-----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, TRbG78/68Ye+VlsRtAJ86TXN/EwcUpjr54+k/MszZKuUIW62oMXf9VSPiLi6xLU9 pnWGK3SMIUVaZGYWNf5JvQ== 0000950123-02-010953.txt : 20021114 0000950123-02-010953.hdr.sgml : 20021114 20021114164814 ACCESSION NUMBER: 0000950123-02-010953 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19612 FILM NUMBER: 02825677 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-Q 1 y65679e10vq.txt IMCLONE SYSTEMS INCORPORATED ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------- FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002 | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-19612 IMCLONE SYSTEMS INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 04-2834797 (State or other jurisdiction of (IRS employer incorporation or organization) identification no.) 180 VARICK STREET, NEW YORK, NY 10014 (Address of principal executive offices) (Zip code) (212) 645-1405 Registrant's telephone number, including area code NOT APPLICABLE Former name, former address and former fiscal year, if changed since last report 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 | | Applicable only to corporate issuers: 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 NOVEMBER 13, 2002 ----- ----------------------------------- Common Stock, par value $.001 73,631,262 Shares
================================================================================ IMCLONE SYSTEMS INCORPORATED INDEX
PAGE NO. -------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - September 30, 2002 (unaudited) and December 31, 2001......... 1 Unaudited Consolidated Statements of Operations - Three and nine months ended September 30, 2002 and 2001................................................................ 2 Unaudited Consolidated Statements of Cash Flows - Nine months ended September 30, 2002 and 2001................................................................ 3 Notes to Consolidated Financial Statements................................................. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................. 26 Item 4. Controls and Procedures.................................................................... 27 PART II - OTHER INFORMATION Item 1. Legal Proceedings.......................................................................... 27 Item 6. Exhibits and Reports on Form 8-K........................................................... 29 Signatures ........................................................................................... 30 Section 302 Certifications............................................................................. 31
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IMCLONE SYSTEMS INCORPORATED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents .............................................................. $ 52,432 $ 38,093 Securities available for sale .......................................................... 240,649 295,893 Prepaid expenses ....................................................................... 4,272 3,891 Amounts due from corporate partners (Note 7) ........................................... 16,870 8,230 Other current assets ................................................................... 9,066 3,547 --------- --------- Total current assets ............................................................... 323,289 349,654 --------- --------- Property and equipment, net .............................................................. 160,604 107,248 Patent costs, net ........................................................................ 1,623 1,513 Deferred financing costs, net ............................................................ 4,125 5,404 Note receivable .......................................................................... 10,000 10,000 Other assets ............................................................................. 1,018 383 --------- --------- $ 500,659 $ 474,202 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable ....................................................................... $ 18,011 $ 16,919 Accrued expenses (including $2,270 due to Bristol-Myers Squibb Company ("BMS") at September 30, 2002) ................................................................. 25,810 11,810 Interest payable ....................................................................... 1,204 4,446 Income taxes payable ................................................................... 550 -- Current portion of deferred revenue (Note 7) ........................................... 37,494 20,683 Current portion of long-term liabilities ............................................... 150 426 --------- --------- Total current liabilities .......................................................... 83,219 54,284 --------- --------- Deferred revenue, less current portion (Note 7) .......................................... 292,806 182,813 Long-term debt ........................................................................... 242,200 242,200 Other long-term liabilities, less current portion ........................................ 55 79 --------- --------- Total liabilities .................................................................. 618,280 479,376 --------- --------- Commitments and contingencies (Note 8) Stockholders' equity (deficit): Preferred stock, $1.00 par value; authorized 4,000,000 shares; reserved 1,200,000 series B participating cumulative preferred stock ..................................... -- -- Common stock, $.001 par value; authorized 200,000,000 shares; issued 73,588,383 and 73,348,271 at September 30, 2002 and December 31, 2001, respectively, outstanding 73,399,133, and 73,159,021 at September 30, 2002 and December 31, 2001, respectively .. 74 73 Additional paid-in capital ............................................................. 345,474 341,735 Accumulated deficit .................................................................... (461,152) (346,037) Treasury stock, at cost; 189,250 shares at September 30, 2002 and December 31, 2001 .... (4,100) (4,100) Accumulated other comprehensive income: Unrealized gain on securities available for sale ..................................... 2,083 3,155 --------- --------- Total stockholders' equity (deficit) ............................................... (117,621) (5,174) --------- --------- $ 500,659 $ 474,202 ========= =========
See accompanying notes to consolidated financial statements Page 1 IMCLONE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- ----------------------- 2002 2001 2002 2001 -------- -------- --------- --------- Revenues: License fees and milestone revenue (Note 7) ..................... $ 4,996 $ 2,244 $ 13,254 $ 29,476 Research and development funding and royalties .................. 622 667 1,310 1,430 Collaborative agreement revenue (Note 7) ........................ 9,416 2,818 30,586 6,713 -------- -------- --------- --------- Total revenues ................................................ 15,034 5,729 45,150 37,619 -------- -------- --------- --------- Operating expenses: Research and development ........................................ 43,504 26,664 119,449 76,150 Marketing, general and administrative ........................... 12,341 5,599 36,943 15,550 Expenses associated with the BMS acquisition, stockholder and amended commercial agreements .................................. -- 16,050 2,250 16,050 -------- -------- --------- --------- Total operating expenses ...................................... 55,845 48,313 158,642 107,750 -------- -------- --------- --------- Operating loss .................................................... (40,811) (42,584) (113,492) (70,131) -------- -------- --------- --------- Other: Interest income ................................................. (2,259) (3,244) (7,427) (11,071) Interest expense ................................................ 3,161 3,532 10,000 10,042 Loss (gain) on securities and investments ....................... (264) (1,800) (1,500) 2,668 -------- -------- --------- --------- Net interest and other expense (income) ....................... 638 (1,512) 1,073 1,639 -------- -------- --------- --------- Loss before income taxes ...................................... (41,449) (41,072) (114,565) (71,770) Income taxes .................................................. 550 -- 550 -- -------- -------- --------- --------- Net loss ..................................................... $(41,999) $(41,072) $(115,115) $ (71,770) ======== ======== ========= ========= Net loss per common share: Basic and diluted: Net loss per common share ..................................... $ (0.57) $ (0.57) $ (1.57) $ (1.05) ======== ======== ========= ========= Weighted average shares outstanding ............................... 73,385 71,534 73,350 68,301 ======== ======== ========= =========
See accompanying notes to consolidated financial statements Page 2 IMCLONE SYSTEMS INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 2002 2001 --------- --------- Cash flows from operating activities: Net loss ................................................................................. $(115,115) $ (71,770) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization .......................................................... 7,000 3,517 Amortization of deferred financing costs ............................................... 1,279 1,279 Expense associated with issuance of options and warrants ............................... 11 952 Gain on securities available for sale .................................................. (1,500) (2,707) Write-down of investment in Valigen N.V ................................................ -- 4,375 Write-off of convertible promissory note receivable from A.C.T. Group, Inc. ............ -- 1,000 Accrued interest on note receivable - officer .......................................... -- (24) Accrued interest on notes receivable - officers and directors .......................... -- (606) Changes in: Prepaid expenses ..................................................................... (381) (2,776) Amounts due from corporate partners (including amounts received from BMS of $8,377 for the nine months ended September 30, 2002) ....................................... (8,640) -- Other current assets ................................................................. (5,519) 163 Other assets ......................................................................... (635) (81) Interest payable ..................................................................... (3,242) (3,237) Accounts payable ..................................................................... 1,092 (2,244) Accrued expenses ..................................................................... 14,000 10,306 Income taxes payable ................................................................. 550 -- Deferred revenue (including amounts received from BMS of $140,000 and $200,000 for the nine months ended September 30, 2002 and 2001, respectively) ................ 126,804 203,325 Fees potentially refundable to Merck KGaA ............................................ -- (28,000) --------- --------- Net cash provided by operating activities ........................................... 15,704 113,472 --------- --------- Cash flows from investing activities: Acquisitions of property and equipment ................................................. (60,165) (44,591) Purchases of securities available for sale ............................................. (327,470) (158,497) Sales and maturities of securities available for sale .................................. 383,142 130,449 Investment in Valigen N.V .............................................................. -- (2,000) Loan to A.C.T. Group, Inc. ............................................................. -- (1,000) Additions to patents ................................................................... (243) (593) --------- --------- Net cash used in investing activities ............................................... (4,736) (76,232) --------- --------- Cash flows from financing activities: Proceeds from exercise of stock options and warrants ................................... 2,751 7,333 Proceeds from issuance of common stock under the employee stock purchase plan .......... 413 531 Proceeds from short-swing profit rule .................................................. 565 -- Proceeds from issuance of common stock to Merck KGaA ................................... -- 3,240 Purchase of treasury stock ............................................................. -- (1,830) Payment of preferred stock dividends ................................................... -- (5,764) Redemption of series A preferred stock ................................................. -- (20,000) Payments of other liabilities .......................................................... (358) (487) --------- --------- Net cash provided by (used in) financing activities ................................. 3,371 (16,977) --------- --------- Net increase in cash and cash equivalents ........................................... 14,339 20,263 Cash and cash equivalents at beginning of period ......................................... 38,093 60,325 --------- --------- Cash and cash equivalents at end of period ............................................... $ 52,432 $ 80,588 ========= ========= Supplemental cash flow information: Cash paid for interest, including amounts capitalized of $1,441 and $1,398 for the nine months ended September 30, 2002 and 2001, respectively ................ $ 13,403 $ 13,397 ========= ========= Non-cash financing activity: Capital asset and lease obligation addition ......................................... $ 58 $ -- ========= =========
See accompanying notes to consolidated financial statements Page 3 IMCLONE SYSTEMS INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PREPARATION The consolidated financial statements of ImClone Systems Incorporated ("ImClone Systems" or the "Company") as of September 30, 2002 and for the three and nine months ended September 30, 2002 and 2001 are unaudited. In the opinion of management, these unaudited financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, as filed with the Securities and Exchange Commission ("SEC"). Results for the interim periods are not necessarily indicative of results for the full years. Pursuant to the guidance in Emerging Issues Task Force Issue No. 01-14, Income Statement Characterization of Reimbursements Received for "Out-of-Pocket" Expenses Incurred ("EITF No. 01-14"), the Company changed its classification for corporate partner reimbursements effective January 1, 2002 to characterize such reimbursements received for research and development and marketing expenses incurred as collaborative agreement revenue in the consolidated statements of operations. Prior to January 1, 2002, the Company characterized such reimbursements as a reduction of expenses in the consolidated statements of operations. As prescribed in EITF No. 01-14, all comparative financial statements for prior periods have been reclassified to comply with this guidance. (2) PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and consist of the following:
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------- ------------- Land ............................................. $ 4,899,000 $ 2,733,000 Building and building improvements ............... 61,420,000 50,720,000 Leasehold improvements ........................... 8,370,000 8,302,000 Machinery and equipment .......................... 38,359,000 33,057,000 Furniture and fixtures ........................... 2,096,000 2,031,000 Construction in progress ......................... 75,002,000 33,080,000 ------------- ------------- Total cost ................................. 190,146,000 129,923,000 Less accumulated depreciation and amortization ... (29,542,000) (22,675,000) ------------- ------------- Property and equipment, net ...................... $ 160,604,000 $ 107,248,000 ============= =============
The Company is building a second commercial manufacturing facility adjacent to its product launch manufacturing facility in Somerville (Branchburg Township), New Jersey . This new facility will be a multi-use facility with capacity of up to 110,000 liters (production volume). The 250,000 square foot facility will cost approximately $234,000,000, and is being built on land purchased in July 2000. The actual cost of the new facility may change depending upon various factors. The Company incurred approximately $64,693,000 (included in construction in progress above), excluding capitalized interest of approximately $1,831,000, in conceptual design, engineering and pre-construction costs through September 30, 2002. Through October 24, 2002, committed purchase orders totaling approximately $44,593,000 have been placed for subcontracts and equipment related to this project. In addition, $21,306,000 in engineering, procurement, construction management and validation costs were committed. During August 2002, the Company executed an escrow agreement with Branchburg Township (the "Township"). The agreement required the Company to deposit $5,040,000 in an escrow account until the Company supplies the Township with certain New Jersey Department of Environmental Protection permits and also certain water and sewer permits related to the construction of this facility. The escrow agreement requires the permits to be supplied to the Township by July 1, 2003 at which time the Company will receive back the escrow deposit. Interest that accures on the escrow deposit is allocated two-thirds to the Company and one-third to the Township. The escrow deposit was requested by the Township to insure that funds would be available to restore the site to its original condition should the Company fail to obtain such permits required for contruction at the site. The escrow deposit, including the Company's portion of the interest, totaled $5,052,000 at September 30, 2002 and is included in Other current assets in the consolidated balance sheet. In January 2002, the Company purchased real estate consisting of a 7.5-acre parcel of land located adjacent to the Company's product launch manufacturing facility and pilot facility in Somerville, New Jersey. The real estate includes an existing 50,000 square foot building, 40,000 square feet of which is warehouse space and 10,000 square feet of which is Page 4 office space. The purchase price for the property and building was approximately $7,020,000, of which approximately $1,125,000 related to the purchase of the land and approximately $5,895,000 related to the purchase of the building. The Company intends to use this property for warehousing and material logistics for its Somerville campus. As of September 30, 2002, the Company has incurred approximately $326,000 (included in construction in progress above), excluding capitalized interest of approximately $2,000, for the retrofit of this facility. The total cost for the retrofit will be approximately $635,000. On May 20, 2002, the Company purchased real estate consisting of a 6.94-acre parcel of land located across the street from the Company's product launch manufacturing facility in Somerville, New Jersey. The real estate includes an existing building with 46,000 square feet of office space. The purchase price for the property was approximately $4,515,000, of which approximately $1,041,000 was related to the purchase of the land and approximately $3,474,000 was related to the purchase of the building. The Company intends to use this property as the administrative building for its Somerville campus. As of September 30, 2002, the Company has incurred approximately $2,857,000 (included in construction in progress above), excluding capitalized interest of approximately $7,000, for the retrofit of this facility. The total cost for the retrofit will be approximately $5,187,000. The process of preparing consolidated financial statements in accordance with accounting principles generally accepted in the United States of America 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 facility, its second commercial manufacturing facility and its warehousing and material logistics facility will depend on (1) receiving Food and Drug Administration ("FDA") approval of our interventional therapeutic product candidate for cancer, ERBITUX(TM), (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. (3) CONTRACT MANUFACTURING SERVICES In December 1999, the Company 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 was responsible for process development and scale-up to manufacture ERBITUX in bulk form under current Good Manufacturing Practices ("cGMP"). These steps were taken to assure that the manufacturing process would produce bulk material that conforms with the Company's reference material. The Company did not incur any costs associated with this agreement during the three months ended September 30, 2002 and $1,535,000 was incurred during the three months ended September 30, 2001. Approximately $38,000 and $5,135,000 was incurred in the nine months ended September 30, 2002 and 2001, respectively, and $7,068,000 from inception through September 30, 2002. As of September 30, 2002, Lonza has completed its responsibilities 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 $87,050,000. The Company has incurred approximately $15,578,000 in the three months ended September 30, 2002 and a reduction to expenses of $2,475,000 in the three months ended September 30 2001, as a result of reductions to prior billings. The Company has incurred $30,105,000 and $2,400,000 in the nine months ended September 30, 2002 and 2001, respectively, and $40,418,000 from inception through September 30, 2002 for services provided under the commercial manufacturing services agreement. Under the December 1999 and September 2000 agreements, Lonza is manufacturing ERBITUX at the 5,000 liter scale under cGMP 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 to purchase 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 certain additional batches that we are committed to purchase 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 September 30, 2002, the estimated remaining Page 5 future commitments under the amended commercial manufacturing services agreement are $26,283,000 in 2002 and $20,350,000 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 "2,000L Lonza Agreement"). The costs associated with the agreement are reimbursable by Merck KGaA and accordingly are accounted for as collaborative agreement revenue and such costs are also included in research and development expenses in the consolidated statement of operations. The Company has incurred approximately $1,175,000 and $1,763,000 in the three months ended September 30, 2002 and 2001, respectively, and $4,700,000 and $1,763,000 in the nine months ended September 30, 2002 and 2001, respectively, and $7,183,000 from inception through September 30, 2002 for services provided under this agreement. Approximately $588,000 and $133,000 were reimbursable by Merck KGaA at September 30, 2002 and December 31, 2001, respectively, and included in amounts due from corporate partners in the consolidated balance sheets. As of September 30, 2002, Lonza has completed its responsibilities under the 2,000L Lonza Agreement. In January 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, which would be able to produce ERBITUX in 20,000 liter batches. The Company paid Lonza $3,250,000 upon execution of the letter of intent for the exclusive right to negotiate a long-term supply agreement for a portion of the facility's manufacturing capacity. During September 2002, the Company wrote-off the deposit because the exclusive negotiation period ended on September 30, 2002, although negotiations continued thereafter. The $3,250,000 is included in Marketing, general and administrative expenses on the Consolidated Statement of Operations for the three and nine months ended September 30, 2002, respectively. The Company is currently negotiating with Lonza and a third party with the intention of assigning to the third party any remaining rights the Company has under this letter of intent in return for the third party's agreement to reimburse the Company the $3,250,000 upon execution of a binding agreement with Lonza for supply of biologics on similar terms to those negotiated with Lonza by the Company. The Company cannot be certain that it will enter into this arrangement. (4) INVESTMENT IN VALIGEN N.V. 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 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 of 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 represented approximately 7% of ValiGen's outstanding equity at the time of purchase. As of June 30, 2001, the Company had completely written-off its investment in ValiGen based on the modified equity method of accounting. Included in loss on securities and investments are write-downs of the Company's investment in Valigen of $4,375,000 for the nine months ended September 30, 2001. In the spring of 2001, the Company also entered into a no-cost Discovery Agreement with ValiGen to evaluate certain of its technology. After the Company made its investment in Valigen, the Company's former President and Chief Executive Officer became a member of ValiGen's Board of Directors. (5) NET LOSS PER COMMON SHARE Basic and diluted net loss per common share are computed based on the net loss for the relevant period, divided by the weighted average number of common shares 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 periods presented. For the three and nine months ended September 30, 2002 and 2001, the Company had approximately 17,937,000 and 16,037,000, respectively, potential common shares outstanding which represent new shares which could be issued under convertible debt, stock options and stock warrants. Page 6 (6) COMPREHENSIVE INCOME (LOSS) The following table reconciles net loss to comprehensive income (loss):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ------------------------------ 2002 2001 2002 2001 ------------ ------------ ------------- ------------ Net loss .............................................. $(41,999,000) $(41,072,000) $(115,115,000) $(71,770,000) Other comprehensive income (loss): Unrealized holding gain (loss) arising during the period ............................................. (130,000) 1,473,000 428,000 3,427,000 Reclassification adjustment for realized gain included in net loss ............................... (264,000) (1,800,000) (1,500,000) (2,707,000) ------------ ------------ ------------- ------------ Total other comprehensive income (loss) .......... (394,000) (327,000) (1,072,000) 720,000 ------------ ------------ ------------- ------------ Total comprehensive loss .............................. $(42,393,000) $(41,399,000) $(116,187,000) $(71,050,000) ============ ============ ============= ============
(7) COLLABORATIVE AGREEMENTS (a) MERCK KGAA Effective 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. Merck KGaA is also required to make payments of up to $22,500,000, of which $4,000,000 has been recognized, through September 30, 2002, 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 the Company. Such cost sharing applies to all expenses beyond the DM17,000,000 threshold. The Company has incurred approximately $27,000 and $8,000 in the three months ended September 30, 2002 and 2001, respectively, and approximately $181,000 and $130,000 in the nine months ended September 30, 2002 and 2001, respectively, in reimbursable research and development expenses associated with this agreement. These amounts have been recorded as research and development expenses and also as collaborative agreement revenue in the consolidated statements of operations. 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 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 September 30, 2002, $30,000,000 in up-front fees and early cash-based milestone payments based on the achievement of defined milestones. In March 2001, the Company satisfied a condition relating to obtaining certain collateral license agreements associated with the ERBITUX development and license agreement with Merck KGaA. The satisfaction of this condition allowed for the recognition of $24,000,000 in previously received milestone payments and initiated revenue recognition of the $4,000,000 up-front payment received in connection with this agreement. An additional $30,000,000 can be received, of which $5,000,000 has been received as of September 30, 2002, assuming the achievement of further milestones for which Merck KGaA will receive equity in the Company. 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 Page 7 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 a return of 50% of the cash-based up front fees and milestone payments then paid to date, but only out of revenues received by ImClone, 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. 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 Company's 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 that Merck KGaA has 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. 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 from the Company ERBITUX manufactured by the Company and under the various manufacturing service agreements with Lonza for use in this and other trials and further agreed to reimburse the Company for one-half of the outside contract service costs incurred with respect to this Phase III clinical trial of ERBITUX for the treatment of head and neck cancer in combination with radiation. In September 2002, the Company entered into a binding term sheet, effective as of April 15, 2002, for the supply of ERBITUX to Merck KGaA, which replaces previous supply arrangements. The term sheet provides for Merck KGaA to purchase bulk and finished ERBITUX ordered from the Company during the term of the December 1998 development and license agreement at a price equal to the Company's fully loaded manufacturing costs. The term sheet also provides for Merck KGaA to use reasonable efforts to enter into its own contract manufacturing agreements for supply of ERBITUX by 2004 and obligates Merck KGaA to reimburse the Company for costs associated with transferring technology and any other services requested by Merck KGaA relating to establishing its own manufacturing or contract manufacturing capacity. Amounts due from Merck KGaA related to these arrangements totaled approximately $2,704,000 and $1,503,000 at September 30, 2002 and December 31, 2001, respectively, and are included in amounts due from corporate partners in the consolidated balance sheets. The Company recorded collaborative agreement revenue related to these arrangements in the consolidated statements of operations totaling approximately $1,997,000 and $2,616,000 in the three months ended September 30, 2002, and 2001, respectively and $14,219,000 and $6,206,000 in the nine months ended September 30, 2002, and 2001, respectively. Of these amounts, $1,470,000 and $1,170,000 in the three months ended September 30, 2002, and 2001, and $12,323,000 and $2,593,000 in the nine months ended September 30, 2002, and 2001, respectively, related to reimbursable costs associated with supplying ERBITUX to Merck KGaA for use in clinical trials. A portion of the ERBITUX sold to Merck KGaA was produced in prior periods and the related manufacturing costs have been expensed in prior periods when the related raw materials were purchased and the associated direct labor and overhead was consumed or, in the case of contract manufacturing, when such services were performed. These costs totaled $704,000 and $1,061,000 for the three months ended September 30, 2002 and 2001, respectively and $7,051,000 and $2,464,000 for the nine months ended September 30, 2002 and 2001, respectively. Reimbursable research and development expenses were incurred and totaled approximately $527,000 and $1,446,000 in the three months ended September 30, 2002 and 2001, respectively, and $1,896,000 and $3,613,000 in the nine months ended September 30, 2002 and 2001, respectively. These amounts have been recorded as research and development expenses and also as collaborative agreement revenue in the consolidated statements of operations. (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. 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 all parties agreed to various arrangements regarding the respective rights and obligations of each party with respect to, among other things, the ownership of shares of the Company's common stock by BMS and BMS Biologics. Concurrent with the execution of the Acquisition Agreement and the Stockholder Agreement, the Company entered into a development, promotion, distribution and supply agreement (the "Commercial Agreement") with BMS and its Page 8 wholly-owned subsidiary E.R. Squibb & Sons, L.L.C. ("E.R. Squibb"), relating to ERBITUX, pursuant to which, among other things, the Company is co-developing and co-promoting ERBITUX in the United States and Canada, and co-developing ERBITUX (together with Merck KGaA) in Japan. On October 29, 2001, pursuant to the Acquisition Agreement, 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. 