance therewith. 14. Security. This Note is secured by that certain Leasehold Mortgage (the "Leasehold Mortgage") of even date herewith on the premises demised pursuant to the Sublease which are located in the Borough of Manhattan, City of New York, State of New York, and known as 325 Spring Street, New York New York, as more particularly described in the Sublease (the "Subleased Premises"). 15. CONSENT TO JURISDICTION; PROCESS. BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN NEW YORK COUNTY OVER ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE. LENDER MAY IN ITS SOLE DISCRETION, ELECT THE STATE OF NEW YORK, NEW YORK COUNTY, OR THE UNITED STATES OF AMERICA, FEDERAL DISTRICT COURT HAV1NG JURISDICTION OVER NEW YORK COUNTY, AS THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING. BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO SUCH VENUE AS BEING AN INCONVENIENT FORUM. IN ANY SUIT, ACTION OR PROCEEDING AGAINST BORROWER, SERVICE OF PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ITS ADDRESS SET FORTH IN SECTION 11 HEREOF. NOTHING IN THIS SECTION SHALL AFFECT LENDER'S RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW, OR LIMIT LENDER'S RIGHT TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. 8 16. Non-Recourse. Lender's recovery against Borrower hereunder shall be limited solely to the assets and property of Borrower from time except as provided herein. Notwithstanding anything to the contrary contained in this Note or the Leasehold Mortgage, except as provided otherwise in this Section 16, neither Borrower nor any direct or indirect member, shareholder, partner, principal, affiliate, employee, officer, director, agent or representative of Borrower (each, a "Related Party") shall have any personal liability for (i) the payment of any sum of money which is or may be payable hereunder or under the Note, including, but not limited to, the repayment of the Principal Sum, or (ii) the performance or discharge of any covenants, obligations or undertakings of Borrower hereunder, and no monetary or deficiency judgment shall be sought or enforced against Borrower or any Related Party with respect thereto; provided, however, that a judgment may be sought against Borrower or any Related Party to enforce the rights of Lender, and Lender shall have full recourse to and the right to proceed against the Borrower, the Sublease, including the rents and other sums payable under the Sublease, and any other collateral given in connection herewith. Notwithstanding the foregoing, nothing contained herein shall impair the validity of the obligations hereunder or in any way affect or impair the lien of the Leasehold Mortgage, or the right of Lender to enforce any and all rights and remedies under and by virtue of the Note (limited, however, as expressly provided otherwise above), including, without limitation, naming Borrower as a party defendant in any foreclosure action. Additionally, the provisions of this Section 16 shall not relieve Borrower from any personal liability for, and Borrower shall be fully and personally liable for, (i) the full recourse obligation to pay the amount due under this Note upon the occurrence of any event set forth in the following clauses, and (ii) any liabilities, costs, losses, damages, expenses (including, without limitation, reasonable attorneys' fees and disbursements and court costs, if any), or claims suffered or incurred by Lender by reason of or in connection with the occurrence of any event set forth in any of the following clauses: (A) any fraud by Borrower or any Related Party; (B) the intentional misapplication of any insurance proceeds, condemnation awards or proceeds of eminent domain proceedings, or other amounts or funds due to Lender under this Note; (C) the intentional misapplication by Borrower or any Related Party (or at any such person's direction) of monies held in or paid out from any account (including any reserve, lock-box or escrow) maintained under this Note or in connection herewith; (D)(1) Borrower filing a voluntary petition under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law, or (2) any Related Party commencing, filing, soliciting, participating in or joining in the filing of, an involuntary petition against Borrower under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law, or (3) Borrower filing an answer consenting to or acquiescing in (actual as distinguished from implied or constructive consent) any involuntary petition filed against it or against Borrower by any other person under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law, or (4) Borrower making an assignment for the benefit of creditors, or admitting its insolvency or inability to pay its debts as they become due. Nothing contained herein is intended to limit the obligations and personal liability of the guarantors under any guaranty, executed by Borrower or any other Person for the benefit of Lender. 9 17. Limitation on Liability. In no event shall Lender be liable to Borrower for consequential damages, whatever the nature of a breach by Lender of its obligations under this Note, the Leasehold Mortgage or any other documents between Lender and Borrower (except as may be specifically provided for in the Sublease), and Borrower, for itself and all Related Parties, hereby waives all claims for consequential damages. 18. Authority. Borrower represents that the execution, delivery and performance of this Note and the Leasehold Mortgage (a) has been duly authorized, (b) does not conflict with any provisions of any instrument to which Borrower is a party or by which Borrower is bound, and (c) constitutes a valid, legal and binding obligation of Borrower, and (d) by the person executing the Note and Leasehold Mortgage on behalf of Borrower has been duly authorized to execute in the name of the Borrower. IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the day and year first set forth above. 325 SPRING STREET LLC, a Delaware limited liability company By: 325 Savanna LLC, its managing member By: /s/ CHRISTOPHER SCHLANK ------------------------------------- Name: Christopher Schlank Title: Member 10 ACKNOWLEDGMENT STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK) On the 5 day of October, in the year 2001, before me, the undersigned, a Notary Public in and for said State, personally appeared Nicholas Bienstock, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her capacity, and that by his/her signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument. /s/ MINDY SIMON ------------------------------- Notary Public MINDY R. SIMON Notary Public, State of New York No. 48-4989162 Qualified in Richmond County Commission Expires 6/22/03 EXHIBIT A IMCLONE SYSTEMS, INC. NOTE SCHEDULE PRINCIPAL AND INTEREST PAYMENTS
TOTAL DATE PAYMENT - -------------------------------------- 10/10/2001 $33,150.68 11/1/2001 $45,205.48 12/1/2001 $46,712.33 1/1/2002 $46,712.33 2/1/2002 $42,191.78 3/1/2002 $46,712.33 4/1/2002 $45,205.48 5/1/2002 $46,712.33 6/1/2002 $45,205.48 7/1/2002 $46,712.33 8/1/2002 $46,712.33 9/1/2002 $45,205.48 10/1/2002 $46,712.33 11/1/2002 $45,205.48 12/1/2002 $46,712.33 1/1/2003 $46,712.33 2/1/2003 $42,191.78 3/1/2003 $46,712.33 4/1/2003 $45,205.48 5/1/2003 $84,212.33 6/1/2003 $82,535.96 7/1/2003 $83,861.99 8/1/2003 $83,686.82 9/1/2003 $82,027.40 10/1/2003 $83,336.47 11/1/2003 $81,688.36 12/1/2003 $82,986.13 1/1/2004 $82,810.96 2/1/2004 $79,723.80 3/1/2004 $82,460.62 4/1/2004 $80,840.75 5/1/2004 $82,110.27 6/1/2004 $80,501.71 7/1/2004 $81,759.93 8/1/2004 $81,584.76 9/1/2004 $79,993.15 10/1/2004 $81,234.42 11/1/2004 $79,654.11 12/1/2004 $80,884.08 1/1/2005 $80,708.90
IMCLONE SYSTEMS, INC. NOTE SCHEDULE PRINCIPAL AND INTEREST PAYMENTS
TOTAL DATE PAYMENT - -------------------------------------- 2/1/2005 $76,369.18 3/1/2005 $80,358.56 4/1/2005 $78,806.51 5/1/2005 $80,008.22 6/1/2005 $78,467.47 7/1/2005 $79,657.88 8/1/2005 $79,482.71 9/1/2005 $77,958.90 10/1/2005 $79,132.36 11/1/2005 $77,619.86 12/1/2005 $78,782.02 1/1/2006 $78,606.85 2/1/2006 $74,470.55 3/1/2006 $78,256.51 4/1/2006 $76,772.26 5/1/2006 $85,252.74 6/1/2006 $83,511.99 7/1/2006 $84,838.70 8/1/2006 $84,631.68 9/1/2006 $82,910.96 10/1/2006 $84,217.64 11/1/2006 $82,510.27 12/1/2006 $83,803.60 1/1/2007 $83,596.58 2/1/2007 $78,948.63 3/1/2007 $83,182.53 4/1/2007 $81,508.56 5/1/2007 $84,851.83 6/1/2007 $83,180.08 7/1/2007 $84,414.78 8/1/2007 $84,196.26 9/1/2007 $82,545.66 10/1/2007 $83,759.22 11/1/2007 $82,122.72 12/1/2007 $83,322.17 1/1/2008 $83,103.65 2/1/2008 $80,091.47 3/1/2008 $82,666.61 4/1/2008 $81,065.35 5/1/2008 $84,312.90
IMCLONE SYSTEMS, INC. NOTE SCHEDULE PRINCIPAL AND INTEREST PAYMENTS
TOTAL DATE PAYMENT - -------------------------------------- 6/1/2008 $82,714.61 7/1/2008 $83,852.85 8/1/2008 $83,622.83 9/1/2008 $82,046.80 10/1/2008 $83,162.79 11/1/2008 $81,601.60 12/1/2008 $82,702.74 1/1/2009 $82,472.72 2/1/2009 $78,315.98 3/1/2009 $82,012.67 4/1/2009 $80,488.58 5/1/2009 $81,552.63 6/1/2009 $80,043.38 7/1/2009 $81,092.58 8/1/2009 $80,862.56 9/1/2009 $79,375.57 10/1/2009 $80,402.51 11/1/2009 $78,930.37 12/1/2009 $79,942.47 1/1/2010 $79,712.44 2/1/2010 $75,822.83 3/1/2010 $79,252.40 4/1/2010 $77,817.35 5/1/2010 $80,875.68 6/1/2010 $79,444.35 7/1/2010 $80,392.64 8/1/2010 $80,151.11 9/1/2010 $78,743.15 10/1/2010 $79,668.07 11/1/2010 $78,275.68 12/1/2010 $79,185.02 1/1/2011 $78,943.49 2/1/2011 $75,319.52 3/1/2011 $78,460.45 4/1/2011 $77,107.02 5/1/2011 $83,243.15 6/1/2011 $81,699.49 7/1/2011 $82,685.79 8/1/2011 $82,407.11 9/1/2011 $80,890.41
ImClone Systems, Inc. Note Schedule Principal and Interest Payments Total Date Payment -------------------------------- 10/1/2011 $81,849.74 11/1/2011 $80,351.03 12/1/2011 $81,292.38 1/1/2012 $81,013.70 2/1/2012 $78,348.89 3/1/2012 $80,456.34 4/1/2012 $79,002.57 5/1/2012 $79,898.97 6/1/2012 $78,463.18 7/1/2012 $79,341.61 8/1/2012 $79,062.93 9/1/2012 $77,654.11 10/1/2012 $78,505.57 11/1/2012 $77,114.73 12/1/2012 $77,948.20 1/1/2013 $77,669.52 2/1/2013 $74,135.27 3/1/2013 $77,112.16 4/1/2013 $75,766.27 5/1/2013 $80,721.46 6/1/2013 $79,367.87 7/1/2013 $80,111.02 8/1/2013 $79,805.79 9/1/2013 $78,481.74 10/1/2013 $79,195.35 11/1/2013 $77,890.98 12/1/2013 $78,584.90 1/1/2014 $78,279.68 2/1/2014 $75,065.64 3/1/2014 $77,669.24 4/1/2014 $76,414.10 5/1/2014 $79,142.12 6/1/2014 $77,893.84 7/1/2014 $78,505.14 8/1/2014 $78,186.64 9/1/2014 $76,969.18 10/1/2014 $77,549.66 11/1/2014 $76,352.74 12/1/2014 $76,912.67 1/1/2015 $76,594.18 ImClone Systems, Inc. Note Schedule Principal and Interest Payments Total Date Payment - --------------------------------- 2/1/2015 $73,732.88 3/1/2015 $75,957.19 4/1/2015 $74,811.64 5/1/2015 $78,236.87 6/1/2015 $77,093.89 7/1/2015 $77,562.73 8/1/2015 $77,225.66 9/1/2015 $76,115.30 10/1/2015 $76,551.51 11/1/2015 $75,462.90 12/1/2015 $75,877.37 1/1/2016 $75,540.30 2/1/2016 $73,765.38 3/1/2016 $74,866.15 4/1/2016 $73,831.91 5/1/2016 $77,445.39 6/1/2016 $76,294.98 7/1/2016 $76,675.34 8/1/2016 $76,290.32 9/1/2016 $75,177.17 10/1/2016 $75,520.27 11/1/2016 $74,431.96 12/1/2016 $74,750.23 1/1/2017 $74,365.21 2/1/2017 $71,982.10 3/1/2017 $73,595.16 4/1/2017 $72,568.95 5/1/2017 $73,658.45 6/1/2017 $72,651.26 7/1/2017 $72,876.37 8/1/2017 $72,485.33 9/1/2017 $71,515.98 10/1/2017 $71,703.25 11/1/2017 $70,759.13 12/1/2017 $70,921.18 1/1/2018 $70,530.14 2/1/2018 $68,593.38 3/1/2018 $69,748.06 4/1/2018 $68,867.01 5/1/2018 $71,049.32 ImClone Systems, Inc. Note Schedule Principal and Interest Payments Total Date Payment - ------------------------------- 6/1/2018 $70,178.94 7/1/2018 $70,237.16 8/1/2018 $69,831.08 9/1/2018 $69,000.00 10/1/2018 $69,018.92 11/1/2018 $68,214.04 12/1/2018 $68,206.76 1/1/2019 $67,800.68 2/1/2019 $66,316.10 3/1/2019 $66,988.53 4/1/2019 $66,249.14 5/1/2019 $66,176.37 6/1/2019 $65,463.18 7/1/2019 $65,364.21 8/1/2019 $64,958.13 9/1/2019 $64,284.25 10/1/2019 $64,145.98 11/1/2019 $63,498.29 12/1/2019 $63,333.82 1/1/2020 $62,927.74 2/1/2020 $62,117.04 3/1/2020 $62,115.58 4/1/2020 $61,533.39 5/1/2020 $63,386.76 6/1/2020 $62,816.21 7/1/2020 $62,544.52 8/1/2020 $62,123.40 9/1/2020 $61,593.61 10/1/2020 $61,281.16 11/1/2020 $60,778.54 12/1/2020 $60,438.93 1/1/2021 $60,017.81 2/1/2021 $59,474.43 3/1/2021 $59,175.57 4/1/2021 $58,740.87 EX-10.88 6 y58958ex10-88.txt AMENDMENT TO THE DEVELOPMENT AND LICENSE AGREEMENT CONFIDENTIAL TREATMENT REQUESTED [NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR SUCH PORTIONS BY IMCLONE SYSTEMS INCORPORATED. THESE PORTIONS HAVE BEEN MARKED WITH TWO ASTERISKS (i.e., **). THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] EXHIBIT 10.88 [ImClone letterhead] August 16, 2001 Dr. Bernhard Scheuble Merck KGaA Frankfurter Strasse 250 D-64293 Darmstadt, Federal Republic of Germany Dear Dr. Scheuble: We refer to our development and license agreement (the "Agreement") dated the 14th day of December 1998 pursuant to which Merck KGaA ("Merck") was granted certain rights with respect to ImClone Systems Incorporated's ("ImClone") anti-EGFR antibody C225, all as defined in the Agreement. The parties agree that Sections 1, 2 and 7 of this letter agreement shall have effect only in the case that ImClone enters into an agreement currently being negotiated with a third party referred to as "Belgium" during such negotiations including the arranging for the distribution and sale of C225 outside the Territory and pursuant to ImClone's rights in Japan. Therefore, Sections 1, 2 and 7 of this letter agreement shall go into effect upon the execution of such agreement only, provided such agreement with "Belgium" is entered into within 6 months from the execution of this letter agreement, whereby Sections 3, 4, 5 and 6 shall be and remain in full force and effect upon execution of this letter agreement irrespective of the conclusion of such agreement by and between ImClone and "Belgium". 1. Notwithstanding Sections 2.1, 2.3 and 9.12, but subject to the other provisions of the Agreement, Merck and ImClone will be deemed to immediately, upon the effectiveness of this letter agreement, have co-exclusive rights to develop and market, with the right to sublicense, the Licensed Products and/or Alternative Products in Japan. Notwithstanding Section 2.3, each of Merck and ImClone may exercise such rights on a unilateral basis as each sees fit. ImClone shall cooperate and expedite with Merck's subsidiary in Japan for filing of an IND for C225 in Japan by the end of September 2001. 2. Merck hereby waives its rights set forth in Section 2.4 in their entirety. CONFIDENTIAL TREATMENT REQUESTED 3. For the avoidance of doubt both ImClone and Merck wish to clarify that clinical trial supply and commercial supply with C225 and/or Alternative Product from ImClone or a third party authorized by ImClone to Merck shall be at the Fully-Loaded Cost of Goods as defined in Schedule C of the Agreement. No handling charge related to manufacture of clinical trial supply and commercial supply other than that set forth in Schedule C of the Agreement, if any, shall be applied. As per Schedule C, finished goods warehousing, shipping and other distribution costs incurred by Merck are all included in distribution costs and will be borne by Merck separately from the Fully-Loaded Cost of Goods. 4. For greater certainty, ImClone hereby agrees that (a) Merck shall be entitled, without further compensation to be paid by Merck to ImClone (other than in connection with the technology transfer and design and construction assistance as set forth below) to manufacture for supply in its Territory C225 and/or Alternative Product in one or more manufacturing facilities owned and operated by it, and it is Merck's intent to build such facility or facilities to supply C225 for its Territory, and (b) Merck shall be entitled to contract with one or more third parties reasonably acceptable to ImClone for the manufacture of C225 and/or Alternative Product, and it is Merck's intent to so contract with one or more such third parties to supply C225 for its Territory. Medarex, Inc. is an acceptable third party to ImClone. ImClone shall in the case of (a) above transfer to Merck, and in the case of (b) above transfer to any such acceptable third party, all technology and know how necessary for such manufacture of C225 and/or Alternative Product, including without limitation Licensed Product Technology, the cell lines and appropriate documentation. Except for reasonable and customary fees to be agreed upon by and between ImClone and Merck in good faith for the services and documentation provided by ImClone, exemplary elements of which are set forth in Exhibit A attached to this letter agreement, such transfer to Merck in the case of (a), or to a third party in the case of (b), shall be effected without any additional payments to ImClone. In particular the transfer of the cell lines shall be free of charge. Upon the termination of any such supply under (a) or (b), all appropriate materials and documentation, including but not limited to the cell lines, shall be returned to ImClone. Ownership of all such materials and documentation shall remain at all times with ImClone. 5. ImClone, upon the execution of this letter agreement unconditionally and forever releases and discharges Merck from its obligation set forth in Section 4.9 (b) of the Agreement, and unconditionally waives all of its rights against Merck that might result or might have resulted, directly or indirectly, from such obligation. 6. Further, both ImClone and Merck agree to waive in its entirety each party's termination right pursuant to Section 4.9 (c) of the Agreement. CONFIDENTIAL TREATMENT REQUESTED 7. In consideration of Merck's waiver set forth herein, the royalties to be paid by Merck to ImClone pursuant to Section 4.2 of the Agreement for Licensed Products sold by Merck in the Territory shall be, upon the effectiveness of this letter agreement, reduced as follows: (a) The royalties to be paid by Merck pursuant to Section 4.2 (a) shall be reduced to ** of ** of Licensed Products; and (b) the royalties to be paid by Merck pursuant to Section 4.2 (b) shall be in each and every year (i) for sales of Licensed Products up to ** of ** reduced to ** of ** of Licensed Products, and (ii) for sales of Licensed Products exceeding ** of ** but no greater than ** reduced to ** of ** of Licensed Products for such part of the **, and (iii) for sales of Licensed Products exceeding ** of ** remain unchanged (i.e. ** of ** of Licensed Products) for such part of the **. Initially capitalized terms used in this letter agreement and not otherwise defined shall have the meaning specified in the agreement. Very truly yours, /s/ Samuel D. Waksal -------------------- Dr. Samuel D. Waksal President and CEO ACCEPTED AND AGREED: Merck KGaA By: /s/ Klaus-Peter Brandis /s/ Jens Eckhardt - --------------------------- ----------------- Name: Brandis Eckhardt Title: Director Legal Counsel Exhibits: Exhibit A: Exemplary elements of the technology transfer as referred to in Section 4 CONFIDENTIAL TREATMENT REQUESTED EXHIBIT A to the letter agreement dated August 16, 2001 by and between ImClone Systems Incorporated and Merck KGaA Exemplary elements of technology transfer and know-how for manufacture, as referred to in Paragraph 4 of the letter agreement: 1. Design, engineering drawings, process simulation, and equipment lists and specifications for the plant (including, without limitation, piping and instrument drawings). 2. The CMC section of the BLA . This section of the BLA contains manufacturing instructions, batch records, product specifications, product characterization, validation information and reports, and process history. 3. Validation reports for the clearance and inactivation of viruses from the manufacturing process. 4. Clearance of Process Related Contaminants such as BSA, transferrin, insulin, and protein A. 5. Formulation of C225 and/or Alternative Product with Tween 80 to yield a Particulate Free product. 6. Stability reports for API and Product. 7. Validation of Column Reuse for at least one year worth of manufacturing C225 and/or Alternative Product. 8. Manufacturing Process Limits Validation for Cell Culture and Downstream Processing. 9. Validation of Process Intermediates Hold times. CONFIDENTIAL TREATMENT REQUESTED 10. Validation Report for the Aseptic Processing of the Filled Product. 11. Validation Study Reports for Shipping Bulk and Filled Products. 12. Validation Study Reports for Container Closure Systems for Bulk and Filled Products. 13. Analytical/QC support for release testing of API for Merck's CMO(contract manufacturing organization). This may require additional head count at ImClone to support the added burden on the QC laboratories. 14. Quality Assurance agreement that defines ImClone's role and obligations for Quality support. 15. Tech Transfer and Know-How support over and above that which can be derived from manufacturing instructions and the batch records contained in the CMC. 16. Transfer of necessary cell bank vials. Eventually, Merck and CMO will need their own or for ImClone to create one. 17. Product Comparability Reports comparing Lonza vs ImClone. There will need to be a Comparability Protocol written, executed, and data collected to compare Lonza vs ImClone vs Merck CMO. 18. Process Consistency Reports. 19. Vendor Specifications and Supplier information to set-up CMO. 20. Improvements made, and made in the future, to the manufacturing process. EX-10.89 7 y58958ex10-89.txt AGREEMENT OF PURCHASE AND SALE Exhibit 10.89 ================================================================================ AGREEMENT OF PURCHASE AND SALE BY AND BETWEEN CORUM REALTY, LIMITED PARTNERSHIP, SELLER IMCLONE SYSTEMS INCORPORATED, BUYER Dated: as of December 17, 2001 Property: 1181 Route 202 Block 68.04, Lot 2.01 Branchburg, New Jersey ================================================================================ TABLE OF CONTENTS
PAGE 1. Conveyance of Property ................................................ 1 2. Purchase Price ........................................................ 2 3. Seller's Covenants .................................................... 3 4. Title to Real Estate .................................................. 3 5. Due Diligence ......................................................... 4 6. Environmental Compliance .............................................. 3 7. Closing of Title ...................................................... 7 8 Leases and Sale of the Business ....................................... 8 9. Closing Documents ..................................................... 9 10. Closing Adjustments and Costs ......................................... 10 11. Seller's Representations and Warranties ............................... 10 12. Buyer's Representations ............................................... 12 13. Survival of Representations and Warranties ............................ 12 14. Assessments ........................................................... 12 15. Risk of Loss .......................................................... 12 16. Condemnation .......................................................... 13 17. Brokers ............................................................... 13 18. Certificate of Occupancy and Zoning ................................... 13 19. Assignment ............................................................ 14 20. Notices ............................................................... 14 21. Performance ........................................................... 14 22. Remedies .............................................................. 14 23. Governing Law ......................................................... 14 24. Entire Agreement ...................................................... 14 25. Recordation ........................................................... 15 26. Severability .......................................................... 15 27. Counterparts .......................................................... 15 28. Construction and Interpretation ....................................... 15 29. Paragraph Headings .................................................... 15
-i- EXHIBITS Exhibit A - Description of Property Exhibit B - Pre Closing Lease Exhibit C - Post Closing Lease -ii- AGREEMENT OF PURCHASE AND SALE THIS AGREEMENT OF PURCHASE AND SALE (the "Agreement") is dated as of December---, 2001 by and between CORUM REALTY, LIMITED PARTNERSHIP, a New Jersey limited partnership, having an address c/o Highland Packaging Labs, Inc., 1181 Route 202, Somerville, New Jersey 08876 (the "Seller") and IMCLONE SYSTEMS INCORPORATED, a Delaware corporation, having an address at 180 Varick Street, New York, New York 10014 (the "Buyer"). RECITALS A. The Seller is the record owner of the Property (as hereinafter defined). B. The Seller has agreed to sell, and the Buyer has agreed to purchase, the Property, all on the terms and conditions herein contained. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, the parties hereto agree as follows: 1. Conveyance of Property: (a) The Seller, for and in consideration of the Purchase Price (as hereinafter defined) to be paid and satisfied as hereinafter provided, and also in consideration of the mutual covenants and agreements of the parties hereinafter contained, shall sell and convey to the Buyer, and the Buyer shall purchase from the Seller, the Property, all in accordance with the terms of this Agreement. (b) As used herein, the term "Property" means and includes (i) that certain parcel of land located in the Township of Branchburg, Somerset County, New Jersey known and designated as Block 68.04, Lot 2.01 and commonly known as 1181 Route 202 (the "Land") as more particularly described in Exhibit A attached hereto and made a part hereof; (ii) all buildings, structures and other improvements located on the Land (collectively, the "Improvements"); (iii) the appliances, fixtures, machinery, equipment and other tangible personal property owned by the Seller and located on the Land or the Improvements, including the personal property listed on Exhibit B attached hereto and made a part hereof (collectively, the "Personal Property") but excluding all inventory, movable trade equipment and moveable trade fixtures except as included on Exhibit B; (iv) to the extent assignable and to the extent the Buyer elects to take an assignment thereof, all agreements, if any, that relate to the ownership, maintenance and operation of the Property, including all amendments, modifications, consents and supplements thereto (collectively, the "Service Contracts"); (v) any and all (A) plans, models, drawings, specifications, surveys, architectural, engineering, soils, seismic, geological, environmental, marketing and demographic reports, studies and certificates, and other technical descriptions in Seller's possession (collectively, the "Plans"), (B) third-party warranties, guaranties and indemnities (collectively, the "Warranties"), and (C) licenses, permits, governmental approvals, utility commitments, utility rights, development rights or other similar rights (collectively, the "Licenses"); (vi) all right, title and interest, if any, of the Seller in and to any land lying in the bed of any street, road, highway or avenue, open or proposed, in front of or adjoining all or any part of the Land and in all strips, gores or rights-of-way, riparian rights and easements; and (vii) all other property, real, personal or mixed, owned or held by the Seller (or its representatives) which relates, in any way, to the design, construction, ownership, use, leasing, advertising, maintenance or operation of the Land, Buildings, Improvements, Personal Property, Service Contracts, Plans, Warranties and Licenses. 2. Purchase Price: (a) In consideration for the conveyance of the Property as contemplated hereby, the Buyer shall pay to the Seller the sum of Seven Million ($7,000,000) Dollars (the "Purchase Price"). The Purchase Price shall be payable in the following manner: (i) Upon execution of this Agreement for which this is a receipt, via wire transfer into the attorney trust account of the escrow agent designated in paragraph 2(b) (the "Deposit") $ 250,000.00 (ii) Upon Closing of title as provided herein, the balance by certified check of the Buyer, bank treasurer's check or federal funds wire (subject to adjustment as hereinafter provided) $6,750,000.00 ------------- TOTAL $7,000,000.00 =============
(b) The Seller's attorneys, Hoagland, Longo, Moran, Dunst & Doukas, shall act as escrow agent, shall hold the Deposit in escrow in an interest bearing account and shall apply same only in accordance with subparagraph 2(c) hereof. (c) The Deposit, and interest earned thereon, shall be applied as follows: (i) In the event title to the Property closes hereunder, the Deposit shall be applied against the Purchase Price, and the Deposit, together with all interest earned thereon, shall be released to the Seller; (ii) In the event that either party shall terminate this Agreement pursuant to its terms, the Deposit, together with all interest earned thereon, shall be returned to the Buyer; (iii) In the event that the Buyer shall fail to close title to the Property when it shall be obligated to do so (after satisfaction of all contingencies contained herein for the benefit of the Buyer, and provided the Seller is not in default hereunder), the Deposit, and all -2- interest earned thereon, shall be paid to the Seller as part of the liquidated damages to be paid to Seller as the Seller's sole and exclusive remedy pursuant to subparagraph 22(a) hereof; (iv) In the event that the Seller shall fail to close title to the Property when it shall be obligated to do so (after satisfaction of all contingencies contained herein for the benefit of the Seller, and provided the Buyer is not in default hereunder), the Deposit, and all interest earned thereon, shall be returned to the Buyer, if so elected by the Buyer pursuant to subparagraph 22(b) hereof. 3. Seller's Covenants: Between the date of the execution of this Agreement and the Closing, Seller shall: (a) Maintain the Property in its present condition, ordinary wear and tear excepted; (b) Maintain commercially reasonable limits of casualty, liability and hazard insurance with respect to the Property; (c) Operate and manage the Property in the same manner done by Seller prior to the date hereof; provided, however, that Seller shall not enter into any leases or service contracts without Buyer's prior written consent, which Buyer may withhold in its sole and absolute discretion; (d) Refrain from transferring or encumbering any part of the Property or permitting any changes to the zoning classification thereof; and (e) Promptly after receipt furnish Buyer copies of all notices of violation by Seller or the Buyer of federal, state or municipal laws, ordinances, regulations, orders, or requirements of any governmental authorities. 4. Title to Real Estate: (a) Title to the Property shall be conveyed by the Seller by Bargain and Sale Deed with Covenant As To Grantor's Acts, free and clear of all liens and encumbrances except for (i) municipal zoning ordinances and applicable governmental regulations, provided none of the foregoing will render title unmarketable or materially interfere with the Buyer's intended use of the Property, and (ii) current taxes not then due and payable ((i) and (ii) being collectively referred to as "Permitted Encumbrances"). The title to be conveyed shall be good and marketable, and insurable at ordinary rates by a title insurance company authorized to do business in New Jersey. (b) Seller has delivered to the Buyer a copy of the most recent title report for the Property (the "Back Title"). The Buyer shall have thirty (30) days from the date hereof within which to obtain a title commitment and survey and to submit to the Seller a list of any objections to title (other than Permitted Encumbrances, which the Buyer agrees to take title subject to) (the "Title Objections"). If the Buyer does not submit Title Objections within said 30-day period, it shall have -3- been deemed to have accepted the state of the title to the Property and to have waived any claims or defects which it might otherwise have raised. The Buyer shall have the further right to order a run-down title examination prior to Closing, at the Buyer's cost and expense, and to submit to the Seller any Title Objections which may have arisen since the initial title examination. (c) Should the Buyer present Title Objections to the Seller as aforesaid, the Seller shall have five (5) days within which to advise the Buyer whether it will cure the Title Objections. If the Seller agrees to cure the Title Objections, it must do so to the satisfaction of the Buyer's title company at or prior to Closing. Notwithstanding the foregoing, the Seller shall have the obligation to cure any Title Objection that can be cured or removed by the payment of a liquidated sum of money. If the Seller advises the Buyer within said 5-day period that the Seller is unable or unwilling to cure the Title Objections, the Buyer may either (i) waive its Title Objections and proceed to Closing without abatement of the Purchase Price, or (ii) terminate this Agreement by notice to the Seller given not later than ten (10) days after receipt by the Buyer of notice from the Seller that the Seller is unable or unwilling to cure Title Objections. If the Seller does not respond to the Buyer within said 5-day period, the Seller shall be deemed to have agreed to cure or remove all such Title Objections. (d) In the event that this Agreement is terminated by reason of the provisions contained in this Paragraph, the Buyer shall be entitled to receive from the Seller the return of the Deposit (together with all interest earned thereon) and reimbursement from the Seller of all actual costs and expenses theretofore incurred by the Buyer in connection with procuring a title report and survey. 