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 clinical and strategic roles 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 an additional payment of $60,000,000 is payable on March 5, 2003. Such payments are in lieu of the $300,000,000 milestone payment the Company would have received under the original terms of the agreement upon acceptance by the FDA of the ERBITUX rolling Biologic License Application submitted for marketing approval to treat irinotecan-refractory colorectal cancer. In addition, the Company agreed, and has in fact, resumed construction of its second commercial manufacturing facility as soon as reasonably practicable after the execution of the amendment. In exchange for the rights granted to BMS under the amended Commercial Agreement, the Company 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. Payments received under the amended Commercial Agreement 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 Commercial Agreement. Except for the Company's expenses incurred pursuant to a co-promotion option, E.R. Squibb is also responsible for 100% of the distribution, sales and marketing costs in the United States and Canada, and as between the Company and E.R. Squibb, each party will be responsible for 50% of the distribution, sales, and marketing costs and other related costs and expenses in Japan. The Commercial Agreement provides that E.R. Squibb shall pay the Company a 39% distribution fee on net sales of ERBITUX by E.R. Squibb 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 the Company 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 the Company the amount of such distribution fee, and in the event of an operating loss, the Company will credit E.R. Squibb the amount of such distribution fee. The Commercial Agreement provides that the Company 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 the Company. The Company will supply ERBITUX for clinical use at the Company's fully burdened manufacturing cost, and will supply ERBITUX for commercial use at the Company's 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 the Company. As between E.R. Squibb and the Company, each will 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 ERBITUX in each of the United States, Canada and Japan 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 joint executive committee (the "JEC") formed by BMS and the Company 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 Page 9 - 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 product development committee concerning such additional clinical studies. The Company incurred approximately $2,250,000 during the nine months ended September 30, 2002 in advisor fees associated with the amendment to the Commercial Agreement with BMS and affiliates, and $16,050,000 during the nine months ended September 30, 2001, in advisor fees associated with consummating the acquisition agreement, the stockholder agreement and the commercial agreement with BMS and affiliates, which have been expensed and included as a separate line item in operating expenses in the consolidated statement of operations. Amounts due from BMS related to this agreement totaled approximately $14,106,000 and $6,714,000 at September 30, 2002 and December 31, 2001, respectively, and are included in amounts due from corporate partners in the consolidated balance sheets. The Company recorded collaborative agreement revenue related to this agreement in the consolidated statements of operations totaling approximately $7,248,000 and $15,769,000 in the three and nine months ended September 30, 2002, respectively. Of these amounts, $2,477,000 and $6,286,000 in the three and nine months ended September 30, 2002, respectively, related to reimbursable costs associated with supplying ERBITUX for use in clinical trials associated with this agreement. A portion of the ERBITUX sold to BMS was produced in prior periods and the related manufacturing costs have been expensed in prior periods when the related raw materials were purchased and the associated direct labor and overhead was consumed or, in the case of contract manufacturing, when such services were performed. These costs totaled $462,000 and $4,271,000 for the three and nine months ended September 30, 2002, respectively. Reimbursable research and development and marketing expenses were incurred and totaled approximately $4,771,000 and $9,483,000 in the three and nine months ended September 30, 2002. These amounts have been recorded as research and development and marketing, general and administrative expenses and also as collaborative agreement revenue in the consolidated statements of operations. In June 2002, the Company and BMS agreed that certain ERBITUX clinical trial costs would in fact be borne by the Company. This resulted in the issuance of credit memos to BMS during the nine months ended September 30, 2002 totaling approximately $2,949,000, which ultimately reduced collaborative agreement revenue and license fee revenue in the nine months ended September 30, 2002. License fees and milestone revenues consist of the following:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ -------------------------- 2002 2001 2002 2001 ---------- ---------- ----------- ----------- BMS ERBITUX license fee revenue .......................... $4,841,000 $ 387,000 $12,907,000 $ 387,000 Merck KGaA ERBITUX milestone revenue ..................... -- 1,760,000 -- 27,760,000 Merck KGaA BEC2 milestone revenue ........................ -- -- -- 1,000,000 Merck KGaA ERBITUX and BEC2 license fee revenue .......... 97,000 97,000 289,000 289,000 Other .................................................... 58,000 -- 58,000 40,000 ---------- ---------- ----------- ----------- Total license fees and milestone revenues ............ $4,996,000 $2,244,000 $13,254,000 $29,476,000 ========== ========== =========== ===========
Collaborative agreement revenue (see note 1) from corporate partners consists of the following:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ -------------------------- 2002 2001 2002 2001 ---------- ---------- ----------- ----------- BMS, reimbursable ERBITUX research and development expenses ............................................... $7,152,000 $ -- $14,844,000 $ -- BMS, reimbursable ERBITUX marketing expenses ............. 96,000 -- 925,000 -- Merck KGaA, reimbursable ERBITUX research and development expenses ................................... 527,000 1,446,000 1,896,000 3,613,000 Merck KGaA, reimbursable ERBITUX product costs for use in clinical trials ..................................... 1,470,000 1,170,000 12,323,000 2,593,000 Merck KGaA, reimbursable administrative expenses ......... 144,000 194,000 417,000 377,000 Merck KGaA, reimbursable BEC2 research and development expenses ................................... 27,000 8,000 181,000 130,000 ---------- ---------- ----------- ----------- Total collaborative agreement revenue ................ $9,416,000 $2,818,000 $30,586,000 $ 6,713,000 ========== ========== =========== ===========
Page 10 Amounts due from corporate partners consist of the following:
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------- ------------- Due from BMS, ERBITUX research and development and marketing expenses ................... $ 14,106,000 $ 6,714,000 Due from Merck KGaA, ERBITUX research and development and administrative expenses ....... 1,233,000 666,000 Due from Merck KGaA, reimbursement of ERBITUX manufacturing costs for use in clinical trials ................................................................................ 1,471,000 837,000 Due from Merck KGaA, BEC2 research and development expenses ............................. 60,000 13,000 ------------- ------------- Total amounts due from corporate partners ........................................... $ 16,870,000 $ 8,230,000 ============= =============
Deferred revenue consists of the following:
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------- ------------- BMS, ERBITUX Commercial Agreement ....................................................... $ 324,539,000 $ 197,447,000 Merck KGaA, ERBITUX development and license agreement ................................... 3,611,000 3,778,000 Merck KGaA, BEC2 development and commercialization agreement ............................ 2,150,000 2,271,000 ------------- ------------- 330,300,000 203,496,000 Less: current portion ................................................................... (37,494,000) (20,683,000) ------------- ------------- $ 292,806,000 $ 182,813,000 ============= =============
(8) CONTINGENCIES Beginning in January 2002, a number of complaints asserting claims under the federal securities laws against the Company and certain of its directors and officers were filed in the U.S. District Court for the Southern District of New York. Those actions were consolidated under the caption Irvine v. ImClone Systems Incorporated et al., No. 02 Civ. 0109 (RO), and on September 16, 2002, a consolidated amended complaint was filed in that consolidated action, which plaintiffs corrected in limited respects on October 22, 2002. The corrected consolidated amended complaint names as defendants the Company, its former chief executive officer Dr. Samuel D. Waksal, its current chief executive officer Dr. Harlan W. Waksal, the chairman of its board of directors Robert Goldhammer, current or former directors Richard Barth, David Kies, Paul Kopperl, John Mendelsohn and William Miller, the Company's former general counsel John Landes, and its vice president for marketing and sales, Ronald Martell. The complaint asserts claims for securities fraud under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 ("the Exchange Act") and SEC Rule 10b-5, on behalf of a purported class of persons who purchased the Company's publicly traded securities between March 27, 2001 and January 25, 2002. The complaint also asserts claims against Dr. Samuel D. Waksal under section 20A of the Exchange Act on behalf of a separate purported sub-class of purchasers of the Company's securities between December 27, 2001 and December 28, 2001. The complaint generally alleges that various public statements made by or on behalf of the Company or the other defendants during 2001 and early 2002 regarding the prospects for FDA approval of ERBITUX were false or misleading when made, that the individual defendants were allegedly aware of material non-public information regarding the actual prospects for ERBITUX at the time that they engaged in transactions in the Company's common stock and that members of the purported stockholder 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. The complaint seeks to proceed on behalf of the alleged class described above, seeks monetary damages in an unspecified amount and seeks recovery of plaintiffs' costs and attorneys' fees. Under the existing schedule in that action, defendants' response to the consolidated amended complaint is due in late November 2002. Separately, on September 17, 2002 an individual purchaser of the Company's common stock filed an action on his own behalf asserting claims against the Company, Dr. Samuel D. Waksal and Dr. Harlan W. Waksal under sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5. That action is styled Flynn v. ImClone Systems Incorporated, et al., No. 02 Civ. 7499. Plaintiff alleges that he purchased shares on various dates in late 2001, that various public statements made by the Company or the other defendants during 2001 regarding the prospects for FDA approval of ERBITUX were false or misleading when made and that plaintiff relied on such allegedly false and misleading information in making his purchases. Plaintiff seeks compensatory damages of not less than $180,000 and punitive damages of $5 million, together with interest, costs and attorneys' fees. Defendants' response to the complaint is due in late November 2002. Page 11 Beginning on January 13, 2002 and continuing thereafter, nine separate purported shareholder derivative actions have been filed against the members of the 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. Four 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 three purported derivative actions have been filed in New York State Supreme Court in Manhattan, styled Boghosian v. Barth, et al., Index No. 100759/02, Johnson v. Barth, et al., Index No. 601304/02 and Henshall v. Bodnar, et al., Index No. 603121/02. All of these actions assert claims, purportedly on behalf of the Company, 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 or improperly disclosed such information to others. Another 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 nine 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. The Company intends to vigorously defend itself against the claims asserted in these actions, which are in their earliest stages. The Company is unable to predict the outcome of these actions at this time. Because the Company does not believe a loss is probable, no legal reserve has been established. As previously reported, 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 our securities by certain Company insiders in 2001. The Company has also received subpoenas and requests for information pertaining to document retention issues in 2001 and 2002 and to certain communications regarding ERBITUX in 2000. The Company is cooperating in connection with all of these inquiries and intends to continue to do so. On June 19, 2002, the Company received a written "Wells Notice" from the staff of the Securities and Exchange Commission, ("the Commission") indicating that the Staff of the Commission is considering recommending that the Commission bring an action against the Company relating to its disclosures immediately following the receipt of a Refusal-to-File letter from the FDA on December 28, 2001 for its biologics license application for ERBITUX. We filed a "Wells submission" on July 12, 2002 in response to the staff's Wells Notice. The Company has also received permission from the Commission to file a supplemental Wells submission, and the Company anticipates that it will make this submission by the end of this year. On August 7, 2002, a federal grand jury in the Southern District of New York returned an indictment charging Dr. Samuel D. Waksal with, inter alia, securities fraud and conspiracy to commit securities fraud. On October 15, 2002, Dr. Samuel D. Waksal entered a plea of guilty to several counts in that indictment, including that on December 27, 2001 he directed a family member to sell shares of the Company's common stock and attempted to sell shares that he owned in advance of an expected announcement that the FDA had issued a "refusal to file" letter with respect to the Company's application for approval of ERBITUX. The Company received such a "refusal to file" letter from the FDA on December 28, 2001 and announced its receipt of that letter following the close of trading. On August 14, 2002, after the federal grand jury indictment of Dr. Samuel D. Waksal had been issued but before Dr. Samuel D. Waksal's guilty plea to certain counts of that indictment, the Company filed an action in New York State Supreme Court seeking recovery of certain compensation, including advancement of certain defense costs, that the Company had paid to or on behalf of Dr. Samuel D. Waksal. That action, styled ImClone Systems Incorporated v. Samuel D. Waksal, Index No. 02/602996, is in its earliest stages. The Company has incurred legal fees associated with these matters totaling approximately $9,249,000 during the nine months ended September 30, 2002. In addition, the Company has estimated and recorded a receivable totaling $2,593,000 for a portion of the above mentioned legal fees that the Company believes are recoverable from its insurance carriers. This receivable is included in Other current assets in the consolidated balance sheet at September 30, 2002. In November 2002, the Page 12 Company received a letter from counsel for its primary insurance carrier asserting that Dr. Samuel D. Waksal's guilty plea gives rise to an exclusion from insurance coverage for the Company. The Company intends to contest this assertion. (9) CERTAIN RELATED PARTY TRANSACTIONS In September 2001 and February 2002, the Company entered into employment agreements with six senior executive officers, including, in September 2001, the then President and Chief Executive Officer and the then Chief Operating Officer. The then President and Chief Executive Officer resigned in May 2002 and the then Chief Operating Officer was appointed to President and Chief Executive Officer. The September agreements each have three-year terms and the February agreement has a one-year term. The February 2002 agreement was amended in April 2002. The term of employment for the present CEO 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 stated base salaries, minimum bonuses and benefits aggregating $3,765,000 annually. In October 2002, the Company accepted the resignation of an executive officer who held one of the aforementioned employment agreements. The Company and the officer executed a separation agreement whereby the officer will receive his stated base salary from the date of termination through October 2003 and certain benefits including healthcare and life insurance coverage through December 2002. In August 2002 and September 2002, the Company entered into one-year agreements with two executive officers. The employment agreements provide for a stated base salary aggregating $390,000. Certain transactions engaged in by the Company's former President and Chief Executive Officer, Dr. Samuel D. 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 D. Waksal has paid the Company an aggregate amount of approximately $486,000, in March 2002, and an additional amount of approximately $79,000 in July 2002, as disgorgement of "short-swing profits" he was deemed to have realized. The amounts received were recorded as an increase to additional paid-in capital. (10) 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 its common stock outstanding at the close of business on February 19, 2002. In connection with the Board of Directors' approval of the Stockholder 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 that do not offer an adequate price to all of the Company's stockholders or are otherwise not in the best interests of the Company and its 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 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 that 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. (11) SEPARATION AGREEMENT On May 22, 2002, the Company accepted the resignation of its President and Chief Executive Officer, Dr. Samuel D. Waksal. In connection with the resignation, on May 24, 2002 the Company and Dr. Samuel D. Waksal executed a separation agreement whereby Dr. Samuel D. Waksal received a lump sum payment totaling $7,000,000 and was entitled to receive for defined periods of time the continuation of certain benefits including health care and life insurance coverage with an estimated cost of $283,000. The related expense of $7,283,000 is included in Marketing, general and administrative expenses Page 13 in the consolidated statement of operations for the nine months ended September 30, 2002. In addition, 1,250,000 stock option awards granted to Dr. Samuel D. Waksal on September 19, 2001 which were exercisable at a per share exercise price of $50.01 and constituted all outstanding stock option awards held by Dr. Samuel D. Waksal, were deemed amended such that the unvested portion vested immediately as of the date of termination. The amended stock option awards can be exercised at any time until the end of the term of such awards. No compensation expense was recorded because the fair market value of the Company's common stock was below the $50.01 exercise price on the date the option award was amended. On August 7, 2002, a federal grand jury indicted Dr. Samuel D. Waksal. The Company has learned that Dr. Samuel D. Waksal, in contravention of Company policy, directed the destruction of certain of his personal records that were, or could be perceived to be relevant to the pending government investigations. Accordingly, on August 14, 2002, the Company filed an action against Dr. Samuel D. Waksal in New York State Supreme Court seeking repayment of amounts paid to him by the Company pursuant to the separation agreement, cancellation or recovery of other benefits provided under that agreement (including cancellation of all stock options that vested as a result of the agreement), disgorgement of amounts previously advanced by the Company on behalf of Dr. Samuel D. Waksal for his legal fees and expenses, and repayment of certain amounts paid under Dr. Samuel D. Waksal's previous employment agreement. The action, styled ImClone Systems Incorporated v. Samuel D. Waksal, Index No. 02/602996, is in its earliest stages. (12) 2002 STOCK OPTION PLAN In June 2002, the shareholders approved and the Company adopted the 2002 Stock Option Plan. The plan provides for the granting of both incentive stock options and non-qualified stock options to purchase 3,300,000 shares of the Company's common stock to employees, directors, consultants and advisors of the Company. Options granted under the plan generally vest over one to five year periods and unless earlier terminated, expire ten years from the date of grant. Incentive stock options granted under the 2002 stock option plan may not exceed 825,000 shares of common stock, 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. Page 14 ITEM 2. 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 Form 10-K for the fiscal year ended December 31, 2001, 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, non-refundable fees received upon entering into collaborative agreements in which the Company has continuing involvement are recorded as deferred revenue and recognized over the estimated service period. See Note 7. Payments received under the development, promotion, distribution and supply agreement (the "Commercial Agreement") dated September 19, 2001 and as amended on March 5, 2002 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 $340,000,000 in upfront payments we received from BMS through September 30, 2002, approximately $12,907,000 was recognized as revenue during the nine months ended September 30, 2002 and $15,461,000 from the commencement of the Commercial Agreement through September 30, 2002. The methodology used to recognize deferred revenue 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 size and timing of revenue recognition. 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. 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. Litigation - We are currently involved in certain legal proceedings as discussed in "Contingencies" Note 8 to the financial statements. In accordance with Statement of Financial Accounting Standards No. 5, no legal reserve has been established in our financial statements for these legal proceedings because the Company does not believe that a loss is probable. However, if in a future period, events in any such legal proceedings render it probable that a loss will be incurred and if such loss is reasonably estimable at that time, the possibility exists for 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 amounts. Fair value is generally determined as 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 and a material logistics and warehousing facility, which are summarized in Note 2 to the financial statements. The product launch manufacturing facility is dedicated to the clinical and commercial production Page 15 of ERBITUX and the second commercial manufacturing facility will be a multi-use production facility. ERBITUX is currently being produced for clinical trials and potential commercialization. The material logistics and warehousing facility will be a storage location for ERBITUX. 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 and the material logistics and warehouse facility will be recovered. Changes in business conditions in the future could change our judgments about the carrying value of these facilities, which could result in the recognition of material impairment losses. Manufacturing Contracts - As summarized under "Contract Manufacturing Services," Note 3 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 September 30, 2002, the estimated remaining future commitments under the amended commercial manufacturing services agreement with Lonza were $26,283,000 in 2002 and $20,350,000 in 2003. If ERBITUX were not to receive regulatory approval 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 exceeds the exercise price. In addition, we have granted options to certain Scientific Advisory Board members and outside consultants, which are required to be measured at fair value and recognized as compensation expense in our consolidated statement of operations. Estimating the fair value of stock options and warrants involves a number of judgments 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. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001. REVENUES Revenues for the nine months ended September 30, 2002 and 2001 were $45,150,000 and $37,619,000, respectively, an increase of $7,531,000, or 20% in 2002. Revenues for the nine months ended September 30, 2002 primarily included $12,907,000 in license fee revenue and $15,769,000 in collaborative agreement revenue from our amended ERBITUX Commercial Agreement with BMS and its wholly-owned subsidiary, E.R. Squibb. The Collaborative Agreement revenue represents certain research and development and marketing expenses that have been incurred by us and are reimbursable by BMS as provided for in the amended Commercial Agreement. License fee revenue from payments under this agreement (of which $140,000,000 was received in 2002 and $200,000,000 was received in 2001) are being recognized as revenue over the product research and development life of ERBITUX. An additional $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. We also recognized $14,636,000 in collaborative agreement revenue from our ERBITUX development and license agreement with Merck KGaA. In addition, we recognized $167,000 of the $4,000,000 up-front payment received upon entering into this agreement with Merck KGaA. This revenue is being recognized ratably over the anticipated life of the agreement. Revenues for the nine months ended September 30, 2002 also included $1,308,000 in royalty revenue from our strategic corporate alliance with Abbott Laboratories ("Abbott") in diagnostics and $122,000 in license fee revenue and $181,000 in collaborative agreement revenue from our strategic corporate alliance with Merck KGaA for our principal cancer vaccine product candidate, BEC2. Revenues for the nine months ended September 30, 2001 primarily included $27,760,000 in milestone revenue and $6,583,000 in collaborative agreement revenue from our ERBITUX development and license agreement with Merck KGaA. These milestone payments were received in prior periods and were 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 $167,000 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 nine months ended September 30, 2001 also included $1,428,000 in royalty revenue from our strategic corporate alliance with Abbott in diagnostics and $1,000,000 in milestone revenues, $122,000 in license fee revenues and $130,000 of collaborative agreement revenue from our strategic corporate alliance with Merck KGaA for BEC2. Finally, revenues for the nine months ended September 30, 2001 also included $387,000 in license fee revenue from our ERBITUX Commercial Agreement with BMS and its wholly-owned subsidiary, E.R. Squibb. Page 16 OPERATING EXPENSES: Total operating expenses for the nine months ended September 30, 2002 and 2001 were $158,642,000 and $107,750,000, respectively, an increase of $50,892,000, or 47% in 2002. Operating expenses in the nine months ended September 30, 2002 included $2,250,000 in advisor fees associated with completing the amended Commercial Agreement with BMS and E.R. Squibb, operating expenses in the nine months ended September 30, 2001 included $16,050,000, in advisor fees associated with consummating the acquisition agreement, the stockholder agreement and the commercial agreement (the "BMS agreements") with BMS and affiliates. OPERATING EXPENSES: RESEARCH AND DEVELOPMENT Research and development expenses for the nine months ended September 30, 2002 and 2001 were $119,449,000 and $76,150,000, respectively, an increase of $43,299,000 or 57% in 2002. Research and development expenses for the nine months ended September 30, 2002 and 2001 as a percentage of total operating expenses, excluding the advisor fees associated with the amended Commercial Agreement and the original BMS agreements, in the nine months ended September 30, 2002 and 2001, were 76% and 83%, 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 include costs that are reimbursable by our corporate partners. The increase in research and development expenses for the nine months ended September 30, 2002 was primarily attributable to (1) the costs associated with full scale production at our product launch manufacturing facility, (2) costs related to the manufacturing services agreements with Lonza, (3) expenditures in the functional areas of product development and pilot plant manufacturing associated with our other monoclonal antibodies and (4) increased expenditures associated with discovery research. We expect research and development costs to increase in future periods as we continue to manufacture ERBITUX prior to any approval of the product that we may obtain for commercial use or until we receive committed purchase obligations from our corporate partners. In the event of such approval or committed purchase obligations from our corporate partners, the subsequent costs associated with manufacturing ERBITUX for supply to corporate partners 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. Marketing, general and administrative expenses also include amounts reimbursable from our corporate partners. Marketing, general and administrative expenses for the nine months ended September 30, 2002 and 2001 were $36,943,000 and $15,550,000, respectively, an increase of $21,393,000, or 138% in 2002. The increase in marketing, general and administrative expenses primarily reflected (1) the separation compensation and other post-employment benefits associated with the resignation of our former President and Chief Executive Officer, (2) legal expenses associated with the pending class action lawsuits, shareholder derivative lawsuits and investigations by the SEC, the Subcommittee on Oversight and Investigation of the U.S. House of Representatives Committee on Energy and Commerce and the U.S. Department of Justice, (3) expenses associated with higher public relations costs due to the factors noted in (2) above, (4) expenses associated with higher insurance premiums with the respect to director and officer liability insurance, (5) the write-off of an expired negotiating right with Lonza and (6) expenses associated with general corporate activities. Other than the legal expenses and public relations expenses components discussed in (2) and (3) above and related costs, whose level in the future is uncertain because it depends upon the manner in which these investigations and proceedings progress, 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 $7,427,000 for the nine months ended September 30, 2002 compared with $11,071,000 for the nine months ended September 30, 2001, a decrease of $3,644,000, or 33% in 2002. The decrease was primarily attributable to a decrease in interest rates associated with our portfolio of debt securities. Interest expense was $10,000,000 and $10,042,000 for the nine months ended September 30, 2002 and 2001, respectively, a decrease of $42,000 in 2002. Interest expense was offset by the capitalization of interest costs of $1,441,000, during the construction period of our second commercial manufacturing facility, our administration facility and our material logistics facility in Somerville, New Jersey, and our Page 17 chemistry facility in Brooklyn, New York, in the nine months ended September 30, 2002, and $1,398,000 during the construction period of our product launch manufacturing facility and our second commercial manufacturing facility in the nine months ended September 30, 2001. Interest expense for both periods included (1) interest on the 5-1/2% convertible subordinated notes due March 1, 2005 (the "Convertible Subordinated Notes") issued in February 2000, (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 gains on securities and investments of $1,500,000 and losses of $2,668,000 for the nine months ended September 30, 2002 and 2001, respectively. The losses on securities and investments for the nine months ended September 30, 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. INCOME TAXES Income taxes of $550,000 for the nine months ended September 30, 2002 and are the result of various tax law changes in the State of New Jersey, one of which is the establishment of the Alternative Minimum Assessment tax ("AMA") to which we are subject. NET LOSSES We had a net loss of $115,115,000 or $1.57 per share for