5. Due Diligence: (a) The Buyer shall have the right, during the thirty 30-day period commencing on the date hereof ("Due Diligence Period"), to conduct such due diligence reviews, tests, inspections and investigations with respect to the Property as the Buyer shall deem reasonably necessary in order to determine whether the Property is suitable for purchase by the Buyer. Such due diligence may include, without limitation, (A) a review of existing zoning and other ordinances applicable to the Property, (B) a review of the physical condition of the Improvements on the Property, including a structural inspection and an inspection of the systems serving the Property, and (C) a review of the environmental condition of the Property, including a Phase I environmental site assessment, a Phase II environmental site investigation and any and all other environmental tests and inspections deemed reasonably necessary or advisable. Buyer may, by notice to Seller's attorney prior to the expiration of such 30-day period, extend the Due Diligence Period for an additional ten (10) days if Buyer shall not have received all written reports and studies commissioned by Buyer during such 30-day period. Such extended Due Diligence Period shall be referred to herein as the "Extended Diligence Period". (b) The Buyer may terminate this Agreement upon written notice to the Seller prior to the expiration of the Due Diligence Period or the Extended Diligence Period, as the case may be, if Buyer determines in its sole and absolute discretion the Property is not suitable for Buyer's intended use, or any condition exists which may materially interfere with Buyer's intended -4- use of the Property or any portion thereof. In such event, this Agreement shall terminate, the Deposit, together with any interest earned thereon, shall be returned to the Buyer and no party shall have any further rights or obligations hereunder except as expressly stated herein to the contrary. (c) During the term of this Agreement, the Seller shall provide the Buyer and Buyer's agents, professionals and contractors reasonable access to the Property at reasonable hours. (d) Throughout the term of this Agreement, Seller shall promptly make available to Buyer, its employees, agents, attorneys and other professionals, for inspection, review and copying, all information and documentation with respect to the Property in Seller's possession or control, either actual or constructive, as Buyer shall reasonably request. Without limiting the generality of the foregoing, Seller will deliver to Buyer contemporaneously with the execution and delivery of this Agreement copies of all agreements affecting the Property; all surveys, plans, and all engineering, environmental reports, copies of all leases, service agreements, insurance policies and copies of all permits. Seller represents that such materials and documents previously delivered to Buyer, together with those materials and documents which are being delivered to Buyer contemporaneously herewith, are all of the materials, documents and information relating to the Property that Seller has in its actual or constructive possession or control as of the date of this Agreement. Seller shall have the continuing obligation during the term of this Agreement to promptly deliver all such materials and documents as shall come into Seller's possession from time to time, whether in response to a current or previous request by Buyer, and as necessary to make Seller's foregoing representation continue to be true and current until Closing. (e) The Buyer shall repair and restore any damage to the Property resulting from the Buyer's entry onto the Property during the Due Diligence Period pursuant to the provisions of this Paragraph. 6. Environmental Compliance: (a) The Seller acknowledges and agrees that the Seller shall be responsible to take all necessary and required action in connection with, arising from or relating to compliance with the provisions of any Environmental Laws (as hereinafter defined) in connection with the sale and conveyance of the Property to the Buyer. Without limiting the generality of the foregoing, the Seller shall be responsible, at the Seller's cost, for complying with the provisions of the Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq., and the regulations promulgated thereunder ("ISRA"). In that regard, the Seller shall, prompt& after the date hereof, submit an Application/Affidavit to the New Jersey Department of Environmental Protection ("NJDEP") requesting a letter of nonapplicability from NJDEP (the "LNA") stating that the transaction contemplated hereby is not subject to the provisions of ISRA. The Seller shall deliver a copy of the LNA, together with a copy of the Application/Affidavit in request therefor, to the Buyer at or prior to Closing. (b) In the event that the Seller is unable to obtain an LNA because the Property and/or the transaction is subject to ISRA, the Seller shall have the obligation to comply fully with the terms of ISRA (including without limitation to perform any remediation or other work necessary) and to deliver to the Buyer at or prior to Closing a "no further action" letter from -5- NJDEP. If Seller has not received a "no further action" letter from NJDEP pursuant to this subparagraph by the Closing Date, and if Seller has completed the remediation work described herein and shall have fulfilled all other obligations and conditions precedent to Closing as set forth in this Agreement, Seller may adjourn the Closing Date for sixty (60) days in order to obtain the above-referenced "no further action" letter from NJDEP. Notwithstanding the foregoing, if, in the Buyer's reasonable judgment, the Seller will be unable to complete such remediation work by the Closing Date, the Buyer shall have the right to terminate this Agreement upon written notice to the Seller. (c) The Seller hereby represents that it has caused three (3) fuel oil underground storage tanks (the "USTs") located on the Property to be removed in accordance with all applicable Environmental Laws, and a UST Closure Report has been submitted to NJDEP, as more fully described in the "Phase I Environmental Site Assessment conducted of Highland Packaging Labs, Inc. for Corum Realty, L.P." dated October 30, 2001, prepared by TTI Environmental, Inc. At Closing, Seller shall provide Buyer with a "no further action" letter with respect to the removal of the USTs, provided, however, that if Seller has not received a "no further action" letter from NJDEP pursuant to this subparagraph by the Closing Date, and if Seller has fulfilled all other obligations and conditions precedent to Closing as set forth in this Agreement, Seller may adjourn the Closing Date for sixty (60) days in order to obtain the above-referenced "no further action" letter from NJDEP. The sixty (60) day adjournment set forth in subparagraph 6(b) and this subparagraph 6(c) shall run concurrently, such that Seller shall be entitled to no more than sixty (60) days of adjournment in the aggregate. (d) The Seller hereby agrees to and shall indemnify and hold the Buyer harmless from and against any and all claims, liabilities, losses, damages, and costs, including without limitation, reasonable counsel, engineering and other professional or expert fees, which the Buyer may incur by reason of (i) the Seller's compliance with, or failure to comply with, the provisions of ISRA or any other Environmental Law or (ii) the environmental condition of the Property, including without limitation the existence of any hazardous substance or hazardous material (as defined in any Environmental Law) at the Property, prior to the Closing Date. (e) As used herein, the term "Environmental Laws" means federal, state and local laws, ordinances, rules, regulations, court orders and common law related in any way to the protection of the environment, health or safety, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. (Section)9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. (Section)6901 et seq.; the Industrial Site Recovery Act, N.J.S.A. 13:lK-6 et seq.; the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq.; the Underground Storage of Hazardous Substances Act, N.J.S.A. 58:l0A-21 et seq.; and the Solid Waste Management Act, N.J.S.A. 13:lE-1 et seq.; and such laws, ordinances, rules, regulations, court orders, judgments and common law which govern (A) the existence, cleanup and/or remedy of contamination on the Property; (B) the protection of the environment from spilled, deposited or otherwise emplaced contamination; (C) the control of hazardous substances or hazardous wastes; or (D) the use, generation, transport, treatment, removal, storage, discharge or recovery of hazardous substances or hazardous wastes, including building materials. -6- (f) The provisions of this Paragraph shall survive the Closing. 7. Closing of Title: (a) The closing with respect to the transfer of title to the Property the ("Closing" or "Closing Date") shall take place at the offices of Wolff & Samson, P.A., 5 Becker Farm Road, Roseland, New Jersey, or at such place as the Buyer and the Seller may agree, at 10:00 a.m. in accordance with the following, as Buyer shall elect: (i) a mutually convenient date within fifteen (15) days after the latest to occur of the expiration of the Due Diligence Period, the Extended Diligence Period or the period under paragraph 4(b) for delivery of Title Objections (but not earlier than January 2, 2002 without the Seller's consent, which consent shall not be unreasonably withheld or delayed), or (ii) such earlier date (not prior to January 2, 2002 without the Seller's consent, which consent shall not be unreasonably withheld or delayed) as shall be set forth in a written notice from the Buyer to the Seller, such earlier date to be no earlier than five (5) days after the date of such written notice; provided, however, that, notwithstanding the foregoing, the Buyer shall have no obligation to close title, and the Closing Date shall not occur, unless and until all conditions and contingencies set forth herein have been satisfied or waived in writing by the Buyer. (b) On the Closing Date, Seller shall (i) deliver the Property to Buyer (1) in broom-clean condition, (2) free of all debris and other personal property not included in this sale other than Seller's personal property, which is to remain during the term of the Post Closing Lease (as defined below) and (3) in its current condition, ordinary wear and tear excepted; provided, however, that at Closing all building systems shall be in working order and the roof and foundation shall be free of leaks, and (ii) deliver possession to the Property to Buyer, free and clear of all rights of tenants, occupants and any other persons or entities, other than the rights of Seller, as tenant under the Post Closing Lease. (c) Buyer's obligation to consummate the purchase of the Property is subject to the satisfaction, as of the Closing Date of each and every one of the following conditions precedent: (i) As of the date of this Agreement and the Closing Date, each of Seller's representations and warranties contained herein shall be true and correct in all material respects. (ii) As of the Closing Date, Seller shall have performed all of the obligations required to be performed by Seller under this Agreement, and shall have delivered all documents and other items required to be delivered by Seller under this Agreement. (iii) As of the Closing Date, there shall exist no pending or threatened action, suit or proceeding with respect to Seller or the Property before or by any court, -7- administrative agency or other governmental entity which seeks to restrain or prohibit, or to obtain damages or a discovery order with respect to, the Property, this Agreement or the consummation of the sale and purchase of the Property. (iv) As of the Closing Date, the Property (1) shall in all respects be in the same condition as it is on the date hereof, reasonable wear and tear excepted and (2) shall not be in violation of applicable laws, ordinances, codes or regulations (including without limitation any building, zoning, health or safety law, ordinance, code or regulation or any Environmental Law). (v) As of the Closing Date, (1) Seller is ready, willing and able to deliver the quality of title to the Property required by this Agreement, and there shall not have arisen any new title matters which Buyer deems to be title objections and (2) there shall have been no change to the physical status of the Property from that shown on the survey (if any) of the Property obtained by Buyer. 8. Leases and Sale of the Business: (a) Pre Closing Lease. Contemporaneously with the execution and delivery of this Agreement, the Seller, as landlord, and the Buyer, as tenant, are entering into a lease for a portion of the Property, which lease (the "Pre Closing Lease") is in the form annexed hereto as Exhibit C. In accordance with the Pre Closing Lease, the Buyer, as tenant, shall be entitled to use the portion of the Property specified therein for the uses permitted thereunder. The entering into of the Pre Closing Lease is a material inducement to the Buyer entering into this Agreement. (b) Sale of the Business. The parties acknowledge that Highland Packaging Labs, Inc. ("Highland") operates a packaging operation (the "Business") at the Property. The Seller represents that Highland is under common control with Seller and is wholly owned by Seller's general partners. Seller further represents that Highland is currently marketing the Business for sale. In connection with the sale of the Business as a going concern, Highland will cause the buyer of the Business to remove all of Highland's inventory, trade equipment, trade fixtures, furniture and furnishings from the Property and Highland will thereupon surrender the Property in the condition required by, and in accordance with the provisions of, the Post Closing Lease (as defined below). If Highland shall not be successful in selling the Business as a going concern by March 31, 2002, the Seller will cause its general partners to cause Highland to arrange to sell by private sale and/or at auction all of Highland's inventory, trade equipment, trade fixtures, furniture and furnishings, or otherwise cause Highland to remove such items from the Property, and Highland shall, in such event, surrender the Property in the condition required by the Post Closing Lease by no later than April 30,2002. (c) Post Closing Lease. At the Closing, the Buyer, as landlord, and Highland, as tenant, will enter into a lease for a portion of the Property, which lease (the "Post Closing Lease") is in the form annexed hereto as Exhibit D, and Highland will post a security deposit in the amount of $400,000 to be held in accordance with the terms of the Post Closing Lease. In accordance with the Post Closing Lease, Highland, as tenant, shall be entitled to use the portion of the Property specified therein for the uses permitted thereunder. The term of the -8- Post Closing Lease shall expire on April 30, 2002; provided, however, that the term of the Post Closing Lease may be extended through June 30, 2002 in accordance with the provisions of the Post Closing Lease if by March 3 1, 2002 Highland shall have given notice to the Buyer, as landlord, that Highland shall have entered into a contract to sell the Business as a going concern and Highland requires the extension of the Post Closing Lease to effectuate an orderly transfer of the assets of Highland to the buyer of the Business. The tenant's interest in the Post Closing Lease may be assigned by Highland to the buyer of the Business at (but not prior to) the closing of the sale of the Business; provided, that the Buyer shall have received no less than ten (10) days prior notice of such assignment, and further provided, that Highland shall not be relieved of any of its obligations under the Post Closing Lease and shall remain fully liable thereunder. The agreement of the Buyer to enter into of the Post Closing Lease with Highland is a material inducement to the Seller entering into this Agreement. 9. Closing Documents: (a) At the Closing, the Seller will furnish the Buyer with the following documents: (i) Bargain and Sale Deed with Covenant As To Grantor's Acts. (ii) Affidavit of Title in standard form. (iii) General Assignment and Bill of Sale selling, transferring, conveying and assigning to the Buyer all of the Seller's right, title and interest in and to the personal property which is part of this sale, together with all permits, approvals, warranties, guaranties and other intangibles relating to or affecting the Property. (iv) A certificate, dated the Closing Date, certifying that all of the representations and warranties of the Seller set forth in the Agreement are true, correct and complete on and as of the Closing Date as if made on the Closing Date. (v) A "non-foreign person" affidavit as required by the Internal Revenue Code. (vi) A Form 1099 Information Statement as required by the Internal Revenue Code. (vii) The most recent tax bills for the Property. (viii) Payoff letters or releases with respect to any mortgages or liens encumbering the Property. (ix) A copy of any other documents required to be delivered by the Seller under this Agreement if not theretofore delivered. -9- (x) Any documents reasonably required by the Buyer's title company in order to insure title. (xi) The LNA from NJDEP, or other evidence of compliance with ISRA reasonably acceptable to the Buyer. (xii) The "no further action" letter from NJDEP with respect to the removal of the underground storage tanks as required by subparagraph 6(c) hereof. (xiii) Evidence of due organization, incumbency and authority as the title company and Buyer's attorneys shall reasonably require. (xiv) The Post Closing Lease. (b) At the Closing, the Buyer shall furnish the Seller with the following: (i) The balance of the Purchase Price as provided herein. (ii) A copy of any other documents required to be delivered by the Buyer hereunder if not theretofore delivered. (iii) The Post Closing Lease. 10. Closing Adjustments and Costs: (a) Real estate taxes, municipal water and sewer charges, if any, fuel oil, if any, and any other matter normally adjusted shall be apportioned and allowed as of the Closing Date. (b) All recording or filing fees with respect to the removal of any liens or encumbrances on the Property, and all realty transfer fees, shall be paid by the Seller. All recording fees for the deed and all title insurance search fees and premiums shall be paid by the Buyer. Each party shall pay the fees of its respective counsel. 11. Seller's Representations and Warranties: The Seller makes the following representations and warranties to the Buyer. As a condition to the Buyer's obligation to close title hereunder, all of the following representations and warranties by the Seller shall be true, correct and complete on and as of the Closing Date as if made on the Closing Date: (a) Seller is a New Jersey limited partnership, duly organized and validly existing. H. Stuart and Mildred Campbell are the only general partners in Seller. Seller has full power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. -10- (b) This Agreement has been duly executed and delivered by Seller and is the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms. (c) Seller is not in the hands of a receiver, and Seller has not committed any act of bankruptcy or insolvency. (d) No special assessments have been levied or are threatened or pending against all or any part of the Property. (e) Seller has no knowledge of any pending or threatened condemnation or similar proceedings affecting all or any part of the Property. (f) There are no claims, causes of action, suits or other litigation or proceeding of any nature pending or, to the Seller's knowledge, threatened against Seller or the Property. (g) There are no leases, occupancy agreements or similar agreements giving any person or entity any rights to use, occupy or operate on the Property or any portion thereof or otherwise affecting or relating to the Property other than the Pre Closing Lease. (h) Other than this Agreement, there are no options or other written agreements with respect to the sale of all or any part of the Property, and no person or entity has any option, right of first refusal or right of first offer to purchase all or any part of the Property. (i) There are no service contracts, maintenance contracts, management agreements or other contracts or agreements affecting or relating to the Property. (j) Seller has not received any notice from any governmental authority having jurisdiction over the Property advising that the Property or any use or occupancy thereof is in violation of any applicable law, ordinance or regulation, including without limitation any environmental law or regulation or any zoning or other municipal ordinance. (k) Seller has no actual knowledge of any material latent defects affecting the Property. (l) There are no underground storage tanks at or under the Property, other than one (1) waste storage tank that was properly and legally decommissioned by a predecessor in title to the Seller, which decommissioned storage tank was filled with concrete by the Seller. (m) To the best of Seller's knowledge, there does not exist on the Property any environmental condition or matter which would require remediation or other corrective action pursuant to any Environmental Law. -11- (n) Seller has not used, treated, stored or disposed of any hazardous materials, hazardous substances, hazardous wastes or toxic substances (as such terms are defined in any Environmental Law) at the Property in violation of any Environmental Law and, to the best of Seller's knowledge, no hazardous materials, hazardous substances, hazardous wastes or toxic substances have been used, treated, stored or disposed of at the Property in violation of any Environmental Law. (o) The copies of all documents and other information relating to the Property which have been or will be provided by Seller to Buyer, are in all material respects, true, correct and complete. 12. Buyer's Representations: The Buyer makes the following representations and warranties to the Seller. As a condition to the Seller's obligation to close title hereunder, all of the following representations and warranties by the Buyer shall be true, correct and complete on and as of the Closing Date as if made on the Closing Date: (a) The Buyer is a corporation duly formed, validly existing and in good standing under the laws of the State of Delaware. (b) The execution and delivery of this Agreement and the consummation of the transaction contemplated hereby have been duly authorized by the Buyer, this Agreement has been duly executed and delivered by the Buyer and this Agreement constitutes a valid and binding agreement of the Buyer, enforceable in accordance with its terms. 13. Survival of Representations and Warranties: Except as specifically provided for herein, the representations or warranties contained in this Agreement, the Exhibits to this Agreement and in any statement, instrument or certificate furnished pursuant to this Agreement shall survive the Closing for a period of two (2) years. 14. Assessments: Assessments, if any, shall be paid and allowed by the Seller on account of the Purchase Price, if the improvement or work has been completed on or before the date of this Agreement. If the Property or any part thereof is subject to an assessment or assessments which are payable in annual installments, all unpaid installments of any such assessment which are to become due and payable after the Closing shall be deemed to be liens on the Property and shall be paid and discharged by the Seller at or prior to Closing. Unconfirmed assessments, if any, shall be paid by the Seller at or prior to Closing. Any assessments for work commenced after the Closing Date shall be the sole responsibility of the Buyer. The Seller does not know of any confirmed or unconfirmed assessments as of the date of this Agreement. 15. Risk of Loss: (a) The risk of loss or damage to the Property by fire or other casualty until the Closing shall be the responsibility of the Seller. If prior to the Closing Date all or any part of the Property is damaged or destroyed in whole or in part by fire or other cause, the Buyer may, by written notice given to the Seller not more than ten (10) days after notice of such damage or -12- destruction is received by the Buyer, terminate this Agreement. In the event the Buyer terminates this Agreement pursuant to this Paragraph, the Deposit, together with all interest earned thereon, shall be returned to the Buyer, this Agreement shall cease, terminate and come to an end, no party shall have any rights or liabilities against or to the other except as expressly set forth to the contrary herein. (b) In the event this Agreement has not been terminated in accordance with the provisions of subparagraph (a) above, then the parties shall proceed to the Closing and the Seller shall credit on account of the Purchase Price an amount equal to the aggregate amount necessary to repair or restore the Property, as mutually determined in good faith by the Seller and the Buyer. 16. Condemnation: (a) The Seller shall give the Buyer prompt notice of any actual or threatened taking or condemnation of all or any portion of the Property. If, prior to the Closing, there shall occur a taking or condemnation of all or any portion of the Property, or a deed has been given in lieu thereof, or, if there is pending any proceeding in condemnation or eminent domain for the taking or use of all or any substantial part of the Property, then, in such event, the Buyer may, at its option, terminate this Agreement by written notice given to the Seller within ten (10) days after the Buyer has received the notice referred to above or at the Closing, whichever is earlier. In the event the Buyer terminates this Agreement pursuant to this Paragraph, the Deposit, together with all interest earned thereon, shall be returned to the Buyer, this Agreement shall cease, terminate and come to an end, no party shall have any rights or liabilities against or to the other except as expressly set forth to the contrary herein. (b) In the event this Agreement has not been terminated in accordance with the provisions of subparagraph (a) above, then the parties shall proceed to the Closing and the Seller shall credit on account of the Purchase Price an amount equal to the proceeds of any condemnation award received or to be received by the Seller. This provision shall survive the Closing. 17. Brokers: The parties hereby represent to each other that there is no real estate agent, broker, finder or salesperson who participated in bringing about this transaction; provided, however, the parties acknowledge that Colliers Pinkard ("Colliers") contacted the parties during the course of negotiations at the request of the Buyer in the capacity as a consultant to the Buyer. The Buyer agrees to be solely responsible for the payment of any consulting fee due to Colliers in connection with this transaction pursuant to a separate written agreement. The parties agree to indemnify each other against any claim by any other real estate agent, broker, or salesperson for commission where such real estate agent, broker or salesperson claims a commission through dealings with the indemnifying party. This provision shall survive the Closing. 18. Certificate of Occupancy and Zoning: The Seller shall, at the Seller's cost and expense, obtain and deliver to the Buyer at or prior to Closing a certificate of occupancy, zoning certificate or other zoning or building code approval or permit required by the Township of Branchburg in connection with the sale of the Property to the Buyer. -13- 19. Assignment: This Agreement may be assigned by the Buyer, without the consent of the Seller, to any entity which is owned or controlled by or under common control with the Buyer. Except as set forth in the previous sentence, this Agreement may not be assigned by the Buyer without the prior written consent of the Seller, which consent may not be unreasonably withheld or delayed. In connection with any assignment of this Agreement by the Buyer, the Buyer shall not be relieved of any of its obligations hereunder and shall remain fully liable hereunder. 20. Notices: All notices required to be given hereunder shall be in writing and shall be deemed to have been given when sent by registered or certified mail, postage prepaid, return receipt requested, or by overnight delivery service or by telecopy, to the parties to whom the notice is addressed, at the addresses stated above with a copy to the Seller's attorneys, Hoagland, Longo, Moran, Dunst & Doukas, 40 Paterson Street, P.O. Box 480, New Brunswick, New Jersey 08903, Attn: Gary Hoagland, Esq., and to the Buyer's attorneys, Wolff & Samson, P.A., 5 Becker Farm Road, Roseland, New Jersey 07068, Attn: Jeffrey M. Gussoff, Esq. 21. Performance: This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. 22. Remedies (a) If the Buyer shall fail to close title to the Property when the Buyer shall be obligated to do so (after satisfaction of all contingencies contained herein for the benefit of the Buyer, and provided the Seller is not in default hereunder), then the Seller shall be entitled to be paid $700,000 as liquidated damages ("Liquidated Damages") as the Seller's sole and exclusive remedy. The Escrow Agent shall pay over to the Seller the Deposit and all interest earned thereon, on account of the Liquidated Damages and the Seller shall be entitled to pursue the Buyer for the balance of the Liquidated Damages. The Buyer acknowledges that this provision concerning liquidated damages is bona fide and does not constitute a penalty, it being acknowledged that the Seller will have sustained damages which are not capable of determination with mathematical precision. (b) If the Seller shall fail to close title to the Property when it shall be obligated to do so pursuant to the provisions of this Agreement (after satisfaction of all contingencies contained herein for the benefit of the Seller, and provided the Buyer is not in default hereunder), then the Buyer shall be entitled either (i) to terminate this Agreement, receive a return of the Deposit (together with all interest earned thereon) and receive reimbursement from the Seller for all actual costs and expenses theretofore incurred by the Buyer in connection with procuring a title report and survey, or (ii) to pursue any and all legal or equitable remedies it may have against the Seller, including without limitation specific performance or money damages. 23. Governing Law: This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey. 24. Entire Agreement: This Agreement and the exhibits annexed hereto contain the entire agreement between the parties with respect to the subject matter hereof. This Agreement -14- may not be changed orally and may be changed only by an agreement in writing signed by all parties. There are no oral agreements between the Buyer and the Seller affecting this Agreement and this Agreement supersedes, and cancels any and all previous negotiations, arrangements, agreements and understandings, if any, between the parties hereto with respect to the subject matter hereof and none thereof shall be used to interpret or construe this Agreement. Further, it is understood that the parties hereto have entered into this Agreement with full knowledge of the subject matter hereof and this Agreement is not entered into based upon any representations with respect to value. 25. Recordation: This Agreement shall not be recorded by the Buyer. The filing or recordation of this Agreement in violation of this provision shall be deemed a default of this Agreement. Nothing herein, however, shall be deemed to prohibit the filing of a standard Notice of Settlement in connection with this transaction. 26. Severability: In the event that any one or more of the provisions of this Agreement shall be determined to be void or unenforceable by a court of competent jurisdiction, or by law, such determination will not render this Agreement invalid or unenforceable and the remaining provisions hereof shall remain in full force and effect. 27. Counterparts: This Agreement may be signed in counterparts, all of which when taken together shall constitute a single agreement. 28. Construction and Interpretation: (a) All references made and pronouns used in this Agreement shall be construed in the singular or plural, and in such gender, as the sense and circumstances require. (b) The Buyer and the Seller agree that each party and its counsel have reviewed this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or exhibits thereto. 29. Paragraph Headings: Paragraph headings contained in this Agreement are for convenience or reference only. They shall not be deemed to modify, limit, define or describe in any respect the provisions of this Agreement. -15- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date set forth on the first page hereof. SELLER: CORUM REALTY, LIMITED PARTNERSHIP By: /s/ Mildred C. Campbell ---------------------------------- Name: Mildred C. Campbell Title: General Partner By: /s/ H. Stuart Campbell ---------------------------------- Name: H. Stuart Campbell Title: General Partner BUYER: IMCLONE SYSTEMS INCORPORATED By: /s/ John B. Landes ---------------------------------- Name: John B. Landes Title: General Counsel ESCROW AGENT: Hoagland, Longo, Moran, Dunst & Doukas By: /s/ Gary J. Hoagland ------------------------------------- Gary J. Hoagland, Partner -16- EXHIBIT A Description of Property All that certain Lot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the Township of Branchburg, County of Somerset, State of New Jersey, known and designated as Lot 2.01, Block 68.04, on the Tax Map of the Township of Branchburg, County of Somerset, State of New Jersey: BEGINNING at a point in the southerly sideline of U.S. Route 202, said point being located along said southerly sideline a distance of 535.00 feet from the intersection of said southerly sideline with the projected easterly sideline of Chubb Way and from said point running; thence (1) Along said southerly sideline of Route 202, North 64 degrees 59 minutes 00 seconds East, a distance of 610.95 feet to a point; thence (2) South 25 degrees 01 minute 00 seconds East, a distance of 300.00 feet to a point; thence (3) North 64 degrees 59 minutes 00 seconds East, a distance of 25.24 feet to a point; thence (4) South 25 degrees 01 minute 00 seconds East, a distance of 215.50 feet to a point; thence (5) Running a new line, South 64 degrees 59 minutes West, a distance of 636.19 feet to a point; thence (6) North 25 degrees 01 minutes 00 seconds West, a distance of 515.50 feet to a point, said point being the point and place of BEGINNING. EXHIBIT B Personal Property/Equipment Included in Sale 1. Boiler