the nine months ended September 30, 2002, compared with a net loss of $71,770,000 or $1.05 per share for the nine months ended September 30, 2001. The increase in the net losses and per share net loss to common stockholders was due to the factors noted above. THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001. REVENUES Revenues for the three months ended September 30, 2002 and 2001 were $15,034,000 and $5,729,000, respectively, an increase of $9,305,000, or 162% in 2002. Revenues for the three months ended September 30, 2002 primarily included $4,841,000 in license fee revenue and $7,248,000 in collaborative agreement revenue from our amended Commercial Agreement with BMS and its wholly-owned subsidiary, E.R. Squibb. The Collaborative Agreement revenue represents certain research and development and marketing expenses that have been incurred by us and are reimbursable by BMS as provided for in the amended Commercial Agreement. License fee revenue from payments under the Commercial Agreement (of which $140,000,000 was received in 2002 and $200,000,000 was received in 2001) are being recognized over the product research and development life of ERBITUX. We also recognized $2,141,000 in collaborative agreement revenue from our ERBITUX development and license agreement with Merck KGaA. In addition, we recognized $56,000 of the $4,000,000 up-front payment received upon entering into the ERBITUX development and license agreement with Merck KGaA. This revenue is being recognized ratably over the anticipated life of the agreement. Revenues for the three months ended September 30, 2002 also included $620,000 in royalty revenue from our strategic corporate alliance with Abbott in diagnostics and $41,000 in license fee revenue and $27,000 in collaborative agreement revenue from our strategic corporate alliance with Merck KGaA for BEC2. Revenues for the three months ended September 30, 2001 primarily included $1,760,000 in milestone revenue and $2,810,000 in collaborative agreement revenue from our ERBITUX development and license agreement with Merck KGaA. In addition, we recognized $56,000 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 three months ended September 30, 2001 also included $667,000 in royalty revenue from our strategic corporate alliance with Abbott in diagnostics and $41,000 in license fee revenues from our strategic corporate alliance with Merck KGaA for BEC2. Finally, revenues for the three months ended September 30, 2001 also included $387,000 in license fee revenue from our ERBITUX Commercial Agreement with BMS and its wholly-owned subsidiary, E.R. Squibb. OPERATING EXPENSES: Total operating expenses for the three months ended September 30, 2002 and 2001 were $55,845,000 and $48,313,000, respectively, an increase of $7,532,000, or 16% in 2002. Operating expenses for the three months ended September 30, 2001 included $16,050,000 in advisor fees associated with consummating the BMS agreements with BMS and its affiliates. Page 18 OPERATING EXPENSES: RESEARCH AND DEVELOPMENT Research and development expenses for the three months ended September 30, 2002 and 2001 were $43,504,000 and $26,664,000, respectively, an increase of $16,840,000 or 63% in 2002. Research and development expenses for the three months ended September 30, 2002 and 2001 as a percentage of total operating expenses, excluding the advisor fees associated with the BMS agreements, in the three months ended September 30, 2001, were 78% and 83%, 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 include costs that are reimbursable by our corporate partners. The increase in research and development expenses for the three months ended September 30, 2002 was primarily attributable to (1) the costs associated with full scale production at our product launch manufacturing facility, (2) costs related to the manufacturing services agreements with Lonza, (3) expenditures in the functional areas of product development and pilot plant manufacturing associated with other monoclonal antibodies and (4) increased expenditures associated with discovery research. We expect research and development costs to increase in future periods as we continue to manufacture ERBITUX prior to any approval of the product that we may obtain for commercial use or until we receive committed purchase obligations from our corporate partners. In the event of such approval or committed purchase obligations from our corporate partners, the subsequent costs associated with manufacturing ERBITUX for supply to corporate partners 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. Marketing, general and administrative expenses also include amounts reimbursable from our corporate partners. Marketing, general and administrative expenses for the three months ended September 30, 2002 and 2001 were $12,341,000 and $5,599,000, respectively, an increase of $6,742,000, or 120% in 2002. The increase in marketing, general and administrative expenses primarily reflected (1) legal expenses associated with the pending class action lawsuits, shareholder derivative lawsuits and investigations by the SEC, the Subcommittee on Oversight and Investigation of the U.S. House of Representatives Committee on Energy and Commerce and the U.S. Department of Justice, (2) expenses associated with higher public relations costs due to the factors noted in (1) above, (3) expenses associated with higher insurance premiums with respect to director and officer liability insurance, (4) the write-off of an expired negotiating right with Lonza and (5) expenses associated with general corporate activities. Other than the legal expenses and public relations expenses component discussed in (1) and (2) above and related costs, whose level in the future is uncertain because it depends upon the manner in which these investigations and proceedings progress, 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 $2,259,000 for the three months ended September 30, 2002 compared with $3,244,000 for the three months ended September 30, 2001, a decrease of $985,000, or 30% in 2002. The decrease was primarily attributable to a decrease in interest rates associated with our portfolio of debt securities. Interest expense was $3,161,000 and $3,532,000 for the three months ended September 30, 2002 and 2001, respectively, a decrease of $371,000 or 11% in 2002. Interest expense was offset by the capitalization of interest costs of $660,000 during the construction period of our second commercial manufacturing facility, our administration facility and our material logistics facility in Somerville, New Jersey, and our chemistry facility in Brooklyn, New York, in the three months ended September 30, 2002, and $278,000 during the construction period of our second commercial facility in the three months ended September 30, 2001. Interest expense for both periods included (1) interest on the Convertible Subordinated Notes issued in February 2000, (2) interest on an outstanding 1990 IDA Bond with a principal amount of $2,200,000 and (3) interest recorded on various capital lease obligations under a 1998 financing agreement with Finova. We recorded gains on securities and investments of $264,000 and $1,800,000 for the three months ended September 30, 2002 and 2001, respectively. INCOME TAXES Income taxes of $550,000 for the three months ended September 30, 2002 and are the result of various tax law changes in the State of New Jersey, one of which is the establishment of the AMA to which we are subject. Page 19 NET LOSSES We had a net loss of $41,999,000 or $0.57 per share for the three months ended September 30, 2002, compared with a net loss of $41,072,000 or $0.57 per share for the three months ended September 30, 2001. The decrease in the net losses and per share net loss to common stockholders was due to the factors noted above. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2002, our principal sources of liquidity consisted of cash and cash equivalents and securities available for sale of approximately $293,000,000. From our inception on April 26, 1984 through September 30, 2002, 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 $124,565,000 from license fees, contract research and development fees, reimbursements from our corporate partners and royalties from collaborative partners. Additionally, we have approximately $330,300,000 in deferred revenue related to up-front payments received from our amended Commercial Agreement for ERBITUX with BMS, 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 - We have earned approximately $54,541,000 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 and due May 2004 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 Bristol-Myers Squibb Biologics Company, a Delaware corporation ("BMS Biologics"), which is a wholly-owned subsidiary of BMS, 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 the ERBITUX Commercial Agreement with BMS and E.R. Squibb, 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 roles 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 comprises $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 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. 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 Page 20 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 the Company, each will 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 $1,100,000 at September 30, 2002. 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 cGMP. 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. We incurred approximately $7,068,000 for services provided under this agreement through September 30, 2002. Lonza has completed its responsibilities under the development and manufacturing service 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 September 30, 2002, we incurred approximately $40,418,000 for services provided under the commercial manufacturing services agreement. Lonza is currently manufacturing ERBITUX at the 5,000 liter scale under cGMP 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 (i.e., the cancellation of batches of bulk product) 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 certain additional batches that we are committed to purchase 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 September 30, 2002, the estimated remaining future commitments under the amended commercial manufacturing services agreement are $26,283,000 in 2002 and $20,350,000 in 2003. 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 $7,183,000 for services provided under this agreement, of which $6,595,000 was reimbursed by Merck KGaA. The remaining $588,000 that is due from Merck KGaA is included in Amounts due from corporate partners in the consolidated balance sheet at September 30, 2002. At September 30, 2002, there are no remaining future commitments under this agreement. 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. Upon execution of the letter of intent, we paid Lonza $3,250,000 for the exclusive right to negotiate a long-term supply agreement for a portion of the facility's manufacturing capacity. During September 2002, we wrote-off the deposit because the exclusive negotiation period ended on September 30, 2002, although negotiations continued thereafter. The $3,250,000 is included in Marketing, general and administrative expenses on the Consolidated Statement of Operations for the three and nine months ended September 30, 2002, respectively. We are Page 21 currently negotiating with Lonza and a third party with the intention of assigning to the third party any remaining rights we have under this letter of intent in return for the third party's agreement to reimburse us the $3,250,000 upon execution of a binding agreement with Lonza for supply of biologics on similar terms to those we have negotiated with Lonza. We cannot be certain that we will enter into this arrangement. 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 adverse effect on our business, financial condition and results of operations. Effective 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 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 September 30, 2002, $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 September 30, 2002, 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 a return of 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). 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. 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. We have obligations under various capital leases for certain laboratory, office and computer equipment and also certain building improvements, primarily under a 1998 financing agreement with Finova. This agreement allowed us to finance the lease of equipment and make certain building and leasehold improvements to existing facilities. Each lease has a fair market Page 22 value purchase option at the expiration of its 48-month term. We have entered into six individual leases under the financing agreement with an aggregate cost of $1,942,000. This financing arrangement is 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 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 $50,475,000 over the term of the sublease. In order to induce the sublandlord to enter into the sublease, we made a loan to the sublandlord in the principal amount of a $10,000,000. The loan is secured by a leasehold mortgage on the prime lease as well as a collateral assignment of rents by the sublandlord. The loan 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 known as 313-315 Clarkson Avenue, Brooklyn, New York, 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. As of September 30, 2002, we have incurred approximately $4,250,000, excluding capitalized interest of approximately $138,000 for the retrofit of this facility to better fit our needs. At September 30, 2002, this project is substantially complete. 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. The cost of the facility was approximately $53,000,000, excluding capitalized interest of approximately $1,966,000. The cost of the facility was funded from our cash reserves, consisting primarily of the proceeds from 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, consisting of two completely fitted out suites and a third suite with utilities only, is expected to be approximately $234,000,000, excluding capitalized interest. The actual cost of the new facility may change depending upon various factors. We have incurred approximately $64,693,000, excluding capitalized interest of approximately $1,831,000, in conceptual design, engineering, equipment and construction costs through September 30, 2002. On January 31, 2002 we purchased a 7.5 acre parcel of land located adjacent to the Company's product launch manufacturing facility and pilot facility in Somerville, New Jersey. The real estate includes an existing 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 building was approximately $7,020,000, of which approximately $1,125,000 was related to the purchase of the land and approximately $5,895,000 was related to the purchase of the building. We intend to use this property for warehousing and material logistics for our Somerville campus and are in the process of retrofitting the building to better suit our needs. We have incurred approximately $326,000, excluding capitalized interest of approximately $2,000, for the retrofit of this facility through September 30, 2002. The total cost for the retrofit is expected to be approximately $635,000. On May 20, 2002, we purchased real estate consisting of a 6.94 acre parcel of land located across the street from the Company's product launch manufacturing facility in Somerville, New Jersey. The real estate includes an existing building with 46,000 square feet of office space. The purchase price for the property was approximately $4,515,000, of which approximately $1,041,000 was related to the purchase of the land and approximately $3,474,000 was related to the purchase of the building. We intend to use this property as the administrative building for the Somerville campus and are in the process of retrofitting the building to better suit our needs. As of September 30, 2002, we have incurred approximately $2,857,000, Page 23 excluding capitalized interest of approximately $7,000, for the retrofit of this facility. The total cost for the retrofit is expected to be approximately $5,187,000. Total capital expenditures made during the nine months ended September 30, 2002 were $60,165,000 and primarily included $1,955,000 related to the purchase of equipment for and leasehold improvement costs associated with our corporate office and research laboratories in our New York facility, $36,110,000 related to the conceptual design, preliminary engineering plans, capitalized interest costs and construction costs for the second commercial manufacturing facility, $1,125,000 and $5,895,000 for the land and building, respectively, for the purchase of and $328,000 for the retrofit of the warehousing and material logistics building including capitalized interest, $1,041,000 and $3,474,000 for the land and building, respectively, for the purchase of and $2,864,000 for the retrofit of the administration building including capitalized interest, $3,725,000 for the retrofit of the Brooklyn chemistry lab including capitalized interest, $1,483,000 related to improving and equipping our product launch manufacturing facility, $1,439,000 related to improving and equipping our pilot manufacturing facility, and approximately $719,000, for updating and upgrading our computer and telephonic software and hardware systems. We believe that our existing cash on hand, marketable securities and amounts to which we are entitled should enable us to maintain our current and planned operations through 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 $560,000,000 in cash-based payments of which $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 - legal costs and the outcome of outstanding legal proceedings and investigations - status of competition - 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. Page 24 Below is a table that presents our contractual obligations and commercial commitments as of September 30, 2002:
PAYMENTS DUE BY YEAR --------------------------------------------------------------------------------- 2005 AND TOTAL 2002 2003 2004 THEREAFTER ------------ ----------- ----------- ----------- ------------ Long-term debt ......................... $242,200,000 $ -- $ -- $ 2,200,000 $240,000,000 Capital lease obligations including interest ............................. 205,000 78,000 76,000 15,000 36,000 Operating leases ....................... 54,269,000 528,000 3,106,000 3,534,000 47,101,000 Construction commitments ............... 65,899,000 5,008,000 32,093,000 11,401,000 17,397,000 Lonza .................................. 46,633,000 26,283,000 20,350,000 -- -- ------------ ----------- ----------- ----------- ------------ Total contractual cash obligations ..... $409,206,000 $31,897,000 $55,625,000 $17,150,000 $304,534,000 ============ =========== =========== =========== ============
At December 31, 2001, our estimated net operating loss carryforwards for United States Federal income tax purposes were approximately $389,742,000, which expire at various dates from 2002 through 2021. Of our $389,742,000 in estimated net operating loss carryforwards, we have approximately $347,798,000 (of which $342,639,000 will carryforward to 2003) 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 these net operating loss carryforwards which are not utilized are available for utilization in future years, subject to applicable statutory expiration dates. See the Company's Annual Report on Form 10-K for the year ended December 31, 2001 filed with the SEC. The estimated amount of net operating loss carryforwards at December 31, 2001 reported above represents a reduction of approximately $47,447,000 in the amount of net operating loss carryforwards previously reported at December 31, 2001 in our Annual Report on Form 10-K. The reduction is the result of a change in the Company's position with respect to the deductibility under Section 162(m) of the Internal Revenue Code of certain stock options granted to certain executive officers of the Company. Under Section 162(m), compensation expense in excess of $1 million per person is not deductible and compensation expense attributable to stock options is subject to this limit, unless the options qualify as "qualified performance-based compensation" as defined. The reduction in the amount of the Company's net operating loss carryforwards at December 31, 2001 reflects the Company's position that certain options granted to executive officers do not meet the definition of "qualified performance-based compensation". NEW JERSEY STATE TAX LAW CHANGES In July 2002, the State of New Jersey ("NJ") enacted various income tax law changes, which are retroactive to January 1, 2002. One of the provisions of the new law is the suspension of the utilization of net operating losses for 2002 and 2003. This provision would negatively affect the Company if it generates NJ taxable income in 2002 and 2003 because it would not be able to utilize its NJ net operating loss carryover to offset such taxable income. A second provision establishes the Alternative Minimum Assessment ("AMA") aimed at companies like ours that currently pay no corporate business tax. This provision requires that we assess an alternate tax liability with a formula that uses either reported gross receipts or gross profits as a determining factor. We are then required to pay the greater of the regular NJ Corporation Business Tax or the AMA. The AMA tax paid is creditable and can be carried forward to reduce the income tax in future periods. We have recorded a tax provision of approximately $550,000 for the nine months ended September 30, 2002 associated with the NJ AMA. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS On August 17, 2001, Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" was issued and will be effective for the Company in the first quarter of the year ending December 31, 2003. The new rule requires the fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred. When the liability is initially recorded, a cost is capitalized by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. To settle the liability, the obligation for its recorded amount is paid or a gain or loss upon settlement is incurred. Management is analyzing this requirement to determine the effect, if any, on the Company's financial statements. In July 2002, the FASB issued SFAS No. 146, Accounting for Restructuring Costs. SFAS 146 applies to costs associated with an exit activity (including restructuring) or with a disposal of long-lived assets. Those activities can include eliminating or reducing product lines, terminating employees and contracts, and relocating plant facilities or personnel. Under SFAS 146, a company will record a liability for a cost associated with an exit or disposal activity when that liability is incurred and can Page 25 be measured at fair value. SFAS 146 will require a company to disclose information about its exit and disposal activities, the related costs, and changes in those costs in the notes to the interim and annual financial statements that include the period in which an exit activity is initiated and in any subsequent period until the activity is completed. SFAS 146 is effective prospectively for exit or disposal activities initiated after December 31, 2002, with earlier adoption encouraged. Under SFAS 146, a company may not restate its previously issued financial statements and the new Statement grandfathers the accounting for liabilities that a company had previously recorded under Emerging Issues Task Force Issue 94-3. The Company is currently evaluating the impact, if any, of adoption of this statement. CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS--SAFE HARBOR STATEMENT This Form 10-Q 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; legal costs and the outcome of outstanding legal proceedings and investigations; obtaining patent protection for discoveries and risks associated with commercial limitations imposed by patents owned or controlled by third parties. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Our holdings of financial instruments comprise a mix of U.S. dollar denominated 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, commodities, foreign exchange contacts 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 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. The table below presents the principal amounts and related weighted average interest rates by year of maturity for our investment portfolio as of September 30, 2002.
2002 2003 2004 2005 ---- ---- ---- ---- Fixed Rate .................... $ 2,500,000 $ -- $ -- $ -- Average Interest Rate ......... 6.50% -- -- -- Variable Rate ................. 12,002,000(1) 666,000 14,198,000(1) 10,598,000(1) Average Interest Rate ......... 1.97% 5.69% 4.55% 2.15% ----------- ----------- ----------- ----------- $14,502,000 $ 666,000 $14,198,000 $10,598,000 =========== =========== =========== =========== 2007 AND 2006 THEREAFTER TOTAL FAIR VALUE ---- ---------- ----- ---------- Fixed Rate .................... $ -- $ 14,544,000 $ 17,044,000 $ 18,180,000 Average Interest Rate ......... -- 6.18% 6.23% -- Variable Rate ................. 4,799,000(1) 179,259,000(1) 221,522,000 222,469,000 Average Interest Rate ......... 2.20% 2.63% 2.70% -- ------------ ------------ ------------ ------------ $ 4,799,000 $193,803,000 $238,566,000 $240,649,000 ============ ============ ============ ============
(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 Page 26 $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 $135,300,000 at September 30, 2002. ITEM 4. CONTROLS AND PROCEDURES. a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of the Company's "disclosure controls and procedures" (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of a date (the "Evaluation Date") within 90 days of the filing date of this quarterly report, have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective and designed to ensure that material information relating to us and our consolidated subsidiary would be made known to them by others within those entities. b) CHANGES IN INTERNAL CONTROLS. There were no significant changes in our internal controls or to our knowledge, in other factors that could significantly affect our internal controls subsequent to the Evaluation Date. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS A. LITIGATION 1. FEDERAL SECURITIES ACTIONS Beginning in January 2002, a number of complaints asserting claims under the federal securities laws against us and certain of our directors and officers were filed in the U.S. District Court for the Southern District of New York. Those actions were consolidated under the caption Irvine v. ImClone Systems Incorporated et al., No. 02 Civ. 0109 (RO), and on September 16, 2002, a consolidated amended complaint was filed in that consolidated action, which plaintiffs corrected in limited respects on October 22, 2002. The corrected consolidated amended complaint names us as defendants, our former chief executive officer Dr. Samuel D. Waksal, our current chief executive officer Dr. Harlan W. Waksal, the chairman of our board of directors Robert Goldhammer, current or former directors Richard Barth, David Kies, Paul Kopperl, John Mendelsohn and William Miller, our former general counsel John Landes, and our vice president for marketing and sales, Ronald Martell. The complaint asserts claims for securities fraud under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, on behalf of a purported class of persons who purchased our publicly traded securities between March 27, 2001 and January 25, 2002. The complaint also asserts claims against Dr. Samuel D. Waksal under section 20A of the Exchange Act on behalf of a separate purported sub-class of purchasers of our securities between December 27, 2001 and December 28, 2001. The complaint generally alleges that various public statements made by or on behalf of us or the other defendants during 2001 and early 2002 regarding the prospects for FDA approval of ERBITUX were false or misleading when made, that the individual defendants were allegedly aware of material non-public information regarding the actual prospects for ERBITUX at the time that they engaged in transactions in our common stock and that members of the purported stockholder class suffered damages when the market price of our common stock declined following disclosure of the information that allegedly had not been previously disclosed. The complaint seeks to proceed on behalf of the alleged class described above, seeks monetary damages in an unspecified amount and seeks recovery of plaintiffs' costs and attorneys' fees. Under the existing schedule in that action, defendants' response to the consolidated amended complaint is due in late November 2002. Separately, on September 17, 2002 an individual purchaser of our common stock filed an action on his own behalf asserting claims against us, Dr. Samuel D. Waksal and Dr. Harlan W. Waksal under sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5. That action is styled Flynn v. ImClone Systems Incorporated, et al., No. 02 Civ. 7499. Plaintiff alleges that he purchased shares on various dates in late 2001, that various public statements made by us or the other defendants during 2001 regarding the prospects for FDA approval of ERBITUX were false or misleading when made and that plaintiff relied on such allegedly false and misleading information in making his purchases. Plaintiff seeks compensatory damages of not less than $180,000 and punitive damages of $5 million, together with interest, costs and attorneys' fees. Defendants' response to the complaint is due in late November 2002. Page 27 2. DERIVATIVE ACTIONS Beginning on January 13, 2002 and continuing thereafter, nine separate purported shareholder derivative actions have been filed against the members of our Board of Directors and us, as nominal defendant, advancing claims based on allegations similar to the allegations in the federal securities class action complaints. Four 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 three purported derivative actions have been filed in New York State Supreme Court in Manhattan, styled Boghosian v. Barth, et al., Index No. 100759/02, Johnson v. Barth, et al., Index No. 601304/02 and Henshall v. Bodnar, et al., Index No. 603121/02. All of these actions assert claims, purportedly on behalf of the Company, for breach of fiduciary duty by certain members of our 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 or improperly disclosed such information to others. Another complaint, purportedly asserting direct claims on behalf of a class of our shareholders but in fact asserting derivative claims that are similar to those asserted in these nine 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 our Board of Directors for breach of fiduciary duty purportedly on behalf of all persons who purchased shares of our 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. We intend to vigorously defend ourselves against the claims asserted in these actions, which are in their earliest stages. We are unable to predict the outcome of these actions at this time. Because we do not believe that a loss is probable, no legal reserve has been established. B. GOVERNMENT INQUIRIES AND INVESTIGATIONS As previously reported, we have 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 our securities by certain Company insiders in 2001. We have also received subpoenas and requests for information pertaining to document retention issues in 2001 and 2002 and to certain communications regarding ERBITUX in 2000. We are cooperating with all of these inquiries and intend to continue to do so. On June 19, 2002, we received a written "Wells Notice" from the staff of the Securities and Exchange Commission, indicating that the staff of the Commission is considering recommending that the Commission bring an action against us relating to our disclosures immediately following the receipt of a Refusal-to-File letter from the FDA on December 28, 2001 for our biologics license application for ERBITUX. We filed a Wells submission on July 12, 2002 in response to the staff's Wells Notice. We have also received permission from the Commission to file a supplemental Wells submission, and we anticipate that we will make this submission by the end of this year. C. INDICTMENT AND PLEA OF DR. SAMUEL D. WAKSAL; ACTION AGAINST DR. SAMUEL D. WAKSAL On August 7, 2002, a federal grand jury in the Southern District of New York returned an indictment charging Dr. Samuel D. Waksal with, inter alia, securities fraud and conspiracy to commit securities fraud. On October 15, 2002, Dr. Samuel D. Waksal entered a plea of guilty to several counts in that indictment, including that on December 27, 2001 he directed a family member to sell shares of our common stock and attempted to sell shares that he owned in advance of an expected announcement that the FDA had issued a "refusal to file" letter with respect to our application for approval of ERBITUX. We received such a "refusal to file" letter from the FDA on December 28, 2001 and announced our receipt of that letter following the close of trading. On August 14, 2002, after the federal grand jury indictment of Dr. Samuel D. Waksal had been issued but before Dr. Samuel D. Waksal's guilty plea to certain counts of that indictment, we filed an action in New York State Supreme Court seeking recovery of certain compensation, including advancement of certain defense costs, that we had paid to or on behalf of Dr. Samuel D. Waksal. That action, styled ImClone Systems Incorporated v. Samuel D. Waksal, Index No. 02/602996, is in its earliest stages. Page 28 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.93 Target Price Contract, dated as of July 15, 2002, between ImClone Systems Incorporated and Kvaerner Process, a division of Kvaerner U.S. Inc., for the Architectural, Engineering, Procurement Assistance, Construction Management and Validation of a Commercial Manufacturing Project in Branchburg, New Jersey. 