SYMBOL MANUFACTURER MODEL MBH SIN ------ ------------ ----- --- --- B-l American Standard 78-807-4 1282 B-D
2. Main Electrical Switch Gear Electrical switch gear within the mechanical room includes the following: 1. 1200 AMP "HDP" main distribution panel 480/277 volt. 2. 100 AMP "D" 480/277-volt panel. 3. 100 AMP "C" 480/277-volt panel. 4. 15 KVA "Transformer" #1", Transformer 480 to 208/l20 volt. 5. 75 KVA "Transformer" #2, Transformer 480 to 208/l20 volt. 6. 250 AMP "B" panel, 120/208 volt. 7. 100 AMP "A" panel, 120/208 volt. The central offices have each have separate 45 KVA 480 volt to 120/208-volt transformers. 3. Fire Pump A portion of the warehouse is equipped with an Early Suppression Fast Response Sprinkler System with coverage of 130 S.F. per head. This Early Suppression Fast Response System utilizes a 1000 GPM, 60 PSI, 55 BHP fire pump to increase the flow of water to the heads. The pump is located within the mechanical room. 4. Electric Hot Water Heater, 120 Gallons, in the warehouse/packaging. 5. HVAC
SYMBO MANUFACTURER MODE CFM TONAG HEATING L L E ----- ------------ ---- --- ----- ------- AC-1 TRANE BU250 10,000 25 130MBH AC-2 TRANE BU70 3,000 7 130MBH AC-3 TRANE BU70 3,000 7 130MBH AC-4 TRANE BU70 3,000 7 130MBH
Two (2) circulating pumps, installed for baseboard radiation and heating coils. The nine (9) packaging rooms utilize roof top packaged units. Gas-Fired modular tubular radiant heat system installed under the roof and along the perimeter of the building. Two (2) wall mounted exhaust fans, combined with two (2) motorized, operated outside, intake louvers installed on south side (fans) and north side (louvers) of the warehouse area for quick purging of air. EXHIBIT C Pre Closing Lease PRE CLOSING LEASE BETWEEN CORUM REALTY, LIMITED PARTNERSHIP, LANDLORD, AND IMCLONE SYSTEMS INCORPORATED, TENANT, AS OF DECEMBER 17, 2001 TABLE OF CONTENTS
PAGE 1. THE LEASED PROPERTY ................................................... 1 2. TERM .................................................................. 1 3. USE OF THE LEASED PROPERTY ............................................ 2 4. RENT AND ADDITIONAL RENT .............................................. 2 5. INSURANCE ............................................................. 4 6. UTILITIES ............................................................. 6 7 DESTRUCTION ........................................................... 6 8. COMPLIANCE WITH LAWS .................................................. 6 9. ALTERATIONS AND REPAIRS ............................................... 6 10. SIGNS ................................................................. 8 11. ACCESS TO THE PROPERTY ................................................ 8 12. ASSIGNMENT AND SUBLETTING ............................................. 9 13. CONDEMNATION .......................................................... 9 14. ENVIRONMENTAL COMPLIANCE .............................................. 10 15. SURRENDER BY TENANT AT END OF TERM .................................... 12 16. EVENT OF DEFAULT BY TENANT/OTHER TENANT DEFAULTS ...................... 13 17. SUBORDINATION ......................................................... 14 18. QUIET ENJOYMENT ....................................................... 15 19. CERTIFICATES .......................................................... 15 20. NOTICES ............................................................... 16 21. INTERPRETATION ........................................................ 16 22. BROKERAGE REPRESENTATION .............................................. 17 23. ENTIRE AGREEMENT/ NO WAIVER ........................................... 17 24. NEW JERSEY LAW ........................................................ 19 25. CONSENTS .............................................................. 19 26. LIMITATION OF LIABILITY AND INDEMNIFICATION ........................... 19 27. AUTHORITY ............................................................. 21
PRE CLOSING LEASE THIS PRE CLOSING LEASE (this "Lease"), made as of the day of December, 2001, by and between CORUM REALTY, LIMITED PARTNERSHIP a New Jersey limited partnership, having an address c/o Highland Packaging Labs, Inc., 1181 Route 202, Somerville, New Jersey 08876 (the "Landlord"), and IMCLONE SYSTEMS INCORPORATED, a Delaware corporation, having an address at 180 Varick Street, New York, New York 10014 (the "Tenant"). WITNESSETH: WHEREAS, Landlord and Tenant have entered into an Agreement of Purchase and Sale of even date herewith (the "Agreement") whereby Landlord has agreed to sell to Tenant the Property (as defined in the Agreement), including, without limitation, the land and improvements commonly known as 1181 Route 202, Branchburg, Somerset County, New Jersey; WHEREAS, pending the Closing under, or the termination of, the Agreement, Landlord is hereby leasing to Tenant, and Tenant is hereby leasing from Landlord, a portion of the Property more fully described or depicted on Exhibit A hereto (the "Leased Property"), on the terms and conditions set forth herein, and subject to the provisions of the Agreement; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and commitments contained therein, the parties covenant and agree as follows: 1. THE LEASED PROPERTY. Landlord, for and in consideration of the covenants and agreements hereinafter mentioned, reserved and contained, to be kept and performed by Tenant, does hereby demise and lease unto Tenant and Tenant does hereby lease and hire from Landlord, the Leased Property, together with access across, through and/or over portions of the Property as is and shall be necessary or advisable to allow Tenant to access the Leased Property for the purposes hereinafter provided. It is understood and agreed between the parties hereto that the Tenant has thoroughly inspected the Leased Property demised hereunder and, is thoroughly familiar with the condition of the Leased Property demised hereunder and agree to accept the Leased Property in its "as is, where is, with all faults" condition. Landlord makes no representations whatsoever with respect to the condition of Leased Property demised hereunder, except as specifically set forth in the Agreement. 2. TERM. Landlord leases unto Tenant and Tenant hires from Landlord the Leased Property for the Term to commence on the Commencement Date, and to end on the Expiration Date. The "Commencement Date" shall be the date hereof. The "Expiration Date" shall be the earliest to occur of (a) the thirtieth (30th) day following the termination of the Agreement in accordance with its terms, (b) the date, if any, mutually agreed upon by the parties, (c) the closing date under the Agreement and (d) any other termination of this Lease in accordance with its terms. 3. USE OF THE LEASED PROPERTY. 3.1 Use of the Leased Property. Tenant covenants and agrees to use the Leased Property only for the Permitted Use and at all times subject to the Approvals (as hereinafter defined), if any. The term "Permitted Use" means construction lay down, construction storage and parking of vehicles and equipment in connection with Tenant's construction being conducted on Tenant's property. 3.2 Approvals. Tenant, at its cost and expense, shall duly procure and thereafter maintain all Approvals, if any, which shall be required for the proper and lawful conduct of the Permitted Use on the Leased Property or any part thereof, and Tenant shall furnish a photostatic copy thereof to Landlord upon Landlord's request therefor. The term "Approvals" means all governmental requirements and conditions relating to the Permitted Use. Tenant shall at all times comply with the terms and conditions of each such Approval. Landlord and Tenant agree to reasonably cooperate with each other in the obtaining of the necessary permits and approvals in connection with each other's operations. 3.3 Reservation of Rights. Subject to the terms of the Agreement, Landlord reserves the right at any time, without incurring any liability to Tenant therefor, and without affecting or reducing any of Tenant's covenants and obligations hereunder, to make such changes, alterations, additions and improvements in or to the street entrances, parking lots, roadways and driveways, as Landlord, in its sole and absolute discretion, shall deem necessary or desirable to comply with the requirements of any federal, state or local governmental agency, commission, board or political subdivision (each a "Regulatory Authority"). Landlord reserves the right, and Tenant shall permit Landlord, (i) to install, erect, use and maintain pipes, ducts and conduits in and through the Leased Property and (ii) to make such repairs, changes, alterations, additions and improvements in or to the Leased Property as Landlord is required to make by Regulatory Authorities. Landlord shall be allowed to take all materials into and upon the Leased Property that may be required in connection therewith without any liability to Tenant and without the same constituting an eviction of Tenant, in whole or in part, and without any abatement or reduction in Rent payable hereunder or any reduction of Tenant's covenants and obligations hereunder. 4. RENT AND ADDITIONAL RENT. 4.1 Minimum Rent. 2 (a) The term "Rent" means all amounts payable by Tenant to Landlord hereunder, including minimum rent, if any, and Additional Rent (as hereinafter defined). (b) If the Buyer under the Agreement purchases the Property pursuant to the Agreement, no minimum rent shall be payable by Tenant to Landlord in connection with this Lease. (c) If the Agreement shall be terminated as a result of a default by Seller thereunder, no minimum rent shall be payable by Tenant to Landlord from the Commencement Date through thirty (30) days following the date of termination of the Agreement. Thereafter, Tenant shall pay Holdover Rent to Landlord pursuant to Section 15.4 below. (d) If the Agreement shall be terminated by the Buyer pursuant to Sections 4(d), 5(b) or 6(b) thereunder, Tenant shall pay minimum rent to the Landlord in the amount of $6,500 per month, accrued retroactively from the Commencement Date through thirty (30) days following the date of termination of the Agreement. Thereafter, Tenant shall pay Holdover Rent to Landlord pursuant to Section 15.4 below. (e) If the Agreement shall be terminated by the Seller pursuant to Section 21(b) of the Agreement as a result of a default by Buyer under the Agreement, Tenant shall pay minimum rent to the Landlord in the amount of $6,500 per month, accrued retroactively from the Commencement Date through thirty (30) days following the date of termination of the Agreement. Thereafter, Tenant shall pay Holdover Rent to Landlord pursuant to Section 15.4 below. 4.2 Additional Rent. Any and all charges other than the minimum rent payable by Tenant under the various sections of this Lease, whether to Landlord or directly to other persons shall be referred to herein as "Additional Rent". Tenant shall provide Landlord with proof of payment thereof upon Landlord's request. In the event of non-payment of any item of Additional Rent, Landlord shall have all the rights and remedies with respect thereto as is herein and at law provided for in case of non-payment of Rent. 4.3 Operating Expenses. During the Term of this Lease, Tenant shall timely pay all costs and expenses paid relating to or allocable to the ownership, management, repair, maintenance, replacement, restoration or operation of the Leased Property (collectively, "Operating Expenses"), if any. 4.4 Taxes. Landlord shall pay all Taxes. The term "Taxes" means the sum of the real- estate taxes and assessments, special assessments, impositions, and other governmental charges of every kind and nature whatsoever, extraordinary, as well as ordinary, unforeseen, as well as foreseen, and each and every installment thereof, which during the Term shall be charged, laid, levied, assessed, imposed, become due and payable, or liens upon the Property or any part thereof, by any federal, state or local authorities having jurisdiction thereto, and all taxes, assessments, imposition and charges levied or imposed in place of or in addition to any of the 3 foregoing, together with all interest and penalties thereof, under or by virtue of all present or future laws, ordinances, requirements, orders, directions, rules or regulations of any Regulatory Authority. Taxes shall not include any federal, state or municipal income tax, or any profit, inheritance, estate, succession, gift, franchise or transfer tax imposed directly upon Landlord. The term "Tax Year" means each 12 month period (deemed for the purposes of this definition to have 365 days) established as the tax year by the taxing authorities having lawful jurisdiction over the Property. 4.5 Security Deposit. [Intentionally omitted from the Pre Closing Lease.] 5. INSURANCE. 5.1 Tenant's Insurance. Tenant shall maintain during the term of this Lease the following coverages. (a) Physical Damage Insurance covering (i) all of Tenant's property on the Leased Property, and (ii) any improvements, additions and alterations made to the Leased Property by Tenant (collectively, "Tenant Improvements"). (b) Comprehensive General Liability Insurance including Product/Completed Operations Liability, covering the insured against claims of bodily injury, personal injury and property damage arising out of Tenant's operations, assumed liabilities or use of the Leased Property, including a Broad Form Comprehensive General Liability endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in this Lease, for limits of liability not less than: Bodily Injury and $1,000,000 each occurrence Property Damage Liability $1,000,000 annual aggregate Personal Injury Liability $1,000,000 each occurrence $1,000,000 annual aggregate 0% Insured's participation
(c) Automobile Liability Insurance for all owned, nonowned and hired vehicles, covering the insured against claims of bodily injury and property damage with limits of liability not less than $1,000,000 each occurrence. (d) Workers Compensation and Employer's Liability Insurance with limits of liability not less than: Workers Compensation Statutory Limits Employer's Liability $1,000,000/$1,000,000/$1,000,000
4 (e) Umbrella Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage with limits of liability of not less than $4,000,000 in excess of the limits provided in 5.1(b) and 5.1(c). (f) Tenant shall carry and maintain during the entire term of this Lease, at Tenant's sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article, and such other reasonable types of insurance coverage and in such reasonable amounts, as may be reasonably requested by Landlord. 5.2 Compliance With Insurance Requirements. Tenant shall neither use the Leased Property nor permit the Leased Property to be used or acts to be done therein which will (a) increase the premium of any insurance described in this Article; (b) cause a cancellation of or be in conflict with any such insurance policies; (c) result in a refusal by insurance companies of good standing to insure the Leased Property in amounts reasonably satisfactory to Landlord; or (d) subject Landlord to any liability or responsibility for injury to any person or property by reason of any operation being conducted in the Leased Property. Tenant shall, at Tenant's expense, comply as to the Leased Property with all insurance company requirements pertaining to the use of the Leased Property. If Tenant's conduct or use of the Leased Property causes any increase in the premium for such insurance policies, then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body. 5.3 Waiver of Subrogation. Landlord and Tenant agree to have their respective insurance companies issuing property damage insurance waive any rights of subrogation that such companies may have against Landlord or Tenant. As long as such waivers of subrogation are contained in their respective insurance policies, Landlord and Tenant hereby waive any right that either may have against the other on account of any loss or damage to their respective property to the extent such loss or damage is insurable under policies of insurance for fire and all risk coverage, theft, public liability, or other similar insurance. 5.4 Standards for Insurance. The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall (i) name Landlord, and any other party it so specifies, as additional insureds; (ii) specifically cover the liability assumed by Tenant under this Lease; (iii) be issued by an insurance company having a rating of not less than A-X in Best's Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of New Jersey; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and non-contributing with any insurance requirement of Tenant; (v) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days' prior written notice shall have been given to Landlord and any mortgagee of Landlord; and (vi) contain a cross-liability endorsement or severability of interest clause acceptable to Landlord. Tenant shall deliver duplicate copies of said policy or policies or original certificates thereof to Landlord on or before the Commencement Date and at least thirty (30) days before the expiration dates 5 thereof. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent within five (5) days after delivery to Tenant of bills therefor. 6. UTILITIES. If Tenant shall require utility services, Tenant shall, at its own cost and expense, arrange for or provide utility connections and service to the Leased Property, and shall pay all utility meter, connection and service charges, including those for gas, sewer, electricity, water and standby sprinkler and any deposits required by utility suppliers. Landlord shall not be required to furnish any utilities to Tenant. 7. DESTRUCTION. [Intentionally omitted from the Pre Closing Lease.] 8. COMPLIANCE WITH LAWS. Tenant, at its expense, shall comply with the Approvals and with all laws, orders, ordinances, regulations and requirements of Regulatory Authorities and directions made pursuant to law by any public officer or officers which, in respect of the Leased Property or the use and occupancy thereof or the abatement of any nuisance in, on or about the Leased Property, shall impose any violation, order or duty upon Landlord or Tenant arising from (a) Tenant's occupancy, use or manner of use of the Leased Property, (b) any installations, equipment or other property therein, (c) any cause or condition created by or at the instance of Tenant, or (d) any breach of any of Tenant's obligations hereunder. Tenant shall pay to Landlord, as Additional Rent hereunder, promptly upon being billed therefor, amounts equal to all costs, expenses, fines, penalties and damages which may be imposed upon or incurred by Landlord by reason of or arising out of Tenant's failure to fully and promptly comply with and observe the provisions of this Section. Tenant shall give prompt notice to Landlord of any notice that Tenant may receive of the violation of any law, ordinance, order, regulation, or requirement of any public authority or direction of any public officer or official applicable to the Leased Property. 9. ALTERATIONS AND REPAIRS. 9.1 Tenant's Obligations to Repair and Maintain. (a) Tenant, at its sole cost and expense, throughout the term of this Lease, shall keep and maintain in good working order and condition the Leased Property, the Tenant Improvements, the equipment, fixtures and appurtenances therein, and shall make all repairs and replacements, interior and exterior, structural and non-structural, ordinary and extraordinary, in and to the Leased Property as and when needed to keep and maintain them in good working order and condition. In addition, Tenant shall be responsible, at its sole cost and expense, for making all repairs, wherever on or with respect to the Leased Property occurring, the need for which is caused by or arises out of (i) the performance or existence of any Tenant's construction work or alterations, (ii) the moving of any property of Tenant in or out of the Property, and (iii) the acts, omission, neglect, improper conduct or other cause of Tenant or any of its permitted sublessees, or its or their employees, agents, contractors, visitors, licensees or invitees. 6 (b) All repairs, maintenance and replacements which Tenant is responsible for pursuant to this Section shall be performed in accordance with the requirements of this Article. If Tenant fails to make any repairs, restorations or replacements for which Tenant is responsible under this Lease, Landlord, after notice to Tenant and reasonable opportunity to do so, except in an emergency when no notice shall be required, may (but shall not be obligated to) make same and Landlord's costs of doing so shall be collectible as Additional Rent hereunder and shall be paid by Tenant to Landlord within five (5) days after rendition of Landlord's bill or statement therefor. 9.2 Limitation in Liability. Except as otherwise may be expressly provided in this Lease, Landlord shall have no liability to Tenant, nor shall Tenant's covenants and obligations under this Lease be reduced or abated in any manner whatsoever by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord's making any repairs or changes which Landlord is required or permitted by this Lease, or required by law, to make in or to any portion of the Property. 9.3 Tenant Changes. (a) Tenant shall make no alterations, decorations, installations, additions or improvements in or to the Leased Property ("Tenant Changes") or perform any other work without Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed; provided, however, that Tenant may perform such work as shall be necessary or advisable to prepare the Leased Property for the Permitted Use, including but not limited to, the eight foot high construction fence shown on Exhibit A. All Tenant Changes shall be done at Tenant's sole cost and expense at such times and in such manner as Landlord may from time to time designate and in full compliance with all laws, rules and regulations of all Regulatory Authorities. (b) Prior to commencing any Tenant Changes or any other work pursuant to the provisions of this Article, and as a condition to Landlord granting its consent, Tenant shall furnish Landlord for its approval with (i) copies of all governmental permits and authorizations which may be required in connection with such work; (ii) a certificate evidencing that Tenant (or Tenant's contractors) has (have) procured Workers Compensation insurance covering all persons employed in connection with the work who might assert claims for death or bodily injury against Landlord or Tenant; (iii) such additional personal injury and property damage insurance (over and above the insurance required to be carried by Tenant pursuant to the provisions of Article 6 hereof) as Landlord may reasonably require; (iv) to the extent permitted by law, unconditional waivers of mechanic's liens signed by contractors, subcontractors, materialmen and laborers to become involved in such work; and (v) plans and specifications (including architectural, engineering, mechanical, electrical and plumbing drawings, if applicable) for the work to be done and copies of all contracts with contractors and subcontractors selected by Tenant. 7 9.4 Mechanic's Lien. (a) Tenant will not do any act or suffer any act which will, in any way, encumber the title of Landlord (or Tenant) in and to the Leased Property nor will the interest or estate of Landlord or Tenant in the Leased Property be in any way subject to any claim by way of lien or encumbrance, whether by operation of law or by virtue of any express or implied contract by Tenant. Tenant will not suffer or permit any liens to be filed against the Leased Property, or any part thereof, by reason of any work, labor, services or materials done for, or supplied, or claimed to have been done for, or supplied to Tenant, or anyone holding the Leased Property, or any part thereof, through or under Tenant. If any such lien is at any time filed against the Leased Property, Tenant will cause the same to be discharged of record within ten (10) days after the date of filing the same, by either payment, deposit or bonding and if Tenant shall fail to do so, then, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, procure the discharge of the same either by paying the amount claimed to be due by deposit in court or bonding, and/or Landlord will be entitled, if Landlord so elects, to compel the prosecution of an action for the foreclosure of such lien by the lien or and to pay the amount of the judgment, if any, in favor of the lienor with interest, costs and allowances. Any amount paid or deposited by Landlord for any of the aforesaid purposes, and all legal and other expenses of Landlord, including reasonable attorneys' fees, in defending such action or in procuring the discharge of such lien, with all necessary disbursements in connection therewith, will become due and payable as Additional Rent on the date of payment or deposit as the case may be. (b) Nothing in this Lease shall be deemed to be, or construed in any way as constituting, the consent or request of Landlord, express or implied by inference or otherwise, to any person, firm or corporation for the performance of any labor or the furnishing of any materials for any construction, rebuilding, alteration or repair of or to the Leased Property or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials which might in any way give rise to a right to file any lien against Landlord's interest in the Leased Property. 10. SIGNS. Subject to Landlord's prior written consent, which shall not be unreasonably withheld, delayed or conditioned, Tenant may erect and maintain signs on the Leased Property as necessary or advisable for purposes of safety and compliance with applicable laws; provided, however, that all signs are consistent with the Approvals and comply with all laws, ordinances and regulations of Regulatory Authorities. 11. ACCESS TO THE PROPERTY. Tenant shall permit Landlord or its agents to enter the Leased Property, at reasonable times, for the purpose of inspecting the Leased Property; provided, however, that Landlord shall be under no obligation to so inspect. Landlord agrees not to interfere with Tenant's business operations in exercising its rights hereunder and to give Tenant prior notice of its exercise of such rights. Tenant is and shall be in exclusive control and possession of the Leased Property as provided herein, and Landlord shall not in any event whatsoever be liable for any injury or damage to any Leased Property or to any person 8 happening on or about the Leased Property, nor for any injury or damage to the Leased Property, nor to any property of Tenant, or of any other person located on in the Leased Property. The provisions hereof permitting Landlord to enter and inspect the Leased Property are made for the purpose of enabling Landlord to be informed as to whether Tenant is complying with the agreements, terms, covenants and conditions hereof and to do such acts as Tenant shall fail to do. 12. ASSIGNMENT AND SUBLETTING. 12.1 Prohibited Transfers. (a) Tenant shall not, whether voluntarily or involuntarily, by operation of law or otherwise, without Landlord's consent, which Landlord may withhold in its sole and absolute discretion, (i) assign or otherwise transfer this Lease or any interest therein or offer or advertise to do so, (ii) sublet or suffer or permit the Leased Property or any part thereof to be used, occupied or utilized by anyone other than Tenant or offer or advertise to do so, or (iii) mortgage, pledge, encumber or otherwise hypothecate (any of which shall be referred to as a "Mortgaging") this Lease or the Leased Property or any part thereof in any manner whatsoever. (b) The consent by Landlord to any assignment, subletting or mortgaging shall not in any manner be construed to relieve Tenant, or any assignee or sublessee from obtaining Landlord's prior express written consent to any other or further assignment, subletting, or Mortgaging. In no event shall any permitted sublessee assign or encumber its sublease or further sublet all or a portion of its sublet space, or otherwise suffer or permit the sub et space or any part thereof to be used or occupied by others. 12.2 Transfers of Interests in Entities. For purposes of this Article, the transfer by any means of the legal or beneficial interests in either voting power, capital or profits in Tenant or in any corporation, partnership or other entity directly, or indirectly comprising Tenant, of the majority of the issued and outstanding capital stock of any corporate Tenant or subtenant, or the transfer of a majority of the beneficial interest in any other entity (partnership or otherwise) which is the Tenant or a subtenant, however accomplished, whether in a single transaction or in a series of related or unrelated transactions, shall be deemed an assignment of this Lease or a sublease, as the case may be. Tenant agrees to furnish Landlord with such information as Landlord may reasonably request from time to time in order to assure Landlord that neither Tenant nor any permitted subtenant have violated the provisions of this Article. Notwithstanding the foregoing, the trading of Tenant's shares on a public stock market shall not be a transfer or assignment in violation of this Article. 13. CONDEMNATION. Each party shall give to the other prompt notice of any actual or threatened taking or condemnation of all or any portion of any of the Leased Property. If, during the Term of this Leased Lease, there shall occur a taking or condemnation of all or any 9 substantial portion of the Property, or a deed has been given in lieu thereof, or, if there is pending any proceeding in condemnation or eminent domain for the taking or use of all or any substantial part of the Leased Property, then, in such event, this Lease shall terminate, in which event neither party shall have any further rights or obligations hereunder except as expressly set forth to the contrary herein. If there is a condemnation or taking of any Leased Property which is not deemed to be substantial, this Lease shall continue in effect. In any event, all damages awarded for such taking under the power of eminent domain, whether for the whole or a part of the Leased Property, shall belong to and be the property of Landlord, whether such damages shall be awarded as compensation for diminution in value to the leasehold or to the fee; provided, however, that Tenant shall, to the extent that same shall not reduce Landlord's award, be entitled to any award from the condemnor for loss of business and depreciation to, and cost of removal of, stock and fixtures. The terms "condemnation, " "taking" or similar terms as herein used shall mean the acquisition by a public or quasi-public authority having the right to take the same by condemnation or by power of eminent domain or otherwise, regardless of whether such taking is the result of actual condemnation or of voluntary conveyance. 14. ENVIRONMENTAL COMPLIANCE. 14.1 Environmental Compliance. (a) Tenant, at its expense, shall comply with all applicable Environmental Laws with respect to its use and occupancy of the Leased Property; provided, however, that nothing herein contained shall be construed as limiting or waiving any of Landlord's obligations as seller under the Agreement. (b) No Hazardous Materials, shall be handled, upon, about, above or beneath the Leased Property or any portion thereof by or on behalf of Tenant, or its contractors, clients, officers, directors, employees, agents, or invitees. Any such Hazardous Materials so Handled shall be known as Tenant's Hazardous Materials. Notwithstanding the foregoing, normal quantities of Tenant's Hazardous Materials customarily used in connection with the Permitted Use may be Handled at the Leased Property. Tenant's Hazardous Materials permitted by the foregoing sentence shall be Handled at all times in compliance with the manufacturer's instructions therefor and all applicable Environmental Laws. Tenant agrees to execute affidavits, representations, and the like from time to time at Landlord's request stating Tenant's best knowledge and belief regarding the presence of Hazardous Materials on the Leased Property. (c) Landlord and Tenant shall immediately notify the other if it receives: (i) any notices or correspondence from the NJDEP (as defined below) alleging the presence or release of any Hazardous Material in, on, around or under the Leased Property; or (ii) any information suggesting or demonstrating the release or presence of any Hazardous Material in, on, around or under the Leased Property. 10 14.2 ISRA. (a) Landlord and Tenant acknowledge that the Permitted Use may cause the Leased Property to be subject to the provisions of the Industrial Site Recovery Act, N.J.S.A. 13: 1K-6 et seq. and the regulations promulgated thereunder and any successor legislation and regulations ("ISRA"). Except as set forth in the Agreement to be obligations of the Landlord, as seller, Tenant shall, at Tenant's own expense, make all submissions to, provide all information to, and comply with all requirements of, the Industrial Site Evaluation Element (the "Element") of the New Jersey Department of Environmental Protection ("NJDEP") in connection with any ISRA compliance required as a result of Tenant's use of the Leased Property. Tenant shall provide copies to Landlord of all materials submitted to and received from NJDEP pursuant to ISRA. (b) Tenant's obligations under this Article shall arise if there is any "closing operations" or "transferring ownership or operations" of an "industrial establishment" as defined by ISRA, at the Leased Property if triggered by Tenant or by a "change in ownership" of Tenant as defined by ISRA; provided however, that as a result of the closing under the Agreement Tenant shall not be obligated to comply with ISRA separately from Landlord's pending application, unless required to do so by NJDEP, but Tenant shall file a General Information Notice (GIN) under the existing ISRA case number, if necessary. Prior to the expiration or sooner termination of this Lease, Tenant shall deliver to Landlord evidence of compliance with ISRA, or evidence that no compliance with ISRA is required, in the form of (i) a non-applicability determination, (ii) a de minimis quantity exemption as set forth in Section 9 of ISRA, (iii) an approved "No Further Action Letter" as defined by ISRA and issued by NJDEP, or (iv) a letter from NJDEP stating that an approved "Remedial Action Workplan" (as described in (c) below) has been completed and the Leased Property is in full compliance with ISRA. (c) Should NJDEP determine that a "Remedial Action Workplan" as defined under ISRA, be prepared and/or that a "remediation", as defined under ISRA, be undertaken because of any spills or discharges of Hazardous Materials at the Leased Property which occur during the Term of this Lease and which spills are caused by Tenant, its agents, employees or independent contractors, then Tenant shall, at Tenant's own expense, prepare and submit the required information and provide the necessary "funding source" if required, as defined by ISRA, and carry out the approved remediation. 14.3. Indemnification. Tenant shall indemnify, defend and hold harmless Landlord from and against any and all claims, actions, liabilities, losses, penalties, damages, fines, costs and expenses (including, without limitation, the reasonable fees and expenses of counsel, engineers, other professionals or experts, including those to enforce this indemnity) of any kind whatsoever, foreseen or unforeseen, which Landlord may incur by reason of Tenant's failure to fulfill Tenant's obligations under this Article. 14.4 Defined Terms. The following terms have the meanings ascribed thereto: 11 Environmental Laws. All now and hereafter existing statutes, laws, ordinances, codes, regulations, rules, rulings, orders, decrees, directives, policies and requirements by any Regulatory Authority regulating, relating to, or imposing liability or standards of conduct concerning public health and safety or the environment, including, without limitation, the Industrial Site Recovery Act (N.J.S.A. 13:1K-6 et seq.) ("ISRA"), the Spill Compensation and Control Act (N.J.S.A. 58:10-23.11 et seq.) ("Spill Act"), the Solid Waste Management Act (N.J.S.A. 13:1E-1 et seq.), the Resource and Conservation Recovery Act (Section 6901 et seq.) ("RCRA"), the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.) ("CERCLA"). Handle. Any installation, handling, generation, storage, treatment, use, disposal, discharge, release, manufacture, refinement, presence, migration, emission, abatement, removal, transportation, or any other activity of any type in connection with or involving Hazardous Substances. The term defined shall also include other verb forms of the verb "to handle". Hazardous Materials or Hazardous Substances. Any toxic substances, hazardous wastes, or hazardous substances, as defined in or pursuant to any Environmental Law. 14.5 Survival. Tenant's obligations and liabilities under this Article shall survive the expiration or earlier termination of this Lease. 15. SURRENDER BY TENANT AT END OF TERM. 15.1 Termination. (a) This Lease may be terminated upon mutual agreement of the parties. (b) This Lease shall terminate: (i) in the event that the Agreement is terminated in accordance with its terms as a result of a material breach by a party thereto, in which event the Expiration Date of this Lease shall be the thirtieth (30th) day following the termination of the Agreement, or (ii) in the event that this Lease is otherwise terminated in accordance with its terms, in which event the Expiration Date shall be the date on which this Lease is so terminated. 15.2 Surrender by Tenant at End of Term. On the Expiration Date, or the earlier termination hereof, unless resulting from the Closing under the Agreement, Tenant shall peaceably and quietly surrender and deliver up to Landlord possession of the Property, vacant and broom clean, in as good condition and repair as at the Commencement Date, ordinary wear and tear and damage by condemnation excepted. By the Expiration Date or earlier termination hereof, Tenant shall remove from the Leased Property all personal property and chattels of Tenant. 15.3 Landlord's Right to Remove. If Tenant fails to remove Tenant's personal property at such time as Landlord may be entitled to re-enter and take possession of the Leased 12 Property pursuant to any provision of this Lease, Landlord may remove Tenant's personal property from the Leased Property and to dispose of it or place it in a reasonably safe place of storage, such moving, disposal and storage to be at the sole cost and expense of Tenant. Tenant covenants and agrees to pay to Landlord all reasonable expenses which Landlord incurs for such removal, demolition, disposal and storage. Alternatively, at the option of Landlord, Tenant shall be deemed to have abandoned any or all of Tenant's personal property and the same may be disposed of or shall become the property of Landlord. 15.4 Holdover Rent. If Tenant holds over or remains in possession of the Leased Property after the expiration of the Term or after any earlier termination of this Lease, such holding over or continued possession shall create only a month to month tenancy. Tenant recognizes and agrees that (i) the damage to Landlord resulting from any failure by Tenant to surrender the Leased Property timely will be substantial, will exceed the amount of monthly Rent theretofore payable hereunder, and will be impossible of accurate measurement, and (ii) the minimum rent payable hereunder have been established in conjunction with and as part of the transactions contemplated by the Agreement, and absent the Agreement, Landlord would not have agreed to lease the Leased Property to Tenant at the monthly Rent payable theretofore payable hereunder. Therefore, Tenant shall pay rent for the period from the expiration or sooner termination of the Term of this Lease through and including the date when Tenant shall actually vacate and surrender the Leased Property in accordance with and as required by the provisions of this Lease, equal to the aggregate of (a) monthly rent at the rate of $13,000 per month ("Minimum Holdover Rent"), which the parties acknowledge is reasonable and fair compensation for the use of the Leased Property, and (b) Additional Rent specified in this Lease. The resulting month to month tenancy may be terminated at any time by either party as of the last day of any calendar month on not less than thirty (30) days' written notice given to the other party. 16. EVENT OF DEFAULT BY TENANT/OTHER TENANT DEFAULTS. 16.1 Events of Default. If during the Term there shall occur any of the following events ("Events of Default"): (a) if Tenant shall fail to pay Additional Rent within ten (10) days after written notice from Landlord; or (b) In the event that Tenant shall fail to observe any other requirement, obligation, agreement, covenant or condition of this Lease, other than the Events of Default expressly set forth in Section 17.1(a), and any such failure shall continue for thirty (30) days after written notice from Landlord specifying the basis for such default, or if such failure cannot reasonably be remedied within such time period, if Tenant shall not diligently commence to remedy such failure within such thirty (30) day time period and thereafter prosecute the same to completion with diligence; or 13 (c) if the Agreement shall be terminated as a result of a default by Buyer thereunder ,then at any time following any of such Event of Default, Landlord, may give Tenant notice of termination of this Lease and take possession of the Property, using appropriate judicial process. The giving of such notice to Tenant shall terminate Tenant's right to possession of the Leased Property under this Lease without discharging Tenant from any of its liabilities hereunder. 16.2 Conditions Precedent. This Lease shall automatically terminate without the requirement of any notice in the event that: (a) either party shall have become insolvent, or generally does not pay its debts as they become due, or admits in writing its inability to pay its debts, or makes a deed of trust or assignment for the benefit of creditors; or (b) a petition in bankruptcy, insolvency, receivership, dissolution or similar proceeding shall have been commenced voluntarily by a party; or (c) any such proceeding shall have been commenced involuntarily against a party and the same shall not have been dismissed or effectively stayed within sixty days from the commencement thereof. 16.3 Right of Re-Entry. If Landlord elects to terminate Tenant's right to possession of the Leased Property under Section 16.1 following an Event of Default or under Section 16.2, Landlord shall re-enter and take possession of the Leased Property (using appropriate judicial process), and Tenant shall be obligated to pay to Landlord upon demand, and Landlord shall be entitled to recover of and from Tenant, (a) all Rent payable to the date of termination of Tenant's right to possession, plus (b) the cost to Landlord of all reasonable legal and other expenses and costs (including attorney's fees) incurred by Landlord in obtaining possession of the Leased Property, plus (c) any reasonable costs and expenses incurred in enforcing any provision of this Lease. 17. SUBORDINATION. 17.1 Subordination. This Lease and all rights of Tenant hereunder are subject and subordinate to all mortgages which may now or hereafter affect the Property (any of the foregoing being herein referred to as a "Superior Mortgage") whether or not such Superior Mortgages shall also cover other lands and/or buildings and/or leases, to each and every advance made or hereafter to be made under such Superior Mortgages, and to all renewals, modifications, consolidations, replacements and extensions of such Superior Mortgages. This Article shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any certificate that Landlord, the holder of any Superior Mortgage, or any of their respective successors in interest may reasonably request to evidence such subordination. If Tenant fails to execute, acknowledge or deliver any such instruments within seven (7) days after request therefor, Tenant hereby 14 irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an interest, to execute any such certificate or certificates for and on behalf of Tenant. 17.2 Attornment. At the option of Landlord or any successor landlord, including the holder of any Superior Mortgage or the purchaser of the mortgaged premises in foreclosure who shall succeed to the Landlord's interest herein (collectively the "Successor Landlord"), Tenant agrees that neither the foreclosure of a Superior Mortgage, nor the institution of any suit, action, summary or other proceeding against the Landlord or any Successor Landlord, nor any foreclosure proceeding brought by the holder of any such Superior Mortgage to recover possession of the premises covered thereby, shall by operation of the law or otherwise result in cancellation or termination of this Lease or the obligations of the Tenant hereunder, and at the option and upon the request of any such Successor Landlord, Tenant covenants and agrees to attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. Upon such attornment, this Lease shall continue in full force and effect as a direct Lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease except that the Successor Landlord shall not: (a) be liable for any previous act or omission of Landlord under this Lease; (b) be subject to any offset not expressly provided for in this Lease, which theretofore shall have accrued to Tenant against Landlord; and (c) be bound by any previous modification of this Lease or by any previous prepayment of more than one month's Rent, unless such modification or prepayment shall have been expressly approved in writing by the holder of the Superior Mortgagee, through or by reason of which the Successor Landlord shall have succeeded to the rights of Landlord under this Lease. 18. QUIET ENJOYMENT. Landlord covenants that Tenant, on paying the Rent and performing the covenants and conditions contained in this Lease, shall and may peaceably and quietly have, hold and enjoy the Leased Property for the Term of this Lease, subject to the terms and conditions of this Lease. 19. CERTIFICATES. Tenant and Landlord each agree at any time and from time to time during the Term of this Lease, within 30 days after written request from Landlord or Tenant, as applicable, to execute, acknowledge and deliver to the other party or to such third person as requested by such other party, a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), and the dates to which the Additional Rent has been paid in advance, if any, and stating whether or not, to the best of such certifying party's knowledge, the other party is in default in the performance of any covenant, agreement or condition contained in this Lease, and, if so, specifying each such default of which 15 such certifying party may have knowledge. Such third person shall have the right to rely upon the contents of any such written statement of Tenant or Landlord. 20. NOTICES. Unless otherwise notified in writing to the contrary, any notice, election or request required or permitted by the terms hereof to be given by any party hereto shall be effectively delivered for all purposes if personally delivered or sent by certified or registered mail, return receipt requested, with first class postage prepaid, or by overnight delivery service with proof of delivery, and if directed to Landlord, properly addressed to it at the address for the Landlord set forth in the preamble of this Lease, with a copy of such notice to the Landlord's attorneys, Hoagland, Longo, Moran, Dunst & Doukas, 40 Paterson Street, P.O. Box 480, New Brunswick, New Jersey 08903, Attn: Gary Hoagland, Esq., and if directed to Tenant, properly addressed to it at the address for the Tenant set forth in the preamble of this Lease, with a copy of such notice to the Tenant's attorneys, Wolff & Samson, P.A., 5 Becker Farm Road, Roseland, New Jersey 07068, Attn: Jeffrey M. Gussoff, Esq. Every notice, demand, request or other communication hereunder shall be deemed to have been given or served (a) at the time that the same shall be deposited with the overnight courier or deposited in the United States mails, postage prepaid, in the manner aforesaid, or (b) when received if delivered personally or sent by facsimile transmission. 21. INTERPRETATION. Unless otherwise specified, the rules of construction set forth in this Article shall be applicable for all purposes of this Lease and all documents or instruments supplemental hereto: (a) All references herein to numbered Articles, Sections, Subsections, Schedules or Exhibits are references to the Articles, Sections and Subsections hereof, and the Schedules and Exhibits attached hereto. The terms "include, " "including" and similar terms shall be construed as if followed by the phrase "without being limited to". Singular words include the plural and plural words include the singular. The term "person" shall include natural persons, firms, trusts, partnerships, corporations and any other public and private legal entities. The term "provisions" when used with respect hereto or to any other document or instrument, shall be construed as if preceded by the phrase "terms, covenants, agreements, requirements, conditions and/or." The terms "hereto," "herein, " "hereof," "hereunder" and similar terms shall refer to this Lease in its entirety, unless the context clearly indicates otherwise. Article, Section, Subsection, Schedule and Exhibit captions are used for convenience and reference only and in no way define, limit or affect the construction of the provisions hereof. No inference in favor of any party shall be drawn from the fact that such party has drafted any portion hereof. All recitals set forth in, and all schedules and exhibits to, this Lease are incorporated by reference in this Lease. The terms "lease" or "sublease" shall mean "lease, sublease, tenancy, subtenancy, letting, subletting, license or sublicense" and the term "tenant" shall mean "subtenant, lessee, sublessee, licensee, sublicensee or occupant." Words importing any gender or number shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or item requires. The term "the date hereof' or like term shall mean the date when a fully executed copy of this Lease has been delivered to both Landlord and Tenant (or their counsel). 16 (b) If any provision of this Lease is held to be illegal, invalid or unenforceable, and if the rights or obligations of any party hereto under this Lease will not be materially and adversely affected thereby, such provision will be fully severable, this Lease will be construed and enforced as if such an illegal, invalid or unenforceable provision had never comprised a part hereof, and the remaining provisions of this Lease will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance. (c) All of the terms and provisions of this Lease shall be deemed and construed to be "covenants" and "conditions" to be performed by the respective parties as though words specifically expressing or importing covenants and conditions were used in each separate term and provision hereof. (d) The parties hereto agree that they have mutually prepared and reviewed this Lease and no rules of construction shall be adversely applied against either as the preparer of this Lease. (e) This Lease may be executed simultaneously in a number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 22. BROKERAGE REPRESENTATION. Tenant and Landlord each represents and warrants to the other that it knows of no person who is entitled to a commission or sum in lieu thereof in connection with the execution of this Lease or the creation of the tenancy effected by this Lease, and each agrees to save, defend and indemnify the other from and against any claims, costs or damages attributable to any misrepresentation or breach of warranty by the indemnitor hereunder. 23. ENTIRE AGREEMENT/ NO WAIVER. 23.1 Entire Agreement. This Lease, and the exhibits attached hereto, constitute the entire agreement between the parties with respect to the subject matter hereof, and supersede any and all prior communications or writings with respect thereto and there are no oral or written understandings, representations or commitments of any kind, express or implied, which are not expressly set forth herein or in the Agreement. 23.2 Modifications Must be in Writing. No oral or written modification of this Lease by any officer, agent or employee of Tenant or Landlord, either before or after execution of this Lease, shall be of any force or effect unless such modification is in writing and signed by both parties. 23.3 No Waiver of Future Violations. The waiver of any breach or failure to enforce any of the terms, covenants or conditions of this Lease shall not in any way (a) affect, limit, modify or waive the future enforcement of such terms, covenants or conditions, or (b) constitute 17 a waiver of any breach or failure of any other terms, covenants or conditions, any course of dealing or custom of the trade notwithstanding, or (c) prevent a subsequent act, which would have originally constituted a breach or violation, from having all the force and effect of an original breach or violation. 23.4 No Waiver Upon Receipt of Rent. The receipt by Landlord of Rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly Rent herein stipulated shall be deemed to be other than on account of the earliest stipulated Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment of Rent be deemed an accord and satisfaction, and Landlord may accept and deposit such check or payment without prejudice to Landlord's right to recover the balance of such Rent or pursue any other remedy in this Lease provided. 23.5 Force Majeure. If Landlord or Tenant shall be delayed, hindered in or prevented from the performance of any acts required hereunder, other than the payment of Rent, or timely surrender of the Leased Property by Tenant, by reason of Force Majeure, then performance of such acts shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equal to the period of such delay. The term "Force Majeure" means any cause beyond a party's reasonable control, including Acts of God, strikes, blackouts, failure of power, labor troubles, shortage of materials or services, governmental preemption in connection with a national or local emergency, riots, insurrection, the act or failure to act of the other party, or by reason of any rule, order or regulation of any governmental agency or by reason of the conditions of supply and demand which have been or are affected by war, hostilities or similar emergency. 23.6 Further Assurances. From time to time, at the Landlord's or the Tenant's reasonable request and without further consideration, the Tenant or the Landlord, as the case may be, shall execute and deliver such other instruments and take such other actions as the Landlord or the Tenant may request in order to more effectively convey, lease to, invest in the Tenant and to put the Tenant in possession and operating control of all or any part of the Leased Property, and to otherwise consummate the transactions contemplated hereby. 23.7 Binding Effect. This Lease shall bind and inure to the benefit of and be enforceable by the parties hereto, and their respective successors and assigns. 23.8 No Third Party Rights. This Lease shall not be construed to create any rights under this Lease in any third party, whether as a third party beneficiary or otherwise. Nothing contained herein may be relied upon or enforced by any person or entity other than the Landlord and the Tenant. 23.9 No Recording. None of the parties hereto shall have any right to record or file this Lease or any memorandum or other document relating to this Lease prior to the Closing, except for a Notice of Settlement. 18 24. NEW JERSEY LAW. This Lease shall be governed by and construed in accordance with the laws of the State of New Jersey. Landlord and Tenant hereby mutually waive their rights to trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, Tenant's use or occupancy of the Lease Property, and any claim of injury or damage. Tenant hereby waives, to the fullest extent permitted by law, the right to interpose any counterclaim (other than compulsory counterclaims) in any summary proceeding instituted by Landlord against Tenant or in any action instituted by Landlord for unpaid Rent under this Lease. 25. CONSENTS. In the event the Tenant claims or asserts that the Landlord has violated or failed to perform a covenant of Landlord not to unreasonably withhold or delay Landlord's consent or approval, or in any case where Landlord's reasonableness in exercising its judgment is in issue, Tenant's sole remedy shall be an action for specific performance, declaratory judgment or injunction and in no event shall Tenant be entitled to any money damages for a breach of such covenant and in no event shall Tenant claim or assert any claims for money damages in any action or by way of set-off, defense or counterclaim and Tenant hereby specifically waives the right to any money damages or other remedies. Whenever Landlord's consent or approval is required under this Lease, and this Lease does not specify that such consent or approval shall not be unreasonably withheld or delayed, Landlord may determine whether to grant or withhold such consent or approval in its sole and absolute discretion, regardless of whether such refusal to consent or approve may be deemed arbitrary. Whenever this Lease requires Landlord's consent or approval, Tenant shall reimburse Landlord on demand as a condition to granting such consent or approval any costs that may be incurred in connection with reviewing the request for consent or approval, including, without limitation, reasonable attorneys' fees. 26. LIMITATION OF LIABILITY AND INDEMNIFICATION. 26.1 Limitation on Liability. Landlord shall not be liable to Tenant for (a) any loss, injury or damage to property of Tenant or for any loss of or damage to any property of Tenant or others by theft or action by a third party, (b) any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain or snow leaks from any part of the Leased Property or from the pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or by dampness or by any other cause of whatsoever nature, (c) any of the foregoing damage, loss or injury caused by operations in construction of any private, public or quasi-public work, or (d) any damage, loss or injury caused by or attributable, in whole or in part, to any latent defect in. the Leased Property. 26.2 Indemnification. Tenant shall indemnify and hold harmless Landlord and all Superior Mortgagees and its and their respective partners, directors, officers, agents and employees from and against any and all claims, actions, liabilities, losses, penalties, damages, costs and expenses (including, without limitation, the reasonable fees and expenses of counsel, 19 including those to enforce this indemnity) (collectively the "Damages"), arising from or in connection with: (a) the conduct or management of the Leased Property, or any work or thing whatsoever done, or any condition created in or about the Leased Property during the term of this Lease or any holdover period; (b) any act, omission or negligence of Tenant or any of its permitted subtenants or permitted licensees or its or their partners, directors, officers, agents, employees or contractors; (c) any accident, injury or damage whatever (unless caused solely by Landlord's negligence) occurring in, at or upon the Leased Property; and (d) any breach or default by Tenant in the full and prompt payment and performance of Tenant's obligations under this Lease. In case any action or proceeding be brought against Landlord and/or any Superior Mortgagee and/or its or their partners, directors, officers, agents and/or employees by reason of any such claim, Tenant, at its expense, upon notice from Landlord or such Superior Mortgagee, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Landlord and/or such Superior Mortgagee. The provisions of this Section 26.2 shall survive the expiration or earlier termination of this Lease. 26.3 Landlord for the Time Being. The obligations of Landlord under this Lease shall not be binding upon Landlord named herein after the sale, conveyance, assignment or transfer by such Landlord (or upon any subsequent landlord after the sale, conveyance, assignment or transfer by such subsequent landlord) of the Leased Property, and in the event of any such sale, conveyance, assignment or transfer, Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder, and it shall be deemed and construed without further agreement between the parties or their successors in interest, or between the parties and the purchaser, grantee, assignee or other transferee that such purchaser, grantee, assignee or other transferee has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. In no event shall any guardian, trustee, advisor, beneficiary, director, officer, partner, employee, owner or principal or any partner or other person or entity comprising the Landlord (collectively, the "Parties"), be liable for the performance of Landlord's obligations under this Lease. Tenant shall look solely to Landlord to enforce Landlord's obligations hereunder and shall not seek any damages against any of the Parties. The liability of Landlord for Landlord's obligations under this Lease shall not exceed and shall be limited to Landlord's interest in the Leased Property and Tenant shall not look to any other property or assets of Landlord or the property or assets of any of the Parties in seeking either to enforce Landlord's obligations under this Lease or to satisfy a judgment for Landlord's failure to perform such obligations. 20 27. AUTHORITY. 27.1 Landlord's Authority. Landlord covenants that Landlord is a limited partnership duly organized and validly existing under the laws of the State of New Jersey. This Lease is, all other agreements and documents to be delivered by the Landlord hereunder, when executed and delivered by the Landlord in accordance with the provisions hereof and thereof, will valid and binding obligations of the Landlord enforceable in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, moratorium, reorganization or other laws of general applicability relating to or affecting the enforcement of creditors' rights generally or by general principles of equity. 27.2 Tenant's Authority. Tenant covenants that Tenant is a corporation duly organized and validly existing under the laws of the State of Delaware, and that Tenant is duly authorized to enter into this Lease. This Lease is, and all other agreements and documents to delivered by Tenant hereunder are valid and binding obligations of Tenant enforceable accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, moratorium, reorganization or other laws of general applicability relating to affecting the enforcement of creditors' rights generally or by general principles of equity. IN WITNESS WHEREOF, the parties have caused this Lease to be executed by their duly authorized representations and, if applicable, and attested, all as of the day and year first above written. CORUM REALTY, LIMITED PARTNERSHIP By: ---------------------------------- Name: Mildred C. Campbell Title: General Partner By: ---------------------------------- Name: H. Stuart Campbell Title: General Partner IMCLONE SYSTEMS INCORPORATED By: ---------------------------------- Name: Title: 21 Exhibit A - Leased Property The Leased Property consists of the hatched area marked in the diagram below: [LEASED PROPERTY BLUEPRINT] EXHIBIT D Post Closing Lease POST CLOSING LEASE between IMCLONE SYSTEMS INCORPORATED, landlord, and HIGHLAND PACKAGING LABS, INC., tenant, As of January , 2002 TABLE OF CONTENTS
PAGE 1. THE LEASED PROPERTY ................................................... 1 2. TERM .................................................................. 2 3. USE OF THE LEASED PROPERTY ............................................ 2 4. RENT AND ADDITIONAL RENT .............................................. 3 5. INSURANCE ............................................................. 4 6. UTILITIES ............................................................. 6 7 DESTRUCTION ........................................................... 6 8. COMPLIANCE WITH LAWS .................................................. 6 9. ALTERATIONS AND REPAIRS ............................................... 7 10. SIGNS ................................................................. 8 11. ACCESS TO THE PROPERTY ................................................ 8 12. ASSIGNMENT AND SUBLETTING ............................................. 9 13. CONDEMNATION .......................................................... 10 14. ENVIRONMENTAL COMPLIANCE .............................................. 10 15. SURRENDER BY TENANT AT END OF TERM .................................... 12 16. EVENT OF DEFAULT BY TENANT/OTHER TENANT DEFAULTS ...................... 13 17. SUBORDINATION ......................................................... 14 18. QUIET ENJOYMENT ....................................................... 15 19. CERTIFICATES .......................................................... 15 20. NOTICES ............................................................... 16 21. INTERPRETATION ........................................................ 16 22. BROKERAGE REPRESENTATION .............................................. 17 23. ENTIRE AGREEMENT/ NO WAIVER ........................................... 17 24. NEW JERSEY LAW ........................................................ 19 25. CONSENTS .............................................................. 19 26. LIMITATION OF LIABILITY AND INDEMNIFICATION ........................... 19 27. AUTHORITY ............................................................. 21