99.11 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 99.12 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K None Page 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IMCLONE SYSTEMS INCORPORATED (Registrant) Date: November 14, 2002 By /s/ HARLAN W. WAKSAL ------------------------------------- Harlan W. Waksal President and Chief Executive Officer Date: November 14, 2002 By /s/ DANIEL S. LYNCH ------------------------------------- Daniel S. Lynch Senior Vice President, Finance and Chief Financial Officer Page 30 SECTION 302 CERTIFICATIONS - CERTIFICATION I, Daniel S. Lynch, Chief Financial Officer of ImClone Systems Incorporated (the "Company"), certify that: 1. I have reviewed the Form 10-Q for the Quarter Ended September 30, 2002 of the Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Daniel S. Lynch ----------------------- Daniel S. Lynch Chief Financial Officer Page 31 CERTIFICATION I, Harlan W. Waksal, Chief Executive Officer of ImClone Systems Incorporated (the "Company"), certify that: 1. I have reviewed the Form 10-Q for the Quarter Ended September 30, 2002 of the Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Harlan W. Waksal ----------------------- Harlan W. Waksal Chief Executive Officer Page 32 EX-10.93 3 y65679exv10w93.txt TARGET PRICE CONTRACT EXECUTION COPY TARGET PRICE CONTRACT between ImClone Systems Incorporated And Kvaerner Process, ARCHITECTURAL, ENGINEERING, PROCUREMENT ASSISTANCE CONSTRUCTION MANAGEMENT, AND VALIDATION of a COMMERCIAL MANUFACTURING PROJECT Branchburg, NJ KVAERNER PROCESS, a division of Kvaerner U.S. Inc. Project No: ___________________ TARGET PRICE CONTRACT EXHIBIT LIST A. Kvaerner Process Scope of Work (Rev. E dated November 26, 2001) - Articles 1.1, 1.2 and 1.8 B. Layout Design prepared by Kvaerner - Articles 1.1 and 1.8 C. Definitive Estimate (Rev. 2 with Rev. 2A Supplement) - Article 1.3 D. Kvaerner Process Rate Schedule - Article 2.1(a)(1) E. Kvaerner Process Travel and Living Adjustment Schedule - Article 2.1(a)(2) F. Mechanical Completion - Article 2.1(c)(1) G. Kvaerner Documentation required for monthly reimbursable expenses - Articles 3.1 and 3.2 H. Project Schedule -Identifying critical milestone dates - Articles 5.1 and 4.3 THIS TARGET PRICE CONTRACT (this "CONTRACT") is made as of the 15th day of July, 2002 (the "Effective Date"), by and between ImClone Systems Incorporated, a company incorporated under the laws of the State of Delaware hereinafter referred to as "OWNER", and KVAERNER PROCESS, a division of Kvaerner U.S. Inc., ("KVAERNER PROCESS") a company incorporated under the laws of the State of Delaware. W I T N E S S E T H: In consideration of the mutual promises and agreements of the parties herein expressed, the parties hereto agree as follows: ARTICLE 1. SCOPE OF WORK 1.1 KVAERNER PROCESS shall furnish certain engineering and design services; procurement services; field supervision; home office construction support services; construction management services, and validation services as expressly stated in EXHIBIT A which is attached hereto and incorporated by reference herein (hereinafter collectively and severally referred to as the "KVAERNER WORK") for OWNER's C225 Commercial Manufacturing Project to be constructed at Branchburg NJ (the "PROJECT"), in accordance with the layout design prepared by KVAERNER PROCESS (EXHIBIT B). 1.2 EXHIBIT A, and the attachments thereto, provide a detailed scope of work for labor, equipment, materials and construction of the PROJECT (the "PROJECT WORK"). The PROJECT WORK shall be performed by certain contractors, vendors, suppliers, manufacturers and others (the "CONTRACTORS"). The OWNER or KVAERNER PROCESS acting on OWNER's behalf shall enter into contracts with the CONTRACTORS (which contracts shall be referred to as the "CONTRACTOR AGREEMENTS"). 1.3 KVAERNER PROCESS has provided OWNER with an estimate for the completion of the KVAERNER WORK and the PROJECT WORK in the amount of $225,205,648 (the "TARGET PRICE"), in accordance with a detailed summary of all costs and expenses included in the TARGET PRICE which is contained in the definitive estimate which is attached here to as EXHIBIT C and incorporated by reference herein. 1.4 The KVAERNER WORK and the PROJECT WORK shall be based on the soils investigation, data and conclusions contained in the report entitled "Soil and Foundation Investigation" dated January 17, 2001, prepared by Melick/Tully and Associates, P.C., an independent soils consultant. In the event that any subsurface conditions not revealed in said soils consultant's reports, or any other unusual, unexpected or unforeseen physical conditions encountered at the PROJECT site results in additional work by KVAERNER PROCESS, KVAERNER PROCESS shall have the right to submit a Change Order Request to the OWNER consistent with ARTICLE 4, herein. 1.5 KVAERNER PROCESS shall comply with all applicable laws and regulations, dealing with employer/employee relations, and shall obtain all licenses and permits required for the performance of the KVAERNER WORK that are to be taken out in KVAERNER PROCESS' name. If KVAERNER PROCESS incurs additional expense in the prosecution of the KVAERNER WORK as the result of a change or modification of any existing law or regulation or as the result of any law or regulation not applicable to the KVAERNER WORK or the PROJECT WORK as of the date of this CONTRACT, such matter shall be handled as a change in accordance with ARTICLE 4. 1.6 KVAERNER PROCESS shall at all times keep the PROJECT site and other parts of OWNER's premises free from accumulations of waste and rubbish caused by KVAERNER PROCESS employees or the KVAERNER WORK. At the completion of the KVAERNER WORK, KVAERNER PROCESS shall remove from the PROJECT site and other parts of 3 OWNER's premises all of KVAERNER PROCESS' equipment, tools, scaffolding, surplus materials and other personal property and shall leave the PROJECT site "broom clean." KVAERNER PROCESS shall also direct and require each CONTRACTOR to clean up the PROJECT site daily and otherwise to keep the PROJECT site and other parts of the OWNER's premises free from accumulations of waste and rubbish caused by CONTRACTORS' employees, suppliers and subcontractors on the PROJECT. At the completion of the PROJECT WORK, KVAERNER PROCESS shall direct and require each CONTRACTOR to remove from the PROJECT site, and other parts of the OWNER's premises, all of the CONTRACTORS' equipment, tools, scaffolding, surplus material and personal property (as well as the equipment, tools, scaffolding, surplus material and personal property of each CONTRACTOR's subcontractors and suppliers), and shall leave the PROJECT site "broom clean." OWNER may require additional cleaning by KVAERNER PROCESS or any CONTRACTOR as warranted to maintain a safe PROJECT site. 1.7 KVAERNER PROCESS shall not have responsibility for handling, transport, treatment or disposal of hazardous, toxic, noxious or otherwise regulated compounds, it being expressly agreed that such activities are not within EXHIBIT A and that no Change Order may be written requiring KVAERNER PROCESS to perform these duties unless that Change Order expressly refers to this ARTICLE 1.7 and states that it supercedes this clause. 1.8 OWNER shall cooperate fully with KVAERNER PROCESS in the performance of the KVAERNER WORK, granting KVAERNER PROCESS free and complete access to the site as described in EXHIBIT B, and providing such other assistance as KVAERNER PROCESS may reasonably request. Without limiting the generality of the foregoing, but subject to KVAERNER PROCESS' obligations as set forth in ARCTICLE 1.1 herein, OWNER shall provide, or cause to be provided, all work, facilities, materials and other items required for the KVAERNER WORK, other than those items expressly stated in EXHIBIT A to be provided by KVAERNER PROCESS, all without cost to KVAERNER PROCESS and in a timely manner. 1.9 OWNER shall have the right to accept or reject all PROJECT personnel assigned by KVAERNER PROCESS to the PROJECT. Without limiting the foregoing, this right shall include the right to cause the prompt removal of personnel from the PROJECT. In addition, key PROJECT personnel may not be removed from or reassigned with respect to the PROJECT by KVAERNER PROCESS without the prior approval of OWNER. For purposes of the foregoing sentence, key PROJECT personnel are: the Project Director, Project Manager, Project Engineers, Lead Discipline Engineers/Architects, Resident Construction Manager, Sub-Contracts Manager, Construction Scheduler, Project Controls Manager and Construction Superintendents. ARTICLE 2. CONTRACT PRICE 2.1 As compensation for the KVAERNER WORK, OWNER shall pay to KVAERNER PROCESS, in the manner and at the times set forth in ARTICLE 3 below, the "KVAERNER CONTRACT PRICE" comprised of (1) REIMBURSABLE COSTS, (2) FIXED FEE, and (3) EARNED FEE, if any. 2.1(a) REIMBURSABLE COSTS: 1. Amounts for each man-hour expended by KVAERNER PROCESS in performance of the KVAERNER WORK in accordance with rates and multipliers established in EXHIBIT D and other costs established herein. 4 2. Travel and Living Adjustments at actual costs and at rates and levels in accordance with KVAERNER PROCESS' standard policies and procedures, which are attached as EXHIBIT E. 3. Other costs and expenses reasonably incurred by KVAERNER PROCESS in the performance of the KVAERNER WORK as agreed between the OWNER and KVAERNER PROCESS as ordered by written contract change order in accordance with ARTICLE 4 herein. 2.1(b) FIXED FEE: A fixed fee of $1,200,000 shall be paid to KVAERNER PROCESS in two installments. A first installment amount of $600,000 shall be paid within thirty (30) days after the EFFECTIVE DATE. A second installment of $600,000 shall be paid on or before December 31, 2002. 2.1 (c) EARNED FEE: KVAERNER PROCESS shall be entitled to earn fees in addition to the fixed fee stated above, such earned fees not to exceed $3,300,000, for schedule or cost achievements in accordance with the following subsections. The sum of the fees, if any, earned under these subsections 2.1 (c)(1) and 2.1 (c)(2) shall be the "EARNED FEE". 2.1(c)(1) Earned Fee for Schedule. The target date for MECHANICAL COMPLETION, as that term is defined in EXHIBIT F, is June 18, 2004 (the "TARGET DATE"). The actual date of mechanical completion shall be "MECHANICAL COMPLETION DATE". In the event MECHANICAL COMPLETION occurs within 28 days before or after the TARGET DATE (the "DEADBAND"), KVAERNER PROCESS shall earn a fee of $1,350,000, payable within 30 days after the determination that MECHANICAL COMPLETION has been achieved. For each week or partial week that MECHANICAL COMPLETION is earlier than May 21, 2004, the fee shall be increased in accordance with the following schedule:
MECHANICAL COMPLETION DATE Additional Fee Total Earned Fee For Schedule -------------------------- -------------- ----------------------------- May 14 to May 20, 2004 $ 500,000 $1,850,000 Before or on May 13, 2004 $1,000,000 $2,350,000
For each week or partial week that MECHANICAL COMPLETION occurs after July 16, 2004, the earned fee shall be reduced in accordance with the following schedule:
MECHANICAL COMPLETION DATE Fee Deduction Total Earned Fee For Schedule -------------------------- ------------- ----------------------------- July 17 to July 23, 2004 $ 350,000 $1,000,000 July 24 to July 30, 2004 $ 700,000 $ 650,000 July 31 to August 6, 2004 $1,000,000 $ 350,000 On or after August 7, 2004 $1,350,000 $ -0-
2.1(c)(2) Earned Fee for Cost KVAERNER PROCESS shall be entitled to payment of additional fees if (a) the OWNER'S MECHANICAL COMPLETION COST is less than 106% of the ADJUSTED TARGET PRICE and (b) the MECHANICAL COMPLETION DATE occurs within or prior to the DEADBAND. As used in the previous sentence: "OWNER'S MECHANICAL COMPLETION COST," also referred to as "OMCC," means the sum of (i) the amount paid by OWNER as the KVAERNER CONTRACT PRICE (excluding any costs expended by OWNER to compensate KVAERNER 5 PROCESS for validation services) and (ii) other amounts paid by OWNER for the PROJECT WORK. "ADJUSTED TARGET PRICE," also referred to as "ATP," means the TARGET PRICE as adjusted to subtract KVAERNER PROCESS' estimated costs for validation services, which are estimated in EXHIBIT C. In such event, KVAERNER PROCESS shall earn a fee in accordance with the following schedule:
OMCC relative to ATP Total Earned Fee For Cost -------------------- ------------------------- OMCC (less than or equal to) 90% of ATP $950,000 90% of ATP (less than) OMCC (less than or equal to) 92.5% of ATP $800,000 92.5% of ATP (less than) OMCC (less than or equal to) 96% of ATP $700,000 96% of ATP (less than) OMCC (less than) 104% of ATP $450,000 104% of ATP (less than or equal to) OMCC (less than) 105% of ATP $100,000 105% of ATP (less than or equal to) OMCC (less than) 106% of ATP $ 50,000 OMCC (greater than or equal to) 106% of ATP $ -0-
The "Total Earned Fee for Cost" from the preceding schedule shall be payable as follows: (A) A provisional payment shall be made within thirty (30) days after the date of the first cost report issued after MECHANICAL COMPLETION, provided that the sum of the actual costs and forecasted costs in said report demonstrate that the OMCC is less than 106% of ATP. The provisional payment shall be equal to fifty percent (50%) of the Total Earned Fee for Cost as determined in accordance with the above schedule. (B) The balance of the Total Earned Fee for Cost shall be paid within thirty (30) days after closure of all contracts and purchase orders for the PROJECT, subject, however, to adjustment if, following such closure, the final tabulation of OMCC demonstrates that a different amount of Total Earned Fee for Cost is due or that no Earned Fee for Cost is due. Should an amount be due OWNER on account of such adjustment, it shall be paid by KVAERNER PROCESS within thirty (30) days of receipt of OWNER'S written notice thereof. 2.1(c)(3) Adjustments to Price The TARGET PRICE and the ADJUSTED TARGET PRICE shall be increased by (1) the additional amount paid to any CONTRACTOR resulting from any OWNER approved written change orders resulting from causes other than KVAERNER PROCESS' DEFECTIVE WORK (as defined in ARTICLE 6 herein) in excess of the CONTRACTOR's agreed upon CONTRACT PRICE, by (2) the additional amount paid to KVAERNER PROCESS resulting from any OWNER approved written change orders in excess of the estimated KVAERNER CONTRACT PRICE, (3) any additional costs to the PROJECT relating to comments of FDA officials (as communicated by OWNER) or OWNER or OWNER's consultants to the design, described in EXHIBIT B, currently the basis of the PROJECT, which are received after the execution of this CONTRACT and (4) the positive difference between (X) the bid amount of the BIDDER recommended by KVAERNER PROCESS for any separate scope of the PROJECT WORK, and (Y) the bid amount of the BIDDER selected by the OWNER, if other than the BIDDER recommended by KVAERNER PROCESS, pursuant to ARTICLE 2.3 PROCUREMENT of the Scope of Work attached hereto as EXHIBIT A. Only bidders from the PRE APPROVED BIDDER LIST may bid elements of PROJECT WORK and OWNER is limited to selecting bids from these PRE APPROVED BIDDER LIST bids. 2.1(d) For purposes of clarity, the FIXED FEE is included, but EARNED FEE (if any) is not included in the TARGET PRICE, nor are they to be considered when calculating the EARNED FEE (if any). 6 2.2 The KVAERNER CONTRACT PRICE and TARGET PRICE excludes all applicable import duties, sales, use, gross receipts, property and all other taxes, together with any local, state and federal taxes or duties assessed on this transaction, and OWNER shall reimburse KVAERNER PROCESS for all such taxes paid by KVAERNER PROCESS, in addition to the KVAERNER CONTRACT PRICE, excluding only taxes measured on KVAERNER PROCESS' net income and taxes which KVAERNER PROCESS is obligated to pay directly with respect to its own employees, such as social security taxes, unemployment taxes, and workmen's compensation benefit taxes or premiums. Further, if KVAERNER PROCESS is required by federal, state or local law to pay any increased or additional taxes, (including without limitation, social security taxes, unemployment or workmen's compensation benefit taxes or premiums, and excluding only taxes measured by KVAERNER PROCESS' net income), not applicable as of the date of this CONTRACT, the KVAERNER CONTRACT PRICE and TARGET PRICE shall be increased by the total amount of such duties, tax increases or additions which shall be reimbursed by Owner 2.3 The TARGET PRICE and the KVAERNER CONTRACT PRICE forming a part thereof include an allowance for overtime necessary to attract craft labor to the PROJECT. Said allowance is included within EXHIBIT C as premiums in excess of a forty (40) hour field force work week, consisting of eight (8) straight-time hours per day, Monday through Friday, inclusive, said premiums resulting from overtime work or for work on Saturdays, Sundays or holidays (herein cumulatively referred to as "overtime"). If, after exhaustion of all overtime allowances in EXHIBIT C, OWNER requests overtime and KVAERNER PROCESS performs the requested overtime, the KVAERNER CONTRACT PRICE and TARGET PRICE shall be increased to include the premium rate portion of overtime wages and related payroll burden provided the requested overtime is not due to delays or deficiencies in the KVAERNER WORK. In the event OWNER requests overtime on the part of CONTRACTORS which is not due to delays or deficiencies in the PROJECT WORK caused by CONTRACTORS or by the KVAERNER WORK, the TARGET PRICE will be increased by the amount of the CHANGE ORDER granted to the CONTRACTOR to address the cost impacts of such overtime. 2.4 EXHIBIT C hereto establishes the estimated basis for the KVAERNER CONTRACT PRICE and the TARGET PRICE. While KVAERNER PROCESS makes no guaranty and shall have no liability (including that for negligence) in the event that cost of the KVAERNER WORK and/or the PROJECT WORK exceeds the amounts contained in EXHIBIT C, KVAERNER PROCESS shall use its best efforts to perform its KVAERNER WORK within the estimated man-hours in EXHIBIT C and shall periodically report to the OWNER (at least monthly) any projected overruns and/or under-runs in KVAERNER PROCESS' man-hours and costs expended to complete KVAERNER WORK and any projected overruns or under-runs in the TARGET PRICE. 2.5 KVAERNER PROCESS' entitlement to compensation in accordance with ARTICLE 2.1(a) and 2.1(b) shall not be affected or reduced in any way due to KVAERNER PROCESS' inability to maintain the cost estimates contained in EXHIBIT C for the KVAERNER WORK and/or the PROJECT WORK. ARTICLE 3. PAYMENT TERMS 3.1 KVAERNER PROCESS shall submit a monthly statement to the OWNER on or about the 10th calendar day of the month the amount of REIMBURSABLE COSTS, FIXED FEE and EARNED FEE, if any, that will be due KVAERNER PROCESS for KVAERNER WORK performed during that month, and deduct an amount or add an amount as required to reconcile the difference (if any) between the amount that KVAERNER PROCESS invoiced OWNER for in the previous month against the REIMBURSABLE EXPENSES, FIXED FEE or EARNED FEE paid to KVAERNER PROCESS for the proceeding month's KVAERNER WORK. KVAERNER PROCESS shall include with each monthly statement for 7 REIMBURSABLE EXPENSES all documentation required by EXHIBIT G to support and verify KVAERNER PROCESS' request for payment. Owner may request reasonable additional information and documentation to support and verify such costs, and KVAERNER PROCESS shall use reasonable efforts to provide such information to OWNER, but, subject to ARTICLE 3.2, no payments to KVAERNER PROCESS shall be withheld or delayed pending the receipt of such additional information and documentation. Owner shall pay all undisputed amounts of each KVAERNER PROCESS request for payment within thirty (30) days after receipt of said request for payment. 3.2 In the event of a question over the amount of any invoice, OWNER shall pay timely that portion of the invoice that is not in question, and KVAERNER PROCESS and OWNER shall make every effort to resolve the amount in question within thirty (30) days. If any amount is not paid within the thirty (30) day time period set forth in this CONTRACT, and if KVAERNER PROCESS shall have submitted all documentation required by EXHIBIT G herein, in support of such invoice, the unpaid amount shall bear interest at the rate of two percent (2%) above the prime rate offered by Chase Manhattan Bank N.A., New York, New York. OWNER's agreement to pay such interest and KVAERNER PROCESS' acceptance thereof shall not constitute a waiver by KVAERNER PROCESS of the requirement for prompt payment in accordance with this CONTRACT, or any remedies KVAERNER PROCESS may have. However, the OWNER shall not be obligated to pay interest at the above rate, provided that it timely pays KVAERNER PROCESS the amount of the invoice which is not in question and, further, provided that it raises a bona fide and good faith dispute to payment of the amount then unpaid and demanded by KVAERNER PROCESS. 3.3 KVAERNER PROCESS shall indemnify and save OWNER harmless from any and all liens for labor, equipment, materials and services furnished to or by KVAERNER PROCESS, its subcontractors, vendors and suppliers, or otherwise arising out of the performance by KVAERNER PROCESS of this CONTRACT provided such liens therefor result from KVAERNER PROCESS' failure to pay amounts due from KVAERNER PROCESS for such labor, equipment, materials or services for which OWNER has paid KVAERNER PROCESS, and further that OWNER has notified KVAERNER PROCESS in writing that such a lien has been filed. KVAERNER PROCESS shall take any and all necessary measures to remove and/or bond any such lien, within thirty (30) days after such notification from the OWNER. 3.4 KVAERNER PROCESS shall continue to provide the services required of this CONTRACT and shall continue to use reasonable efforts to maintain the PROJECT SCHEDULE (as hereinafter defined in ARTICLE 5.1), pending the resolution of any bona fide and good faith dispute regarding any KVAERNER PROCESS' payment request (unless the CONTRACT has been terminated in accordance with the terms hereof). If KVAERNER PROCESS continues to perform, the OWNER shall continue to make payments of undisputed amounts in accordance with and subject to the terms of this CONTRACT. ARTICLE 4. EXTRA WORK: CHANGES IN THE WORK 4.1 OWNER may request extra work or make changes, related to the scope of the KVAERNER WORK and/or the PROJECT WORK, by altering, adding to, or deducting from the KVAERNER WORK and/or the PROJECT WORK. In such event, KVAERNER PROCESS shall provide the OWNER with a Change Order Request or Requests setting forth in detail all KVAERNER WORK and all PROJECT WORK which has been altered, added or deleted and the corresponding additional cost or the reduction in cost of the KVAERNER WORK and the PROJECT WORK, as well as the impact, if any, on the TARGET PRICE and/or the TARGET DATE. KVAERNER PROCESS shall provide the OWNER with any and all documentation and information reasonably required by the OWNER to support the Change Order Requests. 8 4.2 KVAERNER PROCESS reserves the right to object to any change or extra work request made by the OWNER that would adversely affect the workmanship and materials warranties or any of KVAERNER PROCESS' obligations under this CONTRACT. In such event, KVAERNER PROCESS reserves the right to request a Change Order from OWNER to waive or appropriately modify any of the guarantees, warranties or obligations contained in this CONTRACT. 4.3. KVAERNER PROCESS shall proceed with any such extra or OWNER modified work upon receiving from OWNER a Contract Change Order signed by and mutually acceptable to, both OWNER and KVAERNER PROCESS, specifying the scope of the extra work or change, the adjustments in the TARGET PRICE and the KVAERNER CONTRACT PRICE and the TARGET DATE, if any, and other related matters. All such work shall be performed under the provisions of this CONTRACT as amended by the Contract Change Orders. 4.4 If OWNER requests extra work or a change and KVAERNER PROCESS undertakes to estimate the adjustments attributable thereto, and if OWNER then abandons the extra work or change, KVAERNER PROCESS shall be paid for its work in estimating the adjustments attributable to the proposed extra work or change in accordance with ARTICLE 2 herein, and the KVAERNER CONTRACT PRICE and TARGET PRICE shall be increased according. Nothing in this ARTICLE 4 or elsewhere in this CONTRACT shall limit KVAERNER PROCESS' right to additional compensation for extra work performed or expenses incurred as a result of inaccuracies or omissions in information furnished by or through OWNER or from other causes that are beyond KVAERNER PROCESS' reasonable control, and the KVAERNER CONTRACT PRICE, the TARGET PRICE and TARGET DATE shall be equitably adjusted to reflect such additional performance and expenses. 4.5 KVAERNER PROCESS may also inform OWNER in writing of other events which represent or result in a change to the KVAERNER WORK or to the PROJECT WORK and KVAERNER PROCESS shall be entitled to make a Change Order Request to revise the KVAERNER CONTRACT PRICE, TARGET PRICE and/or the TARGET DATE and/or other modifications to the obligations/liabilities of KVAERNER PROCESS as are appropriate. 4.6 Within five (5) business days of receipt of such a Change Order Request, OWNER shall respond to the request of KVAERNER PROCESS either by accepting the Change Order Request or identifying in writing all items which are not acceptable. No Change Order shall be effective until both OWNER and KVAERNER PROCESS shall have executed it. 4.7 In the event that KVAERNER PROCESS and the OWNER are unable to agree upon the amount or terms of any Change Order Request made by KVAERNER PROCESS, under ARTICLE 4.5 above, KVAERNER PROCESS shall continue to perform its KVAERNER WORK , as unchanged pending resolution of the dispute and OWNER shall continue to make payments of all undisputed amounts in accordance with and subject to the terms of this CONTRACT. ARTICLE 5 SCHEDULING TIME OF PERFORMANCE: COMPLETION 5.1 EXHIBIT H, which is attached hereto and made a part hereof, identifies and defines critical milestone dates (other than the TARGET DATE and MECHANICAL COMPLETION DATE) for the PROJECT. Within fourteen (14) days from the date of the execution of this CONTRACT, KVAERNER PROCESS shall prepare and submit to the OWNER for its approval a construction schedule (the "PROJECT SCHEDULE") which shall be in the format of Bar Chart schedule or Critical Path Method (CPM) schedule or other format satisfactory to the OWNER and KVAERNER PROCESS which shall (1) provide a graphic representation of all activities and events that will occur during performance of the PROJECT WORK; (2) identify each phase of construction and occupancy; and (3) identify certain milestone dates 9 that are critical in ensuring the timely and orderly completion of the PROJECT WORK. KVAERNER PROCESS shall monitor the progress of the PROJECT WORK, shall promptly advise the OWNER of any material delays in the PROJECT SCHEDULE and shall propose an affirmative plan to remediate or mitigate any delays in the PROJECT SCHEDULE. Material delays are those that the parties would reasonably anticipate are likely to have an impact on the MECHANICAL COMPLETION DATE. 5 2. KVAERNER PROCESS shall use its best efforts to achieve the milestone dates contained in EXHIBIT H and the TARGET DATE; provided, however, that the above dates shall be extended and changed to allow for any delays excused under ARTICLE 13.2 and extra work and changes in the KVAERNER WORK and/or CONTRACTOR WORK under ARTICLE 4. Upon achieving MECHANICAL COMPLETION, OWNER shall assume and have accepted responsibility and liability for the care, custody and maintenance of the PROJECT WORK and all risk of loss and damage to the PROJECT WORK. ARTICLE 6. WARRANTIES AND GUARANTEES 6.1 KVAERNER PROCESS warrants that it shall perform all Construction Management services required of it under this CONTRACT, in accordance with the professional standards and standards of care normally practiced by reputable, professional construction management firms performing services of a similar nature at the time and in the general location that the KVAERNER PROCESS services are performed. 6.2 KVAERNER PROCESS warrants that it shall perform all Architectural and Engineering services required of it under this CONTRACT, in accordance with the relevant mutually agreed design basis (including the corresponding design intent evidenced thereby), and the professional standards and standards of care normally practiced by reputable Engineering firms which are also authorized to perform Architectural services performing services of a similar nature at the time and in the general location that the KVAERNER PROCESS' services are performed. 6.3 In addition to the warranties set forth in ARTICLES 6.1 and 6.2 above, KVAERNER PROCESS shall perform all of the KVAERNER WORK in accordance with generally accepted Pharmaceutical/Biotechnology Industry standards. 6.4 In the event that the KVAERNER WORK (including any error or omission of KVAERNER PROCESS) fails to meet the standards set forth in ARTICLES 6.1, 6.2 and 6.3 ("DEFECTIVE WORK"), KVAERNER PROCESS shall reperform the DEFECTIVE WORK without adjustment of the TARGET PRICE, ADJUSTED TARGET PRICE or FIXED FEE as defined in ARTICLE 2, to the degree and extent required to allow the DEFECTIVE WORK to comply with the foregoing standards, both prior to the MECHANICAL COMPLETION DATE or earlier termination of the CONTRACT, and for a period of twelve (12) months thereafter, provided that OWNER notifies KVAERNER PROCESS in writing within the aforementioned period, describing the alleged defects with particularity, and granting KVAERNER PROCESS all reasonable access to such KVAERNER WORK and the PROJECT so as not to delay KVAERNER PROCESS in the required correction of any such DEFECTIVE WORK and subject to all other conditions stated in this ARTICLE 6. In the event that the OWNER provides KVAERNER PROCESS with the written notice required by this ARTICLE 6.4 prior to the MECHANICAL COMPLETION DATE, KVAERNER PROCESS shall be compensated its REIMBURSABLE COSTS for reperforming any DEFECTIVE WORK but without adjustment to the TARGET PRICE. In the event that the OWNER provides KVAERNER PROCESS with the written notice required by this ARTICLE 6 prior to the expiration of twelve (12) months after the MECHANICAL COMPLETION DATE or earlier termination of the CONTRACT, KVAERNER PROCESS shall reperform the DEFECTIVE WORK without compensation for REIMBURSABLE COSTS and without adjustment to the TARGET PRICE. 