POST CLOSING LEASE THIS POST CLOSING LEASE (this "Lease"), made as of the ____ th day of January, 2002, by and between IMCLONE SYSTEMS INCORPORATED, a Delaware corporation, having an address at 180 Varick Street, New York, New York 10014 (the "Landlord"), and HIGHLAND PACKAGING LABS, INC., a New Jersey corporation, having an address at 1181 Route 202, Somerville, New Jersey 08876 (the "Tenant"). WITNESSETH: WHEREAS, contemporaneously with the execution and delivery hereof and pursuant to an Agreement of Purchase and Sale dated as of December ___, 2001, (the "Agreement"), Landlord has purchased from Corum Realty, Limited Partnership ("Corum"), the Property (as defined in the Agreement), including, without limitation, the land and improvements commonly known as 1181 Route 202, Branchburg, Somerset County, New Jersey; and WHEREAS, Tenant operates a packaging operation (the "Business") at a portion of the Property; and WHEREAS, Tenant is under common control with Corum and is wholly owned by Corum's general partners; and WHEREAS, Tenant is currently marketing the Business for sale as a going concern and desires to occupy the Leased Property for the term provided herein in order to effect such sale or to otherwise liquidate the Business; and WHEREAS, Landlord is hereby leasing to Tenant, and Tenant is hereby leasing from Landlord, a portion of the Property more fully described or depicted on Exhibit A hereto (the "Leased Property"), on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and commitments contained therein, the parties covenant and agree as follows: 1. THE LEASED PROPERTY. Landlord, for and in consideration of the covenants and agreements hereinafter mentioned, reserved and contained, to be kept and performed by Tenant, does hereby demise and lease unto Tenant and Tenant does hereby lease and hire from Landlord, the Leased Property, together with access across, through and/or over portions of the Property as is and shall be necessary or advisable to allow Tenant to access the Leased Property for the purposes hereinafter provided. It is understood and agreed between the parties hereto that the Tenant has thoroughly inspected the Leased Property demised hereunder and, is thoroughly familiar with the condition of the Leased Property demised hereunder and agree to accept the Leased Property in its "as is, where is, with all faults" condition. Landlord makes no representations whatsoever with respect to the condition of Leased Property demised hereunder. 2. TERM. Landlord leases unto Tenant and Tenant hires from Landlord the Leased Property for the Term to commence on the Commencement Date, and to end on the Expiration Date. The "Commencement Date" shall be the date hereof. The "Expiration Date" shall be the earliest to occur of (a) April 30, 2002; unless the term of this Lease is extended through June 30, 2002 in accordance with Paragraph 15 hereof (b) the date, if any, mutually agreed upon by the parties and (c) any other termination of this Lease in accordance with its terms. 3. USE OF THE LEASED PROPERTY. 3.1 Use of the Leased Property. Tenant covenants and agrees to use the Leased Property only for the Permitted Use and at all times subject to the Approvals (as hereinafter defined), if any. The term "Permitted Use" means the operation of the Business, and for no other use whatsoever. 3.2 Approvals. Tenant, at its cost and expense, shall duly procure and thereafter maintain all Approvals, if any, which shall be required for the proper and lawful conduct of the Permitted Use on the Leased Property or any part thereof, and Tenant shall furnish a photostatic copy thereof to Landlord upon Landlord's request therefor. The term "Approvals" means all governmental requirements and conditions relating to the Permitted Use. Tenant shall at all times comply with the terms and conditions of each such Approval. Landlord and Tenant agree to reasonably cooperate with each other in the obtaining of the necessary permits and approvals in connection with each other's operations. 3.3 Reservation of Rights. Landlord reserves the right at any time, without incurring any liability to Tenant therefor, and without affecting or reducing any of Tenant's covenants and obligations hereunder, to make such changes, alterations, additions and improvements in or to the street entrances, parking lots, roadways and driveways, as Landlord, in its sole and absolute discretion, shall deem necessary or desirable to comply with the requirements of any federal, state or local governmental agency, commission, board or political subdivision (each a "Regulatory Authority"). Landlord reserves the right, and Tenant shall permit Landlord, (i) to install, erect, use and maintain pipes, ducts and conduits in and through the Leased Property and (ii) to make such repairs, changes, alterations, additions and improvements in or to the Leased Property as Landlord is required to make by Regulatory Authorities. Landlord shall be allowed to take all materials into and upon the Leased Property that may be required in connection therewith without any liability to Tenant and without the same constituting an eviction of Tenant, in whole or in part, and without any abatement or reduction in Rent payable hereunder or any reduction of Tenant's covenants and obligations hereunder. 2 4. RENT AND ADDITIONAL RENT. 4.1 Minimum Rent. No minimum rent shall be payable by Tenant to Landlord in connection with this Lease. The term "Rent" means all amounts payable by Tenant to Landlord hereunder, including minimum rent, if any, and Additional Rent (as hereinafter defined). 4.2 Additional Rent. Any and all charges other than the minimum rent payable by Tenant under the various sections of this Lease, whether to Landlord or directly to other persons shall be referred to herein as "Additional Rent". Tenant shall provide Landlord with proof of payment thereof upon Landlord's request. In the event of non-payment of any item of Additional Rent, Landlord shall have all the rights and remedies with respect thereto as is herein and at law provided for in case of non-payment of Rent. 4.3 Operating Expenses. During the Term of this Lease, Tenant shall timely pay (a) by direct contract or by reimbursement of Landlord promptly after demand all costs and expenses relating to or allocable to the ownership, management, repair, maintenance, replacement, restoration or operation of the Leased Property (collectively, "LP Operating Expenses"), if any, and (b) by reimbursement of Landlord promptly after demand, Tenant's Proportionate Share (as defined below) of all costs and relating to or allocable to the ownership, management, repair, maintenance, replacement, restoration or operation of the portion of the Property not constituting the Leased Property (collectively, the "Property Operating Expenses"). 4.4 Tenant's Proportionate Share. Tenant's Proportionate Share shall be equal to one hundred (100%) percent. 4.5 Taxes. Tenant shall pay to Landlord promptly after demand Tenant's Proportionate Share of all Taxes. The term "Taxes" means the sum of the real estate taxes and assessments, special assessments, impositions, and other governmental charges of every kind and nature whatsoever, extraordinary, as well as ordinary, unforeseen, as well as foreseen, and each and every installment thereof, which during the Term shall be charged, laid, levied, assessed, imposed, become due and payable, or liens upon the Property or any part thereof, by any federal, state or local authorities having jurisdiction thereto, and all taxes, assessments, imposition and charges levied or imposed in place of or in addition to any of the foregoing, together with all interest and penalties thereof, under or by virtue of all present or future laws, ordinances, requirements, orders, directions, rules or regulations of any Regulatory Authority. Taxes shall not include any federal, state or municipal income tax, or any profit, inheritance, estate, succession, gift, franchise or transfer tax imposed directly upon Landlord. The term "Tax Year" means each 12 month period (deemed for the purposes of this definition to have 365 days) established as the tax year by the taxing authorities having lawful jurisdiction over the Property. 4.6 Security Deposit. Contemporaneously with the execution and delivery hereof, Tenant has deposited with Landlord a security deposit in the amount of $400,000 for the 3 payment of Rent and the full and faithful performance by the Tenant of the covenants and conditions on the part of the Tenant to be performed hereunder. In the event Tenant defaults in respect to any of the terms, provisions and conditions of this Lease, including, but not limited to, the payment of Rent and Additional Rent, Landlord may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any Rent and Additional Rent or any other sum as to which Tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this Lease, including but not limited to, any damages resulting from Tenant's failing to timely and properly vacate the Leased Property on the Expiration Date, whether such damages accrued before or after summary proceedings or other re-entry by Landlord. Subject to the provisions of this Section 4.6, said sum (or the balance thereof) shall be returned to the Tenant, without interest, after the expiration of the term hereof, provided that the Tenant has fully and faithfully performed all such covenants and conditions and is not in arrears in Rent. If Landlord applies or retains any part of the security so deposited, Tenant, upon demand, shall deposit with Landlord the amount so applied or retained, so that Landlord shall have the full security on hand at all times during the term of this Lease. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Landlord nor its successors or assigns shall be bound by any assignment, encumbrance, attempted assignment or attempted encumbrance. 5. INSURANCE. 5.1 Tenant's Insurance. Tenant shall maintain during the term of this Lease the following coverages. (a) Physical Damage Insurance covering (i) all of Tenant's property on the Leased Property, and (ii) any improvements, additions and alterations made to the Leased Property by Tenant (collectively, "Tenant Improvements"). (b) Comprehensive General Liability Insurance including Product/Completed Operations Liability, covering the insured against claims of bodily injury, personal injury and property damage arising out of Tenant's operations, assumed liabilities or use of the Leased Property, including a Broad Form Comprehensive General Liability endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in this Lease, for limits of liability not less than: Bodily Injury and $1,000,000 each occurrence Property Damage Liability $1,000,000 annual aggregate Personal Injury Liability $1,000,000 each occurrence $1,000,000 annual aggregate 0% Insured's participation 4 (c) Automobile Liability Insurance for all owned, nonowned and hired vehicles, covering the insured against claims of bodily injury and property damage with limits of liability not less than $1,000,000 each occurrence. (d) Workers Compensation and Employer's Liability Insurance with limits of liability not less than: Workers Compensation Statutory Limits Employer's Liability $1,000,000/$1,000,000/$1,000,000 (e) Umbrella Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage with limits of liability of not less than $4,000,000 in excess of the limits provided in 5.1(b) and 5.1(c). (f) Tenant shall carry and maintain during the entire term of this Lease, at Tenant's sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article, and such other reasonable types of insurance coverage and in such reasonable amounts, as may be reasonably requested by Landlord. 5.2 Compliance With Insurance Requirements. Tenant shall neither use the Leased Property nor permit the Leased Property to be used or acts to be done therein which will (a) increase the premium of any insurance described in this Article; (b) cause a cancellation of or be in conflict with any such insurance policies; (c) result in a refusal by insurance companies of good standing to insure the Leased Property in amounts reasonably satisfactory to Landlord; or (d) subject Landlord to any liability or responsibility for injury to any person or property by reason of any operation being conducted in the Leased Property. Tenant shall, at Tenant's expense, comply as to the Leased Property with all insurance company requirements pertaining to the use of the Leased Property. If Tenant's conduct or use of the Leased Property causes any increase in the premium for such insurance policies, then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) AND with any similar body. 5.3 Waiver of Subrogation. Landlord and Tenant agree to have their respective insurance companies issuing property damage insurance waive any rights of subrogation that such companies may have against Landlord or Tenant. As long as such waivers of subrogation are contained in their respective insurance policies, Landlord and Tenant hereby waive any right that either may have against the other on account of any loss or damage to their respective property to the extent such loss or damage is insurable under policies of insurance for fire and all risk coverage, theft, public liability, or other similar insurance. 5.4 Standards for Insurance. The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such 5 insurance shall (i) name Landlord, and any other party it so specifies, as additional insureds; (ii) specifically cover the liability assumed by Tenant under this Lease; (iii) be issued by an insurance company having a rating of not less than A-X in Best's Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of New Jersey; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and non-contributing with any insurance requirement of Tenant; (v) provide that said insurance shall not be canceled or coverage changed unless thirty (30) days' prior written notice shall have been given to Landlord and any mortgagee of Landlord; and (vi) contain a cross-liability endorsement or severability of interest clause acceptable to Landlord. Tenant shall deliver duplicate copies of said policy or policies or original certificates thereof to Landlord on or before the Commencement Date and at least thirty (30) days before the expiration dates thereof. In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent within five (5) days after delivery to Tenant of bills therefor. 6. UTILITIES. Tenant shall pay all utility meter, connection and service charges, including those for gas, sewer, electricity, water and standby sprinkler and any deposits required by utility suppliers. Landlord shall not be required to furnish any utilities to Tenant. 7. DESTRUCTION. If at any time during the term hereof the Leased Property shall be damaged or destroyed in whole or in part by fire or other casualty or by the elements, Tenant shall give notice thereof to Landlord. Landlord, at Landlord's option, may terminate this Lease upon notice to Tenant and Tenant shall have thirty (30) days after the giving of such notice to vacate and surrender the Leased Property to Landlord. 8. COMPLIANCE WITH LAWS. Tenant, at its expense, shall comply with the Approvals and with all laws, orders, ordinances, regulations and requirements of Regulatory Authorities and directions made pursuant to law by any public officer or officers which, in respect of the Leased Property or the use and occupancy thereof or the abatement of any nuisance in, on or about the Leased Property, shall impose any violation, order or duty upon Landlord or Tenant arising from (a) Tenant's occupancy, use or manner of use of the Leased Property, (b) any installations, equipment or other property therein, (c) any cause or condition created by or at the instance of Tenant, or (d) any breach of any of Tenant's obligations hereunder. Tenant shall pay to Landlord, as Additional Rent hereunder, promptly upon being billed therefor, amounts equal to all costs, expenses, fines, penalties and damages which may be imposed upon or incurred by Landlord by reason of or arising out of Tenant's failure to fully and promptly comply with and observe the provisions of this Section. Tenant shall give prompt notice to Landlord of any notice that Tenant may receive of the violation of any law, ordinance, order, regulation, or requirement of any public authority or direction of any public officer or official applicable to the Leased Property. 6 9. ALTERATIONS AND REPAIRS. 9.1 Tenant's Obligations to Repair and Maintain. (a) Tenant, at its sole cost and expense, throughout the term of this Lease, shall keep and maintain in good working order and condition the Leased Property, the Tenant Improvements, the equipment, fixtures and appurtenances therein, and shall make all repairs and replacements, interior and exterior, structural and non-structural, ordinary and extraordinary, in and to the Leased Property as and when needed to keep and maintain them in good working order and condition. In addition, Tenant shall be responsible, at its sole cost and expense, for making all repairs, wherever on or with respect to the Leased Property occurring, the need for which is caused by or arises out of (i) the performance or existence of any Tenant's construction work or alterations, (ii) the moving of any property of Tenant in or out of the Property, and (iii) the acts, omission, neglect, improper conduct or other cause of Tenant or any of its permitted sublessees, or its or their employees, agents, contractors, visitors, licensees or invitees. (b) All repairs, maintenance and replacements which Tenant is responsible for pursuant to this Section shall be performed in accordance with the requirements of this Article. If Tenant fails to make any repairs, restorations or replacements for which Tenant is responsible under this Lease, Landlord, after notice to Tenant and reasonable opportunity to do so, except in an emergency when no notice shall be required, may (but shall not be obligated to) make same and Landlord's costs of doing so shall be collectible as Additional Rent hereunder and shall be paid by Tenant to Landlord within five (5) days after rendition of Landlord's bill or statement therefor. 9.2 Limitation in Liability. Except as otherwise may be expressly provided in this Lease, Landlord shall have no liability to Tenant, nor shall Tenant's covenants and obligations under this Lease be reduced or abated in any manner whatsoever by reason of any inconvenience, annoyance, interruption or injury to business arising from Landlord's making any repairs or changes which Landlord is required or permitted by this Lease, or required by law, to make in or to any portion of the Property. 9.3 Tenant Changes. Tenant shall make no alterations, decorations, installations, additions or improvements in or to the Leased Property. 9.4 Mechanic's Lien. (a) Tenant will not do any act or suffer any act which will, in any way, encumber the title of Landlord (or Tenant) in and to the Leased Property nor will the interest or estate of Landlord or Tenant in the Leased Property be in any way subject to any claim by way of lien or encumbrance, whether by operation of law or by virtue of any express or implied contract by Tenant. Tenant will not suffer or permit any liens to be filed against the Leased Property, or any part thereof, by reason of any work, labor, services or materials done for, or supplied, or claimed to have been done for, or supplied to Tenant, or anyone holding the Leased 7 Property, or any part thereof, through or under Tenant. If any such lien is at any time filed against the Leased Property, Tenant will cause the same to be discharged of record within ten (10) days after the date of filing the same, by either payment, deposit or bonding and if Tenant shall fail to do so, then, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, procure the discharge of the same either by paying the amount claimed to be due by deposit in court or bonding, and/or Landlord will be entitled, if Landlord so elects, to compel the prosecution of an action for the foreclosure of such lien by the lien or and to pay the amount of the judgment, if any, in favor of the lienor with interest, costs and allowances. Any amount paid or deposited by Landlord for any of the aforesaid purposes, and all legal and other expenses of Landlord, including reasonable attorneys' fees, in defending such action or in procuring the discharge of such lien, with all necessary disbursements in connection therewith, will become due and payable as Additional Rent on the date of payment or deposit as the case may be. (b) Nothing in this Lease shall be deemed to be, or construed in any way as constituting, the consent or request of Landlord, express or implied by inference or otherwise, to any person, firm or corporation for the performance of any labor or the furnishing of any materials for any construction, rebuilding, alteration or repair of or to the Leased Property or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials which might in any way give rise to a right to file any lien against Landlord's interest in the Leased Property. 10. SIGNS. Tenant may maintain its currently existing exterior and interior signs on the Leased Property; provided, however, that such signs are consistent with the Approvals and comply with all laws, ordinances and regulations of Regulatory Authorities. 11. ACCESS TO THE PROPERTY. Tenant shall permit Landlord or its agents to enter the Leased Property, at reasonable times, for the purpose of inspecting the Leased Property; provided, however, that Landlord shall be under no obligation to so inspect. Landlord agrees not to interfere with Tenant's business operations in exercising its rights hereunder and to give Tenant prior notice of its exercise of such rights. Tenant is and shall be in exclusive control and possession of the Leased Property as provided herein, and Landlord shall not in any event whatsoever be liable for any injury or damage to any Leased Property or to any person happening on or about the Leased Property, nor for any injury or damage to the Leased Property, nor to any property of Tenant, or of any other person located on in the Leased Property. The provisions hereof permitting Landlord to enter and inspect the Leased Property are made for the purpose of enabling Landlord to be informed as to whether Tenant is complying with the agreements, terms, covenants and conditions hereof and to do such acts as Tenant shall fail to do. 8 12. ASSIGNMENT AND SUBLETTING. 12.1 Prohibited Transfers. (a) Tenant shall not, whether voluntarily or involuntarily, by operation of law or otherwise, without Landlord's consent, which Landlord may withhold in its sole and absolute discretion, (i) assign or otherwise transfer this Lease or any interest therein or offer or advertise to do so, except as set forth in Section 12.3 below; and (ii) sublet or suffer or permit the Leased Property or any part thereof to be used, occupied or utilized by anyone other than Tenant or offer or advertise to do so, or (iii) mortgage, pledge, encumber or otherwise hypothecate (any of which shall be referred to as a "Mortgaging") this Lease or the Leased Property or any part thereof in any manner whatsoever. (b) The consent by Landlord to any assignment, subletting or mortgaging shall not in any manner be construed to relieve Tenant, or any assignee or sublessee from obtaining Landlord's prior express written consent to any other or further assignment, subletting, or Mortgaging. In no event shall any permitted sublessee assign or encumber its sublease or further sublet all or a portion of its sublet space, or otherwise suffer or permit the sublet space or any part thereof to be used or occupied by others. 12.2 Transfers of Interests in Entities. For purposes of this Article, the transfer by any means of the legal or beneficial interests in either voting power, capital or profits in Tenant or in any corporation, partnership or other entity directly, or indirectly comprising Tenant, of the majority of the issued and outstanding capital stock of any corporate Tenant or subtenant, or the transfer of a majority of the beneficial interest in any other entity (partnership or otherwise) which is the Tenant or a subtenant, however accomplished, whether in a single transaction or in a series of related or unrelated transactions, shall be deemed an assignment of this Lease or a sublease, as the case may be. Tenant agrees to furnish Landlord with such information as Landlord may reasonably request from time to time in order to assure Landlord that neither Tenant nor any permitted subtenant have violated the provisions of this Article. Notwithstanding the foregoing, the trading of Tenant's shares on a public stock market shall not be a transfer or assignment in violation of this Article. 12.3 Limited-Right of Assignment. Tenant's interest in this lease may be assigned to the buyer of the Business on (but not prior to) the closing date of the sale of the Business; provided, that (x) Landlord shall have received no less than ten (10) days prior notice of such assignment and (y) assignee acknowledges in writing that assignee shall vacate the Property by no later than April 30, 2002 unless this Lease is extended to June 30, 2002 pursuant to Section 15.1(b) below, in which event assignee shall vacate the Property by no later than June 30, 2002. Tenant shall not be relieved of any of its obligations under this Lease by virtue of any assignment and shall remain fully liable hereunder. 9 13. CONDEMNATION. Each party shall give to the other prompt notice of any actual or threatened taking or condemnation of all or any portion of any of the Leased Property. If, during the Term of this Leased Lease, there shall occur a taking or condemnation of all or any substantial portion of the Property, or a deed has been given in lieu thereof, or, if there is pending any proceeding in condemnation or eminent domain for the taking or use of all or any substantial part of the Leased Property, then, in such event, this Lease shall terminate, in which event neither party shall have any further rights or obligations hereunder except as expressly set forth to the contrary herein. If there is a condemnation or taking of any Leased Property which is not deemed to be substantial, this Lease shall continue in effect. In any event, all damages awarded for such taking under the power of eminent domain, whether for the whole or a part of the Leased Property, shall belong to and be the property of Landlord, whether such damages shall be awarded as compensation for diminution in value to the leasehold or to the fee; provided, however, that Tenant shall, to the extent that same shall not reduce Landlord's award, be entitled to any award from the condemnor for loss of business and depreciation to, and cost of removal of, stock and fixtures. The terms "condemnation," "taking" or similar terms as herein used shall mean the acquisition by a public or quasi-public authority having the right to take the same by condemnation or by power of eminent domain or otherwise, regardless of whether such taking is the result of actual condemnation or of voluntary conveyance. 14. ENVIRONMENTAL COMPLIANCE. 14.1 Environmental Compliance. (a) Tenant, at its expense, shall comply with all applicable Environmental Laws with respect to its use and occupancy of the Leased Property; provided, however, that nothing herein contained shall be construed as limiting or waiving any of Corum's obligations as seller under the Agreement. (b) No Hazardous Materials, shall be handled, upon, about, above or beneath the Leased Property or any portion thereof by or on behalf of Tenant, or its contractors, clients, officers, directors, employees, agents, or invitees. Any such Hazardous Materials so Handled shall be known as Tenant's Hazardous Materials. Notwithstanding the foregoing, normal quantities of Tenant's Hazardous Materials customarily used in connection with the Permitted Use may be Handled at the Leased Property. Tenant's Hazardous Materials permitted by the foregoing sentence shall be Handled at all times in compliance with the manufacturer's instructions therefor and all applicable Environmental Laws. Tenant agrees to execute affidavits, representations, and the like from time to time at Landlord's request stating Tenant's best knowledge and belief regarding the presence of Hazardous Materials on the Leased Property. (c) Landlord and Tenant shall immediately notify the other if it receives: (i) any notices or correspondence from the NJDEP (as defined below) alleging the presence or release of any Hazardous Material in, on, around or under the Leased Property; or (ii) any information suggesting or demonstrating the release or presence of any Hazardous Material in, on, around or under the Leased Property. 10 14.2 ISRA. (a) Landlord and Tenant acknowledge that the Permitted Use may cause the Leased Property to be subject to the provisions of the Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq. and the regulations promulgated thereunder and any successor legislation and regulations ("ISRA"). Except as set forth in the Agreement to be obligations of Corum, as seller, Tenant shall, at Tenant's own expense, make all submissions to, provide all information to, and comply with all requirements of, the Industrial Site Evaluation Element (the "Element") of the New Jersey Department of Environmental Protection ("NJDEP") in connection with any ISRA compliance required as a result of Tenant's use of the Leased Property. Tenant shall provide copies to Landlord of all materials submitted to and received from NJDEP pursuant to ISRA. (b) Tenant's obligations under this Article shall arise if there is any "closing operations" or "transferring ownership or operations" of an "industrial establishment" as defined by ISRA, at the Leased Property if triggered by Tenant or by a "change in ownership" of Tenant as defined by ISRA; provided however, that as a result of the closing under the Agreement Tenant shall not be obligated to comply with ISRA separately from Corum's pending application, unless required to do so by NJDEP, but Tenant shall file a General Information Notice (GIN) under the existing ISRA case number, if necessary. Prior to the expiration or sooner termination of this Lease, Tenant shall deliver to Landlord evidence of compliance with ISRA, or evidence that no compliance with ISRA is required, in the form of (i) a nonapplicability determination, (ii) a de minimis quantity exemption as set forth in Section 9 of ISRA, (iii) an approved a "No Further Action Letter" as defined by ISRA and issued by NJDEP, or (iv) a letter from NJDEP stating that an approved "Remedial Action Workplan" (as described in (c) below) has been completed and the Leased Property is in full compliance with ISRA. (c) Should NJDEP determine that a "Remedial Action Workplan" as defined under ISRA, be prepared and/or that a "remediation", as defined under ISRA, be undertaken because of any spills or discharges of Hazardous Materials at the Leased Property which occur during the Term of this Lease and which spills are caused by Tenant, its agents, employees or independent contractors, then Tenant shall, at Tenant's own expense, prepare and submit the required information and provide the necessary "funding source" if required, as defined by ISRA, and carry out the approved remediation. 14.3. Indemnification. Tenant shall indemnify, defend and hold harmless Landlord from and against any and all claims, actions, liabilities, losses, penalties, damages, fines, costs and expenses (including, without limitation, the reasonable fees and expenses of counsel, engineers, other professionals or experts, including those to enforce this indemnity) of any kind whatsoever, foreseen or unforeseen, which Landlord may incur by reason of Tenant's failure to fulfill Tenant's obligations under this Article. 11 14.4 Defined Terms. The following terms have the meanings ascribed thereto: Environmental Laws. All now and hereafter existing statutes, laws, ordinances, codes, regulations, rules, rulings, orders, decrees, directives, policies and requirements by any Regulatory Authority regulating, relating to, or imposing liability or standards of conduct concerning public health and safety or the environment, including, without limitation, the Industrial Site Recovery Act (N.J.S.A. 13:1K-6 et seq.) ("ISRA"), the Spill Compensation and Control Act (N.J.S.A. 58:10-23.11 et seq.) ("Spill Act"), the Solid Waste Management Act (N.J.S.A. 13:1E-1 et seq.), the Resource and Conservation Recovery Act (Section 6901 et seq.) ("RCRA"), the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.) ("CERCLA"). Handle. Any installation, handling, generation, storage, treatment, use, disposal, discharge, release, manufacture, refinement, presence, migration, emission, abatement, removal, transportation, or any other activity of any type in connection with or involving Hazardous Substances. The term defined shall also include other verb forms of the verb "to handle". Hazardous Materials or Hazardous Substances. Any toxic substances, hazardous wastes, or hazardous substances, as defined in or pursuant to any Environmental Law. 14.5 Survival. Tenant's obligations and liabilities under this Article shall survive the expiration or earlier termination of this Lease. 15. SURRENDER BY TENANT AT END OF TERM. 15.1 Termination. (a) This Lease may be terminated upon mutual agreement of the parties. (b) This Lease shall terminate: (i) on April 30, 2002 unless Tenant shall have given notice to Landlord on or before March 31, 2002, that Tenant shall have entered into a contract to sell the Business as a going concern and Tenant requires the extension of this Lease to effectuate an orderly transfer of the assets of Tenant to the buyer of the Business, in which event the Expiration Date of this Lease shall be extended to June 30, 2002, or (ii) in the event that this Lease is otherwise terminated in accordance with its terms, in which event the Expiration Date shall be the date on which this Lease is so terminated. 15.2 Surrender by Tenant at End of Term. On the Expiration Date, or the earlier termination hereof, unless resulting from the Closing under the Agreement, Tenant shall peaceably and quietly surrender and deliver up to Landlord possession of the Property, vacant and broom clean, in as good condition and repair as at the Commencement Date, ordinary wear and tear and damage by condemnation excepted. By the Expiration Date or earlier termination hereof, Tenant shall remove from the Leased Property all personal property and chattels of Tenant. 12 15.3 Landlord's Right to Remove. If Tenant fails to remove Tenant's personal property at such time as Landlord may be entitled to re-enter and take possession of the Leased Property pursuant to any provision of this Lease, Landlord may remove Tenant's personal property from the Leased Property and to dispose of it or place it in a reasonably safe place of storage, such moving, disposal and storage to be at the sole cost and expense of Tenant. Tenant covenants and agrees to pay to Landlord all reasonable expenses which Landlord incurs for such removal, demolition, disposal and storage. Alternatively, at the option of Landlord, Tenant shall be deemed to have abandoned any or all of Tenant's personal property and the same may be disposed of or shall become the property of Landlord. 15.4 Holdover Rent. If Tenant holds over or remains in possession of the Leased Property after the expiration of the Term or after any earlier termination of this Lease, such holding over or continued possession shall create only a month to month tenancy. Tenant recognizes and agrees that (i) the damage to Landlord resulting from any failure by Tenant to surrender the Leased Property timely will be substantial, will exceed the amount of monthly Rent theretofore payable hereunder, and will be impossible of accurate measurement, and (ii) the lack of minimum rent payable hereunder has been established in conjunction with and as part of the transactions contemplated by the Agreement, and absent the Agreement, Landlord would not have agreed to lease the Leased Property to Tenant in consideration of payment of only Additional Rent payable hereunder. Therefore, Tenant shall pay rent for the period from the expiration or sooner termination of the Term of this Lease through and including the date when Tenant shall actually vacate and surrender the Leased Property in accordance with and as required by the provisions of this Lease, equal to the aggregate of (a) monthly rent at the rate of $100,000 per month ("Minimum Holdover Rent"), which the parties acknowledge is reasonable and fair compensation for the use of the Leased Property and (b) Additional Rent specified in this Lease. The resulting month to month tenancy may be terminated at any time by either party as of the last day of any calendar month on not less than thirty (30) days' written notice given to the other party. 16. EVENT OF DEFAULT BY TENANT/OTHER TENANT DEFAULTS. 16.1 Events of Default. If during the Term there shall occur any of the following events ("Events of Default"): (a) If Tenant shall fail to pay Additional Rent within ten (10) days after written notice from Landlord; or (b) In the event that Tenant shall fail to observe any other requirement, obligation, agreement, covenant or condition of this Lease, other than the Events of Default expressly set forth in Section 17.1(a), and any such failure shall continue for thirty (30) days after written notice from Landlord specifying the basis for such default, or if such failure cannot reasonably be remedied within such time period, if Tenant shall not diligently commence to 13 remedy such failure within such thirty (30) day time period and thereafter prosecute the same to completion with diligence; then, at any time following any of such Event of Default, Landlord, may give Tenant notice of termination of this Lease and take possession of the Property, using appropriate judicial process. The giving of such notice to Tenant shall terminate Tenant's right to possession of the Leased Property under this Lease without discharging Tenant from any of its liabilities hereunder. 16.2 Conditions Precedent. This Lease shall automatically terminate without the requirement of any notice in the event that: (a) either party shall have become insolvent, or generally does not pay its debts as they become due, or admits in writing its inability to pay its debts, or makes a deed of trust or assignment for the benefit of creditors; or (b) a petition in bankruptcy, insolvency, receivership, dissolution or similar proceeding shall have been commenced voluntarily by a party; or (c) any such proceeding shall have been commenced involuntarily against a party and the same shall not have been dismissed or effectively stayed within sixty days from the commencement thereof. 16.3 Right of Re-Entry If Landlord elects to terminate Tenant's right to possession of the Leased Property under Section 16.1 following an Event of Default or under Section 16.2, Landlord shall re-enter and take possession of the Leased Property (using appropriate judicial process), and Tenant shall be obligated to pay to Landlord upon demand, and Landlord shall be entitled to recover of and from Tenant, (a) all Rent payable to the date of termination of Tenant's right to possession, plus (b) the cost to Landlord of all reasonable legal and other expenses and costs (including attorney's fees) incurred by Landlord in obtaining possession of the Leased Property, plus (c) any reasonable costs and expenses incurred in enforcing any provision of this Lease. 17. SUBORDINATION. 17.1 Subordination. This Lease and all rights of Tenant hereunder are subject and subordinate to all mortgages which may now or hereafter affect the Property (any of the foregoing being herein referred to as a "Superior Mortgage") whether or not such Superior Mortgages shall also cover other lands and/or buildings and/or leases, to each and every advance made or hereafter to be made under such Superior Mortgages, and to all renewals, modifications, consolidations, replacements and extensions of such Superior Mortgages. This Article shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute, acknowledge and deliver any certificate that Landlord, the holder of any Superior Mortgage, or any of their respective successors in interest may reasonably request to evidence such subordination. If Tenant fails to execute, acknowledge 14 or deliver any such instruments within seven (7) days after request therefor, Tenant hereby irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact, coupled with an interest, to execute any such certificate or certificates for and on behalf of Tenant. 17.2 Attornment. At the option of Landlord or any successor landlord, including the holder of any Superior Mortgage or the purchaser of the mortgaged premises in foreclosure who shall succeed to the Landlord's interest herein (collectively the "Successor Landlord"), Tenant agrees that neither the foreclosure of a Superior Mortgage, nor the institution of any suit, action, summary or other proceeding against the Landlord or any Successor Landlord, nor any foreclosure proceeding brought by the holder of any such Superior Mortgage to recover possession of the premises covered thereby, shall by operation of the law or otherwise result in cancellation or termination of this Lease or the obligations of the Tenant hereunder, and at the option and upon the request of any such Successor Landlord, Tenant covenants and agrees to attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. Upon such attornment, this Lease shall continue in full force and effect as a direct Lease between the Successor Landlord and Tenant upon all of the terms, conditions and covenants as are set forth in this Lease except that the Successor Landlord shall not: (a) be liable for any previous act or omission of Landlord under this Lease; (b) be subject to any offset not expressly provided for in this Lease, which theretofore shall have accrued to Tenant against Landlord; and (c) be bound by any previous modification of this Lease or by any previous prepayment of more than one month's Rent, unless such modification or prepayment shall have been expressly approved in writing by the holder of the Superior Mortgagee, through or by reason of which the Successor Landlord shall have succeeded to the rights of Landlord under this Lease. 18. QUIET ENJOYMENT. Landlord covenants that Tenant, on paying the Rent and performing the covenants and conditions contained in this Lease, shall and may peaceably and quietly have, hold and enjoy the Leased Property for the Term of this Lease, subject to the terms and conditions of this Lease. 19. CERTIFICATES. Tenant and Landlord each agree at any time and from time to time during the Term of this Lease, within 30 days after written request from Landlord or Tenant, as applicable, to execute, acknowledge and deliver to the other party or to such third person as requested by such other party, a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), and the dates to which the Additional Rent has been paid in advance, if any, and stating whether or not, to the best of such certifying party's knowledge, the other party is in default in the performance of any covenant, 15 agreement or condition contained in this Lease, and, if so, specifying each such default of which such certifying party may have knowledge. Such third person shall have the right to rely upon the contents of any such written statement of Tenant or Landlord. 20. NOTICES. Unless otherwise notified in writing to the contrary, any notice, election or request required or permitted by the terms hereof to be given by any party hereto shall be effectively delivered for all purposes if personally delivered or sent by certified or registered mail, return receipt requested, with first class postage prepaid, or by overnight delivery service with proof of delivery, and if directed to Landlord, properly addressed to it at the address for the Landlord set forth in the preamble of this Lease, with a copy of such notice to the Landlord's attorneys, Wolff & Samson, P.A., 5 Becker Farm Road, Roseland, New Jersey 07068, Attn: Jeffrey M. Gussoff, Esq., and if directed to Tenant, properly addressed to it at the address for the Tenant set forth in the preamble of this Lease, with a copy of such notice to the Tenant's attorneys, Hoagland, Longo, Moran, Dunst & Doukas, 40 Paterson Street, P.O. Box 480, New Brunswick, New Jersey 08903, Attn: Gary Hoagland, Esq. Every notice, demand, request or other communication hereunder shall be deemed to have been given or served (a) at the time that the same shall be deposited with the overnight courier or deposited in the United States mails, postage prepaid, in the manner aforesaid, or (b) when received if delivered personally or sent by facsimile transmission. 21. INTERPRETATION. Unless otherwise specified, the rules of construction set forth in this Article shall be applicable for all purposes of this Lease and all documents or instruments supplemental hereto: (a) All references herein to numbered Articles, Sections, Subsections, Schedules or Exhibits are references to the Articles, Sections and Subsections hereof, and the Schedules and Exhibits attached hereto. The terms "include," "including" and similar terms shall be construed as if followed by the phrase "without being limited to". Singular words include the plural and plural words include the singular. The term "person" shall include natural persons, firms, trusts, partnerships, corporations and any other public and private legal entities. The term "provisions" when used with respect hereto or to any other document or instrument, shall be construed as if preceded by the phrase "terms, covenants, agreements, requirements, conditions and/or." The terms "hereto," "herein," "hereof," "hereunder" and similar terms shall refer to this Lease in its entirety, unless the context clearly indicates otherwise. Article, Section, Subsection, Schedule and Exhibit captions are used for convenience and reference only and in no way define, limit or affect the construction of the provisions hereof. No inference in favor of any party shall be drawn from the fact that such party has drafted any portion hereof. All recitals set forth in, and all schedules and exhibits to, this Lease are incorporated by reference in this Lease. The terms "lease" or "sublease" shall mean "lease, sublease, tenancy, subtenancy, letting, subletting, license or sublicense" and the term "tenant" shall mean "subtenant, lessee, sublessee, licensee, sublicensee or occupant." Words importing any gender or number shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or item requires. The term "the date hereof" or like term shall mean the date when a fully executed copy of this Lease has been delivered to both Landlord and Tenant (or their counsel). 16 (b) If any provision of this Lease is held to be illegal, invalid or unenforceable, and if the rights or obligations of any party hereto under this Lease will not be materially and adversely affected thereby, such provision will be fully severable, this Lease will be construed and enforced as if such an illegal, invalid or unenforceable provision had never comprised a part hereof, and the remaining provisions of this Lease will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance. (c) All of the terms and provisions of this Lease shall be deemed and construed to be "covenants" and "conditions" to be performed by the respective parties as though words specifically expressing or importing covenants and conditions were used in each separate term and provision hereof. (d) The parties hereto agree that they have mutually prepared and reviewed this Lease and no rules of construction shall be adversely applied against either as the preparer of this Lease. (e) This Lease may be executed simultaneously in a number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 22. BROKERAGE REPRESENTATION. Tenant and Landlord each represents and warrants to the other that it knows of no person who is entitled to a commission or sum in lieu thereof in connection with the execution of this Lease or the creation of the tenancy effected by this Lease, and each agrees to save, defend and indemnify the other from and against any claims, costs or damages attributable to any misrepresentation or breach of warranty by the indemnitor hereunder. 23. ENTIRE AGREEMENT/ NO WAIVER. 23.1 Entire Agreement. This Lease, and the exhibits attached hereto, constitute the entire agreement between the parties with respect to the subject matter hereof, and supersede any and all prior communications or writings with respect thereto and there are no oral or written understandings, representations or commitments of any kind, express or implied, which are not expressly set forth herein or in the Agreement or on the instruments delivered in connection with the closing under the Agreement. 23.2 Modifications Must be in Writing. No oral or written modification of this Lease by any officer, agent or employee of Tenant or Landlord, either before or after execution of this Lease, shall be of any force or effect unless such modification is in writing and signed by both parties. 17 23.3 No Waiver of Future Violations. The waiver of any breach or failure to enforce any of the terms, covenants or conditions of this Lease shall not in any way (a) affect, limit, modify or waive the future enforcement of such terms, covenants or conditions, or (b) constitute a waiver of any breach or failure of any other terms, covenants or conditions, any course of dealing or custom of the trade notwithstanding, or (c) prevent a subsequent act, which would have originally constituted a breach or violation, from having all the force and effect of an original breach or violation. 23.4 No Waiver Upon Receipt of Rent. The receipt by Landlord of Rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly Rent herein stipulated shall be deemed to be other than on account of the earliest stipulated Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment of Rent be deemed an accord and satisfaction, and Landlord may accept and deposit such check or payment without prejudice to Landlord's right to recover the balance of such Rent or pursue any other remedy in this Lease provided. 23.5 Force Majeure. If Landlord or Tenant shall be delayed, hindered in or prevented from the performance of any acts required hereunder, other than the payment of Rent, or timely surrender of the Leased Property by Tenant, by reason of Force Majeure, then performance of such acts shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equal to the period of such delay. The term "Force Majeure" means any cause beyond a party's reasonable control, including Acts of God, strikes, blackouts, failure of power, labor troubles, shortage of materials or services, governmental preemption in connection with a national or local emergency, riots, insurrection, the act or failure to act of the other party, or by reason of any rule, order or regulation of any governmental agency or by reason of the conditions of supply and demand which have been or are affected by war, hostilities or similar emergency. 23.6 Further Assurances. From time to time, at the Landlord's or the Tenant's reasonable request and without further consideration, the Tenant or the Landlord, as the case may be, shall execute and deliver such other instruments and take such other actions as the Landlord or the Tenant may request in order to more effectively convey, lease to, invest in the Tenant and to put the Tenant in possession and operating control of all or any part of the Leased Property, and to otherwise consummate the transactions contemplated hereby. 23.7 Binding Effect. This Lease shall bind and inure to the benefit of and be enforceable by the parties hereto, and their respective successors and assigns. 23.8 No Third Party Rights. This Lease shall not be construed to create any rights under this Lease in any third party, whether as a third party beneficiary or otherwise. Nothing contained herein may be relied upon or enforced by any person or entity other than the Landlord and the Tenant. 18 23.9 No Recording. None of the parties hereto shall have any right to record or file this Lease or any memorandum or other document relating to this Lease prior to the Closing, except for a Notice of Settlement. 24. NEW JERSEY LAW. This Lease shall be governed by and construed in accordance with the laws of the State of New Jersey. Landlord and Tenant hereby mutually waive their rights to trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, Tenant's use or occupancy of the Lease Property, and any claim of injury or damage. Tenant hereby waives, to the fullest extent permitted by law, the right to interpose any counterclaim (other than compulsory counterclaims) in any summary proceeding instituted by Landlord against Tenant or in any action instituted by Landlord for unpaid Rent under this Lease. 25. CONSENTS. In the event the Tenant claims or asserts that the Landlord has violated or failed to perform a covenant of Landlord not to unreasonably withhold or delay Landlord's consent or approval, or in any case where Landlord's reasonableness in exercising its judgment is in issue, Tenant's sole remedy shall be an action for specific performance, declaratory judgment or injunction and in no event shall Tenant be entitled to any money damages for a breach of such covenant and in no event shall Tenant claim or assert any claims for money damages in any action or by way of set-off, defense or counterclaim and Tenant hereby specifically waives the right to any money damages or other remedies. Whenever Landlord's consent or approval is required under this Lease, and this Lease does not specify that such consent or approval shall not be unreasonably withheld or delayed, Landlord may determine whether to grant or withhold such consent or approval in its sole and absolute discretion, regardless of whether such refusal to consent or approve may be deemed arbitrary. Whenever this Lease requires Landlord's consent or approval, Tenant shall reimburse Landlord on demand as a condition to granting such consent or approval any costs that may be incurred in connection with reviewing the request for consent or approval, including, without limitation, reasonable attorneys' fees. 26. LIMITATION OF LIABILITY AND INDEMNIFICATION. 26.1 Limitation on Liability. Landlord shall not be liable to Tenant for (a) any loss, injury or damage to property of Tenant or for any loss of or damage to any property of Tenant or others by theft or action by a third party, (b) any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain or snow leaks from any part of the Leased Property or from the pipes, appliances or plumbing works or from the roof, street or subsurface or from any other place or by dampness or by any other cause of whatsoever nature, (c) any of the foregoing damage, loss or injury caused by operations in construction of any private, public or quasi-public work, or (d) any damage, loss or injury caused by or attributable, in whole or in part, to any latent defect in the Leased Property. 19 26.2 Indemnification. Tenant shall indemnify and hold harmless Landlord and all Superior Mortgagees and its and their respective partners, directors, officers, agents and employees from and against any and all claims, actions, liabilities, losses, penalties, damages, costs and expenses (including, without limitation, the reasonable fees and expenses of counsel, including those to enforce this indemnity) (collectively the "Damages"), arising from or in connection with: (a) the conduct or management of the Leased Property, or any work or thing whatsoever done, or any condition created in or about the Leased Property during the term of this Lease or any holdover period; (b) any act, omission or negligence of Tenant or any of its permitted subtenants or permitted licensees or its or their partners, directors, officers, agents, employees or contractors; (c) any accident, injury or damage whatever (unless caused solely by Landlord's negligence) occurring in, at or upon the Leased Property; and (d) any breach or default by Tenant in the full and prompt payment and performance of Tenant's obligations under this Lease. In case any action or proceeding be brought against Landlord and/or any Superior Mortgagee and/or its or their partners, directors, officers, agents and/or employees by reason of any such claim, Tenant, at its expense, upon notice from Landlord or such Superior Mortgagee, shall resist and defend such action or proceeding by counsel reasonably satisfactory to Landlord and/or such Superior Mortgagee. The provisions of this Section 26.2 shall survive the expiration or earlier termination of this Lease. 26.3 Landlord for the Time Being. The obligations of Landlord under this Lease shall not be binding upon Landlord named herein after the sale, conveyance, assignment or transfer by such Landlord (or upon any subsequent landlord after the sale, conveyance, assignment or transfer by such subsequent landlord) of the Leased Property, and in the event of any such sale, conveyance, assignment or transfer, Landlord shall be and hereby is entirely freed and relieved of all covenants and obligations of Landlord hereunder, and it shall be deemed and construed without further agreement between the parties or their successors in interest, or between the parties and the purchaser, grantee, assignee or other transferee that such purchaser, grantee, assignee or other transferee has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. In no event shall any guardian, trustee, advisor, beneficiary, director, officer, partner, employee, owner or principal or any partner or other person or entity comprising the Landlord (collectively, the "Parties"), be liable for the performance of Landlord's obligations under this Lease. Tenant shall look solely to Landlord to enforce Landlord's obligations hereunder and shall not seek any damages against any of the Parties. The liability of Landlord for Landlord's obligations under this Lease shall not exceed and shall be limited to Landlord's interest in the Leased Property and Tenant shall not look to any other property or 20 assets of Landlord or the property or assets of any of the Parties in seeking either to enforce Landlord's obligations under this Lease or to satisfy a judgment for Landlord's failure to perform such obligations. 27. AUTHORITY. 27.1 Landlord's Authority. Landlord covenants that Landlord is a corporation duly organized and validly existing under the laws of the State of Delaware. This Lease is, and all other agreements and documents to be delivered by the Landlord hereunder, when executed and delivered by the Landlord in accordance with the provisions hereof and thereof, will be, valid and binding obligations of the Landlord enforceable in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, moratorium, reorganization or other laws of general applicability relating to or affecting the enforcement of creditors' rights generally or by general principles of equity. 27.2 Tenant's Authority. Tenant covenants that Tenant is a corporation duly organized and validly existing under the laws of the State of New Jersey, and that Tenant is duly authorized to enter into this Lease. This Lease is, and all other agreements and documents to be delivered by Tenant hereunder are valid and binding obligations of Tenant enforceable in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, moratorium, reorganization or other laws of general applicability relating to or affecting the enforcement of creditors' rights generally or by general principles of equity. IN WITNESS WHEREOF, the parties have caused this Lease to be executed by their duly authorized representations and, if applicable, and attested, all as of the day and year first above written. HIGHLAND PACKAGING LABS, INC. By: ____________________________ Name: Title: IMCLONE SYSTEMS INCORPORATED By: ____________________________ Name: Title: 21 EXHIBIT A - LEASED PROPERTY The Leased Property consists of all of the property except for the hatched area marked on the diagram below: [GRAPHIC OF LEASED PROPERTY] EX-12.1 8 y58958ex12-1.txt RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 IMCLONE SYSTEMS INCORPORATED RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS)
YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ----------- ----------- ---------- (IN THOUSANDS) Net loss................................................. $ (102,229) $ (70,351) $ (34,611) $ (21,382) $ (15,491) Add: Fixed charges......................................... 15,762 13,208 766 624 734 Less: Capitalized interest..................................... 1,656 846 204 -- -- ---------- ---------- ----------- ----------- ----------- Net loss, as adjusted.................................... $ (88,123) $ (57,989) $ (34,049) $ (20,758) $ (14,757) ========== ========== =========== =========== =========== Fixed charges: Interest (gross), including amortization of debt issuance costs................................ 15,241 12,931 496 435 551 Portion of rent representative of the interest factor....................................... 521 277 270 189 183 ---------- ---------- ----------- ----------- ----------- Fixed charges............................................ $ 15,762 $ 13,208 $ 766 $ 624 $ 734 ========== ========== =========== =========== =========== Deficiency of earnings available to cover fixed charges................................... $ (103,885) $ (71,197) $ (34,815) $ (21,382) $ (15,491) ========== ========== =========== =========== ===========
EX-23.1 9 y58958ex23-1.txt CONSENT OF KPMG LLP EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT THE BOARD OF DIRECTORS IMCLONE SYSTEMS INCORPORATED: We consent to the incorporation by reference in the registration statements on Form S-3 (File Nos. 33-95860, 333-37746, 333-07339, 333-21417, 333-39067 and 333-67335) and Form S-8 (File Nos. 333-38520, 333-10275, 33-95894, 333-64825, 333-64827, 333-30172 and 333-68534) of ImClone Systems Incorporated of our report dated March 22, 2002, with respect to the consolidated balance sheets of ImClone Systems Incorporated and subsidiary as of December 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2001, which report appears in the December 31, 2001 annual report on Form 10-K of ImClone Systems Incorporated. Our report refers to a change in the method of revenue recognition for certain upfront non-refundable fees in 2000. KPMG LLP Princeton, New Jersey March 29, 2002 EX-99.1 10 y58958ex99-1.txt 1996 INCENTIVE STOCK OPTION PLAN Exhibit 99.1 IMCLONE SYSTEMS INCORPORATED 1996 INCENTIVE STOCK OPTION PLAN, AS AMENDED(1) ARTICLE 1 PURPOSE OF PLAN Section 1.01. General Purpose. The purpose of this Incentive Stock Option Plan (the "PLAN") is to promote the interests of ImClone Systems Incorporated, and any subsidiaries of such company, as from time to time may be formed or acquired (collectively, the "COMPANY"), by affording key executives and employees an opportunity to acquire a proprietary interest in the Company pursuant to stock options issued by the Company, and thus to create in such employees increased personal interest in its continued success. Section 1.02. Statutory Stock Option. Options granted under the Plan are intended to be "incentive stock options" to which Section 422 of the Internal Revenue Code of 1986, as amended (the "CODE"), applies. ARTICLE 2 SHARES SUBJECT TO PLAN Section 2.01. Descriptions Of Shares. Subject to Article 7 hereof, the stock to which the Plan applies is shares of the Company's common stock, $.001 par value ("COMMON STOCK"), either authorized but unissued or Treasury shares. The number of shares of Common Stock to be issued or sold pursuant to options granted hereunder shall not exceed 11,000,000 shares; provided, that such number shall be reduced by the number of shares which have been sold under, or may be sold pursuant to options granted from time to time under, the Company's 1996 Non-Qualified Stock Option Plan (the "Non-Qualified Plan"), to the same extent as if such sales had been made or options had been granted pursuant to this Plan. - --------------------------- (1) This plan was adopted by the board on February 25, 1996 and approved by the stockholders on June 3, 1996; it was amended by the Board on April 3, 1997 and such amendments were ratified by the stockholders on June 3, 1997; it was amended by the Board on March 29, 1999 subject to shareholder approval and such amendments were ratified by the stockholders on May 24, 1999; it was amended by the Board on December 16, 1999; it was amended by the Board on April 14, 2000 and such amendments were ratified by the stockholders on May 31, 2000; it was amended by the Board on September 18, 2000; it was amended by the Board on November 15, 2001. Section 2.02. Restoration Of Unpurchased Shares. Any shares subject to an option granted hereunder or under the Non-Qualified Plan that, for any reason, expires or is terminated unexercised as to such shares may again be subject to an option to be granted hereunder. ARTICLE 3 ADMINISTRATION; COMMITTEES; AMENDMENTS Section 3.01. Administration. The Plan shall be administered by any of the Compensation Committee, the Stock Option Committee (which is a subcommittee of the Compensation Committee) (collectively, the "COMMITTEES") or the Company's Board of Directors (the "BOARD"). The Committees shall be comprised of not less than two persons who shall be appointed by the Board from among the members of the Board. Members of the Committees shall not be eligible to become participants under the Plan while they are members of the Committees or for a period of three months thereafter. Section 3.02. Duration; Removal; Etc.. The members of the Committees shall serve at the pleasure of the Board, which shall have the power at all times to remove members from the Committees or to add members thereto. Vacancies in the Committees, however caused, shall be filled by action of the Board. Section 3.03. Meetings; Actions Of Committees. Each of the Committees and the Board may select one of its members as its Chairman and shall hold its meetings at such times and places as it may determine. All decisions or determinations of each of the Committees and the Board shall be made by the majority vote or decision of all of its members, whether present at a meeting or not; provided, however, that any decision or determination reduced to writing and signed by all of the members shall be as fully effective as if it had been made at a meeting duly called and held. Each of the Committees and the Board may make such rules and regulations for the conduct of its business not inconsistent herewith, as it may deem advisable. Section 3.04. Interpretation. The interpretation and construction by any of the Committees or the Board of the provisions of the Plan or of the options granted hereunder shall be final, unless in the case of the Committees otherwise determined by the Board. No member of the Board or of the Committees shall be liable for any action taken or determination made in good faith. Section 3.05. Amendments Or Discontinuation. The Board may make such amendments, changes, and additions to the Plan, or may discontinue and terminate the Plan, as it may deem advisable from time to time; provided, however, that no action shall affect or impair any options theretofore granted under the Plan, and provided, further, however, that the affirmative vote of the owners of a majority of the outstanding shares of Common Stock present at a meeting in person or by proxy and entitled to vote at the meeting shall be 2 necessary to effect any amendment to the Plan which would (a) increase the number of shares of Common Stock subject to options granted under the Plan, or (b) authorize the granting of options at a price below the minimum price established by Section 5.03 hereof. ARTICLE 4 PARTICIPANTS; MAXIMUM GRANT; DURATION OF PLAN Section 4.01. Eligibility And Participation. Options shall be granted only to persons ("PARTICIPANTS") who at the time of granting are key executives or key employees of the Company. Subject to the provisions of Section 4.03 hereof, the Committees or the Board shall determine the key executives and key employees to be granted options hereunder, the number of shares of Common Stock subject to such options, the exercise prices of options, the terms thereof and any other provisions not inconsistent with the Plan. Section 4.02. Guidelines For Participation. In selecting Participants and determining the numbers of shares of Common Stock for which options are to be granted the Committees or the Board shall consult with officers and directors of the Company, and shall take into account the duties of the respective employees, their present and potential contributions to the success of the Company, and such other factors as any of the Committees or the Board shall deem relevant. Section 4.03. Maximum Grant. Notwithstanding anything to the contrary in the Plan, options granted to a Participant in any calendar year (under all plans, including the Plan, providing for the grant of incentive stock options of the Company and its parent and subsidiaries) in excess of the limitations of Section 422(d) of the Code shall not be considered Incentive Stock Options granted under this Plan and shall be deemed to be options granted under the Non-Qualified Plan. Section 4.04. Duration Of Plan. All options under the Plan shall be granted within ten years from the date the Plan is adopted, or the date the Plan is approved by the shareholders of the Company, whichever is earlier. ARTICLE 5 TERMS AND CONDITIONS OF OPTIONS Section 5.01. Individual Stock Option Agreement. All stock options granted pursuant to the Plan shall be evidenced by stock option agreements or notices ("STOCK OPTION AGREEMENTS"), which need not be identical, in such form as any of the Committees or the Board shall from time to time approve, subject to the terms of the Plan which may, but need not, be executed or acknowledged by a Participant. 