10 6.5 Subject to the limitations stated in ARTICLE 9.1 herein, KVAERNER PROCESS shall reimburse the OWNER all reasonable amounts paid to third party contractors for construction labor and material costs, required to remanufacture, field retrofit, remove or replace the PROJECT WORK which are caused by any DEFECTIVE WORK in KVAERNER PROCESS' engineering or architectural services that are contained or incorporated into any of the "Approved for Construction" drawings issued by KVAERNER PROCESS due to KVAERNER PROCESS' failure to comply with the standards contained in ARTICLE 6.2 and ARTICLE 6.3 above; provided the OWNER has given KVAERNER PROCESS written notice of such deficiencies in the PROJECT WORK prior to performing rework and prior to the expiration of twelve (12) months after the MECHANICAL COMPLETION DATE or earlier termination of the CONTRACT. KVAERNER PROCESS' liability to the OWNER for the above costs shall be limited to those amounts paid by the OWNER to third party contractors for construction labor and material costs, required to remanufacture, field retrofit, remove and replace the PROJECT WORK which exceeded and are above two and one-half percent (2.5%) of the amount of the TARGET PRICE. However, in no event shall KVAERNER PROCESS' liability for said costs exceed the amount of ten percent (10%) of the KVAERNER CONTRACT PRICE. For example, assume that the final TARGET PRICE, with all adjustments required by this CONTRACT, is computed to be the sum of $225 million. Further assume that the final KVAERNER CONTRACT PRICE, with all adjustments required of this CONTRACT, is computed to be the sum of $50 million. In that event, KVAERNER PROCESS' liability to the OWNER pursuant to this ARTICLE 6.5 for the cost of remediation of the PROJECT WORK, caused by DEFECTIVE WORK performed by KVAERNER PROCESS shall commence once the OWNER pays to third party contractors for such costs of remediation the sum of $5,625,000 (i.e., two and one-half percent (2.5%) of the $225 million TARGET PRICE). However, KVAERNER PROCESS' liability to the OWNER shall not exceed the sum of $5 million (i.e., ten (10%) percent of the KVAERNER CONTRACT PRICE), above the $5,625,000 threshold. KVAERNER PROCESS shall be entitled to a reasonable audit of any amounts paid by the OWNER for correction or remediation of the PROJECT WORK caused by KVAERNER PROCESS' DEFECTIVE WORK. 6.6 KVAERNER PROCESS assumes no responsibility or liability for any materials or equipment, whether new or used, furnished by OWNER for use in the PROJECT WORK. As part of KVAERNER PROCESS' procurement services, KVAERNER PROCESS shall secure, for the benefit of OWNER, available warranties of third party vendors and contractors running directly to OWNER or assignable by KVAERNER PROCESS to OWNER, with respect to the materials, equipment and work performed or furnished by such vendors and contractors, warranting against defects in workmanship, design and material, and non-infringement of patents and other industrial property rights. KVAERNER PROCESS' liability regarding such materials, equipment and work shall be limited to using reasonable efforts, short of litigation, to enforce third party warranties on behalf of OWNER. 6.7 This ARTICLE 6 states the only warranties made by KVAERNER PROCESS there being no other express or implied warranty. KVAERNER PROCESS EXPRESSLY DISCLAIMS IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PURPOSE. 6.8 The provisions of this ARTICLE 6 shall survive the performance or earlier termination of this CONTRACT. ARTICLE 7. INDEMNIFICATION 7.1 Each party shall indemnify the other party against any costs (including without limitation amounts paid pursuant to judgments or settlements and attorneys' fees and disbursements) incurred by such other party as a result of any claim by a third party (including, without limitation, any claim by an employee of either party, or by another contractor, a 11 subcontractor, or vendor or their employees) based on actual or alleged damage to or destruction of property or bodily injury to persons (including death) to the extent caused by the willful or negligent acts or omissions of the indemnifying party, its agents or employees. 7.2 Each party shall promptly notify the other of the assertion of any claim against which such party is indemnified pursuant to this ARTICLE 7, shall give such other party the opportunity to defend any such claim, at the expense of the indemnifying party, in which event, the indemnified party shall have the right to participate in such defense at its own expense and to approve or reject any settlement. In the event that the indemnifying party chooses not to assume the defense of such claim, the indemnified party shall not settle any such claim without the approval of the indemnifying party. 7.3 KVAERNER PROCESS shall indemnify OWNER from damage or loss to its existing real property and all existing improvements thereon, to the extent such damage or loss is caused by the negligence or willful misconduct of KVAERNER PROCESS in the performance of the CONTRACT. 7.4 This ARTICLE 7 is for the protection of OWNER and KVAERNER PROCESS only and shall not affect or establish, in and of itself, any liability to or by third parties. 7.5 The provisions of this ARTICLE 7 shall survive the performance or earlier termination of this CONTRACT. ARTICLE 8. INSURANCE 8.1 OWNER shall insure, or cause to be insured, at no expense to KVAERNER PROCESS and for the full replacement cost, all KVAERNER WORK and PROJECT WORK, and related work, completed and in the course of construction at the PROJECT site and all equipment and materials delivered and stored at the site and in transit which are to be used in the PROJECT WORK or incorporated into the PROJECT, against the risks normally insured under a Builders All Risk Insurance Policy (Broad Form) with coverage commercially available and reasonably acceptable to KVAERNER PROCESS, but OWNER shall not be responsible for providing insurance to protect tools, construction equipment, scaffolding, surplus materials and other personal property used by KVAERNER PROCESS or its direct subcontractors (meaning contractors executing subcontracts to perform the KVAERNER WORK, not CONTRACTORS executing contracts with OWNER or with KVAERNER PROCESS acting as agent for OWNER) in the prosecution of the PROJECT WORK. KVAERNER PROCESS and each CONTRACTOR of every tier shall be named as Loss Payees and additional insureds under this policy as their interest may appear, and OWNER shall have liability to pay all applicable deductible amounts. This policy shall include startup, hot testing and commissioning coverage. This insurance shall be primary as to any insurance KVAERNER PROCESS may carry. OWNER and KVAERNER PROCESS waive all rights against each other, including but not limited to a right of subrogation, except for such rights as they may have to the proceeds of the Builders All Risk Insurance described in this Article 8.1, in connection with or arising from losses or damages to the PROJECT or PROJECT WORK and related work, including KVAERNER WORK, completed in the course of construction at the PROJECT site, and all equipment and materials delivered and stored at the site or in transit which are to be incorporated into the PROJECT. 8.2 KVAERNER PROCESS shall provide, and shall ensure that each CONTRACTOR provides, the following insurance and shall obtain and file with OWNER certificates thereof: 8.2.1 Worker's Compensation Insurance in compliance with the Worker's Compensation Act of the state or states wherein the KVAERNER WORK is to be performed; 12 8.2.2 Employer's Liability Insurance with a limit of $1,000,000 for one or more claims arising from each accident; 8.2.3 Comprehensive General Liability Insurance, including Contractual Liability Coverage, with a limit of $1,000,000 each occurrence combined single limit for bodily injury (including death) and property damage; 8.2.4 Comprehensive Automobile and Truck Liability Insurance with a combined single limit of liability of $1,000,000 for each accident for bodily injury (including death) and property damage, insuring all motor vehicles used by KVAERNER PROCESS in the performance of this CONTRACT. 8.2.5 With respect to KVAERNER PROCESS only, Contractor's Equipment Floater Insurance, subject to an aggregate limit of $2,000,000 and a deductible of $15,000 each occurrence. 8.2.6 Umbrella Insurance coverage in the amount of at least $10,000,000 per occurrence/aggregate, in the case of KVAERNER PROCESS, or at least $5,000,000 per occurrence/aggregate, in the case of each CONTRACTOR. 8.3 Each of the above insurance policies carried by KVAERNER PROCESS and each subcontract with a CONTRACTOR shall provide for thirty (30) days advance written notice in the event of cancellation or a material change in the terms thereof, which shall be provided to OWNER. 8.4 KVAERNER PROCESS shall name, and shall ensure that each CONTRACTOR names, OWNER as additional insured under the coverages expressly required under ARTICLES 8.2.3. 8.2.4, 8.2.5 and 8.2.6 above. 8.5 Notwithstanding anything provided elsewhere in this CONTRACT to the contrary, KVAERNER PROCESS' maximum aggregate liability (including that for negligence) for and arising out of or in connection with any property loss, damage or bodily injury giving rise to KVAERNER PROCESS' liability, under all provisions of this CONTRACT (including but not limited to ARTICLES 7.1 and 7.3) in anyway arising in connection with KVAERNER WORK shall not exceed the recovered proceeds of the insurance expressly specified in this ARTICLE 8 to be provided by KVAERNER PROCESS. The provisions of this ARTICLE 8.5 shall only apply to property loss, damage or bodily injury, and shall not apply to the remedies and limitations contained in ARTICLES 6 and 9 herein. ARTICLE 9. LIMITATION OF LIABILITY 9.1 This CONTRACT states the parties exclusive rights and remedies, and OWNER and KVAERNER PROCESS make no representations, guarantees or warranties of any kind, either express or implied, including, but not limited to, implied warranties of merchantability, and fitness for purpose, except as expressly stated herein. Notwithstanding anything stated to the contrary herein, KVAERNER PROCESS shall not be liable under any circumstances for any indirect, incidental, or consequential damages, including, but not limited to, business interruption, downtime, loss of use, loss of profit, loss of product, loss of use of capital, or interest on capital. KVAERNER PROCESS shall have no liability for damages resulting from delays to the MECHANICAL COMPLETION DATE or commissioning and validation services. KVAERNER PROCESS' maximum aggregate liability under all provisions of this CONTRACT and in any way arising in connection with KVAERNER WORK, other than liabilities assumed in ARTICLES 7 and 8, but including the liability assumed by KVAERNER PROCESS in ARTICLE 6.5, shall not exceed the amount of ten percent (10%) of the KVAERNER CONTRACT PRICE. The provisions of this ARTICLE 9.1 shall apply irrespective of the basis of the claim, whether in equity or at law, in contract or in tort (including negligence), strict liability or otherwise. 13 9.2 KVAERNER PROCESS hereby releases OWNER from all liability for any indirect, incidental, or consequential damages, including, but not limited to, business interruption, down time, loss of use, loss of profit, loss of product, loss of use of capital, or interest of capital. KVAERNER PROCESS shall also release OWNER from any damages resulting from delays to the MECHANICAL COMPLETION DATE or commissioning and validation services. The provisions of this ARTICLE 9.2 shall apply irrespective of the basis of the claim, whether in equity or at law, in contract or in tort (including negligence) strict liability or otherwise. However, nothing stated herein shall prevent or diminish KVAERNER PROCESS' right to payment for all amounts due KVAERNER PROCESS under this CONTRACT or KVAERNER PROCESS' right to request a CHANGE ORDER in accordance with ARTICLE 4 herein. 9.3 The provisions of this ARTICLE 9 shall survive the performance or earlier termination of this CONTRACT. ARTICLE 10. PATENTS: PROPRIETARY INFORMATION 10.1 KVAERNER PROCESS shall use reasonable efforts to avoid including in the PROJECT designs, processes, equipment and materials infringing patents or other industrial property rights of third parties. KVAERNER PROCESS' liability for infringement or any claim therefor shall be limited to providing technical assistance to OWNER in defending or otherwise dealing with the matter. 10.2 KVAERNER PROCESS shall use the same reasonable precautions that KVAERNER PROCESS uses for its own confidential information to maintain in confidence, avoid unauthorized disclosure to any third party, and not use except in the performance of this CONTRACT, any and all confidential and proprietary information disclosed to KVAERNER PROCESS by OWNER during or with respect to the performance of this CONTRACT (including prior to the execution hereof); provided, however, that KVAERNER PROCESS is not required to keep such information confidential and avoid such unauthorized use or disclosure to the extent that it can be established by KVAERNER PROCESS by competent proof that such information: (i) was already known to KVAERNER PROCESS, other than under an obligation of confidentiality, at the time of disclosure by OWNER; (ii) was generally available to the public or otherwise part of the public domain at the time of its disclosure to KVAERNER PROCESS; (iii) became generally available to the public or was otherwise part of the public domain after its disclosure and other than through any act or omission of KVAERNER PROCESS in breach of this Agreement; or (iv) was disclosed to the KVAERNER PROCESS, other than under an obligation of confidentiality, by a third party who had no obligation to OWNER not to disclose such information to others. These obligations shall survive the performance or earlier termination of this CONTRACT for a period of ten (10) years after the Effective Date of this CONTRACT. 10.3 For the same time period and subject to the same exceptions mentioned in ARTICLE 10.2, OWNER shall use the same reasonable precautions that OWNER uses for its own confidential information to avoid unauthorized disclosure to any third party and shall not use except in the performance of this CONTRACT and operation and maintenance of the PROJECT, any and all confidential and proprietary information disclosed to OWNER by KVAERNER PROCESS during or with respect to the performance of this CONTRACT (including prior to the execution hereof). 14 10.4 Any and all designs, descriptions, drawings, plans, specifications, flow sheets, instructions, operating data and other documents that are specifically developed for the PROJECT as part of KVAERNER WORK and which are supplied to the OWNER ("DOCUMENTS"), whether directly or indirectly by KVAERNER PROCESS, shall be the property of the OWNER whether the PROJECT is completed or not and shall be delivered to the OWNER at the earlier of (a) final completion of the KVAERNER WORK or (b) the termination date of this CONTRACT for any reason prior to final completion of the KVAERNER WORK on the PROJECT unless KVAERNER PROCESS has terminated this CONTRACT in accordance with ARTICLE 11. In the event that this CONTRACT is terminated for any reason prior to final completion of the KVAERNER WORK on the PROJECT and if under such circumstances the OWNER uses, or engages in services of, another party to use such DOCUMENTS to complete the Project, OWNER agrees to release, hold harmless and indemnify KVAERNER PROCESS from liability and responsibility for the conformance of the uncompleted portions of the PROJECT to such DOCUMENTS. OWNER shall not sell such DOCUMENTS to an unaffiliated company for the design, engineering or construction of any other PROJECT or facility, except with the prior written consent of KVAERNER PROCESS. However, nothing herein shall restrict the use of such DOCUMENTS by the OWNER and its affiliates for their own respective business purposes. In the event OWNER uses the DOCUMENTS for any purpose other than the construction and maintenance of the PROJECT, OWNER shall hold harmless and fully defend and indemnify KVAERNER PROCESS from all liability arising out of such use, with OWNER accepting all risks in connection with such use. 10.5 The provisions of this ARTICLE 10 shall survive the performance or earlier termination of this CONTRACT. ARTICLE 11. TERMINATION 11.1 Either party may terminate this CONTRACT for cause upon ten (10) days advance written notice to the other party in the event that: 11.1.1 The other party materially breaches the obligations or provisions of this CONTRACT and fails to initiate reasonable measures toward remedying such breach within ten (10) days after receipt of notice thereof, which notice must state the notifying party's intent to invoke the provisions of this ARTICLE 11.1; or 11.1.2 The other party makes a general assignment for the benefit of creditors, or a receiver is appointed on account of its insolvency, or it becomes the subject of any proceeding commenced under the Federal Bankruptcy Act or under any state insolvency statute or law for the relief of debtors, and the assignment is not discharged or the proceeding is not dismissed within sixty (60) days. 11.2 If OWNER invokes its right to terminate this CONTRACT pursuant to ARTICLE 11.1.1 or 11.1.2 the OWNER may, after ten (10) days written notice, during which period KVAERNER PROCESS either fails to perform its obligations under this CONTRACT or fails to commence and continue reasonable remedial measures, undertake to perform KVAERNER PROCESS' obligations under this CONTRACT utilizing any reasonable means. In such event, KVAERNER PROCESS shall be liable to OWNER for all reasonable costs paid to a third party contractor to perform the remaining elements of the KVAERNER WORK to the extent that such costs exceed the amounts which would have been otherwise due KVAERNER PROCESS in accordance with ARTICLE 2 to perform the remaining elements of the KVAERNER WORK and all outstanding Change Order Requests that KVAERNER PROCESS may be entitled to. The foregoing shall be in addition to, and not in lieu of, other rights and remedies available to the OWNER hereunder, at law and/or in equity. KVAERNER PROCESS shall cooperate in turning over the needed completed documents and information required by OWNER's replacement contractor who will perform the remaining 15 KVAERNER WORK, provided OWNER is not in default of any of its payment obligations to KVAERNER PROCESS up to the date upon which KVAERNER PROCESS is notified of the breach. 11.3 If KVAERNER PROCESS invokes its right to terminate this CONTRACT pursuant to ARTICLE 11.1.1 or 11.1.2, OWNER shall be liable to KVAERNER PROCESS for the entire FIXED FEE, any portion of the EARNED FEE earned by KVAERNER PROCESS prior to such termination, and all REIMBURSABLE COSTS in connection with KVAERNER WORK performed, plus the reasonable costs incurred by KVAERNER PROCESS in closing out the KVAERNER WORK, including the costs of commitments which cannot be cancelled. 11.4 OWNER shall have the right to terminate this CONTRACT for its convenience upon thirty (30) day's advance written notice to KVAERNER PROCESS. In the event of such termination, KVAERNER PROCESS shall be paid, within thirty (30) days of written demand, the amounts specified in Section 11.3 above. ARTICLE 12 - DISPUTE RESOLUTION 12.1 INITIAL DISPUTE RESOLUTION. If a dispute arises out of or relates to this CONTRACT or its breach, the parties shall endeavor to settle the dispute first through direct discussions. If the dispute cannot be settled through direct discussions, with the consent of both parties, the parties shall endeavor to settle the dispute by mediation under the Construction Industry Mediation Rules of the American Arbitration Association ("AAA"). The parties agree to conclude such mediation within sixty (60) days of the filing of a request for mediation with the AAA. 12.2 LITIGATION; JURISDICTION; WAIVER OF TRIAL BY JURY. If the parties do not elect to mediate a dispute arising hereunder then either party may seek recourse before the Superior Court of the State of New Jersey, County of Hunterdon, to which exclusive jurisdiction the parties hereto hereby agree to submit. BOTH PARTIES HERETO HEREBY KNOWINGLY INTENTIONALLY AND EXPRESSLY AGREE TO WAIVE THE RIGHT TO A TRIAL BY JURY OF ANY DISPUTES ARISING HEREUNDER. 12.3 MULTIPARTY PROCEEDING. The parties agree that all parties necessary to resolve a claim shall be the parties to the same proceeding. KVAERNER PROCESS shall include appropriate provisions in all other contracts, including, but not limited to all agreements with CONTRACTORS relating to the PROJECT to provide for the consolidation of disputes. ARTICLE 13. MISCELLANEOUS 13.1 Any notice provided for herein shall be in writing and shall be deemed to have been properly given by either party to the other if such notice shall have been delivered by hand, five (5) days after being mailed by certified mail, postage prepaid, return receipt requested, or one (1) business day after being sent by nationally recognized overnight courier, shipping prepaid addressed to OWNER as follows: ImClone Systems Incorporated 180 Varick Street, Sixth Floor New York, NY 10014 Attention: John B. Landes, Esq. or addressed to KVAERNER PROCESS as follows: Kvaerner Process a division of Kvaerner US Inc. 16 440 Route 22 East Bridgewater, NJ 08807-0884 Attention: John Petchonka, Managing Director The parties shall have the right to change such addresses or addressees from time to time by notice in writing directed to the other party. 13.2 A reasonable delay in performance of this contract shall be excused if such delay results from fire, explosions, labor disputes, strikes, casualties or accidents, lack or failure of transportation facilities, floods, earthquakes or weather conditions beyond that anticipated in KVAERNER PROCESS' PROJECT SCHEDULE or other acts of God, or is caused by reason of wars, resolution, civil commotion, blockade or embargo or is caused by reason of any change of law, proclamation, regulations, ordinance, authority or representative or any government or is caused by any other reason beyond the reasonable control of KVAERNER PROCESS or the OWNER, but such events shall not excuse a failure to perform. 13.3 The failure of either party to insist upon the other party's compliance with its obligations under this CONTRACT in any one or more instances shall not operate to relieve such other party from its duty to comply with such obligations or any other obligations in all other instances. 13.4 Neither party shall assign its interest in this CONTRACT without the prior written consent of the other party hereto, except that either may assign its interest without such consent to its successor by merger or consolidation or to a person, firm or corporation acquiring all or substantially all its business and assets or acquiring a controlling ownership interest in such party. Notwithstanding the foregoing, the OWNER may collaterally assign this CONTRACT to the PROJECT lender, if any. KVAERNER PROCESS shall timely execute and deliver such commercially reasonable certifications with respect to the KVAERNER WORK and/or the PROJECT WORK as the PROJECT lender, if any, shall require from time to time. Commercially reasonable certifications shall be those certifications which institutional lenders customarily require of project architects or engineers, and which project architects or engineers customarily give, in connection with the construction and/or mortgage financing of commercial real estate projects in the New York/New Jersey metropolitan area. No assignment of this CONTRACT shall be valid until and unless this CONTRACT shall have been assumed by the assignee. Notwithstanding the foregoing, KVAERNER PROCESS may sublet or subcontract parts of the KVAERNER WORK to be performed under this CONTRACT only with prior written consent of OWNER, provided, however, that in such event KVAERNER PROCESS shall not be relieved or released from any of its obligations and responsibilities to OWNER except as provided in this CONTRACT. Notwithstanding the above, KVAERNER PROCESS shall be allowed, without the advance authorization of OWNER to supplement its staff with personnel supplied by a third party agency ("AGENCY PERSONNEL") during the course of the PROJECT. KVAERNER PROCESS shall inform OWNER of the number and job classifications of AGENCY PERSONNEL being used, upon OWNER'S request. 13.5 All questions relating to the validity, interpretation, performance or enforcement of this CONTRACT shall be determined in accordance with the laws of the State of New Jersey, excluding its conflict of law principles. 13.6 To the extent that there is any conflict between the ARTICLES of this CONTRACT and any EXHIBITS hereto, the ARTICLES shall have precedence and shall govern. 13.7 This CONTRACT, together with EXHIBITS A through H, constitutes the entire agreement between the parties pertaining to the subject matter hereof and may not be modified orally or otherwise than by written instrument executed on behalf of each party by its duly authorized representative. 17 13.8 The parties hereto expressly agree that this CONTRACT was jointly drafted, and that they each had an opportunity to negotiate its terms and to obtain the assistance of counsel in reviewing its terms prior to execution. Therefore, in interpreting this CONTRACT neither party shall be deemed the drafter. IN WITNESS WHEREOF, the parties hereto have caused their corporate names to be hereunto subscribed by their officers thereunto duly authorized as of the EFFECTIVE DATE. KVAERNER PROCESS IMCLONE SYSTEMS INCORPORATED a division of Kvaerner US Inc. By: /s/ John Petchonka By: /s/ John B. Landes -------------------------------- ---------------------------------- Title: Managing Director Title: Senior Vice President, Legal_ 18 Exhibit A [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 1 OF 29 - -------------------------------------------------------------------------------- SCOPE OF WORK 1.0 INTRODUCTION 1.1 PROJECT DESCRIPTION KVAERNER PROJECT NO.: N00129.00-20-30-40 CONTRACT TYPE: Reimbursable Cost SCOPE OF WORK: Engineering, Purchasing, Construction, Commissioning Assistance and Validation LOCATION: Branchburg, New Jersey DESCRIPTION: The new Commercial Facility is approximately 248,000 ft(2), within three levels above grade and a sub-grade basement. The facility and its site shall be engineered and designed to accommodate the "two (2)" processing modules, with shell space available for a future processing module. Each of the two (2) processing module trains consists of self-contained fermentation and purification modules, designed around the capacity embodied in six (6) 11K liter bioreactors plus all support and amenity functional areas. In each of the two (2) processing module trains, the fermentation module resides on the main floor and is comprised of a single inoculum prep laboratory with a small media prep staging area, scale-up bioreactors, six (6) 11K liter bioreactors and harvest area. In each of the two (2) processing module train, the purification module resides on the main floor and is consists of two separate purification areas (to differentiate between potential virus and virus-free processing steps), plus bulk product staging and fill areas. The fermentation module for each processing train is supported by media prep and media storage areas, which are located above on the upper floor. Similarly, the purification module for each processing train is supported by buffer prep and buffer storage areas, which are also on the upper floor. The fermentation and media prep module for each train is served by a central upstream decontamination and wash area, which is located on the main floor. Likewise, the purification and buffer prep module for each train is also served by a central downstream decontamination and wash area, which is also located on the main floor. Amenities, laboratories and administrative functions are located on both the main, mezzanine and upper floors along the Northern and Western perimeter of the Facility and form a transition to the production GMP areas. A Boiler/Utility Room is located in the sub-grade basement. Additionally, a GMP Central Weigh Area, Materials Receiving & Shipping Areas and multiple storage areas are also located in the sub-grade basement adjacent and separate from the Boiler/Utility Room in support of the GMP production and non-production areas above. The areas outside the GMP production areas on the upper floor, are dedicated to the Facility's mechanical systems. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 2 OF 29 - --------------------------------------------------------------------------------
1.2 PROJECT ORGANIZATION ImClone Project Team: Corporate Sponsor: Dr. Harlan Waksal VP Marketing & Sales: Ron Martell SVP Manufacturing Operations & Product Development: Joseph Tarnowski VP Financial Operations: Paul Goldstein VP Manufacturing: Rick Crowley VP of Facilities: Gary Paulter Project Manager Bankim Patel Project Engineer Brendan Mooney Process Manager: Joe D'Amore Project Engineer Facilities Wayne McFarland Project Engineer Rich Appezzato Quality Assurance Manager: Carole Beer Validation Manager: Loretta Harrison Project Controls Manager Ron Greig Kvaerner Project Team Leads: Corporate Sponsor: Ron Friedman Project Director Joe Cozza Project Engineer Manager. (Engineering Design): Arthur D. Coles Project Engineer (Process Equip.) Alex Ferdman Project Engineer (Utilities Equip.): Haren Master Lead Process Manager: Al Patterson Process Managers: Peter Terras & Rick Caruso Project Controls Manager: Joseph Timlin Process Controls/Instr./Automation: Jack Sripathy Process Architect Ted Jablonski Design Architect: Sungman Paik/Gary Jeng Civil/Structural: Jun Bausa Electrical: Don Fenyus HVAC/Utilities: Jim Mulligan Piping: Mike Banach Plumbing: Steve Silverstein Piping Specs/MTO/Supports Tony Colaizzi Fire Protection: Arkady Okun CIE Administrator/Coordinator: Ian Piggott Purchasing Lead: Tom Petrusko Project Subcontracts Manager Ed Carlson Validation Lead: Dave Beroll Resident Construction Manager: Mark Witlam Project Secretary: Kimberly Ridgway
[KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 3 OF 29 - -------------------------------------------------------------------------------- 2.0 PROJECT EXECUTION PLAN 2.1 PRELIMINARY ENGINEERING DESIGN AND ESTIMATE The Preliminary Engineering Design and Control Estimate will be performed in the Kvaerner offices in Bridgewater, NJ. The team members will operate on a full-time and part-time basis as dictated by work load and schedule requirements. Specialist engineers will be called upon from the Kvaerner organization to serve the needs of the project as they develop. Third Party consulting services may be obtained to augment the design team, as appropriate. The objective of the Preliminary Engineering Design Phase is to define the Project Scope and Procedures, and to further define the Project in an engineering sense by developing a basis of design for each discipline, preparing P&ID's of sufficient quality to convey the process and utility requirements for detailed engineering design initiation, the preparation of long lead equipment specifications and requisitions and the confirmation of room and area space allocation and arrangement to support both personnel and equipment requirements. Documentation and drawings necessary for obtaining the Air and Wastewater Permits, as well as necessary for submittal to the Township Planning Board, will be developed simultaneously during Preliminary Engineering. During the Preliminary Design Phase, the Estimating Dept. will develop a Control Cost Estimate (+/-10% accuracy) utilizing the engineering drawings, specifications and sketches developed by the design disciplines. 2.2 DETAIL ENGINEERING/DESIGN Detail Engineering/Design will be performed in the Kvaerner offices in Bridgewater, NJ and will utilize various computer, and CAD design modeling and drafting systems (PDMS, Triforma). Led by the Project Engineering Manager, the team members will operate on a full-time and part-time basis as dictated by work load and schedule requirements. Specialist engineers may be called upon from the Kvaerner organization to service the needs of the project as it develops. The core team members and their staff will be located together in a designated task force area. The objective of the Detail Engineering Design Phase is to perform the detailed engineering and design of the facility and all of its systems in sufficient detail to facilitate and support the construction and validation of the Facility, as identified in the specific engineering design deliverables produced by Kvaerner Engineering. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 4 OF 29 - -------------------------------------------------------------------------------- Hard copies of all specifications, and related engineering, procurement and validation documentation will be issued to ImClone throughout the course of the Project for ImClone to review and approve. At the completion of Detail Engineering Design, Kvaerner will issue to ImClone Systems an electronic 3D Cad Model and supporting databases. Electronic copies of all drawing files, including associated x refs, will be issued to ImClone in AutoCAD on disk (CD). Hard-copy, formal Job Books will also be prepared, assembled and issued to ImClone by Kvaerner at the completion of the entire Project. The Job Books are to contain the current revision of all specifications, equipment documentation, submittals, test results, RFIs and As-Built drawings (scope definition pending) and be organized by individual discipline and subcontract. 2.3 PROCUREMENT AND SUBCONTRACTS Led by the Kvaerner Project Manager, procurement activities will be fully integrated into the overall project. Kvaerner will prepare equipment , instrument, electrical, etc requisitions for purchase utilizing ImClone Purchase Orders. ImClone will purchase all such items, with Kvaerner acting as their Agent. A similar approach will apply to subcontracted services. All procurement documentation will be issued as hard copy and included in the final turnover documents issued to ImClone by Kvaerner at the completion of the entire Project. 2.4 CONSTRUCTION MANAGEMENT Under the direction of the Kvaerner Project Manager, the facility will be constructed by appropriate Subcontractors hired by ImClone and managed by Kvaerner Construction Management (CM) personnel. A representative of the Kvaerner Construction Group will be integrated into the Project Staff during Preliminary Engineering Design to review the design development for constructability. In addition, the Kvaerner Resident Construction Manager and the discipline-specific Construction Supervisors from the Launch Facility Project will also be integrated into the Project Staff during the Detail Engineering Design Phase to further review and confirm the Facility's constructability and incorporate "lessons-learned" criteria resulting from the construction of the Launch Facility Project. The Resident Construction Manager and the discipline-specific Construction Supervisors, will transition to the Site as required to support the Subcontract Plan. The CM staff will closely coordinate with ImClone and will copy all correspondence to ImClone. Procurement and construction will be performed simultaneously during Detail Engineering Design to facilitate and expedite the "Mechanical Completion" of the Project as required by the approved schedule. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 5 OF 29 - -------------------------------------------------------------------------------- The "Mechanical Completion" of the project is defined in Exhibit F to the CONTRACT. Turnover Systems will be defined by Kvaerner and approved by ImClone during Preliminary Engineering for all validated and non-validated mechanical systems; building systems and spaces; and site/infrastructure areas. Kvaerner will prepare a "Turnover System" book for each system, sub-system or room, which defines the limits of such and documents the completion, testing, etc. of the system. Upon each system's mechanical completion, Kvaerner will present to ImClone it's "Turnover System" book for audit and signature, indicating ImClone's acceptance of the system for care, control and custody. Each system's turnover to ImClone initiates the ImClone subcontractor's and Kvaerner's Warranty Period for each accepted system. ImClone's acceptance of the last, planned Turnover System achieves the targeted project "Mechanical Completion" and is the basis for the evaluation of the Earned Fee. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 6 OF 29 - -------------------------------------------------------------------------------- Execution of qualification protocols (IQ/OQ by Kvaerner) may proceed in parallel with the activities above (see following section). All Subcontractor submittals and RFIs (requests for information) are to be received, recorded, maintained and resolved by the Kvaerner Resident Construction Manager, Construction Engineer and the discipline-specific Construction Supervisors separately. All Submittal Log Books and RFI Log Books are to be retained for turnover to ImClone within three (3) weeks after "Mechanical Completion". Marked-up "as-built" drawings (scope definition pending) will be prepared by the selected Subcontractors, as coordinated by the Kvaerner Resident Construction Manager and the discipline-specific Construction Supervisors. After their CAD update by the Home Office, the original mark-ups will be turned over to ImClone for record. 2.5 FIELD SUPPORT Kvaerner will provide engineering, procurement and vendor documentation support of the field activities being executed through-out the project lifecycle. Led by the Project Engineering Manager, this multi-discipline team will assist the construction, commissioning and validation personnel in problem solving or documentation needs, as appropriate. The Project Engineering Manager and some others will be located at the Project site while the majority of the team will be located primarily in Kvaerner's Bridgewater office. The team will respond to Request For Information (RFI), subcontractor submittals, commissioning problems, validation documentation/issues and the providing of 2D and 3D CAD updates per the subcontractor provided "As-Built" mark-ups. Target turnaround of RFI's is three (3) working days. This team will also assist in the Kvaerner walk down of completed systems, as required. The composition of this team will be "dynamic" over time; that is, the team will be consistent with the needs of the field activities active at the site at the time. 2.6 COMMISSIONING ASSISTANCE ImClone will lead, manage and execute the commissioning of systems within the facility. Working as a part of the greater team, Kvaerner will support this effort. Commissioning is defined as initial operation of the "mechanically completed" system, sub-system or equipment component. This is the period when the completed system is fully integrated with its utilities and auxiliary equipment; is energized and operated for the first time, "debugged", and is initially balanced/fine tuned. ImClone intends to utilize the draft IQ as a checklist for qualified systems and function specs for non-qualified systems. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 7 OF 29 - -------------------------------------------------------------------------------- As also indicated previously, commissioning of a system is an essential element in the overall completion of the facility, its validation and turnover to ImClone. Qualification activities can proceed in parallel to commissioning. Kvaerner will be responsible for ensuring a seamless flow of activities from engineering design, procurement of equipment and subcontractors, construction, mechanical completion, commissioning, and validation. A Commissioning Master Plan will be written and submitted to ImClone for approval which outlines the roles and responsibilities for the joint Kvaerner/Subcontractor/Vendor/ImClone Commissioning Team. The plan is designed to outline all of the requirements/activities to properly commission the facility, and documents ultimately required to support subsequent validation activities. 2.7 VALIDATION As with engineering, procurement, construction and commissioning, validation services will be fully integrated into the overall project schedule. Assigned administratively to the task force under the direction of the Kvaerner Project Manager, the Validation Manager/ Design Lead will be named early in Preliminary Engineering. The Validation Lead will oversee the preparation of the draft Validation Master Plan and will issue it to ImClone for approval. The Design "Lead" will also conduct regular reviews of specifications and designs during the Basic Design Phase. The Kvaerner Team will prepare and plan the IQ and OQ Protocols and will execute IQ and OQ. ImClone will provide the resources for OQ. Kvaerner will manage the effort. Upon completion of the protocol executions, two final reports by protocol will be written summarizing the findings of the IQ and OQ phases. The Launch documentation will form the template for the Commercial facility. ImClone will prepare the SOP's for the project as well as the PQ protocols and PQ executions. The Kvaerner Validation Team will participate in the Detail Engineering/Design Phase in conjunction with the Project Engineer(s), to assist in the Quality Assurance of the project and validatability of the facility. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 8 OF 29 - -------------------------------------------------------------------------------- 3.0 DESIGN DISCIPLINES 3.1 PROCESS 3.1.1 PRELIMINARY ENGINEERING During the Preliminary Engineering Design Phase the Process Group will further develop and update the Process Flow Diagrams (PFD's), the Equipment List and the Utility Summary included in the Conceptual Estimate dated November 2, 2000. From this basis they will also develop the Process and Utility Piping and Instrumentation Diagrams (P&ID's), the Piping Service Index, the Piping Line List, and the Piping Specialty Item List and issue them as a "Basis of Estimate and Issue for Design". In addition the Equipment List will also be updated and re-issued as a "Basis of Estimate and Issue for Design" and the Equipment and Instrument Process Data Sheets will also be prepared by the Process Group The Process Group will also be responsible for obtaining Air and Wastewater Permits. All activities are to be performed concurrently as much as is practical. 3.1.2 DETAIL ENGINEERING/DESIGN The Process Group will be responsible for updating the Process/Utility Piping and Instrumentation diagrams (P&ID's), Equipment Data Sheets and List developed during the Basic Design Phase and further develop them to a final Issue for Construction. They will prepare the final Process data sheets necessary for all process and utility equipment, instrumentation, the Piping Line List, and the Piping Service Index. They will also prepare the Piping Specialty Item List and finalize the Material Balance Sheets. Additionally, the Process Group shall review the finalized design of all Hygienic Piping Systems for conformity to design intent and calculations. All activities are to be performed concurrently as much as is practical. 3.1.3 PROCUREMENT ASSISTANCE The Process Group will incorporate the appropriate vendor details/drawings into the P&ID's as they become available. They will review and comment on all vendor drawings and assist in the Technical Bid Analysis. All activities are to be performed concurrently as much as is practical. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 9 OF 29 - -------------------------------------------------------------------------------- 3.1.4 CONSTRUCTION SUPPORT The Process Group will be available to answer any technical questions which might arise during construction, provide field support as necessary and perform the CADD drafting of the final As-Built P&ID's per the As-Built Mark-Ups provided by the selected subcontractor(s) and Construction Management. Members of the Process Group will also be integrated into the Commissioning Team. 3.1.5 DELIVERABLES - Process Basis of Design - Material Balance Sheets - Air Emissions Calculations - Wastewater Calculations - Preparation of DEP/EDP Submittal Documentation - Preparation of SRVSA Submittal Documentation - Process Flow Diagrams (PFD's) - Process and Instrument Diagrams (P&ID's) - Equipment List - Specialty Item List (Initially, then turnover to Plant Engineering Group) - Piping Service Index (Initially, then turnover to Plant Engineering Group) - Process and Utilities Equipment Data Sheets - Instrument Data Sheets - Safety Review of the P&ID's - CADD Drafting of As-Built P&ID's - Design Review of Finalized Design of Hygienic Piping Systems 3.2 PROCESS CONTROLS/INSTRUMENTATION 3.2.1 PRELIMINARY ENGINEERING DESIGN The Process Controls Group will develop the Process Controls Design Basis for the new ImClone facility. They will review the P&ID's to ensure compliance and accordance with the design basis. They will prepare the Instrument Index, prepare specifications and assist in obtaining instrument pricing for the estimate. The Process Controls Group will develop the required in-line and offline specifications to support the project scope and form a basis of the cost estimate. In addition, they will also provide the necessary input of the in-line and off-line instrument data into the electronic 3D Cad Model database and validate that the instruments database is complete, correct and current over the life of the Project. All activities are to be performed concurrently as much as is practical. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 10 OF 29 - -------------------------------------------------------------------------------- 3.2.2 DETAIL ENGINEERING DESIGN During Detail Engineering Design, Process Controls will tag and number the instrumentation on the P&ID's and finalize the Instrument Index using an Access database. Process Controls shall initialize the production and review the Instrument Location Drawings and ensure number and the correct location of instrument connections and in-line instruments. The Process Control Group will also prepare and issue Instrument Installation details and the design of any required System Control Panels. In addition, they will also provide the necessary input of the in-line and off-line instrument data into the electronic 3D Cad Model database and validate that the instruments database is complete, correct and current over the life of the Project. The Process Controls Group will also model and locate all field-mounted off-line instruments and control panels in the electronic 3D Cad Model. All Instrument MTOs required from the electronic 3D Cad Model will be extracted, tabulated, and managed by the Process Controls Group. A review will be done of the mechanical packages for compliance with the instrumentation and control requirements as described in the functional requirements. All activities are to be performed concurrently as much as is practical. 3.2.3 PROCUREMENT ASSISTANCE Process Controls will develop instrument specifications for engineering issue, perform technical bid analysis, revise instrument specifications for purchase and review vendor drawings. An instrument bidders list will be reviewed and established. Instrument Subcontract requirements will be developed and the Process Controls Group will participate in the selection process of Subcontractors. Process Controls will develop a software requirement and testing specification to be used by PLC controlled equipment vendors. All activities are to be performed concurrently as much as is practical. 3.2.4 CONSTRUCTION SUPPORT The Process Controls group will be available to answer any technical questions which might arise during construction. Field support will be provided as necessary. The group will review as-built conditions versus Detail Engineering Design specifications, and will participate in the preparation of the punch list(s). Members of this group will also be assigned to the Commissioning Team. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 11 OF 29 - -------------------------------------------------------------------------------- 3.2.5 DELIVERABLES Design Phase - Instrument Index - Process Controls Design Basis - Requirements Specification - Instrument Specification / Requisitions - Instrument Installation Details - Instrument Location Drawings (initially) - Prepare Instrument Subcontract Scope of Work - Control Panel Layout - Software Requirement and Testing Specification - Sequence of Operations for Control Panels document Construction Phase: - Field Resolution of process control related contractor questions - Check compliance of instrumentation to Kvaerner/ImClone specifications and FDA, cGMP regulations - Participation in the preparation of Instrumentation Punch List(s) - AutoCAD Disks of Construction Issued Documents 3.3 MECHANICAL 3.3.1 PRELIMINARY ENGINEERING DESIGN The Mechanical Group will be responsible for preparing preliminary specifications for all process and utility equipment. The group will assist purchasing in obtaining vendor quotes. They will be responsible for tabulating all equipment costs for the project cost estimate. All activities are to be performed concurrently as much as is practical. 3.3.2 DETAIL ENGINEERING DESIGN The Mechanical Group will be responsible for further developing the preliminary equipment specifications for inquiry and for purchase. They will co-ordinate, along with the Project Engineer, all activities between each design discipline with equipment vendors, such as utility requirements. They will co-ordinate and assist Document Control in the inter-squad checks of all vendor submittal drawings. All activities are to be performed concurrently as much as is practical. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 12 OF 29 - -------------------------------------------------------------------------------- 3.3.3 PROCUREMENT ASSISTANCE The Mechanical Group will assist the procurement effort by obtaining competitive bids for process and utility equipment during the basic and detail engineering phase. They will prepare the Technical Bid Analysis for all equipment, and assist purchasing in answering all vendor questions and issues. All activities are to be performed concurrently as much as is practical. 3.3.4 CONSTRUCTION SUPPORT The Mechanical Group will co-ordinate any contract/field questions on process and utility equipment, with the appropriate equipment vendors. They will check vendor supplied equipment against specifications, and will participate in the preparation of punch list(s). Members from this Group will also be assigned to the Commissioning Team. 3.3.5 DELIVERABLES Design Phase - Mechanical Basis of Design - Long Lead Equipment Specifications - Preliminary Equipment Specifications - Equipment Specifications (Issued for Purchase) Construction Phase: - Field Resolution of equipment related contractor questions - AutoCAD Disks of Construction Issued Documents 3.4 ARCHITECTURAL 3.4.1 PRELIMINARY ENGINEERING DESIGN The Architectural Group will prepare a basis of design, including all site development studies, drawings and renderings required for planning board submittal. They will issue the building floor plans, elevations, and section drawings, the site plan and details, and the architectural cover sheet drawing, for planning board submittal and approval. Architectural finishes, and door frame hardware will also be initially specified and issued for ImClone's approval and as a "Basis of Estimate". The group will also prepare people, equipment and material flow diagrams. They will co-ordinate the landscape planning and drawings for the inclusion in the Planning Board Submittal Package. All activities are to be performed concurrently as much as is practical. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 13 OF 29 - -------------------------------------------------------------------------------- 3.4.2 DETAIL ENGINEERING DESIGN The Architectural Group will further develop and finalize the drawings and specifications developed during the Preliminary Engineering Design within the electronic 3D Cad Model. Upon design completion, all architectural systems' designs within the electronic 3D Cad Model will be checked and confirmed. Upon completion of the electronic 3D Cad Model checking phase, they will extract most of the detailed engineering design drawings and documents from the 3D Model sufficient for construction. 2D Cad generated drawings will also be created for specific designs as necessary to support the 3D design deliverables and complete the identification of scope. They will also prepare specifications and a layout for laboratory furniture. All activities are to be performed concurrently as much as is practical. 3.4.3 PROCUREMENT ASSISTANCE The Architectural Group will prepare the scope of work for the building subcontract package and assist in the bid evaluation. They will prepare specifications for the laboratory furniture, elevators, pass-thrus, and fume and bio hoods for bid inquiry packages and prepare the technical bid analysis. All activities are to be performed concurrently as much as is practical. 3.4.4 CONSTRUCTION SUPPORT The Architectural Group will be available to field any questions during the Construction Management Phase of the project. The group will review as-built conditions against design drawings and will participate in the preparation of punch list(s). [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 14 OF 29 - -------------------------------------------------------------------------------- 3.4.5 DELIVERABLES Design Phase - Building Color Rendering - Project Cover Sheet and Index Drawing - Building Floor Plan Drawings - Building Elevations - Landscaping Plan Drawing - Sign Detail Drawing - Site Plan - Design Drawing - Architectural Basis of Design (BOD) - Architectural Finishes Schedule - Doors, Frames, hardware Schedule - Reflected Ceiling Plan - Lab Furniture (Specification and Plan Drawings) - People, Equipment and Material Flow - Building Wall Sections - Construction Specifications - Elevators, Pass Throughs, and Fume and Bio Hoods Specifications Construction Phase: - Field Resolution of architectural related contractor questions - Check compliance of the Building to Kvaerner/ImClone specifications and FDA, cGMP regulations - Participation in the preparation of Punch List(s) - DISKS (CDS) of Construction Issued Documents 3.5 CIVIL/STRUCTURAL 3.5.1 PRELIMINARY ENGINEERING DESIGN The Civil/Structural Group will prepare a Basis of Design. The Basis of Design will include structural and foundation specifications and sketches to be used for the definitive estimate. The structural drawings will include steel framing sketches for roofs and floors. They will also prepare sketches for misc. platform steel framing for production areas and misc. steel framing for pipe racks and pipe supports. Included in the foundation specifications and sketches will be slab on grade plans, elevated floor slab details, and retaining wall plans and details. The group will also prepare for submittal to and approval by the Planning Board, a Site Grading Plan, a Site Horizontal Control Plan, and a Soil Erosion and Sedimentation Control Plan. Site and storm water profiles, and details will also be provided, as part of the Planning Board Submittal Package. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 15 OF 29 - -------------------------------------------------------------------------------- The Soil Erosion Control Plan and calculations will also be submitted to the County. P.E. stamped drawings and site plans will be submitted to the Planning Board. All activities are to be performed concurrently as much as is practical. 3.5.2 DETAIL ENGINEERING DESIGN The Civil/Structural group will further develop and finalize the preliminary sketches, drawings and specifications, developed during Preliminary Engineering Design within the electronic 3D Cad Model. Upon design completion, all civil (concrete) and structural steel (including platforms) systems' designs within the electronic 3D Cad Model will be checked and confirmed. Upon completion of the electronic 3D Cad Model checking phase, they will extract detailed engineering design drawings and documents from the 3D Model sufficient for construction. 2D Cad generated drawings will also be created for specific designs as necessary to support the 3D design deliverables and complete the identification of scope. All activities are to be performed concurrently as much as is practical. 3.5.3 PROCUREMENT ASSISTANCE The Civil/Structural Group will check the vendor drawings/documentation submittals for compliance to Kvaerner specifications and comments. They will prepare the Scope of Work for the Civil/Structural Subcontract Package. All activities are to be performed concurrently as much as is practical. 3.5.4 CONSTRUCTION SUPPORT The Civil/Structural Group will provide field resolution of contractor questions, check compliance of materials of construction to Kvaerner/ImClone specifications, FDA, cGMP and local codes. They will also participate in the preparation of punch list(s). [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 16 OF 29 - -------------------------------------------------------------------------------- 3.5.5 DELIVERABLES Design Phase: - Steel Framing drawings for roofs and floors - Steel Bent elevation drawings - Misc. Platform steel framing plans for production areas - Misc. Steel framing drawing for pipe racks and pipe supports - Misc. Steel framing details - Foundation plans and details - Retaining wall plans and details - Slab on grade plans and details - Elevated floor slabs and details - Site Grading Plan - Site Horizontal Control Plan - Soil Erosion and Sedimentation Control Plan - Site and Storm water Profiles and Details - Material and Installation specifications for site work, Steel and Concrete. - Cut and fill calculations Construction Support: - Field Resolution of Civil/structural related contractor questions - Check compliance of structural/site work to Kvaerner/ImClone specifications. - Participation in the preparation of structural/site work Punch List(s) - AutoCAD Disks of Construction Issued Documents 3.6 ELECTRICAL 3.6.1 PRELIMINARY ENGINEERING DESIGN The Electrical Group will prepare a Basis of Design to include specifications and sketches for lighting, site lighting, power, telephone instrumentation, lightning protection, security, motor control centers, grounding, emergency power and Fire Alarm System. They will prepare material and construction specifications to assist the Estimating Group in development of the definitive cost estimate. Design Basis DB-11 will provide an outline for the overall design practice, details, and pertinent information for project installation. All activities are to be performed concurrently as much as is practical. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 17 OF 29 - -------------------------------------------------------------------------------- 3.6.2 DETAIL ENGINEERING DESIGN The preliminary power, lighting, grounding, site lighting, instrumentation and one line diagram drawings developed during Preliminary Engineering Design will be further developed and finalized by the Electrical Group within the electronic 3D Cad Model. Upon design completion, all electrical systems' designs within the electronic 3D Cad Model will be checked and confirmed. Upon completion of the electronic 3D Cad Model checking phase, they will extract detailed engineering design drawings and documents from the 3D Model sufficient for construction. 2D Cad generated drawings will also be created for specific designs as necessary to support the 3D design deliverables and complete the identification of scope. Fire alarm system design drawings with riser, new paging system design drawings and riser, and personnel card access security system design drawings with riser, will all be developed as individual packages from vendors. The telephone drawing layout will indicate empty conduits and boxes for the installation of telephone company's cabling and hook up. Roof lightning protection systems layout drawings will be developed. Wiring schematic diagrams will be generated for all necessary non-package equipment, i.e.: pumps, motors, exhaust fans etc. Instrument loop diagram drawings and instrument location drawings will be generated as required. Specifications will be developed for Electrical Testing and Installation. Legend, general notes, and bill of materials list will be incorporated within miscellaneous design drawings. All activities are to be performed concurrently as much as is practical. 3.6.3 PROCUREMENT ASSISTANCE The Electrical Group will prepare requisitions for Substation, Motor Control Centers, UPS system and Lighting inverter system. They will prepare the Scope of Work for the Electrical Subcontract Package and assist in the bid evaluations. All activities are to be performed concurrently as much as is practical. 3.6.4 CONSTRUCTION SUPPORT The Electrical Group will provide field resolution of electrical related questions. They will also check compliance work to Kvaerner specifications and assist in the development of Punch List(s). [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 18 OF 29 - -------------------------------------------------------------------------------- 3.6.5 DELIVERABLES Design Phase - Lighting layout plans for each of 3 floors, roof and exterior area - General purpose receptacle layout for each of 3 floors, roof and exterior area - Substation Main One Line diagram - Motor Control Center One Line diagrams for normal and emergency power requirements including UPS and/or Lighting inverter systems - Fire alarm signal system layout plans for each of 3 floors - Telephone layout plans for each of 3 floors (to be included with power dwgs.) - Lightning protection roof layout plan - Exterior underground power and grounding layout plan - Building and/or room security layout plans for each of 3 floors - Voice paging system layout plan for each of 3 floors. - Panel schedules. - Design Basis DB-11 - Misc. detail and/or legend plans - Motor control wiring diagrams. - Testing specifications - Short circuit co-ordination and load study calculations and evaluation documents - Electrical room equipment arrangement plan - Instrumentation location plans for each of 3 floors - Installation specifications - Drawing index - Grounding layout plans for each of 3 floors. - Emergency generator layout and detail plan - Requisitions for Primary substation equipment, Motor Control Centers, Uninterrupted Power Supply (UPS), emergency lighting inverter system, and emergency generator set - Site Lighting Plan and Details Construction Support: - Field Resolution of electrical related contractor questions - Check compliance of electrical work to Kvaerner/ImClone specifications and FDA, cGMP regulations - Participation in the preparation of electrical work Punch List(s) - AutoCAD Disks of Construction Issued Documents [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 19 OF 29 - -------------------------------------------------------------------------------- 3.7 HVAC/FIRE PROTECTION 3.7.1 PRELIMINARY ENGINEERING DESIGN During the Preliminary Engineering Design Phase, the HVAC Group will prepare the following documents: HVAC Design Basis #7 HVAC system zoning and room pressurization plans HVAC air flow diagrams and sketches HVAC equipment and utility list HVAC preliminary duct routing plans. These documents will be issued for ImClone Review and Approval and as a "Basis of Estimate". The group will also prepare HVAC control and material take-off costing estimates. The Fire Protection Group will assist the Plant Design Group to develop an underground fire water supply piping arrangement and fire hydrant arrangement for submittal to the Planning Board. They will prepare a fire protection Design Basis and obtain pricing from subcontractors for the estimate. All activities are to be performed concurrently as much as is practical. 3.7.2 DETAIL ENGINEERING DESIGN The HVAC and Fire Protection Groups will base their Detail Engineering Design on the Basis of Design, developed during the conceptual and preliminary engineering phase. HVAC is responsible for all environmental air handling systems engineering and design layouts. They are also responsible for the engineering of the Plant Steam and Plant/Process Chilled Glycol Systems. They will establish the arrangement of all HVAC air handling equipment within the electronic 3D Cad Model and co-ordinate the requirements of any Process and Electrical equipment that is to be located within Mechanical Rooms with their equipment. HVAC will finalize all HVAC duct system designs within the electronic 3D Cad Model, then finalize and check all of the systems' designs within the electronic 3D Cad Model. Upon completion of the electronic 3D Cad Model checking phase, they will extract detailed engineering design drawings and documents from the 3D Model sufficient for construction. 2D Cad generated drawings will also be created for specific designs as necessary to support the 3D design deliverables and complete the identification of scope. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 20 OF 29 - -------------------------------------------------------------------------------- HVAC will also generate HVAC-Utility Flow Diagrams for the Plant Steam and Plant/Process Chilled Glycol Systems. The utility flow diagrams will be drafted by the Process Department and will be part of the P&ID set. The Fire Protection Group will develop a detailed performance specification, covering all fire protection requirements within the building, in co-ordination with ImClone and ImClone's insurer. The Fire Protection Group will work with the Plant Design Group to depict the main headers in the 3D Model and the Plant Design and Civil/Sitework Groups on requirements for Fire Protection piping and systems outside of the building structure. The Fire Protection Group will co-ordinate their spatial requirements within the building with the other design groups. The Group will oversee the design of the Fire Protection system by others. All activities are to be performed concurrently as much as is practical. 3.7.3 PROCUREMENT ASSISTANCE The HVAC Group will prepare the scope of work required for the HVAC and Fire Protection subcontract inquiry package and assist in the technical bid review and analysis. They will review and comment on all HVAC subcontractor duct and equipment submittals. The HVAC Group will also assist the procurement effort by obtaining competitive bids for the utility equipment, which is being directly purchased by Kvaerner. The Fire Protection Group will assist in the selection of a design-build subcontractor. All activities are to be performed concurrently as much as is practical. 3.7.4 CONSTRUCTION SUPPORT The HVAC/Fire Protection Group will provide field resolution and technical assistance for HVAC/Fire Protection related questions. They will also check compliance of HVAC/Fire Protection equipment and installation to Kvaerner specifications. Each will participate in the development of punch list(s). [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 21 OF 29 - -------------------------------------------------------------------------------- 3.7.5 DELIVERABLES: Design Phase: - Air Flow Diagrams - System Boundary Zoning Diagrams - Classification/Pressurization Diagrams - Control Diagrams - Air Handling Equipment Arrangement - Ductwork Plans and Sections - Equipment Schedules - HVAC Details - Sprinkler, FM-200 Performance Specification - Equipment Specs. - Ductwork Specs. - HVAC Insulation Specs. - Control System Spec. - Sprinkler and FM-200 subcontract - HVAC Subcontract - Engineering Equipment Requisitions - Technical Bid Tabulations - Vendor Drawing/Documentation comments Construction Support: - Participation in the development of the Test and Balance Plan - Field Resolution of HVAC/Fire Protection related questions - Check compliance of HVAC/Fire Protection equipment and installation to Kvaerner specifications - Participation in preparation of HVAC/Fire Protection related items punch list(s) - Provide technical assistance during precommissioning of equipment - AutoCAD Disks of Construction Issued Documents 3.8 PLANT DESIGN 3.8.1 PRELIMINARY ENGINEERING DESIGN The Plant Design Group will develop, establish and prepare process and utility equipment arrangement and location plans. An Underground Plumbing Routing Plan including utility hook ups (water, sewer, etc.) will also be prepared for submittal to the Planning Board. Preliminary Piping Design Routing drawings for the Process and Utility Piping and Aboveground Plumbing Systems will also be developed and prepared as a Basis for the Estimate. In addition, Design Basis #10 will also be produced. All activities are to be performed concurrently as much as is practical. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 22 OF 29 - -------------------------------------------------------------------------------- 3.8.2 DETAIL ENGINEERING DESIGN The Plant Design Group will work with the Process, HVAC and Architectural Groups to finalize the P&ID's and to establish final equipment locations/orientation and confirm floor space requirements for the facility utilizing an electronic 3D CAD Model. They will further develop and complete the detailed design of all process, utility and building plumbing services and then finalize and check all of the systems' designs within the electronic 3D CAD Model, utilizing the piping materials specification database developed and maintained by the Plant Engineering Group. This includes the design routing of the piping header systems for the plant steam and plant/process chilled glycol systems, the individual branch pipelines from the header valves or branch connection to each individual HVAC unit, and the design routing of the Heating Hot Water Piping System which serves the HVAC reheat coils. The Plant Design Group will also locate and install all piping specialties into the appropriate pipelines and on the appropriate vessels (or other equipment as necessary) in the electronic 3D CAD Model, utilizing the piping specialties database developed and maintained by the Plant Engineering Group. The Plant Design Group will also locate and install all in-line instruments into the appropriate pipelines and on the appropriate vessels (or other equipment as necessary) in the electronic 3D CAD Model, utilizing the in-line instrument database developed and maintained by the Process Controls Group. Upon completion of the electronic 3D CAD Model checking phase, they will extract detailed engineering design drawings and documents from the 3D Model sufficient for construction. 2D CAD generated drawings will also be created for specific designs as necessary to support the 3D design deliverables and complete the identification of scope. All activities are to be performed concurrently as much as is practical. 3.8.3 PROCUREMENT ASSISTANCE The Plant Design Group will review the vendor drawings/documentation submittals for compliance to Kvaerner and project requirements and comment. They will develop and prepare the scope of work for the Mechanical (Piping, Plumbing, Equipment) Installation subcontract packages, in conjunction with the Plant Engineering Group. All activities are to be performed concurrently as much as is practical. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 23 OF 29 - -------------------------------------------------------------------------------- 3.8.4 CONSTRUCTION SUPPORT The Plant Design Group will provide field resolution of equipment, piping and plumbing related contractor questions. They will also check compliance of piping to Kvaerner/ImClone specifications, FDA, cGMP regulations. The group will also assist in the preparation of piping/plumbing punch list(s). Members of the Group will also be assigned to the Commissioning Team. 3.8.5 DELIVERABLES Plant Design, Piping Design, Plumbing Design - Equipment Arrangements - Multi-discipline Interstitial Space Lane Systems Co-ordination drawing - Process and Utility Piping Design Installation Isometrics - Above Ceiling - Process and Utility Piping Design Installation Isometrics - Below Ceilings - Utility Services Piperacks Plan drawings - Process Piping Details - Utility Piping Details - WFI System Isometrics - DIW System Isometrics - Clean Steam System Isometrics - CIPS/CIPR System Isometrics - Underground Plumbing Plans - Aboveground Plumbing Plans - Water and Natural Gas Riser Diagrams - Sanitary Storm Drainage Riser Diagrams - Plumbing Schedules and Details - Plumbing Specifications - Subcontract, Equipment, Piping, Plumbing Installation Scope of Work Construction Support: - Participation in the development of the Piping Testing Plan - Field Resolution of piping and plumbing related contractor questions - Check compliance of piping to Kvaerner/ImClone specifications and FDA, cGMP regulations - Compliance of Plumbing to State and Local Codes - Participation in preparation of Piping/Plumbing Punch List(s) - AutoCAD Disks of Construction Issue Documents [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 24 OF 29 - -------------------------------------------------------------------------------- 3.9 PLANT ENGINEERING 3.9.1 PRELIMINARY ENGINEERING DESIGN The Plant Engineering Group will provide valve and specialty item take-offs from the P&ID's to support the cost estimate. These materials, in conjunction with the material take-offs for piping provided by the Plant Design Group, will be priced by the Plant Engineering Group to provide a total installed cost for the piping systems on the project. The Plant Engineering Group will develop the required piping specifications to support the project scope and form a basis of the cost estimate. In addition, they will also provide the necessary input of the piping material and specialty materials data into the electronic 3D Cad Model database and validate that the materials database is complete, correct and current over the life of the Project. All activities are to be performed concurrently as much as is practical. 3.9.2 DETAIL ENGINEERING DESIGN Piping Material Specifications, as well as other specifications such as Insulation, Painting, Fabrication, etc., will be finalized and issued sufficient for construction by the Plant Engineering Group. Piping Stress Analysis, Pipe Support Design and Material Control and Requisitioning will also be performed by the Plant Engineering Group, in accordance with Design Basis No. 5. In addition, they will also provide the necessary input of the piping material and specialty materials data into the electronic 3D Cad Model database and validate that the materials database is complete, correct and current over the life of the Project. All MTOs required from the electronic 3D Cad Model will be extracted, tabulated, and managed by the Plant Engineering Group. All activities are to be performed concurrently as much as is practical. 3.9.3 PROCUREMENT ASSISTANCE The Plant Engineering Group will prepare the requisitions for the materials identified in DB-5 as well as the subcontract requisitions for the mechanical work, insulation and painting. The Plant Engineering Group shall provide technical bid evaluations for all materials purchased by the group, and will provide technical assistance to others, including the contractors, regarding technical acceptability of alternates. All activities are to be performed concurrently as much as is practical. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 25 OF 29 - -------------------------------------------------------------------------------- 3.9.4 CONSTRUCTION SUPPORT The Plant Engineering Group will provide construction assistance with technical issues on piping materials and specifications, as well as reviewing the construction for compliance with the piping requirements. Materials tracking and reporting assistance will also be provided, as per a Materials Management Plan 3.9.5 DELIVERABLES The Plant Engineering Group will provide the specifications, requisitions and drawings as delineated in Design Basis 5. 3.10 PROCUREMENT Working as Agent for ImClone, the Procurement Team will prepare and issue packages for equipment, instrumentation, electrical and all other necessary material and equipment for bid and purchase on ImClone paper. They will prepare Commercial/Technical Evaluations for these items and will coordinate Kvaerner's review of vendor documentation submittals to insure compliance with specification requirements. Expediting of deliveries of all purchased goods and the set up and maintenance of the vendor document files is also a key part of the Kvaerner procurement function. 3.10.1 DELIVERABLES Design Phase - Issue all inquiry packages for bid - Commence the Commercial and Technical Bid Tab Analysis - Condition all Vendor offerings for strict compliance with project requisitions and specifications - Compile Bidders list for Client review and approval. - Review and formulate necessary commercial documents for project use. - Purchasing Procedure - Prepare ImClone purchase orders or change orders for ImClone signature 3.11 SUBCONTRACTS The Subcontract Group will assist Project and Construction Management in the preparation of Subcontracts. The Subcontract Group will prepare subcontract inquiry packages for bid. They will prepare commercial bid tabs and technical bid tabs, and issue subcontracts for construction. They will maintain the subcontracts through construction. 3.11.1 DELIVERABLES - Subcontract Procedure - Subcontract Bidders List [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 26 OF 29 - -------------------------------------------------------------------------------- 3.11.2 CHANGE ORDERS - Written scope document to accompany HO originated design revisions - Implementation of all FWO's and HO initiated changes as Subcontract Amendments 3.12 CONSTRUCTION MANAGEMENT Construction Management will consist of the following services: - Provide assistance to the design team and lead constructability reviews - Participation in the development of the Subcontract Plan and Subcontract Scopes of work - Logistics Plan - Participation in the development of the CPM Construction, Commissioning and Validation schedule - Maintain and control all equipment and material purchased by ImClone as per a Materials Management Plan - Facilitate the safe work of the ImClone Subcontractors - Co-ordination of the Subcontractors - Scheduling the work of the Subcontractors - Field resolution of Subcontractor questions - Insuring installation is per drawings and specifications - Receiving equipment purchased - Preparing monthly progress reports - Verifying Subcontractors progress invoices - Insuring safety regulations are adhered to by Subcontractors - Witnessing tests of equipment and installation. - Facilitating subcontractor "as-built" mark-ups - Lead in the development of Punch Lists by system or area - Participation in the planning of the Commissioning/ Start-up by system or area - Commissioning/Start-up assistance. - Assistance in development of Turnover Books and facilitation of ImClone acceptance of individual systems for care, control and custody 3.13 COMMISSIONING ASSISTANCE A joint Kvaerner/Subcontractor/Vendor Commissioning Team will be developed to assist ImClone in the commissioning of the facility. This team will include an ImClone team leader, members of the construction management team, various engineering design leads, the Validation Manager, members of the validation team, and third party personnel. The commissioning Team Leader will develop a Commissioning Plan. As described in earlier sections, each utility and equipment system will be commissioned after mechanical completion and prior to Validation (IQ) completion. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 27 OF 29 - -------------------------------------------------------------------------------- 3.13.1 DELIVERABLES PRIOR TO MECHANICAL COMPLETION OF INDIVIDUAL SYSTEMS - Commissioning Plan - Participation in the development of the Factory Acceptance Test (FAT) plan(s) by vendors; witness FATs (with ImClone) - Participation in the development of the Site Acceptance Test (SAT) plan; witness SATs (where applicable) - Equipment vendors receive the documentation matrix and deliver the required validation documents, including IQ datasheet - Equipment vendors receive and perform the requirements outlined in the instrument calibration specification. - Selected equipment vendors receive and comply with Control System Requirement and Testing Specification. - Equipment vendors perform and supply all documentation required for validation - Witness the Software Testing and Factory Acceptance Testing of selected equipment prior to shipment as approved by ImClone. - Ensure Subcontractor provides As-Built P&ID and equipment arrangement drawing mark-ups for Kvaerner group to CADD - Verify all lighting and power requirements are supplied as designed. AFTER MECHANICAL COMPLETION OF INDIVIDUAL SYSTEMS - Organize the start up and testing of equipment that includes training of Commissioning Team and ImClone operators by selected equipment vendors. - Run all air handlers for a minimum of 1 week to ensure all room temperature, humidity, and pressurization requirements are maintained. - Test all equipment using water and air. - Test all utility systems at peak consumption, if possible, to verify Maximum designed output. - Test all utilities and equipment using the O.Q. Protocol as a basis. In addition to the above activities, it is the Commissioning Team's responsibility to manage and track/progress the transition from construction to commissioning of the facility, and ultimately to final Installation and Operational Qualification testing. 3.14 VALIDATION 3.14.1 DESIGN REVIEWS Validation personnel will be assigned to the project full time during the Preliminary and Detail Engineering Design phases to review specifications and designs and to perform cGMP audits. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 28 OF 29 - -------------------------------------------------------------------------------- 3.14.2 VALIDATION MASTER PLAN Prior to the completion of Preliminary Engineering, the draft Validation Master Plan will be prepared and submitted for ImClone approval. 3.14.3 INSTALLATION QUALIFICATIONS (IQ) IQ documentation and protocol development will begin by Kvaerner during the design engineering stage of the project. Key components of the IQ development are P&ID's and material specifications. Documentation for IQ execution will include review of materials of construction. Actual IQ execution by Kvaerner of the approved protocol will begin prior to each system's mechanical completion (see definition in Section 2.4). 3.14.4 OPERATION QUALIFICATIONS (OQ) OQ documentation and protocol developments will begin by Kvaerner, where possible, at the design stage, and will be completed when the equipment operating manuals are received. Before OQ execution by ImClone commences, SOPs for operation, cleaning and preventive maintenance must be developed by ImClone and protocol must be approved. Personnel training for specific pieces of equipment must also be documented. 3.14.5 PERFORMANCE QUALIFICATION SUPPORT (PQ) ImClone is responsible for the planning and execution of the PQ of the facility. 3.14.6 DELIVERABLES - Development of a draft Validation Master Plan specific to the Commercial Facility - Review of documentation, system drawings, P&ID's, etc., as appropriate. - cGMP audit of the facility design - Assist in the development of Factory Acceptance Test (FAT) plans (by vendors); witness FATs - Development and execution of Installation Qualification(IQ) protocols - Development of the Site Acceptance Test (SAT) plan; witness SATs - Review of the commissioning plan. - Participate as a member of the commissioning team to ensure equipment is ready for qualification and the proper documentation has been compiled. - Development and Execution of Operation Qualification (OQ) protocols - Collation of data from protocol execution - Ensure that the agreed to changes to the draft protocol and final report documents are incorporated into the final documents - Ensure that any problems encountered during protocol execution are brought to the attention of the ImClone Project Manager - Write separate IQ/OQ Final Reports for each system. [KVAERNER(TM) LOGO] SCOPE OF WORK COMMERCIAL FACILITY DATE: NOVEMBER 26, 2001 IMCLONE SYSTEMS INCORPORATED REV.: E BRANCHBURG, NJ PAGE: 29 OF 29 - -------------------------------------------------------------------------------- 3.14.7 IMCLONE WILL BE RESPONSIBLE FOR THE FOLLOWING: - Providing IQ and OQ protocol format - Reviewing and approving protocols and final reports on a timely basis, and co-ordination of comments on to one mark up document - Ensuring that draft SOPs are in place prior to OQ protocol execution - Ensuring that the proper training has taken place prior to OQ protocol execution - Providing equipment and operators during protocol execution. - Witness Factory Acceptance Tests (FAT's) - Supplying validation test equipment - Development and execution of Performance Qualification (PQ) Protocols. 3.14.8 CLARIFICATION AND ASSUMPTIONS: - Protocol format will be established prior to the start of protocol development. ImClone will provide Kvaerner with a disc copy of the protocol format to be used for IQ, OQ, and the Final Report. - Protocols will be circulated to ImClone personnel for a single review. All ImClone comments will be consolidated onto a single document prior to being returned to Kvaerner. All document development and comments to the protocols must adhere to the dates listed in the project schedule in order to meet the targeted completion date. - All validation test equipment (if required) will be supplied by ImClone. - Protocols will be approved before any validation execution will take place. - Preparation of SOPs for operation, cleaning, preventative maintenance and calibration, and cleaning qualification studies are not included in the Kvaerner scope. - ImClone will be required to operate all equipment during validation testing. Exhibit F IMCLONE COMMERCIAL FACILITY MECHANICAL COMPLETION - GENERAL DEFINITION 1. Construction of the facility shall be completed and evidenced by documented verification reasonably satisfactory to Owner that all aspects of the installation are architecturally and mechanically complete, and adhere to the design and installation specifications, as well as to the documented specifications of applicable suppliers. Facility will be turned over to Owner on a system-by-system (or sub-system) basis as defined by each system checklist and the Turnover Sequence Guideline. 2. All installations forming a part of the Work shall have been completed including, without limitation, structural work, piping, mechanical equipment, laboratory and production equipment, HVAC, electrical and instrumentation work, and telecommunications work, all in accordance with the Project drawings and specifications, P&IDs, and applicable codes. By way of further clarification, the following activities must be completed and Owner must have received, in connection therewith, the appropriate documentation and certifications: - Verified receipt of all equipment (includes skid mounted equipment/components), instrument and specialty items purchased for the Project. - Installation of all equipment, including setting, anchoring, reassembly (where required). Connection of all utilities to all equipment (including skids). - Piping systems are to be completely fabricated, installed, tested, flushed and in-line instruments and other in-line devices ready for operation. - Electrical polarity checks and installation resistance measurements are to be complete and satisfactory. - Instruments and process controls are to be bench calibrated, installed, and dry loop checked. PLC and SCADA control components for the custom and/or standard equipment packages and CIP Systems, respectively, are installed, software loaded and factory tested. - All rotating equipment is to be checked for freedom of rotations, correct rotational direction, and cold alignment. - Critical pipe supports and spring hangers, if applicable, are to be checked for proper adjustment to cold conditions. - Lighting and power distribution is to be completed in accordance with the requirements set forth in the specifications. - Appropriate lubricants are to be applied as specified by suppliers. - HVAC systems are to be checked and tested and initial balance, controls and complete systems are to be fully operational with all written test and balancing reports submitted to and approved by the Owner's Project Manager/Engineer. This includes cleaning, installation of filters/belts and alignment of fans. Final balance to be completed as punch-list item. Lubricants to be provided by Owner and installed by contractors under the direction of Kvaerner. - Building and power control systems are to be completely tested and operational. Page 1 of 3 IMCLONE COMMERCIAL FACILITY MECHANICAL COMPLETION - GENERAL DEFINITION - All locks, signs, and barricades previously under construction control are to be removed. The care, custody and control of the turned over systems is by Owner from this point forward. - Mechanical, pneumatic, and hydrostatic pressure/tightness tests of utility systems are to be completed and documented. - The building (erection/installation of walls, interiors, roofing, windows, doors, hardware, etc.) is to comply with the drawings and specifications and such compliance is documented. - All facility equipment is to be installed in accordance with the supplier's recommendations and the project specifications. - All utilities, infrastructure, and ancillary systems connected to or associated with the facility equipment are to be in accordance with the project drawings and specifications. These systems are to be ready for commissioning and available for the installation qualification (IQ) effort. - All installation activities that are critical for starting IQ or that may affect the operation, safety of the equipment and operators, processing parameters or quality attributes of the product are to be completed. - Pre-commissioning and turnover documentation (as outlined in turnover sequence document) is to be completed and submitted to Owner for approval. - As-built mark-up drawings (current as of mechanical completion) are to be submitted and approved, by Owner, from all sub-contractors and or suppliers. Kvaerner produced CAD as-builts to follow. - Construction cleaning (free of construction materials, dirt, dust, and debris) of building areas consistent with area classification (cGMP and non-classified areas). 3. The Master Punch List (on a system by system basis) shall be completed with agreed upon documented exceptions approved by Owner's PM/PE. The completion of these items must be done so as to not affect the occupancy or operation of the facility. The list shall include items that were identified as "errors and omissions" and "out of scope" items (regardless of when identified). For fee purposes, "out of scope" items generated during Master Punch List preparation will not be considered in determining Mechanical Completion. Completion of all items is the responsibility of Kvaerner. 4. "Sign-off" of all "building systems" and components thereof is required and shall be completed. "Sign-off" means the agreement of the Owner's PM/PE that said systems and components have successfully met the requirements of the specifications and drawings. Testing, to demonstrate that the Work is complete as designed and capable of being used for its intended purpose, shall be completed. Prior to any such testing, Kvaerner shall provide Owner with proposed testing criteria for Owner's approval. "Building Systems" Page 2 of 3 IMCLONE COMMERCIAL FACILITY MECHANICAL COMPLETION - GENERAL DEFINITION means all mechanical, electrical and other operating building components required for complete operation of the facility. 5. All final Equipment and System Documents, including Maintenance Manuals, Operational Manuals and Test and Balance Reports have been submitted to Owner within 60 days of Mechanical Completion. These include, without limitation: (i) "as-built" drawings, (including dimensional outline, cross sectional, component or detail, assembly, erection, foundation, or loading), (ii) installation, operating, and maintenance manuals in those quantities reasonably required by Owner (including, without limitation, all required components of operation criteria, maintenance procedures and warranty/service details, and shall be professionally organized and bound), (iii) wiring diagrams, (iv) certified performance curves, test data, and calculations, as set forth in the specifications, (v) HVAC Test and Balance Reports including reports for any specialized exhaust or air handling equipment (including fume hoods), (vi) Supplier Certifications and Witness Testing, (vii) spare parts list with appropriate drawing cross references and ordering information, and (viii) all other items required by the specifications. The above information shall also be submitted on an on-going basis as received from equipment vendors/sub-contractors. 6. Maintenance and operational training of Owner's personnel by equipment vendors/sub-contractors as directed by Kvaerner to provide working knowledge of all systems shall be completed at least four (4) weeks prior to commencement of the Operational Qualification (OQ). Upon Owner's request, additional training shall be provided after sign-off. 7. Pre-commissioning activities shall be part of the Mechanical Completion scope. This includes the management of sub-contractors during start-up and pre-commissioning activities. 8. In the event of any conflict between this "Mechanical Completion - General Definition" and the remainder of Exhibit F, the provisions of this "Mechanical Completion - General Definition" section shall control. Page 3 of 3 IMCLONE COMMERCIAL FACILITY TURNOVER SEQUENCE GUIDELINE GENERAL OBJECTIVES: 1. Team Effort: Kvaemer Project Management, Kvaerner Construction, Kvaemer Validation, Kvaemer Commissioning, ImClone Project Management, ImClone Commissioning, ImClone Facilities, ImClone Manufacturing, ImClone Validation 2. Confirm Mechanical Completion Turnover and Commissioning Trailer Files are complete. Effort will allow more time to resolve issues. 3. All of the durations in the Turnover Schedule are based on the following sequence: Mechanical Completion ----> Commissioning ----> IQ ----> OQ. RESPONSIBILITIES KVAERNER is responsible for proper system installation, mechanical completion and submitting turnover package to commissioning (ImClone and Kvaerner Team) on or before scheduled mechanical completion date. Included in the package: - Non-Qualified and Qualified Systems (outside skid boundaries): Applicable specifications, requisitions, drawings and lists will be utilized as a checklist. Each item will be initialed and dated. Discrepancies will be resolved. - Qualified Systems: Utilize qualification documents as a checklist to ensure proper utility connections and service where possible. Note: Kvaerner will not be required to verify components of skid-mounted equipment. Note: No items will be left blank. N/C will be entered for "Not Checked". COMMISSIONING TEAM (Kvaerner and ImClone) is responsible for completing activities as stated on spreadsheet (including functional portion of draft OQ on qualified systems) and Submitting Acceptance sign-off sheet to ImClone's Plant Owner and Validation Manager on or before scheduled commissioning completion date. - - Qualified Systems: Utilize qualification documents as a checklist to ensure compliance with protocol prior to Mechanical Completion and turnover checklists to Kvaemer Construction for inclusion in Mechanical Completion Turnover package. SEQUENCE: THREE-WEEKS BEFORE MECHANICAL COMPLETION (OR BEFORE) - - Joint review of draft IQ to Identify tasks to be done and resource responsible - - Joint review of system boundary if required - - Joint Safety - Review - - ImClone Metrology will compare the instruments included in the Protocols with the most recent instrument list. Validation will be informed of any discrepancies. - - Create preliminary work list include completion of system outside boundary with responsibility and realistic target completion dates assigned. - - Kvaerner starts to put together Turnover package. Page 1 of 2 IMCLONE COMMERCIAL FACILITY TURNOVER SEQUENCE GUIDELINE - - A mutually, agreed upon list of documents shall be prepared (by Kvaemer) and shall be used as a checklist to insure that the turnover package is complete. This list shall be distributed to the appropriate sub-contractor(s), ImClone PM/PE and ImClone Commissioning Team Leader. TWO WEEKS BEFORE MECHANICAL COMPLETION (OR BEFORE) - - Complete appropriate checklists - - Review Work List with Kvaemer - - Kvaemer to present draft Turnover Package ONE WEEK BEFORE MECHANICAL COMPLETION - - Complete Turnover Package with acceptable punch list. Assign responsibility and completion dates. DAY BEFORE MECHANICAL COMPLETION DATE AND BEYOND - - Submit Turnover Packageto for approval to appropriate ImClone Commissioning Team Leader with copy transmittal to ImClone PM/PE. - - After acceptance of Package, Validation will be informed that system file is available for audit. - - Continue to track actual Mechanical Completion beyond initial boundary and track completion of punch list (Kvaemer will track the Mechanical Completion Punch-list and ImClone Commissioning Team Leader will track the Commissioning Punch-list) IMPORTANT NOTE: Once a Mechanical Completion or Commissioning Turnover Package is approved by the appropriate parties, the addition of items to a punch-list included in the package must be approved (initialed and dated) by the same parties that approved the package initially. Page 2 of 2 BIOTECH/PHARMACEUTICAL MECHANICAL COMPLETION, PRECOMMISSIONING AND ACCEPTANCE PROCEDURE - -------------------------------------------------------------------------------- CONSTRUCTION OPERATION PROCEDURE APPROVED BY: ------------------------------------- V. P. Central Construction Operations AUTHORIZED BY: ------------------------------------- Sr. V. P. Construction Operations 1.0 MECHANICAL COMPLETION AND PRECOMMISSIONING BIOTECH/PHARMACEUTICAL MECHANICAL COMPLETION, PRECOMMISSIONING AND ACCEPTANCE PROCEDURE - -------------------------------------------------------------------------------- 1.1 General This procedure defines the responsibilities of both Kvaerner and the Owner with regards to the work required to make the installation ready for initial operation. The completion of the work that is the responsibility of Kvaerner, is set forth in Section 2.0, Mechanical Completion and Section 5.0, Division of Responsibilities. Performance of the work that is the responsibility of the Owner, is set forth in Section 3.0, Precommissioning and Section 5.0, Division of Responsibilities. This procedure is intended to expand and supplement, but not to supersede or vary, the general terms and conditions of the contract. In the event of any conflict between this procedure and the contract terms, the contract terms shall govern. 1.2 Definition of Terms 1.2.1 "Mechanical Completion," when referring to an item of work, a subportion of the plant, a process system, a unit or the entire facility, means that Kvaerner has provided erection in accordance with drawings, specifications, applicable codes and all other contractual requirements. It is recognized that painting, paving, insulation (when part of Kvaerner scope) as well as final clean-up must be completed by Kvaerner before the installation is deemed "final complete". However, at the time of mechanical completion of a unit, a system or an area, this work need not be complete, but should be in a sufficiently advanced state of completion so as not to unreasonably interfere with subsequent activities or affect safety. 1.2.2 "Precommissioning" is defined as the Owner's prestart-up checkout, loop checks, system adjustment, equipment and system activation, purging materials and Owner operations required to prepare the facility for initial operation. 1.2.3 "Completion of Construction" means that Kvaerner has provided erection in accordance with drawings and specifications, and other items referred to in the definition of "Mechanical Completion", plus final cleanup and completion of painting and insulation work. 1.2.4 "Initial Operation" is the responsibility of the Owner, and is carried out by Owner's personnel. Page 2 of 25 BIOTECH/PHARMACEUTICAL MECHANICAL COMPLETION, PRECOMMISSIONING AND ACCEPTANCE PROCEDURE - -------------------------------------------------------------------------------- 1.2.5 "Kvaerner" means the Kvaerner Company, any of its divisions, and any party duly authorized to act on Kvaerner's behalf. 