3 Section 5.02. Number Of Shares. Each Stock Option Agreement shall state the total number of shares of Common Stock with respect to which the option is granted, the terms and conditions of the option, and the exercise price or prices thereof, it being understood that any of the Committees or the Board shall have authority to prescribe in any Stock Option Agreement that the option evidenced thereby may be exercisable in full or in part, as to any number of shares subject thereto, at any time or from time to time during the term of the option, or in such installments at such times during said term as any of the Committees or the Board may determine; provided that no option granted pursuant to the Plan shall be exercisable after the expiration of ten years from the date such option is granted. A previously granted incentive stock option shall be treated as outstanding until it is exercised in full or expires by reason of the lapse of time. Except as otherwise provided in any Stock Option Agreement, an option may be exercised at any time or from time to time during the term of the option as to any or all full (but no fractional) shares which have become purchasable under such option. Any of the Committees or the Board shall have the right to accelerate, in whole or in part, from time to time, conditionally or unconditionally, the right to exercise any option granted hereunder. Section 5.03. Option Price. The price at which the shares of Common Stock subject to each option granted under this Plan may be purchased (the "OPTION PRICE" or "EXERCISE PRICE") shall be determined by any of the Committees or the Board, which shall have authority at the time the option is granted to prescribe in any Stock Option Agreement that the price per share, with the passage of pre-determined periods of time, shall increase from the original price to higher prices, but in no case shall the original exercise price of any option be less than 100% of the fair market value of such shares on the date the option is granted, as determined by any of the Committees or the Board in accordance with applicable Treasury Regulations. Notwithstanding anything contained to the contrary herein, no option shall be granted to any employee who, at the time the option is granted, owns more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary unless, at the time option is granted, the exercise price of the option is at least 110% of the fair market value of the shares of Common Stock subject to the option and such option by its terms is not exercisable after the expiration of five years from the date such option is granted. For purposes of determining the ownership of stock of the Company, the rules of Section 424(d) of the Code shall be applied. Section 5.04. Method Of Exercising Option; Full Payment. Subject to Section 6.01 and 6.02 hereof, options granted pursuant to the Plan may be exercised only if the Participant was, at all times during the period beginning on the date the option was granted and ending on the date of such exercise, an employee of the Company, a parent or subsidiary of the Company, or a corporation or a parent or subsidiary of such corporation issuing or assuming a stock option in respect of such option in a transaction to which Section 424(a) of the Code applies. Options shall be exercised by written notice to the Company, 4 addressed to the Company at its principal place of business. Such notice shall state the Participant's election to exercise the option and the number of shares of Common Stock in respect of which it is being exercised, and shall be signed by the Participant so exercising the option. Such notice shall be accompanied by (a) payment of the full purchase price of such shares, which payment shall be in cash, by check or in stock of the Company that has been owned by the participant for at least six months, or notes of the Company or, as agreed to by the Board, other consideration; and (b) such written representations and other documents as may be desirable, in the opinion of the Company's legal counsel, for purposes of compliance with state or Federal securities or other laws. In the case of payment made in stock of the Company, the stock shall be valued at its Fair Market Value (as hereinafter defined) on the last business day prior to the date of exercise. The term "FAIR MARKET VALUE" for the Common Stock on any particular date shall mean the last reported sale price of the Common Stock on the principal market on which the Common Stock trades on such date or, if no trades of Common Stock are made or reported on such date, then on the next preceding date on which the Common Stock traded. The Company shall deliver a certificate or certificates representing shares of Common Stock purchased pursuant to such notice to the purchaser as soon as practicable after receipt of such notice, subject to Article VIII hereof. Any of the Committees or the Board may amend an already outstanding Stock Option Agreement to add a provision permitted by clause (a) of this Section 5.04, and no such amendment, by itself, shall be deemed to constitute the grant of a new option for purposes of this Plan; provided that this sentence shall not be determinative of whether any such amendment constitutes a new grant for purposes of qualification as an Incentive Stock Option. Section 5.05. Rights As A Shareholder. No Participant shall have any rights as a shareholder with respect to shares of Common Stock subject to an option granted under the Plan until the date of the issuance to such Participant of stock certificates in respect of such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. Section 5.06. Other Provisions. Stock Option Agreements entered into pursuant to the Plan may contain such other provisions (not inconsistent with the Plan) as any of the Committees or the Board may deem necessary or desirable, including, but not limited to, covenants on the part of the Participant not to compete, not to sell Common Stock obtained from the exercise of options for specified periods of time, and remedies available to the Company in the event of the breach of any such covenant. 5 ARTICLE 6 TERMINATION OF EMPLOYMENT; TRANSFERABILITY Section 6.01. Termination Of Employment. Except as otherwise provided in connection with the grant of any option or the termination of any Participant, in the event a Participant's employment or service with the Company is terminated other than by reason of death or disability, (a) with respect to options granted prior to December 16, 1999, the right to exercise any unexercised option or unexercised portion of any option (regardless of whether or not vested) granted under the Plan shall terminate on the date of termination of the relationship between the Participant and the Company and, (b) with respect to options granted on or after December 16, 1999, (i) the right to exercise any unvested option or unvested portion of any option granted under the Plan shall terminate on the date of termination of the relationship between the Participant and the Company and (ii) the right to exercise any option or portion of any option granted under the Plan which is vested as of the date of termination of employment or service shall terminate upon the earlier of (A) the thirtieth day following such termination of employment or service or (B) the date such option or portion of an option would have expired had it not been for the termination of employment or service. The option may not be exercised after its expiration in accordance with the foregoing terms, and the shares of Common Stock subject to the unexercised portion of such option may again be subject to new options under the Plan. Section 6.02. Death Or Disability Of Participant. Except as otherwise permitted in connection with the grant of any option or the death or disability of a Participant, in the event a Participant dies or is disabled while in the employ of the Company or of a parent or subsidiary of the Company, any options theretofore granted to him shall be exercisable only within the next 12 months immediately succeeding such death or disability and then only in the case of death (a) by the person or persons to whom the Participant's rights under the option shall pass by will or the laws of descent and distribution, and, in the case of disability, by such Participant or his legal representative, and (b) if and to the extent that he was entitled to exercise the option at the date of his death. Section 6.03. Transferability. Options granted to a Participant under the Plan shall not be transferable otherwise than by will, by the laws of descent and distribution, or (if authorized in the applicable Stock Option Agreement) pursuant to a qualified domestic relations order ("QDRO") as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder. During the Participant's lifetime, options shall be exercised only by such Participant, such Participant's guardian or legal representative, or (if authorized in the applicable Stock Option Agreement) such Participant's transferee pursuant to a QDRO. 6 ARTICLE 7 CAPITAL ADJUSTMENTS Section 7.01. Capital Adjustments. If any change is made in the shares of Common Stock subject to the Plan or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, split-up, combination of shares, exchange of shares, issuance of rights to subscribe, or change in capital structure), appropriate adjustments shall be made by any of the Committees or the Board as to the maximum number of shares subject to the Plan and the number of shares and price per share subject to outstanding options as shall be equitable to prevent dilution or enlargement of option rights; provided, however, that any such adjustment shall comply with the rules of Section 424(a) of the Code and provided further that in no event shall any adjustment be made that would cause any option granted hereunder to be considered other than an incentive stock option. Any determination made by any of the Committees or the Board under this Article VII shall be final, binding and conclusive upon each Participant. ARTICLE 8 CHANGE IN CONTROL Section 8.01. Change In Control. Upon the occurrence of a Change in Control, each outstanding option under the Plan shall become fully (100%) vested and exercisable. For purposes of this Plan, a "CHANGE IN CONTROL" of the Company means the occurrence of one of the following events: (i) individuals who, on the effective date of the Plan (the "EFFECTIVE DATE"), constitute the Board (the "INCUMBENT DIRECTORS") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director; (ii) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after 7 the Effective Date, a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "COMPANY VOTING SECURITIES"); provided, however, that an event described in this paragraph (ii) shall not be deemed to be a Change in Control if any of following becomes such a beneficial owner: (A) the Company or any majority-owned subsidiary (provided, that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any majority-owned subsidiary, (C) any underwriter temporarily holding securities pursuant to an offering of such securities or (D) any person pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)). (iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "BUSINESS COMBINATION"), unless immediately following such Business Combination: (A) 60% or more of the total voting power of (x) the corporation resulting from such Business Combination (the "SURVIVING CORPORATION"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "PARENT CORPORATION"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 35% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "NON-QUALIFYING TRANSACTION"); or 8 (iv) stockholder approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the Company's shareholders in substantially the same proportions as such shareholders owned the Company's outstanding voting common equity interests immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company under this Plan. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 35% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that, if after such acquisition by the Company such person becomes the beneficial owner of Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. ARTICLE 9 LEGAL REQUIREMENTS, ETC. Section 9.01. Revenue Stamps. The Company shall be responsible and shall pay for any transfer, revenue, or documentary stamps with respect to shares issued upon the exercise of options granted under the Plan. Section 9.02. Legal Requirements. The Company shall not be required to issue certificates for shares upon the exercise of any option unless and until, in the opinion of the Company's legal counsel, such issuance would not result in a violation of any state or Federal securities or other law. Certificates for shares, when issued, shall have, if required in the opinion of the Company's legal counsel, the following legend, or statements of other restrictions, endorsed thereon, and may not be immediately transferable: The shares of Common Stock evidenced by this certificate have been issued to the registered owner in reliance upon written representations that these shares have been purchased for investment. These shares may not be sold, transferred, or assigned unless, in the opinion of the Company and its legal counsel, such sales, transfer, or assignment will not be in violation of the Securities Act of 1933, as amended, applicable rules and regulations of the Securities and Exchange Commission and any applicable state Securities laws. 9 Section 9.03. Private Offering. The options to be granted under the Plan are available only to a limited number of present and future key executives and employees of the Company and its subsidiaries who have knowledge of the Company's financial condition, management, and affairs. Such options are not intended to provide additional capital for the Company but are to encourage stock ownership by the Company's key personnel. By the act of accepting an option, in the absence of an effective registration statement under the Securities Act of 1933, as amended, Participants shall agree that upon exercise of such option, they will acquire the shares of Common Stock that are the subject thereof for investment and not with any intention at such time to resell or redistribute the same, and they shall confirm such agreement at the time of exercise, but the neglect or failure to confirm the same in writing shall not be a limitation of such agreement. ARTICLE 10 GENERAL Section 10.01. Application Of Funds. The proceeds received by the Company from the sale of shares of Common Stock pursuant to the exercise of options therefore shall be used for general corporate purposes. Section 10.02. Right Of The Company To Terminate Employment. Nothing contained in the Plan or in a Stock Option Agreement shall confer upon any Participant any right to be continued in the employ of the Company or of any subsidiary of the Company, or interfere in any way with the right of the Company, or such subsidiary, to terminate his employment for any reason whatsoever, with or without cause, at any time. Section 10.03. No Obligation To Exercise. The granting of an option hereunder shall impose no obligation upon the Participant to exercise such option. Section 10.04. Effectiveness Of Plan. The Plan shall become effective upon its adoption by the shareholders of the Company. Options may be granted under the Plan prior to the approval of the Plan by the Shareholders, but no such option may be exercised prior to such approval. Section 10.05. Other Benefits. Participation in the Plan shall not preclude a Participant from eligibility in any other stock benefit plan of the Company or any old age benefit, insurance, pension, profit sharing, retirement, bonus or other plan which the Company has adopted, or may, at any time, adopt for the benefit of its parents' or its subsidiaries executives and/or employees. Section 10.06. Company Records. Records of the Company as to a Participant's period of employment, termination of employment and the reason therefore, leaves of absence, re-employment, and other matters will be conclusive for all purposes hereunder. 10 Section 10.07. Tax Requirement. The exercise or surrender of any option under this Plan shall constitute a Participant's full and complete consent to whatever action the Committee elects to satisfy the Federal and state withholding requirements, if any, which the Committee in its discretion deems applicable to such exercise. Section 10.08. Interpretations And Adjustments. To the extent permitted by law, an interpretation of the Plan and a decision on any matter within any of the Committees or Board's discretion made in good faith is binding on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known, and the person responsible shall make such adjustment on account thereof as he considers equitable and practicable. Section 10.09. Information. The Company shall, upon request or as may be specifically required hereunder, furnish or cause to be furnished, all of the information or documentation which is necessary or required by any of the Committees or the Board to perform its duties and functions under the Plan. Section 10.10. Notice Of Disqualifying Disposition. If a Participant sells or otherwise disposes of any share of Common Stock transferred to him pursuant to the exercise of an option granted hereunder within two years from the date of the granting of the option or within one year of the transfer of such shares to him (i.e., a "disqualifying disposition"), the Participant, within ten days thereafter, shall furnish to any of the Committees or the Board at the principal offices of the Company, written notice of such sale or other disposition. Section 10.11. Governing Law. The Plan and any and all options granted thereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of New York from time to time in effect. Section 10.12. Certain Definitions. (a) "PARENT". The term "parent" shall mean a "parent corporation" as defined in Section 424(e) of the Code. (b) "SUBSIDIARY". The term "subsidiary" shall mean a "subsidiary corporation" as defined in Section 424(f) of the Code. (c) "INCENTIVE STOCK OPTION". The term "incentive stock option" shall mean an option described in Section 422(b) of the code. (d) "DISABLED". The term "disabled" shall have the definition set forth in Section 22(a)(3) of the Code. 11 EX-99.2 11 y58958ex99-2.txt 1996 NON-QUALIFIED STOCK OPTION PLAN Exhibit 99.2 IMCLONE SYSTEMS INCORPORATED 1996 NON-QUALIFIED STOCK OPTION PLAN, AS AMENDED(1) Article 1 PURPOSE OF PLAN Section 1.01 . General Purpose. The purpose of this Non-Qualified Stock Option Plan (the "Plan") is to promote the interests of ImClone Systems Incorporated (the "Company") by affording key consultants, advisors, directors and employees an opportunity to acquire a proprietary interest in the Company pursuant to stock options issued by the Company, and thus to create in such persons increased personal interest in its continued success. Section 1.02 . Statutory Stock Option. Options granted under the Plan are intended to be "non-qualified" stock options under the Internal Revenue Code of 1986, as amended (the "Code"). Article 2 SHARES SUBJECT TO PLAN Section 2.01 . Description Of Shares. Subject to Article VIII hereof, the stock to which the Plan applies is shares of the Company's common stock, $.001 par value ("Common Stock"), either authorized but unissued or Treasury shares. The number of shares of Common Stock to be issued or sold pursuant to options granted hereunder shall not exceed 11,000,000 shares; provided, that such number shall be reduced by the number of shares which have been sold under, or may be sold pursuant to options granted from time to time under, the Company's 1996 Incentive Stock Option Plan (the "Incentive Stock Option Plan") to the same extent as if such sales had been made or options had been granted pursuant to this Plan. - ---------- (1) This plan was adopted by the Board on February 25, 1996 and approved by the stockholders on June 3, 1996; it was amended by the Board on April 3, 1997 and such amendments were ratified by the stockholders on June 3, 1997; it was amended by the Board on March 29, 1999 and such amendments were ratified by the stockholders on May 24, 1999; it was amended by the Board on December 16, 1999; it was amended by the Board on April 14, 2000 and ratified by the stockholders on May 31, 2000; it was amended by the Board on September 18, 2000; it was amended by the Board on January 19, 2001; it was amended by the Board on November 15, 2001. Section 2.02 . Restoration Of Unpurchased Shares. Any shares subject to an option granted hereunder that, for any reason, expires or is terminated unexercised as to such shares may again be subject to an option to be granted hereunder. Article 3 ADMINISTRATION; COMMITTEES; AMENDMENTS Section 3.01 . Administration. The Plan shall be administered by any of the Compensation Committee, the Stock Option Committee (which is a subcommittee of the Compensation Committee) (collectively, the "Committees") or the Board of Directors of the Company (the "Board"). The Committees shall be comprised of not less than two persons who shall be appointed by the Board from among the members of the Board. Members of the Committees and the Board shall be eligible to become participants under the Plans and may receive discretionary and non-discretionary grants of options. Section 3.02 . Duration; Removal; Etc. The members of the Committees shall serve at the pleasure of the Board, which shall have the power at all times to remove members from the Committees or to add members thereto. Vacancies in the Committees, however caused, shall be filled by action of the Board. Section 3.03 . Meetings; Actions Of Committee. Each of the Committees may select one of its members as its Chairman and shall hold its meetings at such times and places as it may determine. All decisions or determinations of the Committees and the Board shall be made by the majority vote or decision of all of its members, whether present at a meeting or not; provided, however, that any decision or determination reduced to writing and signed by all of the members shall be as fully effective as if this had been made at a meeting duly called and held. Each of the Committees and the Board may make such rules and regulations for the conduct of its business not inconsistent herewith as it may deem advisable. Section 3.04 . Interpretation. The interpretation and construction by any of the Committees or the Board of the provisions of the Plan or of the options granted hereunder shall be final, unless in the case of the Committees otherwise determined by the Board. No member of the Board or of the Committees shall be liable for an action taken or determination made in good faith. Section 3.05 . Amendments Or Discontinuation. The Board may make such amendments, changes, and additions to the Plan, or may discontinue and terminate the Plan, as it may deem advisable from time to time; provided, however, that no action shall affect or impair any options theretofore granted under the Plan, and provided, further, however, that the affirmative vote of the owners of a majority of the outstanding shares of Common Stock present at a meeting in person or by proxy and entitled to vote shall be necessary to effect any 2 amendment to the Plan which would increase the number of shares of Common Stock subject to options granted under the Plan. Article 4 PARTICIPANTS; MAXIMUM GRANT; DURATION OF PLAN Section 4.01 . Eligibility And Participation. Options shall be granted only to persons ("Participants") who at the time of granting are key consultants, advisors, directors or employees of the Company. Any of the Committees or the Board shall determine the consultants, advisors, directors and employees to be granted options hereunder, the number of shares of Common Stock subject to such options, the exercise prices of options, the terms thereof and any other provisions not inconsistent with the Plan. Section 4.02 . Guidelines For Participation. In selecting Participants and determining the numbers of shares of Common Stock for which options are to be granted, any of the Committees or the Board shall consult with officers and directors of the Company, and shall take into account the duties of the respective persons, their present and potential contributions to the success of the Company, and such other factors as any of the Committees or the Board shall deem relevant. Section 4.03 . Duration Of Plan. All options under the Plan shall be granted within ten years from the date the Plan is approved by the shareholders of the Company. Article 5 TERMS AND CONDITIONS OF OPTIONS Section 5.01 . Stock Option Agreements or Notices. All stock options granted pursuant to the Plan shall be evidenced by stock option agreements or notices ("Stock Option Agreements"), which need not be identical, in such form as any of the Committees or the Board shall from time to time approve, subject to the terms of the Plan, which may, but need not, be executed or acknowledged by a Participant. Section 5.02 . Number Of Shares. Each Stock Option Agreement shall state the total number of shares of Common Stock with respect to which the option is granted, the terms and conditions of the option, and the exercise price or prices thereof, it being understood that any of the Committees or the Board shall, subject to the terms of Article 7 hereof, have authority to prescribe in any Stock Option Agreement that the option evidenced thereby may be exercisable in full or in part, as to any number of shares subject thereto, at any time or from time to time during said term as any of the Committees or the Board may determine; provided that no option granted pursuant to the Plan shall be exercisable after the 3 expiration of ten years from the date such option is granted. Except as otherwise provided in any Stock Option Agreement, an option may be exercised at any time or from time to time during the term of the option as to any or all full (but no fractional) shares which have become purchasable under such option. Subject to the terms of Article VII hereof, any of the Committees or the Board shall have the right to accelerate, in whole or in part, from time to time, conditionally or unconditionally, the right to exercise any option granted hereunder. Section 5.03 . Option Price. Subject to the terms of Article 7 hereof, the price at which the shares of Common Stock subject to each option granted under this Plan may be purchased (the "option price" or "exercise price") shall be determined by any of the Committees or the Board, which shall have the authority at the time the option is granted to prescribe in any Stock Option Agreement that the price per share, with the passage of pre-determined periods of time, shall increase from the original price to higher prices. Section 5.04 . Method Of Exercising Option; Full Payment. Subject to the terms of Article VII hereof and Section 6.01 and Section 6.02 hereof, options granted pursuant to the Plan may be exercised only if the Participant was, at all times during the period beginning on the date the option was granted and ending on the date of such exercise, a consultant, advisor, director or employee of the Company. Options shall be exercised by written notice to the Company, addressed to the Company at its principal place of business. Such notice shall state the Participant's election to exercise the option and the number of shares of Common Stock in respect of which it is being exercised, and shall be signed by the Participant so exercising the option. Such notice shall be accompanied by payment of the full purchase price of such shares, which payment shall be in cash, by check or in stock of the Company that has been owned by the Participant for at least six months, or notes of the Company or, as agreed to by the Board, other consideration; and such written representations and other documents as may be desirable, in the opinion of the Company's legal counsel, for purposes of compliance with state or Federal securities or other laws. In the case of payment made in stock of the Company, the stock shall be valued at its Fair Market Value (as hereinafter defined) on the last business day prior to the date of exercise. The term "Fair Market Value" for the Common Stock on any particular date shall mean the last reported sale price of the Common Stock on the principal market on which the Common Stock trades on such date or, if no trades of Common Stock are made or reported on such date, then on the next preceding date on which the Common Stock traded. The Company shall deliver a certificate or certificates representing shares of Common Stock purchased pursuant to such notice to the purchaser as soon as practicable after receipt of such notice, subject to Article IX hereof. Any of the Committees or the Board may amend an already outstanding Stock Option Agreement to add a provision permitted by clause (b) of this Section 5.4, and no such amendment, by itself, shall be deemed to constitute the grant of a new option for purposes of this Plan. 4 Section 5.05 . Rights As A Shareholder. No Participant shall have any rights as a shareholder with respect to shares of Common Stock subject to an option granted under the Plan until the date of the issuance to such Participant of a stock certificate in respect of such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. Section 5.06 . Other Provisions. Stock Option Agreements entered into pursuant to the Plan may contain such other provisions (not inconsistent with the Plan) as any of the Committees or the Board may deem necessary or desirable, including, but not limited to, covenants on the part of the Participant not to compete, not to sell Common Stock obtained from the exercise of options for specified periods of time, and remedies available to the Company in the event of the breach of any such covenant. Article 6 TERMINATION; TRANSFERABILITY Section 6.01 . Termination of Employment. Except as otherwise provided in connection with the grant of any option or the termination of any Participant, in the event a Participant's employment or service with the Company is terminated other than by reason of death or disability, the right to exercise any unvested option or unvested portion of any option granted under the Plan shall terminate on the date of termination of the relationship between the Participant and the Company and the right to exercise any option or portion of any option granted under the Plan which is vested as of the date of termination of employment or service shall terminate upon the earlier of the thirtieth day following such termination of employment or service or the date such option or portion of an option would have expired had it not been for the termination of employment or service. The option may not be exercised after its expiration in accordance with the foregoing terms, and the shares of Common Stock subject to the unexercised portion of such option may again be subject to new options under the Plan. Such restrictions shall not apply to the options granted pursuant to Article 7 which shall be exercisable in accordance with the terms thereof. Section 6.02 . Death Or Disability Of Participant. Except as otherwise permitted in connection with the grant of any option or the death or disability of a Participant, in the event a Participant dies or is disabled while he is a consultant, advisor, director or employee of the Company, any options theretofore granted to him shall be exercisable only within the next 12 months immediately succeeding such death or disability and then only (a) in the case of death, by the person or persons to whom the Participants rights under the option shall pass by will or the laws of descent and distribution, and in the case of disability, by such Participant or his legal representative, and (b) if and to the extent that he was entitled to exercise the option at the date of his death or disability. Such restrictions shall not 5 apply to the options of Participating Directors which shall be exercisable in accordance with the terms set forth in Article 7 hereof. Section 6.03. Transferability. Options granted to a Participant under the Plan shall not be transferable otherwise than by will, by the laws of descent and distribution, (if authorized in the applicable Stock Option Agreement) pursuant to a qualified domestic relations order ("QDRO") as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder or to a member of the immediate family of the Participant, within the meaning of Rule 16a-1(e) of the Securities Exchange Act of 1934, as amended, a trust for such family members, a