1.2.6 "Owner" means the party for whom the facility, or any subpart of the facility, is being installed, erected, or constructed; and will ultimately accept full care, custody, control, and title to the completed works. 1.3 Schedules Kvaerner will develop, based upon the target dates for completion specified in the contract, a sequence of work completion activities, which support an orderly turnover. So that initial operation may commence at the earliest possible date, precommissioning work should, insofar as is reasonably possible, proceed before the entire installation is Mechanically Complete. 1.4 Personnel By written agreement between Kvaerner and Owner, Kvaerner can provide non-technical and technical personnel, and specialized subcontract services, as required to assist the Owner in precommissioning and initial operations of the facility. The number and type of personnel provided by Kvaerner will be determined by special and separate agreement between Kvaerner and Owner. Kvaerner would be reimbursed for the services of these personnel as follows: 1.4.1 Non-technical Personnel (Craftsmen) - Kvaerner shall be reimbursed on the same basis as used in the contract work. 1.4.2 Technical Personnel and/or Operations Advisers - Kvaerner shall be reimbursed for the services of these personnel on a per diem basis (to include living costs), plus reasonable travel costs to and from the jobsite. 1.4.3 Specialized Subcontract Services (HEPA Certification, Scale Calibration, etc.) - Kvaerner shall be reimbursed for subcontract cost as used in the contract work. 2.0 MECHANICAL COMPLETION BY KVAERNER 2.1 Scope This section of the procedure defines the work to be performed by Kvaerner to achieve mechanical completion. The general outline of mechanical completion work is described in the following subparagraphs, however, for specific items, refer to the Division of Responsibilities, Section 5.0. 2.2 Erection in Accordance with Drawings, Specifications and Applicable Codes 2.2.1 The plant shall be erected in accordance with the drawings and vendor prints issued for the project. Page 3 of 25 BIOTECH/PHARMACEUTICAL MECHANICAL COMPLETION, PRECOMMISSIONING AND ACCEPTANCE PROCEDURE - -------------------------------------------------------------------------------- 2.2.2 The work and materials shall be installed in accordance with the project specifications and vendor's instructions, as issued. 2.2.3 Applicable codes, as listed in the project specification, shall be followed for materials, workmanship and testing. 2.3 Non-operating Adjustments and Cold Alignment 2.3.1 The procedure for the completion of field fabrication, erection and installation, as called for on the design drawings, as set forth in the engineering specifications and as outlined in the manufacturer's installation instructions shall also include non-operating adjustments and cold alignment checks on equipment such as steam generators, water treatment equipment, chillers, bioreactors, bioinactivation skids, centrifuges, WFI stills, CIP systems, TFF filter skids, hot water skids, chromatography columns, autoclaves, glass washers, pumps, compressors, blowers, agitators, emergency generators, elevators, conveyors and other miscellaneous specialty equipment. 2.3.2 All rotating equipment will be checked (driver and driven) for freedom of rotation prior to performing any alignment. Factory coupled rotating equipment shall be uncoupled in the field and checked for freedom of rotation. After freedom of rotation has been checked, the driver shall be momentarily energized to "bump" the driver. Upon verifying that proper rotation direction exists, the driver and driven equipment shall be aligned to specified tolerances. After acceptance of the alignment, the coupling shall be installed. 2.3.3 On pumps, compressors, fans and other mechanical equipment the piping and ducting flanges shall be fitted-up, in close parallel and lateral alignment, prior to tightening and bolting. 2.3.4 Pipe supports, spring hangers, including constant support-type supports, shall be checked for proper adjustment of travel, and correctly positioned for the cold condition after installation. Sanitary piping supports shall be used in all areas. Hangers which have been set at the factory shall require the travel positions checked after installation. Free draining / sloped piping systems shall be checked for proper slope and support. 2.3.5 After all testing is complete on corrugated-type and packed expansion joints, remove the temporary wood blocks, temporary steel strapping, shipping rods and spacers, (which were provided to prevent damage to the joint during shipment, storage, or field construction and testing). 2.4 Electrical Polarity Checks and Insulation Resistance Measurements Page 4 of 25 BIOTECH/PHARMACEUTICAL MECHANICAL COMPLETION, PRECOMMISSIONING AND ACCEPTANCE PROCEDURE - -------------------------------------------------------------------------------- 2.4.1 Proper rotation and insulation resistance megger checks shall be made for all electrical motor drivers. 2.4.2 After installation, the electrical instrument circuits shall be checked for continuity. 2.5 Installation and Inspection of Vessel Internals 2.5.1 Vessel internals shall be installed according to process specifications and manufacturer's instructions. 2.5.2 Vessel internals which are installed in the field shall be inspected to ensure proper installation and a final inspection shall be made by the Owner. 2.5.3 Catalyst/Chemical Charges - A vessel will be considered mechanically complete when it is ready to receive the desiccants, sieves and the catalyst/chemical charge. The party installing the charge will be responsible for final heading-up of the vessel. (Unless otherwise indicated in the Division of Responsibilities Table.) 2.6 Initial Packing of Pumps Kvaerner shall install initial pump packing or seals in accordance with manufacturer's recommendations. 2.7 Mechanical, Hydrostatic and Pneumatic Tightness Tests 2.7.1 The testing of pressure vessels, exchangers, and other such items of equipment shall have been conducted by the manufacturer or fabricator in accordance with the codes and specifications under which such equipment has been procured and manufactured. No further testing shall be performed, unless the equipment was damaged in transit, required field repair, or field alteration. 2.7.2 The testing of mechanical equipment and package systems shall have been conducted by the manufacturer in accordance with the codes and specifications under which such equipment has been procured and manufactured. No further testing shall be performed, unless the equipment was damaged in transit, required field repair, or field alteration. 2.7.3 The pressure testing of installed instruments, including relief valves, shall have been performed by the manufacturer where called for by the specification under which such equipment has been procured and manufactured. No further pressure testing shall be performed. 2.7.4 Pneumatic circuits shall be checked for tightness and routing continuity with appropriate media. 2.8 Inspection Check of Piping and Instrumentation Versus Flow Diagrams Page 5 of 25 BIOTECH/PHARMACEUTICAL MECHANICAL COMPLETION, PRECOMMISSIONING AND ACCEPTANCE PROCEDURE - -------------------------------------------------------------------------------- An inspection check of piping and instrumentation, as installed, shall be made by Kvaerner to ensure proper installation in accordance with the latest versions of the Process & Instrument Diagrams (P&ID's). 2.9 Service Representatives 2.9.1 Construction Phase of Work - During the construction phase of the work, Kvaerner will arrange for the services of vendor representatives to assist and inspect the installation of equipment items as deemed necessary by Kvaerner. Owner will furnish the services of manufacturer's representatives for Owner-furnished and Kvaerner-installed equipment. In both cases above, Kvaerner will furnish the necessary craftsmen and/or field supervision required to assist the service representative in his work. 2.9.2 During Precommissioning and Initial Operations - Owner will arrange for the necessary service representatives required by Owner to precommission and/or start initial operation of the equipment. Owner will furnish necessary craft assistance to manufacturer's service representatives, if required, to adjust said equipment. Owner may request this assistance from Kvaerner per Paragraph 1.4 above. 2.10 Lubricants 2.10.1 Owner will review manufacturer's lubrication recommendations and advise Kvaerner of lubricants to be used. 2.10.2 Owner will provide all operating lubricants. 2.10.3 Kvaerner will make initial installation of operating lubricants. 2.11 Mechanical Completion Acceptance 2.11.1 When Kvaerner considers that portions of the installation (a unit, system or area) are mechanically complete, Kvaerner shall notify Owner in writing (Form DP-870-1.001). If Owner concurs, Owner shall promptly (within 24 hours) approve such notification for that portion, or, if Owner does not concur, Owner shall promptly (within 24 hours) notify Kvaerner, in writing, of any unfinished work or deficiency to be corrected. Failure of Owner to approve a Certificate of Acceptance or to provide a list of unfinished work and/or deficiencies within ten (10) calendar days after notification, shall constitute approval and acceptance by Owner of mechanical completion of the unit, system or area. Kvaerner shall notify Owner in writing when all listed exceptions, if any, have been corrected. 2.11.2 When all of Kvaerner's work, as defined in this procedure, has been completed Kvaerner shall submit a final Certificate of Acceptance to the Owner. The Owner shall approve the final Certificate of Acceptance for the entire installation within fourteen (14) calendar days of submittal. Mechanical Page 6 of 25 BIOTECH/PHARMACEUTICAL MECHANICAL COMPLETION, PRECOMMISSIONING AND ACCEPTANCE PROCEDURE - -------------------------------------------------------------------------------- Completion of the plant shall be deemed approved and accepted by the Owner, if no response is received at the end of the fourteen (14) day review period. 2.12 Care, Custody and Control Upon Owner's acceptance of mechanical completion for agreed upon areas of the installation, Owner shall assume care, custody and control of such portions of the completed work, and shall also maintain them in satisfactory operating condition until completion of the entire facility. 2.13 Forms for Mechanical Completion Acceptance Form DP-807-1.001 is the form for notification and acceptance of mechanical completion, which shall be used, either for parts of the installation or for final acceptance. 3.0 PRECOMMISSIONING BY OWNER 3.1 Scope This section of the procedure defines the precommissioning work that is to be done by the Owner in order to prepare the installation for initial operation. This work includes running-in and doweling of pumps, compressors, turbines, motors, seals, and other machinery and/or mechanical equipment, mechanical seal systems; adjustments to packing of pumps and valves; removal and/or cleaning of strainers, where required; functional test, setting or calibration of instruments, loop checks, setting of relief devices or alarms; flushing and drying of systems, chemical cleaning, hot alignment checks; charging of the plant with utilities, chemicals, catalysts and/or other operating materials, and the individual items, per the Division of Responsibilities, Section 5.0 of this specification. Owner shall provide necessary qualified maintenance and/or operations personnel during this precommissioning period. 3.2 Commissioning of Utility Systems Commissioning of systems which involve the transfer of utility media (i.e., electric power, air, water, fuel, gas, steam, etc.) to or from the installation, and which are needed to run-in and adjust equipment, shall be the responsibility of the Owner. The operation of valves, removal of blinds, etc., shall be done by Owner. Owner will be responsible for the safety and control of "hot" and "cold" work permits issued during the activation of the systems noted above. 3.3 Drying-Out of Process Equipment The drying-out of process lines or items of equipment (i.e., furnaces, reactors, etc.), where such drying-out is a process requirement (i.e., critical operating temperatures or possible contamination of catalysts), shall be the responsibility of the Owner. Page 7 of 25 BIOTECH/PHARMACEUTICAL MECHANICAL COMPLETION, PRECOMMISSIONING AND ACCEPTANCE PROCEDURE - -------------------------------------------------------------------------------- 4.0 INITIAL OPERATION BY OWNER 4.1 Scope Initial operation is the responsibility of the Owner, and is carried-out by Owner's personnel. 4.2 General Initial Operation Owner will: 4.2.1 Activate and operate utility systems. 4.2.2 Perform general tightness tests, where required, after precommissioning work but prior to introduction of process fluids. 4.2.3 Perform hot bolting of piping and equipment. 4.2.4 Install rupture disc, orifice plates, etc. 4.2.5 Introduce feedstock to the installation and establish operating conditions. 4.2.6 "Tune" instruments when process fluids are available, and finalize control mode settings, and commission other instruments. 5.0 DIVISION OF RESPONSIBILITIES 5.1 The attached list defines, for each type of equipment, what work is to be done by Kvaerner to meet the requirements for mechanical completion. 5.2 Kvaerner shall perform the checks, tests and other work listed in accordance with Kvaerner's specifications, drawings, and applicable codes. 5.3 The list also defines, for each type of equipment, what work is to be done by Owner during precommissioning of the installation. 5.4 Items of equipment not specifically shown in the checklist shall be handled in the same manner as similarly-listed equipment. 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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER 5.1 Vessels 1. Install internals not shop installed and perform any tests X required by specifications. 2. Install packing where required. X 3. Clean out all vessels and open manholes and other X openings for final inspection by Owner's operating staff. 4. Inspect internals as deemed necessary for operational X inspection. 5. Head up vessels. X 5.2 Bio-Reactors 1. Install internals not shop installed and perform any tests X required by specifications. 2. Unhead vessels. X 3. Inspect vessels. X 4. Loop check-out auxiliaries, control systems, alarms, X signals, shutdown devices for continuity. 5. Head up vessels. X 5.3 Tanks 1. Unhead and check internals. X 2. Cleanout for Owner inspection. X 3. Inspect internals and gauging equipment, etc. X 4. Head-up after inspection. X 5. Strap tanks (if required). X 5.4 1. Internal inspection or testing to be done only if Shell and Tube specifically called for by Kvaerner or vendor X Exchangers specifications or drawings. 2. Verify hydrostatic test pressure is intact and/or perform X hydrostatic test on graphite exchanges prior to off- loading.
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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER 3. Usually commissioned without further work. X 5.5 Cooling Towers 1. Install proper lubricants supplied by Owner. X 2. Check fan rotation manually for freedom of movement. X 3. Couple fan to motor after motor bumped for rotation. X 4. Check motor nameplate speed, horsepower and voltage against data sheets 5. Check fan rotation, vibration, vibration switches and X blade setting. 6. Check basin for cleanliness and install screens in suction X pit. 7. Check bearing temperatures and vibration of fans and X pumps. 5.6 1. Perform a cold hydrostatic test (for packaged boilers X Fired Boilers only if specified). Drain water after test, if required. 2. Install refractory. X 3. Connect burner piping after fuel lines have been blown X clean. 4. Check registers and dampers. X 5. Cure furnace refractory by following manufacturer's X recommended cycles. 6. Operate boiler auxiliaries for boiler. X 7. Provide chemicals for boilout. X 8. Commission utilities for boilout. X 9. Boilout in accordance with boiler manufacturer's instructions. X 10. Arrange for manufacturer's start-up services, if required. X 11. Blowdown each steam tracing line ahead of steam traps. X
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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER 12. Blowdown steam lines to H.P. steam turbines until all X scale is removed from lines. 5.7 1. Set and cold align units or drives to approximate "hot X Pumps and set" as recommended by manufacturer. Furnish record Agitators of alignment to Owner. 2. Install proper lubricants supplied by Owner. X 3. Install packing and/or seals if not factory installed. X 4. Check pump and/or agitator rotation manually to ensure X freedom of movement. 5. Couple units to drivers after motor has been "bumped" X for rotation. 6. Install temporary strainers in suction piping. X 7. Make final check of cold alignment. X 8. Check all vents, drains, seals, flushing, bypasses, etc., X for conformance to specifications and drawings. 9. Check motor nameplate speed, horsepower and voltage X against data sheets. 10. Check alignments, bearing temperatures, vibration, etc. during flushing operations; report any malfunctions to X Kvaerner. 11. Check and run-in pumps, maintain them after turnover, make final hot alignment check and do any required X doweling of the pumps and drivers. 12. When necessary, clean pump screens after pumps have X been in operation for a reasonable period. 5.8 Vacuum Equipment 1. Hydrotest as required by specifications. X 2. Treat vacuum pumps as per 5.10 (1 thru 11). X 3. Air test entire system; check all j joints for leaks. X
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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER 4. Perform cold static vacuum test on system. X 5.9 Compressors, Gears and Drives 1. Treat compressors and small blowers per Paragraph X 5.10 (1 thru 11). 2. Install equipment and make piping corrections, as X required to obtain proper alignment. 3. Check compressor, suction piping, interstage piping, and ensure each is free of mill scale, weld spatter, and loose and foreign material resulting from any prior X cleaning activity. 4. Install temporary strainers in suction piping. X 5. Install proper lubricants and oil supplied by Owner. X 6. Install packing and/or seals if not factory installed. X 7. Check driver and driven units rotation manually to X ensure freedom of movement. 8. Set cold alignment for approximate "Hot Set" as directed X by manufacturer's specifications. 9. Couple driver to driven units if electric drive after motor X has been bumped for rotation. 10. Loop check-out auxiliaries, control systems, alarms, X signals, shutdown devices for continuity. 11. Commission piping systems required for run-in tests. X 12. Commission and run-in lube and seal oil systems, X circulate oil and replace with clean oil, etc., as required. 13. Check run-in and maintain compressor and driver. X 14. Check lube oil during operation for water or other X contaminants. 15. Check bearing temperatures, vibration, etc., during X operation.
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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER 16. Make hot alignment of compressors and do any required X doweling of the compressors and drivers. 17. Remove all temporary screens, etc., after a reasonable period of operation. 18. Arrange for manufacturer's start-up services, if required. X 5.10 Mechanical 1. Install all equipment and make duct work and piping X Equipment such corrections as required to obtain proper alignments. as: CIP Skids, WFI Stills, Clean Steam Generators Autoclaves, Glass Washers Centrifuges, etc. 2. Install proper lubricants supplied by Owner. X 3. Install packing and/or seals if not factory installed. X 4. Check driven equipment rotation manually to ensure X freedom of movement. 5. Couple driven equipment to motors after motor has been X bumped for rotation. 6. Check out alignment as directed by manufacturer's X specifications. 7. Loop check-out auxiliaries, control systems, alarms, X signals, etc., for continuity. 8. Commission piping, ductwork, lube oil systems, etc., X required for run-in tests. 9. Check and run-in and maintain the equipment during X initial operation. 10. Check bearing temperatures, vibrations, etc., during X initial operation. 11. Check lube oil during operations for water or other X contaminants.
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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER 12. Make hot alignment of equipment and do any required X doweling of the equipment and drivers. 13. Arrange for manufacturer's start-up services, if required. X 5.11 Miscellaneous 1. Install all miscellaneous mechanical equipment such as X Mechanical loading arms, racks, mixers, filters, agitators, scales, Equipment cranes, fans, etc. 2. Install, lubricate as required, perform mechanical checks X and adjust all equipment prior to turning over to Owner. 3. Calibrate all solids weighting and measuring devices in X their field-installed operating positions. 4. Remove all rust preventives and oils used to protect the X equipment during the construction period whenever these protective materials will be detrimental to operation. 5. Conduct individual equipment noise surveys, as required X by the Occupational Safety and Health Administration or the Owner's specifications. 6. Document all survey data. X 7. Inspect facilities for completeness and correctness of X installation and make any non-operating checks to ensure conformance to specifications. 8. Operate all equipment and supply and load all chemical X and agents related to waste treatment. 9. Obtain the services of a waste treatment consultant to X advise and monitor the system operation, as required by the Owner. 5.12 Water Treating Equipment, 1. Carry out checks required for pumps, motors, turbines, X Deionizers, Sand vessels and instruments as noted under appropriate Beds, etc. sections. 2. Functional check of all field-mounted valves, switches by X simulated contact closing.
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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER 3. Install initial charge of ion exchange bed materials, sand X bed materials, etc. 4. Provide and charge chemicals. X 5. Provide operation check of cycle timing and equipment X operation during initial operation. 6. Arrange for manufacturer's start-up services, if required. X 7. Provide test pump for wells; test well delivery; and flush X wells as they are made available. 5.13 Instruments and Control 1. Pressure test and check for continuity, all instrument X tubing runs. 2. Blow down all instrument air lines and tubing X immediately before commissioning. 3. Blow down all instrument process lead lines after X flushing. 4. Stroke all valves and set all controllers to the correct X action. 5. Set all field-mounted switches in accordance with X instrument data sheets. 6. Bench calibrate instrument and control system. Tag and X record instruments as they are calibrated. 7. Check continuity of electrical circuits, systems and X thermocouple or RTD leads. 8. Fill air line lubricators with lubrication oil supplied by X Owner. 9. Tune instruments when process fluids are available. X (Finalize control mode settings). 10. Positive Displacement Flow Meters Blind-off or remove from line during hydrostatic tests; do X not run on water.
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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER 11. Orifice Plates a. Check material; measure bore with inside X micrometer; check against data sheets. b. Deliver orifice plate to Owner for installation. X c. Install orifice plates after completion of line flushing X or steam line blowdown. 12. Torque Tube Level Devices a. Check mechanical operation and direction. X b. Commission instrument during operation. X c. Make calibration checks during operation. X 13. Float Switches a. No calibration required; check mechanical X movement against output b. Commission instruments. X 14. Gauge Glasses Clean and check illuminators X 15. Pressure Gauges Install immediately prior to turnover since subject to X damage during construction, except on insulated lines, where installation will be as required. a. Witness X 16. Local Thermometers Same practice as for pressure gauges. X 17. Hand Control Valves Actuate each valve manually to ensure that it strokes X properly through 100% range.
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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER 18. Rupture Discs a. Check material against data sheets, install X holders. b. Deliver rupture discs to Owner for installation. X c. Install rupture discs after flushing and blowdown. X 19. Control Valves Lubricate as required. Activate CV's through full range. X 20. Positioners Check mechanical linkage. X 21. Distributed Control Systems a. Interconnect all vendor supplied cables X including grounding and power wiring. b. Power system and perform site acceptance test X (field wiring not connected). c. Follow steps a through d Section 5.20, item 11. X I. Witness X d. Power field instruments and check for proper X valve action for analog loops. i. Witness X e. Perform function checkout by simulating field X contacts and signals for verification of proper wiring. i. Witness simulation test. Perform operational X sequence test/ 22. Seal Fluids Install seal fluids after completion of line flushing, testing, X etc. 23. Arrange for manufacturer's start-up services if required, X for all instrument devices.
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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER 5.14 Safety Valves 1. Blind-bind off/or gag all PSV's during line testing. X 2. Remove blinds after testing. X 3. Conduct tests required by code, law or insurance. X 5.15 1. Perform any special tests and special cleaning, X Piping passivation or pickling required by drawings and specifications. 2. Hydrostatic or pneumatic test all piping as required by X drawings and specifications. 3. Owner to provide any special media for testing, flushing X and/or cleaning purposes. 4. Owner to dispose of all special test media. X 5. Expansion joints shall be provided with temporary X restraints, if required, for additional pressure load under test or shall be isolated from the test. 6. Provide and install all strainers, both temporary and X permanent, figure eight blanks and temporary blanks called for on drawings and specifications. 7. Check steam tracing system for tightness and also X proper tagging of individual shutoff valve and traps. 8. Make a final flowsheet check of the piping system. X 9. Supply and install line identification tags and signs. X 10. Additional flush or blowout lines at Owner's discretion. X 11. Remove control valves, install blinds, etc., as needed for X Owner's line flushing and replace when flushing is completed. 12. Check each steam tracing loop for continuity. X 13. Blowdown each steam tracing line ahead of steam traps. X 14. Remove temporary strainers after water flushing. X
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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER 15. Check steam trap operations on a once-a-shift duration X during the initial operation of steam and steam tracing system. 5.16 1. Transformers Electrical Inspection a. Check oil level. X and Checkout b. Examine for mechanical damage, oil leaks, etc. X c. Check no-load tap changer for proper movement. X Place tap in center position unless instructed otherwise. d. Witness tests. X 2. Switchgear a. Inspect for damage and missing parts, alignment, X clearance of moving parts, etc. b. Verify that instrument transformers, instruments, X relays, fuses and other devices are of proper type, size and rating. c. Test or check direct trip breakers. X d. Perform one minute "megger" test. X e. With breaker in test position, test operation with X local, remote and manual operation. f. Test automatic transfer equipment by simulating X power failure or under voltage conditions. g. Set all relays in accordance with job relay X schedule. h. Check fuse holders for damage and fuses for size X and rating. I. Witness tests. X 3. Cable a. Test cables rated at less than 5000 volts with 500 X volt-megohm instrument.
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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER b. Give high potential test to cables and terminations X rated at 5000 volts and above. Test voltage to be 80% of IPCEA factory test values. c. Witness tests. X 4. Plant Ground System a. Measure actual resistance to ground at the ground X loop or grid. b. Check resistance to ground of all equipment and X tank grounds which connect to individual ground rods. c. Witness tests. X 5. Transformer or Generator Neutral Resistance Ground a. Check grounding transformer, resistor, current X transformer and relay for size and rating, and set relay in accordance with job relay schedule. b. Witness tests. X 6. Main Power Supply a. Set supply breaker relays and energize supply line. X b. Close main breaker and check phase rotation and X voltage. c. Energize feeders. X 7. Motor Starters a. Inspect for damage, missing parts, and mechanical X operation. b. Check circuit breakers, fuses, overload relays, X current and potential transformers for size, rating and setting. c. If oil immersed, check oil level and type of oil. X d. Check relay meter and control systems for continuity. X
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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER e. Test starter and control circuit with "megger". X I. Witness tests. X 8. Induction Motors a. With motor disconnected from load, check bearing X lubrication and rotate by hand. b. Perform one minute "megger" test and dry motors X which show unacceptable low values. c. Bump motor and check rotation. X d. Run motor and check temperature and vibration X 9. Auxiliary Power Supplies a. Check battery and charger for damage and check electrolyte for level and specific gravity. X b. Adjust charging current and voltage. X c. Check emergency generator and automatic transfer X equipment for automatic starting generation and transfer with simulated loss of normal power. d. Check static power system for AC and DC input X voltage and verify that transfer is automatic by simulating loss of AC supply. 10. Electronic Instrument Loops a. Check all terminations for proper and tight X connections, check loops for continuity and accidental ground. b. Inspect all terminal boxes for drains and breathers, X cable seals and moisture. c. Check for proper type T/C wire. X d. Check power supply and fuses at control board, X control loops and field instruments e. Witness checkout. X
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BY EQUIPMENT MECHANICAL COMPLETION AND PRECOMMISSIONING KVAERNER BY DIVISION OF RESPONSIBILITIES OWNER 11. Kvaerner Designed Electrical Control. Systems (For mechanical packaged equipment, refer to Paragraph 2.7.2) a. Check continuity of all electrical circuits. X b. Check function and control arrangement of field X mounted switches. c. Perform functional checkout by simulating field X contacts and signals.` d. Perform sequence tests. X 5.17 Fire Protection 1. Check firewater mains, laterals and hydrants for X Facilities completeness of installations. 2. Hydrotest firewater mains and laterals. X 3. Commission and, afterward, operate firewater mains, X laterals, hydrants and other firefighting equipment. 5.18 Buildings 1. Check for completeness of work as shown on drawings. X 2. Check installation of all equipment provided by Kvaerner X and Owner furnished items installed by Kvaerner. 3. Provide initial balance of HVAC systems. X 4. Commission lavatories, elevators, and all other building X services equipment. 5. Start-up and adjust HVAC systems under the direction of X Owner's maintenance group or service contract personnel. 6. Assume building and equipment maintenance upon X occupancy. 7. Provide all furniture and business equipment, unless X otherwise specified.
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FORM NO TITLE REV DATE DP-807-1.001 Certificate of Acceptance (Direct Hire Version) 1 01 FE 93 DP-807-1.002 Master Punch List 1 01 Fe 93 DP-807-1.003 Punch List 1 01 FE 93
Page 23 of 24 EX-99.11 4 y65679exv99w11.txt CERTIFICATION EXHIBIT 99.11 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of ImClone Systems Incorporated (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Harlan W. Waksal, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ Harlan W. Waksal - ----------------------------- Harlan W. Waksal Chief Executive Officer November 14, 2002 EX-99.12 5 y65679exv99w12.txt CERTIFICATION EXHIBIT 99.12 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of ImClone Systems Incorporated (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel S. Lynch, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /S/ Daniel S. Lynch - ----------------------------- Daniel S. Lynch Chief Financial Officer November 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----