partnership whose only partners are such family members or a charitable institution within the meaning of Section 501(c)(3) of the Code (each an "Authorized Transferee"). During the Participant's lifetime, options shall be exercised only by such Participant, such Participant's guardian or legal representative, or such Participant's Authorized Transferee. Article 7 DIRECTORS' GRANTS Section 7.01. Eligibility. Annually, on February 15 of each of the Company's Fiscal Years, any Director of the Company who at the time is not a full-time employee of the Company (a "Participating Director"), shall be granted an option for 30,000 shares of Common Stock, except that the Chairman who is not a full-time employee of the Company shall be granted an option for 60,000 shares of Common Stock. Each person who becomes a Participating Director after the first day of the Company's fiscal year and within nine months of that date shall be granted, on the date that person becomes a Participating Director, an option for a number of shares of Common Stock determined by pro rating the normal 30,000 share annual amount (or 60,000 if the Chairman) based on the period of time remaining in the fiscal year in which such person becomes a Participating Director. No person who owns 10% or more of the outstanding Common Stock of the Company (including shares of Common Stock issuable upon exercise of outstanding options and warrants), shall be granted options under this Article. Options under this Article are non-discretionary. Section 7.02. Options Terms. Options granted under this Article 7 shall not be exercisable until the date upon which the option holder has provided one year of continuous service as a Participating Director following the date of grant of such option. Options granted pursuant to this Article shall have an exercise price equal to the Fair Market Value (as hereinafter defined) of the Common Stock on the date of the grant. The term "Fair Market Value" for the Common Stock on any particular date shall mean the last reported sale price of the Common Stock on the principal market on which the Common Stock trades on such date or, if no trades of Common Stock are made or reported on such date, 6 then on the next preceding date on which the Common Stock traded. Notwithstanding any other provisions of this Plan, except as set forth in Section 6.03, options granted under this Article shall remain exercisable for ten years after the date of grant and the option holder (or his legal representative or that of his estate) may continue to exercise an option notwithstanding that the holder ceases to be a Participating Director. Section 7.03. Other Provisions. In all other respects, Options granted under this Article VII shall be subject to the other provisions of the Plan, including but not limited to those governing method of exercise, exercise payment, tax withholding, and transferability. Notwithstanding any other provisions of this Plan, the provisions of this Article 7 may not be amended more than once every six months, other than to comport with changes in the Code. Article 8 CAPITAL ADJUSTMENTS Section 8.01. Capital Adjustments. If any change is made in the shares of Common Stock subject to the Plan or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, split-up, combination of shares, exchange of shares, issuance of rights to subscribe, or change in capital structure), appropriate adjustments shall be made by any of the Committees or the Board as to the maximum number of shares subject to the Plan and the number of shares and price per share subject to outstanding options as shall be equitable to prevent dilution or enlargement of option rights. Any determination made by any of the Committees or the Board under this Article VIII shall be final, binding and conclusive upon each Participant. Article 9 CHANGE IN CONTROL Change In Control. Upon the occurrence of a Change in Control, each outstanding option under the Plan shall become fully (100%) vested and exercisable. For purposes of this Plan, a "CHANGE IN CONTROL" of the Company means the occurrence of one of the following events: (i) individuals who, on the effective date of the Plan (the "EFFECTIVE DATE"), constitute the Board (the "INCUMBENT DIRECTORS") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election or nomination for election was approved by a vote of at 7 least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director; (ii) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the Effective Date, a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "COMPANY VOTING SECURITIES"); provided, however, that an event described in this paragraph (ii) shall not be deemed to be a Change in Control if any of following becomes such a beneficial owner: (A) the Company or any majority-owned subsidiary (provided, that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any majority-owned subsidiary, (C) any underwriter temporarily holding securities pursuant to an offering of such securities or (D) any person pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)). (iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "BUSINESS COMBINATION"), unless immediately following such Business Combination: (A) 60% or more of the total voting power of (x) the corporation resulting from such Business Combination (the "SURVIVING CORPORATION"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "PARENT CORPORATION"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee 8 benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 35% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "NON-QUALIFYING TRANSACTION"); or (iv) stockholder approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the Company's shareholders in substantially the same proportions as such shareholders owned the Company's outstanding voting common equity interests immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company under this Plan. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 35% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that, if after such acquisition by the Company such person becomes the beneficial owner of Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. Article 10 LEGAL REQUIREMENTS, ETC Section 10.01. Revenue Stamps. The Company shall be responsible and shall pay for any transfer, revenue, or documentary stamps with respect to shares issued upon the exercise of options granted under the Plan. Section 10.02. Legal Requirements. The Company shall not be required to issue certificates for shares upon the exercise of any option unless and until, in the opinion of the Company's legal counsel, such issuance would not result in a violation of any state or Federal securities or other law. Certificates for shares, when issued, shall have, if required in the opinion of the Company's legal 9 counsel, the following legend, or statements of other restrictions, endorsed thereon, and may not immediately be transferable: The shares of Common Stock evidenced by this certificate have been issued to the registered owner in reliance upon written representations that these shares have been purchased for investment. These shares may not be sold, transferred, or assigned unless, in the opinion of the Company and its legal counsel, such sale, transfer, or assignment will not be in violation of the Securities Act of 1933, as amended, applicable rules and regulations of the Securities and Exchange Commission and any applicable state securities laws. Section 10.03. Private Offering. The options to be granted under the Plan are available only to a limited number of present and future key consultants, advisors, directors and employees of the Company who have knowledge of the Company's financial condition, management, and affairs. Such options are not intended to provide additional capital for the Company, but are to encourage stock ownership by the Company's key personnel. By the act of accepting an option, in the absence of an effective registration statement under the Securities Act of 1933, as amended, Participants shall agree that upon exercise of such option, they will acquire the shares of Common Stock that are the subject thereof for investment and not with any intention at such time to resell or redistribute the same, and they shall confirm such agreement at the time of exercise, but the neglect or failure to confirm the same in writing shall not be a limitation of such agreement. Article 11 GENERAL Section 11.01. Application Of Funds. The proceeds received by the Company from the sale of shares of Common Stock pursuant to the exercise of options therefore shall be used for general corporate purposes. Section 11.02. Right Of The Company To Terminate Relationship. Nothing contained in the Plan or in a Stock Option Agreement shall confer upon any Participant any right to be continued as a consultant, advisor, director or employee of the Company, or interfere in any way with the right of the Company to terminate such relationship for any reason whatsoever, with or without cause, at any time. Section 11.03. No Obligation To Exercise. The granting of an option hereunder shall impose no obligation upon the Participant to exercise such option. 10 Section 11.04. Effectiveness Of Plan. The Plan shall become effective upon its adoption by the Board. Options may be granted under the Plan prior to the approval of the Plan by the Shareholders, but no such option may be exercised prior to such approval. Section 11.05. Other Benefits. Participation in the Plan shall not preclude a Participant from eligibility in any other stock benefit plan of the Company or any old age benefit, insurance, pension, profit sharing, retirement, bonus or other plan which the Company has adopted, or may, at any time, adopt. Section 11.06. Tax Requirements. The exercise or surrender of any option under this Plan shall constitute a Participant's full and complete consent to whatever action any of the Committees or the Board elect to satisfy the Federal and state withholding requirements, if any, which the Committee in its discretion deems applicable to such exercise. Section 11.07. Interpretations And Adjustments. To the extent permitted by Law, an interpretation of the Plan and a decision on any matter within any of the Committees' or the Board's discretion made in good faith is binding on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known, and the person responsible shall make such adjustment on account thereof as he considers equitable and practicable. Section 11.08. Information. The Company shall, upon request or as may be specifically required hereunder, furnish or cause to be furnished, all of the information or documentation which is necessary or required by any of the Committees or the Board to perform its duties and functions under the Plan. Section 11.09. Governing Law. The Plan and any and all options granted thereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of New York from time to time in effect. Section 11.10. Certain Definitions. (a) "Parent". The term "parent" shall mean a "parent corporation" as defined in Section 424(e) of the Code. (b) "Subsidiary". The term "subsidiary" shall mean a "subsidiary corporation" as defined in Section 424(f) of the Code. (c) "Disabled". The term "disabled" shall have the definition set forth in Section 22(a) (3) of the Code. 11 EX-99.3 12 y58958ex99-3.txt NON-QUALIFIED STOCK OPTION PLAN Exhibit 99.3 IMCLONE SYSTEMS INCORPORATED 1998 NON-QUALIFIED STOCK OPTION PLAN, AS AMENDED(1) Article 1 PURPOSE OF PLAN Section 1.01. General Purpose. The purpose of this Non-Qualified Stock Option Plan (the "PLAN") is to promote the interests of ImClone Systems Incorporated (the "COMPANY") by affording consultants, advisors, and non-officer employees an opportunity to acquire a proprietary interest in the Company pursuant to stock options issued by the Company, and thus to create in such persons increased personal interest in its continued success. Section 1.02. Statutory Stock Option. Options granted under the Plan are intended to be "non-qualified" stock options under the Internal Revenue Code of 1986, as amended (the "CODE"). Article 2 SHARES SUBJECT TO PLAN Section 2.01. Description of Shares. Subject to Article VII hereof, the stock to which the Plan applies is shares of the Company's common stock, $.001 par value ("COMMON STOCK"), either authorized but unissued or Treasury shares. The number of shares of Common Stock to be issued or sold pursuant to options granted hereunder shall not exceed 10,000,000 shares. Section 2.02. Restoration Of Unpurchased Shares. Any shares subject to an option granted hereunder that, for any reason, expires or is terminated unexercised as to such shares may again be subject to an option to be granted hereunder. Article 3 ADMINISTRATION; COMMITTEES; AMENDMENTS Section 3.01. Administration. The Plan shall be administered by any of the Compensation and Stock Option Committee (the "COMMITTEE") or the Board of Directors of the Company (the "BOARD"). The Committee shall be comprised of not less than two persons who shall be appointed by the Board from among the members of the Board. - --------- (1) Amended by the Board of Directors on July 7, 1998, December 16, 1999, September 18, 2000 , March 15, 2001 and November 15, 2001. Section 3.02. Duration; Removal; Etc. The members of the Committee shall serve at the pleasure of the Board, which shall have the power at all times to remove members from the Committee or to add members thereto. Vacancies in the Committee, however caused, shall be filled by action of the Board. Section 3.03. Meetings; Actions Of Committee. The Committee may select one of its members as its Chairman and shall hold meetings at such times and places as it may determine. All decisions or determinations of the Committee and the Board shall be made by the majority vote or decision of all of its members, whether present at a meeting or not; provided, however, that any decision or determination reduced to writing and signed by all of the members shall be as fully effective as if this had been made at a meeting duly called and held. The Committee and the Board may make such rules and regulations for the conduct of its business not inconsistent herewith as it may deem advisable. Section 3.04. Interpretation. The interpretation and construction by the Committee or the Board of the provisions of the Plan or of the options granted hereunder shall be final, unless in the case of the Committee otherwise determined by the Board. No member of the Board or of the Committee shall be liable for an action taken or determination made in good faith. Section 3.05. Amendments Or Discontinuation. The Board may make such amendments, changes, and additions to the Plan, or may discontinue and terminate the Plan, as it may deem advisable from time to time; provided, however, that no action shall affect or impair any options theretofore granted under the Plan. Article 4 PARTICIPANTS; PARTICIPATION GUIDELINES; DURATION OF PLAN Section 4.01. Eligibility And Participation. Options shall be granted only to persons ("PARTICIPANTS") who at the time of granting are consultants, advisors, directors or employees of the Company. The Committee or the Board shall determine the consultants, advisors, directors and employees to be granted options hereunder, the number of shares of Common Stock subject to such options, the exercise prices of options, the terms thereof and any other provisions not inconsistent with the Plan. Persons who are disabled within the meaning of the Code shall not be eligible for the grant of options. Section 4.02. Guidelines For Participation. In selecting Participants and determining the numbers of shares of Common Stock for which options are to be granted, either the Committee or the Board shall consult with officers and directors of the Company, and shall take into account the duties of the respective persons, their present and potential contributions to the success of the Company, and such other factors of the Committee or the Board shall deem relevant. 2 Section 4.03. Duration Of Plan. All options under the Plan shall be granted within ten years from the date the Plan is approved by the Committee and the Board. Article 5 TERMS AND CONDITIONS OF OPTIONS Section 5.01. Individual Stock Option Agreements or Notices. All stock options granted pursuant to the Plan shall be evidenced by stock option agreements or notices ("STOCK OPTION AGREEMENTS"), which need not be identical, in such form as any of the Committee or the Board shall from time to time approve, subject to the terms of the Plan which may, but need not, be executed or acknowledged by a Participant. Section 5.02. Number Of Shares. Each Stock Option Agreement shall state the total number of shares of Common Stock with respect to which the option is granted, the terms and conditions of the option, and the exercise price or prices thereof, it being understood that the Committee or the Board shall have authority to prescribe in any Stock Option Agreement that the option evidenced thereby may be exercisable in full or in part, as to any number of shares subject thereto, at any time or from time to time during said term as the Committee or the Board may determine; provided that no option granted pursuant to the Plan shall be exercisable after the expiration of ten years from the date such option is granted. Except as otherwise provided in any Stock Option Agreement, an option may be exercised at any time or from time to time during the term of the option as to any or all full (but no fractional) shares which have become purchasable under such option. The Committee or the Board shall have the right to accelerate, in whole or in part, from time to time, conditionally or unconditionally, the right to exercise any option granted hereunder. Section 5.03. Option Price. The price at which the shares of Common Stock subject to each option granted under this Plan may be purchased (the "OPTION PRICE" or "EXERCISE PRICE") shall be determined by any of the Committee or the Board, which shall have the authority at the time the option is granted to prescribe in any Stock Option Agreement that the price per share, with the passage of pre-determined periods of time, shall increase from the original price to higher prices. Section 5.04. Method Of Exercising Option; Full Payment. Subject to the terms of Section 6.01 and Section 6.02 hereof, options granted pursuant to the Plan may be exercised only if the Participant was, at all times during the period beginning on the date the option was granted and ending on the date of such exercise, a key consultant, advisor or a non-officer employee of the Company or a subsidiary. Options shall be exercised by written notice to the Company, addressed to the Company at its principal place of business. Such notice shall state the Participant's election to exercise the option and the number of shares of 3 Common Stock in respect of which it is being exercised, and shall be signed by the Participant so exercising the option. Such notice shall be accompanied by payment of the full purchase price of such shares, which payment shall be by wire transfer, certified or bank check or in stock of the Company that has been owned by the Participant for at least six months, or as agreed to by the Board, other consideration; and such written representations and other documents as may be desirable, in the opinion of the Company's legal counsel, for purposes of compliance with state or Federal securities or other laws. In the case of payment made in stock of the Company, the stock shall be valued at its Fair Market Value (as hereinafter defined) on the last business day prior to the date of exercise. The term "FAIR MARKET VALUE" for the Common Stock on any particular date shall mean the last reported sale price of the Common Stock on the principal market on which the Common Stock trades on such date or, if no trades of Common Stock are made or reported on such date, then on the next preceding date on which the Common Stock traded. The Company shall deliver a certificate or certificates representing shares of Common Stock purchased pursuant to such notice to the purchaser as soon as practicable after receipt of such notice, subject to Article VIII hereof. Either the Committee or the Board may amend an already outstanding Stock Option Agreement to add a provision permitted by clause (b) of this Section 5.4, and no such amendment, by itself, shall be deemed to constitute the grant of a new option for purposes of this Plan. Section 5.05. Rights As A Share Holder. No Participant shall have any rights as a shareholder with respect to shares of Common Stock subject to an option granted under the Plan until the date of the issuance to such Participant of a stock certificate in respect of such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. Section 5.06. Other Provisions. Stock Option Agreements entered into pursuant to the Plan may contain such other provisions (not inconsistent with the Plan) as each of the Committee or the Board may deem necessary or desirable, including, but not limited to, covenants on the part of the Participant not to compete, not to sell Common Stock obtained from the exercise of options for specified periods of time, and remedies available to the Company in the event of the breach of any such covenant. Article 6 TERMINATION; TRANSFERABILITY Section 6.01. Termination Of Employment. Except as otherwise provided in connection with the grant of any option or the termination of any Participant, in the event a Participant's employment or service with the Company is terminated other than by reason of death or disability, (a) the right to exercise any unvested option or unvested portion of any option granted under the Plan shall terminate on 4 the date of termination of the relationship between the Participant and the Company and (b) the right to exercise any option or portion of any option granted under the Plan which is vested as of the date of termination of employment or service shall terminate upon the earlier of (i) the thirtieth day following such termination of employment or service or (ii) the date such option or portion of an option would have expired had it not been for the termination of employment or service. The option may not be exercised after its expiration in accordance with the foregoing provisions, and the shares of Common Stock subject to the unexercised portion of such option may again be subject to new options under the Plan. Section 6.02. Death Or Disability Of Participant. Except as otherwise permitted in connection with the grant of any option or the death or disability of a Participant, in the event a Participant dies or is disabled while he is a consultant, advisor or non-officer employee of the Company or a subsidiary, any options theretofore granted to him shall be exercisable only within the next 12 months immediately succeeding such death or disability and then only (a) in the case of death, by the person or persons to whom the Participants rights under the option shall pass by will or the laws of descent and distribution, and in the case of disability, by such Participant or his legal representative, and (b) if and to the extent that he was entitled to exercise the option at the date of his death or disability. Section 6.03. Transferability. Options granted to a Participant under the Plan shall not be transferable otherwise than by will, by the laws of descent and distribution, or (if authorized in the applicable Stock Option Agreement) pursuant to a qualified domestic relations order ("QDRO") as defined by the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder or to a member of the immediate family of the Participant, within the meaning of Rule 16a-1(e) of the Securities Exchange Act of 1934, as amended, a trust for such family members, a partnership whose only partners are such family members or a charitable institution within the meaning of Section 501(c)(3) of the Code (each an "AUTHORIZED TRANSFEREE"). During the Participant's lifetime, options shall be exercised only by such Participant, such Participant's guardian or legal representative, or such Participant's Authorized Transferee. Article 7 CAPITAL ADJUSTMENTS Section 7.01. Capital. If any change is made in the shares of Common Stock subject to the Plan or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, split-up, combination of shares, exchange of shares, issuance of rights to subscribe, or change in capital structure), appropriate adjustments shall be made by either the 5 Committee or the Board as to the maximum number of shares subject to the Plan and the number of shares and price per share subject to outstanding options as shall be equitable to prevent dilution or enlargement of option rights. Any determination made by either the Committee or the Board under this Article VII shall be final, binding and conclusive upon each Participant. Article 8 CHANGE IN CONTROL Section 8.01. Change In Control. Upon the occurrence of a Change in Control, each outstanding option under the Plan shall become fully (100%) vested and exercisable. For purposes of this Plan, a "CHANGE IN CONTROL" of the Company means the occurrence of one of the following events: (i) individuals who, on the effective date of the Plan (the "EFFECTIVE DATE"), constitute the Board (the "INCUMBENT DIRECTORS") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board shall be an Incumbent Director; (ii) any "person" (as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes, after the Effective Date, a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 35% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "COMPANY VOTING SECURITIES"); provided, however, that an event described in this paragraph (ii) shall not be deemed to be a Change in Control if any of following becomes such a beneficial owner: (A) the Company or any majority-owned subsidiary (provided, that this exclusion applies solely to the ownership levels of the Company or the majority-owned subsidiary), (B) any tax-qualified, broad-based employee benefit plan sponsored or maintained by the Company or any majority- 6 owned subsidiary, (C) any underwriter temporarily holding securities pursuant to an offering of such securities or (D) any person pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)). (iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "BUSINESS COMBINATION"), unless immediately following such Business Combination: (A) 60% or more of the total voting power of (x) the corporation resulting from such Business Combination (the "SURVIVING CORPORATION"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "PARENT CORPORATION"), is represented by Company Voting Securities that were outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation), is or becomes the beneficial owner, directly or indirectly, of 35% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Business Combination were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "NON-QUALIFYING TRANSACTION"); or (iv) stockholder approval of a liquidation or dissolution of the Company, unless the voting common equity interests of an ongoing entity (other than a liquidating trust) are beneficially owned, directly or indirectly, by the Company's shareholders in substantially the same proportions as such shareholders owned the Company's outstanding voting common equity interests immediately prior to such liquidation and such ongoing entity assumes all existing obligations of the Company under this Plan. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership 7 of more than 35% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that, if after such acquisition by the Company such person becomes the beneficial owner of Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. Article 9 LEGAL REQUIREMENTS, ETC Section 9.01. Revenue Stamps. The Company shall be responsible and shall pay for any transfer, revenue, or documentary stamps with respect to shares issued upon the exercise of options granted under the Plan. Section 9.02. Legal Requirements. The Company shall not be required to issue certificates for shares upon the exercise of any option unless and until, in the opinion of the Company's legal counsel, such issuance would not result in a violation of any state or Federal securities or other law. Certificates for shares, when issued, shall have, if required in the opinion of the Company's legal counsel, the following legend, or statements of other restrictions, endorsed thereon, and may not immediately be transferable: The shares of Common Stock evidenced by this certificate have been issued to the registered owner in reliance upon written representations that these shares have been purchased for investment. These shares may not be sold, transferred, or assigned unless, in the opinion of the Company and its legal counsel, such sale, transfer, or assignment will not be in violation of the Securities Act of 1933, as amended, applicable rules and regulations of the Securities and Exchange Commission and any applicable state securities laws. Section 9.03. Private Offering. The options to be granted under the Plan are available only to a limited number of present and future consultants, advisors and non-officer employees of the Company who have knowledge of the Company's financial condition, management, and affairs. Such options are not intended to provide additional capital for the Company, but are to encourage stock ownership by the Company's personnel. By the act of accepting an option, in the absence of an effective registration statement under the Securities Act of 1933, as amended, Participants shall agree that upon exercise of such option, they will acquire the shares of Common Stock that are the subject thereof for investment and not with any intention at such time to resell or redistribute the same, and they 8 shall confirm such agreement at the time of exercise, but the neglect or failure to confirm the same in writing shall not be a limitation of such agreement. Article 10 GENERAL Section 10.01. Application Of Funds. The proceeds received by the Company from the sale of shares of Common Stock pursuant to the exercise of options therefore shall be used for general corporate purposes. Section 10.02. Right Of The Company To Terminate Relationship. Nothing contained in the Plan or in a Stock Option Agreement shall confer upon any Participant any right to be continued as a consultant, advisor or non-officer employee of the Company, or interfere in any way with the right of the Company to terminate such relationship for any reason whatsoever, with or without cause, at any time. Section 10.03. No Obligation To Exercise. The granting of an option hereunder shall impose no obligation upon the Participant to exercise such option. Section 10.04. Effectiveness Of Plan. The Plan shall become effective upon its adoption by the Committee and ratification of the Board. Options may be granted under the Plan prior to the ratification of the Plan by the Board, but no such option may be exercised prior to such approval. Section 10.05. Other Benefits. Participation in the Plan shall not preclude a Participant from eligibility in any other stock benefit plan of the Company or any old age benefit, insurance, pension, profit sharing, retirement, bonus or other plan which the Company has adopted, or may, at any time, adopt. Section 10.06. Tax Requirements. The exercise or surrender of any option under this Plan shall constitute a Participant's full and complete consent to whatever action the Committee or the Board elect to satisfy the Federal and state withholding requirements, if any, which the Committee in its discretion deems applicable to such exercise. Section 10.07. Interpretations And Adjustments. To the extent permitted by Law, an interpretation of the Plan and a decision on any matter within either the Committee or the Board's discretion made in good faith is binding on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known, and the person responsible shall make such adjustment on account thereof as he considers equitable and practicable. Section 10.08. Information. The Company shall, upon request or as may be specifically required hereunder, furnish or cause to be furnished, all of the 9 information or documentation which is necessary or required by either the Committee or the Board to perform its duties and functions under the Plan. Section 10.09. Governing Law. The Plan and any and all options granted thereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of New York from time to time in effect. Section 10.10. Certain Definitions. (a) "PARENT". The term "parent" shall mean a "parent corporation" as defined in Section 424(e) of the Code. (b) "SUBSIDIARY". The term "subsidiary" shall mean a "subsidiary corporation" as defined in Section 424(f) of the Code. (c) "DISABLED". The term "disabled" shall have the definition set forth in Section 22(a) (3) of the Code. Article 11 DIRECTORS' GRANTS Section 11.01. Directors' Grants. To the extent any Participating Director (as such term is defined under the Company's 1996 Non-Qualified Stock Option Plan, As Amended (the "1996 NON-QUALIFIED PLAN")) becomes eligible for an option grant under the 1996 Non-Qualified Plan pursuant to Section 7.01 of such plan, but the Committees (as defined thereunder) or Board do not have additional capacity under the 1996 Non-Qualified Plan to grant such option as a result of having reached the maximum number of authorized shares set forth in Section 2.01 of the 1996 Non-Qualified Plan (subject to adjustment pursuant to Section 8.01 of such plan), or if such grant would cause the number of shares issued or sold pursuant to options under the 1996 Non-Qualified Plan to exceed the maximum number of authorized shares set forth in Section 2.01 of the 1996 Non-Qualified Plan (subject to adjustment pursuant to Section 8.01 of such plan), the Committee or Board shall at such time grant options to such Participating Director under this Plan. 10 -----END PRIVACY-ENHANCED MESSAGE-----